10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended December 31, 2006

or

o 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 001-13003

Silverleaf Resorts, Inc.

(Exact Name of Registrant as Specified in its Charter)

Texas	75-2259890
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)
1221 River Bend Drive, Suite 120	75247
Dallas, Texas	(Zip Code)
(Address of Principal Executive Offices)

Registrant's Telephone Number, Including Area Code: 214-631-1166

Securities Registered Pursuant to Section 12(b) of the Act:

Common Stock, $.01 par value

Securities Registered Pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o  No x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. Yes o  No x

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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer oAccelerated filer oNon-accelerated filer x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o  No x

The aggregate market value of the Registrant’s common stock held by non-affiliates of the Registrant, based upon the closing sales price of the common stock on June 30, 2006 as reported on the American Stock Exchange, was approximately $63,024,794 (based on 17,079,890 shares held by non-affiliates). For this purpose, “affiliates” include members of the board of directors and executive management of the Registrant and all persons known to be the beneficial owners of more than 5% of the Registrant’s outstanding common stock. There were 37,545,972 shares of the Registrant's Common Stock, $.01 par value, issued and outstanding at June 30, 2006.

As of March 15, 2007 there were 37,808,154 shares of the Registrant’s Common Stock, $.01 par value, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required by Part III of this report (Items 10, 11, 12, 13, and 14) is incorporated by reference from the Registrant’s definitive proxy statement to be filed pursuant to Regulation 14A with respect to the Registrant’s fiscal 2007 annual meeting of shareholders, or if such proxy statement is not so filed on or before 120 days after the end of the fiscal year covered by this annual report, such information will be included in an amendment to this report filed no later than the end of such 120-day period.

FORM 10-K TABLE OF CONTENTS

		Page
Item Number
PART I
Item 1.	Business	4
Item 1A.	Risk Factors	21
Item 1B.	Unresolved Staff Comments	30
Item 2.	Properties	30
Item 3.	Legal Proceedings	41
Item 4.	Submission of Matters to a Vote of Security Holders	41
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters,and Issuer Purchases of Equity Securities	42
Item 6.	Selected Financial Data	44
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	61
Item 8.	Financial Statements and Supplementary Data	62
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	62
Item 9A.	Controls and Procedures	62
Item 9B.	Other Information	62
PART III
Item 10.	Directors, Executive Officers, and Corporate Governance	63
Item 11.	Executive Compensation	63
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	64
Item 13.	Certain Relationships and Related Transactions, and Director Independence	64
Item 14.	Principal Accountant Fees and Services	64
PART IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	64
	Index to Consolidated Financial Statements	F-1

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Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, including in particular, statements about our plans, objectives, expectations and prospects under the headings “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can identify these statements by forward-looking words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “seek” and similar expressions. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve uncertainties and risks, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved. Important factors that could cause our actual results to differ materially from the results anticipated by the forward-looking statements are contained herein under Part 1, Item 1 “Business-Risk Factors,” Part I, Item II “Properties,” Part I, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report. Any or all of these factors could cause our actual results and financial or legal status for future periods to differ materially from those expressed or referred to in any forward-looking statement. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements. Forward-looking statements speak only as of the date on which they are made.

PART I

ITEM 1. BUSINESS

Overview

Silverleaf Resorts, Inc. (the “Company,” “Silverleaf,” “we,” or “our”) was incorporated in Texas in 1989. Our principal business is the development, marketing, and operation of “getaway” and “destination” timeshare resorts. As of December 31, 2006, we own seven “getaway resorts” in Texas, Missouri, Illinois, and Georgia (the “Getaway Resorts”). We also own six “destination resorts” in Texas, Missouri, Massachusetts, and Florida (the “Destination Resorts”). In April 2006 we purchased Pinnacle Lodge, a hotel property located near the Winter Park recreational area in Colorado which provides our owners with another destination vacation alternative and gives Silverleaf an entry point into this increasingly popular destination area.

The Getaway Resorts are designed to appeal to vacationers seeking comfortable and affordable accommodations in locations convenient to their residences and are located near major metropolitan areas. Our Getaway Resorts are located close to principal areas where we market our vacation products to facilitate more frequent “short-stay” getaways. We believe such short-stay getaways are growing in popularity as a vacation trend. Our Destination Resorts are located in or near areas with national tourist appeal and offer our customers the opportunity to upgrade into a more upscale resort area as their lifestyles and travel budgets permit. Both the Getaway Resorts and the Destination Resorts (collectively, the “Existing Resorts”) provide a quiet, relaxing vacation environment. We believe our resorts offer our customers an economical alternative to commercial vacation lodging. The average price for an annual one-week vacation ownership interval (“Vacation Interval”) for a two-bedroom unit at the Existing Resorts was $11,681 for 2006 and $11,124 for 2005.

Owners of Silverleaf Vacation Intervals at the Existing Resorts (“Silverleaf Owners”) enjoy certain distinct benefits. These benefits include (i) use of vacant lodging facilities at the Existing Resorts through our “Bonus Time” Program; (ii) year-round access to the Existing Resorts' non-lodging amenities such as fishing, boating, horseback riding, swimming, tennis, or golf on a daily basis for little or no additional charge; and (iii) the right to exchange the use of a Vacation Interval at one of our Existing Resorts for a different time period at a different Existing Resort through our internal exchange program. These benefits are subject to availability and other limitations. Most Silverleaf Owners may also enroll in the Vacation Interval exchange network operated by Resort Condominiums International (“RCI”). Our destination resort in Florida is not under contract with RCI; however it is under contract with Interval International, Inc., a competitor of RCI.

Certain Significant 2006 Events

· In January 2006, we purchased approximately 30 acres of undeveloped land contiguous to our Orlando Breeze resort in Davenport, Polk County, Florida, just outside Orlando, Florida for a purchase price of $4.0 million. Extensive planning and pre-development work must be completed before we can begin developing the property. In addition, development of the property is subject to state and local governmental approvals necessary before commencing timeshare operations on this 30 acre tract.

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· In March 2006, we opened our first showroom-style, off-site sales office. The showroom, located in the Dallas/Fort Worth metroplex in Irving, Texas, operates under the name “Silverleaf Vacation Store.” It offers potential customers an interactive “virtual” experience of our resorts, including a model unit, photo gallery, and film presentation for each of our 13 current resorts and their related amenities. The 16,500 square-foot showroom cost approximately $1.1 million and employs approximately 30 to 40 on-site sales personnel. We believe this new showroom will generate between $10 million to $12 million in annual sales to new members. The showroom will provide us with a significant sales opportunity by enabling potential customers to experience the quality and service of our resorts in their own community. We expect that new owners who purchase at these showrooms will later participate in our upgrade and additional week sales programs.

· In March 2006, we closed a $100 million revolving senior credit facility through a newly-formed, wholly-owned and consolidated special purpose finance subsidiary, Silverleaf Finance IV, LLC (“SF-IV”), a Delaware limited liability company. SF-IV was formed for the purpose of issuing a $100 million variable funding note (“VFN”) to UBS Real Estate Securities Inc. (“UBS”). During the fourth quarter of 2006 the facility was amended to increase funding availability from $100 million to $125 million. The funding period was originally scheduled to end in March 2007 but was extended to December 2008, and the interest rate on advances by UBS to SF-IV was reduced from the initial rate of LIBOR plus 1.5% to LIBOR plus 1.25%. The revised facility will mature in December 2010. The VFN is secured by customer notes receivable sold to SF-IV. Proceeds from the sale of customer notes receivable to SF-IV are used to fund normal business operations and for general working capital purposes. The VFN was issued pursuant to the terms and conditions of an indenture between SF-IV, UBS, and Wells Fargo Bank, National Association, as indenture trustee. We will service the customer notes receivable sold to SF-IV under the terms of an agreement with the indenture trustee and SF-IV.

· In April 2006, we acquired property located near the Winter Park recreational area in Colorado for a purchase price of approximately $3.6 million. The property is currently being operated as the Pinnacle Lodge, a 64-room hotel. We will continue to operate the property as a hotel as well as a destination for our current timeshare owners.

· In August 2006, we closed a $128 million term securitization transaction through our newly-formed, wholly-owned and consolidated special purpose finance subsidiary, Silverleaf Finance V, L.P. (“SF-V”), a Delaware limited partnership. SF-V was formed for the purpose of issuing approximately $128.0 million of its Timeshare Loan-Backed Notes Series 2006-A (“Series 2006-A Notes”) in a private offering and sale through UBS Securities LLC (“UBS”). The Series 2006-A Notes were issued pursuant to the terms and conditions of an indenture between ourselves as servicer, SF-V, as issuer, and Wells Fargo Bank, National Association, as indenture trustee, custodian, backup servicer, and account intermediary. The Series 2006-A Notes were issued in seven classes ranging from Class A through Class G notes with a blended fixed rate of 6.7%. The Class A through Class G notes have been rated Aaa, Aa2, A2, Baa1, Baa2, Baa3, and Ba2 respectively by Moody’s Investors Service, Inc., and have a final maturity of July 2018.

The Series 2006-A Notes are secured by customer notes receivable sold to SF-V by SF-IV and Silverleaf in three separate transactions from August 2006 to November 2006. The original amount of notes receivable purchased by SF-V to secure the Series 2006-A Notes was $155.1 million and the balance of eligible notes receivable pledged as collateral at December 31, 2006 was $132.2 million. The proceeds from the sale of the customer notes receivable to SF-V were primarily used to pay down consolidated indebtedness to senior lenders. All customer notes receivable purchased by SF-V are being acquired without recourse, except in the case of breaches of customary representations and warranties made in connection with the sale of the notes. We will continue to service the customer notes receivable sold to SF-V under the terms of the indenture and will receive a fee for our services.

Certain Significant Events Subsequent to 2006

· We entered into a consolidated, amended and restated loan and security agreement (the “Agreement”) with Textron Financial Corporation effective February 21, 2007. Our current receivables and inventory financing arrangements were consolidated into one facility, with a reduction in the interest rate on the “receivables component” from Prime Rate plus 1% to the Prime Rate. The interest rate on advances under the “acquisition component” and the “inventory component” of the consolidated debt are now Prime Rate plus 1%. The interest rates charged under our prior inventory loan agreements with Textron were the Prime Rate plus 3% and LIBOR plus 3.25%. The funding period has been extended from June 2008 to January 2010. The receivables component matures on January 31, 2013, and the acquisition and inventory component each mature on January 31, 2012. The new terms of the agreement will provide us with additional liquidity to acquire additional developed or undeveloped properties.

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· We listed our common stock on The NASDAQ Capital Market (“NASDAQ”), under the symbol “SVLF”, effective as of the opening of the market on February 28, 2007. As a result, trading in Silverleaf common stock ceased on the American Stock Exchange effective at the closing of the markets on February 27, 2007.

Operations

Our primary business is marketing and selling Vacation Intervals from our inventory to individual consumers. Our principal activities in this regard include:

· acquiring and developing timeshare resorts;

· marketing and selling one-week annual and biennial Vacation Intervals to prospective first-time owners;

· marketing and selling upgraded and additional Vacation Intervals to existing Silverleaf Owners;

· financing the purchase of Vacation Intervals; and

· managing timeshare resorts.

We have in-house capabilities which enable us to coordinate all aspects of development and expansion of the Existing Resorts and the potential development of any future resorts, including site selection, design, and construction pursuant to standardized plans and specifications.

We perform substantial marketing and sales functions internally. We have made significant investments in operating technology, including telemarketing and computer systems and proprietary software applications. We identify potential purchasers through internally developed marketing techniques and through cooperative arrangements with outside vendors. We sell Vacation Intervals predominately through on-site sales offices located at certain of our resorts, which are located near major metropolitan areas. This practice provides us an alternative to marketing costs of subsidized airfare or lodging, which are typically associated with the timeshare industry. In 2006, we began marketing and sales activity at our first off-site sales center, which is located in the Dallas / Ft. Worth metroplex.

As part of the Vacation Interval sales process, we offer potential purchasers financing of up to 90% of the purchase price over a seven-year to ten-year period. We have historically financed our operations by borrowing from third-party lending institutions at an advance rate of 75% to 80% of eligible customer receivables. At December 31, 2006 and 2005, we had a portfolio of approximately 36,104 and 30,293 customer promissory notes, respectively, totaling approximately $297.4 million and $230.5 million, respectively, with an average yield of 15.7% and 15.3% per annum, respectively, which compares favorably to our weighted average cost of borrowings of 7.9% per annum at December 31, 2006. We cease recognition of interest income when collection is no longer deemed probable. At December 31, 2006 and 2005, approximately $4.7 million and $3.4 million in principal, or 1.6% and 1.5%, respectively, of our loans to Silverleaf Owners were 61 to 120 days past due. As of December 31, 2006 and 2005, no timeshare loans receivable were over 120 days past due. We continue collection efforts with regard to all timeshare notes receivable from customers until all collection techniques that we utilize have been exhausted. We provide for uncollectible notes by reserving an estimated amount that our management believes is sufficient to cover anticipated losses from customer defaults.

Each timeshare resort has a timeshare owners' association (a “Club”). At December 31, 2006, each Club (other than the club at Orlando Breeze) operates through a centralized organization to manage its respective resort on a collective basis. This centralized organization is Silverleaf Club, a Texas not-for-profit corporation. Silverleaf Club is under contract with each Club for each of the Existing Resorts (with the exception of Orlando Breeze) to operate and manage their resort. In turn, we have a contract (“Management Agreement”) with Silverleaf Club, under which we perform the supervisory and management functions of the resorts on a collective basis. All costs of operating the timeshare resorts, including management fees payable to us under the Management Agreement, are to be covered by monthly dues paid by the timeshare owners to their respective Clubs as well as income generated by the operation of certain amenities at the timeshare resorts.

Orlando Breeze has its own club (“Orlando Breeze Resort Club”), which is operated independently of Silverleaf Club. We also provide certain supervisory and management functions for Orlando Breeze Resort Club under the terms of a written agreement.

Marketing and Sales

Marketing is the process by which we attract potential customers to visit and tour an Existing Resort or attend a sales presentation. Sales is the process by which we seek to sell a Vacation Interval to a potential customer once he arrives for a tour at an Existing Resort or attends a sales presentation.

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Marketing.Our in-house marketing staff creates databases of new prospects, which are principally developed through cooperative arrangements with outside vendors to identify prospects that meet our marketing criteria. Using our automated dialing and bulk mailing equipment, in-house marketing specialists conduct coordinated telemarketing and direct mail procedures which invite prospects to tour one of our resorts and receive an incentive, such as a free gift, without regard to whether or not an interval is purchased.

Sales. We sell our Vacation Intervals primarily through on-site salespersons at certain Existing Resorts. Upon arrival at an Existing Resort for a scheduled tour, the prospect is met by a member of our sales force who leads the prospect on a 90-minute tour of the resort and its amenities. At the conclusion of the tour, the sales representative explains the benefits and costs of becoming a Silverleaf Owner. The presentation also includes a description of the financing alternatives that we offer. Prior to the closing of any sale, a verification officer interviews each prospect to ensure our compliance with sales policies and regulatory agency requirements. The verification officer also plays a Bonus Time video for the customer to explain the advantages of and limitations on the Bonus Time program. No sale becomes final until a statutory waiting period (which varies from state to state) of three to fifteen calendar days has passed. We also sell our Vacation Intervals to existing Silverleaf Owners as either upgraded sales of more desirable higher priced Vacation Intervals or additional week Vacation Interval sales.

Sales representatives receive commissions ranging from 4.0% to 14.0% of the sales price of a Vacation Interval depending on established guidelines. Sales managers also receive commissions of 2.0% to 6.0% and are subject to commission chargebacks in the event the purchaser fails to make the first required payment. Sales directors also receive commissions of 1.0% to 3.5%, which are also subject to chargebacks.

Prospects who are interested in a lower priced product are offered biennial (alternate year) intervals or other lower priced products that entitle the prospect to sample a resort for a specified number of nights. The prospect may apply the cost of a lower priced product against the down payment on a Vacation Interval if the interval is purchased by a certain date. In addition, we actively market both on-site and off-site upgraded Vacation Intervals to existing Silverleaf Owners, as well as additional week sales to existing Silverleaf Owners. Although most upgrades and additional week sales are sold by our in-house sales staff, we have contracted with a third party to assist in offsite marketing of these at the Destination Resorts. We have been focusing on increasing the percentage mix of sales to existing customers in 2006 and 2005. These upgrade and additional week programs have been well received by Silverleaf Owners and accounted for approximately 55.7% and 55.2% of our gross revenues from Vacation Interval sales for the years ended December 31, 2006 and 2005, respectively. By offering lower priced products and upgraded and additional week Vacation Intervals, we believe we offer an affordable product for all prospects in our target market. Also, by offering products with a range of prices, we attempt to broaden our market with initial sales of lower-priced products, which we attempt to gradually upgrade and/or augment with additional week sales over time.

In March 2006, we opened our first showroom-style, off-site sales office. The showroom, located in the Dallas/Fort Worth metroplex in Irving, Texas, operates under the name “Silverleaf Vacation Store.” It offers potential customers an interactive “virtual” experience of our resorts, including a model unit, photo gallery, and film presentation for each of our 13 current resorts and their related amenities. The 16,500 square-foot showroom cost approximately $1.1 million and employs approximately 30 to 40 on-site sales personnel. After a nine to twelve month ramp up period, we believe this new showroom will generate between $10 million to $12 million in annual sales to new members. The showroom will provide us with a significant sales opportunity by enabling potential customers to experience the quality and service of our resorts in their own community. We expect that new owners who purchase at these showrooms will later participate in our upgrade and additional week sales programs.

Our sales representatives are a critical component of our sales and marketing effort. We continually strive to attract, train, and retain a dedicated sales force. We provide intensive sales instruction and training, which assists the sales representatives in acquainting prospects with the resort's benefits. Our sales instruction and training also focuses on compliance by each sales representative with all federal, state, and local laws applicable to timeshare sales. Each sales representative is our employee and receives some employment benefits. At December 31, 2006, we employed 537 sales representatives.

Seasonality

Our sales of Vacation Intervals have generally been lower in the months of November and December. Cash flow and earnings may be impacted by the timing of development, the completion of future resorts, and the potential impact of weather or other conditions in the regions where we operate. Our operating results could be negatively impacted by these factors.

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Customer Financing

We offer financing to buyers of Vacation Intervals at our resorts. Buyers who elect to finance their purchases through us typically make down payments of at least 10% of the purchase prices and deliver promissory notes for the balances. The promissory notes generally bear interest at a fixed rate, are generally payable over a seven-year to ten-year period, and are secured by a first mortgage on the Vacation Interval. We bear the risk of defaults on these promissory notes. In 2005, we began obtaining a pre-screen credit score on touring families. If the credit score does not meet certain minimum credit criteria, a 15% down payment is generally required instead of our standard 10% down payment. There are a number of risks associated with financing customers’ purchases of Vacation Intervals. For an explanation of these risks, please see “Risk Factors” beginning on page 21 of this report.

In 2006 we accrued 17.3% of the purchase price of Vacation Intervals as estimated uncollectible revenue, which is an offset to Vacation Interval sales. Prior to the adoption of SFAS No. 152, this line item was recorded as an expense provision for uncollectible notes. The allowance for uncollectible notes was 22.9% of gross notes receivable as of December 31, 2006 compared to 22.8% at December 31, 2005. We plan to continue our current collection programs and seek new programs to reduce note defaults and improve the credit quality of our customers. However, there can be no assurance that our efforts will be successful.

If a buyer of a Vacation Interval defaults, we generally must foreclose on the Vacation Interval and attempt to resell it. When this occurs the associated marketing, selling, and administrative costs from the original sale are not recovered and sales and marketing costs must be incurred again to resell the Vacation Interval. Although, in many cases, we may have recourse against a Vacation Interval buyer for the unpaid price, certain states have laws that limit or hinder our ability to recover personal judgments against customers who have defaulted on their loans. For example, under Texas law, if we pursue a post-foreclosure deficiency claim against a customer, the customer may file a court proceeding to determine the fair market value of the property foreclosed upon. In such event, we may not recover a personal judgment against the customer for the full amount of the deficiency, but may recover only to the extent that the indebtedness owed to the Company exceeds the fair market value of the property. Accordingly, we do not generally pursue this remedy because we have not found it to be cost effective.

At December 31, 2006, we had notes receivable (including notes unrelated to Vacation Intervals) in the approximate principal amount of $297.8 million with an allowance for uncollectible notes of approximately $68.1 million.

Additionally, at December 31, 2006, our off-balance sheet finance subsidiary, SF-III, held notes receivable totaling $62.7 million, with related borrowings of $52.3 million. Except for the repurchase of notes that fail to meet initial eligibility requirements, we are not obligated to repurchase defaulted or any other contracts sold to SF-III. As the Servicer of the notes receivable sold to SF-III, we are obligated by the terms of the conduit facility to foreclose upon the Vacation Interval securing a defaulted note receivable. We may, but are not obligated to, purchase the foreclosed Vacation Interval for an amount equal to the net fair market value of the Vacation Interval, which may not be less than fifteen percent of the original acquisition price that the customer paid for the Vacation Interval. For the year ended December 31, 2006, we paid approximately $2.1 million to repurchase the Vacation Intervals securing defaulted notes receivable to facilitate the re-marketing of those Vacation Intervals. Our total investment in SF-III was valued at $13.0 million at December 31, 2006.

We recognize interest income as earned. Interest income is accrued on notes receivable, net of an estimated amount that will not be collected, until the individual notes become 90 days delinquent. Once a note becomes 90 days delinquent, the accrual of interest income ceases until collection is deemed probable.

We intend to borrow either directly or through our fully consolidated special purpose finance subsidiaries additional funds under our existing revolving credit facilities with our lenders to finance our operations. At December 31, 2006, we and our fully consolidated subsidiaries, had borrowings under our credit facilities in the approximate principal amount of $245.2 million, of which $204.3 million of such facilities are receivables based and currently permit borrowings of 75% to 80% of the principal amount of performing notes. Payments from Silverleaf Owners on such notes are credited directly to the senior lender and applied against our loan balance. At December 31, 2006, we had a portfolio of approximately 36,104 Vacation Interval customer promissory notes in the approximate principal amount of $297.4 million, of which approximately $4.7 million in principal amount was 61 days or more past due and therefore ineligible as collateral.

At December 31, 2006, our portfolio of customer notes receivable had an average yield of 15.7%. At such date, our borrowings had a weighted average cost of 7.9%, and had a fixed-to-floating debt ratio of 62% fixed rate debt to 38% floating rate debt. We have historically derived net interest income from our operating activities because the interest rates we charge our customers who finance the purchase of their Vacation Intervals exceed the interest rates we pay our senior lenders. Because 38% of our existing indebtedness currently bears interest at variable rates and our customer notes receivable bear interest at fixed rates, increases in interest rates would erode the spread in interest rates that we have historically experienced and could cause our interest expense on borrowings to exceed our interest income on our portfolio of customer loans. Therefore, any increase in interest rates, particularly if sustained, could have a material adverse effect on our results of operations, liquidity, and financial condition.

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To partially offset an increase in interest rates, we have engaged in two interest rate hedging transactions, or derivatives, related to our conduit loan through Silverleaf Finance II, Inc., a Delaware corporation, for a notional amount of $39.3 million at December 31, 2006, that expires between September 2011 and March 2014. SF-IV’s VFN also acts as an interest rate hedge since it contains a provision for an interest rate cap, however there are no amounts outstanding under this line of credit at December 31, 2006.

In addition, the Series 2005-A Notes related to our off-balance sheet special purpose finance subsidiary, SF-III, with a balance of $52.3 million at December 31, 2006, bear interest at a blended fixed rate of 5.4%, and our Series 2006-A Notes related to SF-V bear interest at a blended fixed rate of 6.7%.

Limitations on availability of financing would inhibit sales of Vacation Intervals due to (i) the lack of funds to finance the initial negative cash flow that results from sales that we finance, and (ii) reduced demand if we are unable to provide financing to purchasers of Vacation Intervals. We ordinarily receive only 10% to 15% of the purchase price as a cash down payment on the sale of a Vacation Interval that we finance, but we must pay in full the costs of developing, marketing, and selling the Vacation Interval. Maximum borrowings available under our current credit agreements may not be sufficient to cover these costs, thereby straining capital resources, liquidity, and capacity to grow. In addition, to the extent interest rates decrease generally on loans available to our customers, we face an increased risk that customers will pre-pay their loans and reduce our income from operating activities.

We typically provide financing to customers over a seven-year to ten-year period. Our customer notes receivable had an average maturity of 6.75 years at December 31, 2006. Our credit facilities have scheduled maturities between April 2008 and July 2018. Additionally, our revolving credit facilities could be declared immediately due and payable as a result of any default by us. Although it appears that we have adequate liquidity to meet our needs through at least December 2008, we are continuing to identify additional financing arrangements beyond such date.

In the first quarter of 2007, we consolidated our debt with Textron Financial Corporation into one revolving loan. As a result of the amended and restated loan and security agreement, the funding period on the consolidated debt has been extended from June 2008 to January 2010, with revised maturity dates of January 31, 2013 for the receivables component and January 31, 2012 on both the acquisition and inventory components. In addition, the interest rates previously charged have been reduced. This transaction is described in more detail under the heading “Subsequent Events” in Note 17 to our Consolidated Financial Statements beginning on page F-1.

Development and Acquisition Process

We intend to develop at our Existing Resorts and/or acquire new resorts only to the extent we deem such expansion financially beneficial, and then only as the capital markets permit.

If we are able to develop or acquire new resorts, we will do so under our established development policies. Before committing capital to a site, we test the market using our own market analysis testing techniques and explore the zoning and land-use laws applicable to the potential site and the regulatory issues pertaining to licenses and permits for timeshare marketing, sales, and operations. We also contact various governmental entities and review applications for necessary governmental permits and approvals. If we are satisfied with our market analysis and regulatory review, we will prepare a conceptual layout of the resort, including building site plans and resort amenities. After we apply our standard lodging unit design and amenity package, we prepare a budget that estimates the cost of developing the resort, including costs of lodging facilities, infrastructure, and amenities, as well as projected sales, marketing, and general and administrative costs. We typically perform additional due diligence, including obtaining an environmental report by an environmental consulting firm, a survey of the property, and a title commitment. We employ legal counsel to review these documents and pertinent legal issues. If we are satisfied with the site after the environmental and legal review, we will complete the purchase of the property.

We manage all construction activities internally. We typically complete the development of a new resort's basic infrastructure and models within one year, with additional units to be added within 180 to 270 days based on demand, weather permitting. A normal part of the development process is the establishment of a functional sales office at the new resort.

Clubs / Silverleaf Club

The Silverleaf Club directors are elected by the majority of the boards of directors of the individual Clubs. We have the right to supervise the management of our resorts under the terms of the Management Agreement. The Silverleaf Owners are obligated to pay monthly dues to their respective Clubs, which obligation is secured by a lien on their Vacation Interval in favor of their Club. If a Silverleaf Owner fails to pay his monthly dues, his Club may institute foreclosure proceedings regarding the delinquent Silverleaf Owner's Vacation Interval. The number of foreclosures that occurred as a result of Silverleaf Owners failing to pay monthly dues was 1,222 in 2006 and 808 in 2005. Typically, we purchase at foreclosure all Vacation Intervals that are the subject of foreclosure proceedings instituted by the Club because of delinquent dues.

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At December 31, 2006, the Club at each timeshare resort (other than Orlando Breeze) operates through a centralized organization provided by Silverleaf Club to manage the resorts on a collective basis. The consolidation of resort operations through Silverleaf Club permits: (i) a centralized reservation system for all resorts; (ii) substantial cost savings by purchasing goods and services for all resorts on a group basis, which generally results in a lower cost of goods and services than if such goods and services were purchased by each resort on an individual basis; (iii) centralized management for the entire resort system; (iv) centralized legal, accounting, and administrative services for the entire resort system; and (v) uniform implementation of various rules and regulations governing all resorts. All furniture, furnishings, recreational equipment, and other personal property used in connection with the operation of the Existing Resorts are owned by either that resort’s Club or the Silverleaf Club, rather than by us.

Orlando Breeze has its own club, Orlando Breeze Resort Club, which is operated independently of Silverleaf Club; however, we supervise the management and operation of the Orlando Breeze Resort Club under the terms of a written agreement.

At December 31, 2006, Silverleaf Club had 758 full-time employees and Orlando Breeze Resort Club had 12 full-timeemployees. Each Club is solely responsible for their salaries, as well as the direct expenses of operating the Existing Resorts, while we are responsible for the direct expenses of new development and all marketing and sales activities. To the extent Silverleaf Club provides payroll, administrative, and other services that directly benefit the Company, we reimburse Silverleaf Club for such services and vice versa.

Silverleaf Club collects dues from Silverleaf Owners, plus certain other amounts assessed against the Silverleaf Owners from time to time, and generates income by the operation of certain amenities at the Existing Resorts. Silverleaf Club and Orlando Breeze Resort Club dues were approximately $59.96 per month ($29.98 for biennial owners) during 2006, except for certain members of Oak N’ Spruce Resort, who prepay dues at an annual rate of approximately $497. Such amounts are used by the respective Clubs to pay the costs of operating the Existing Resorts and the management fees due to the Company pursuant to Management Agreements. The Management Agreement with Silverleaf Club authorizes the Company to supervise the management and operations of the resorts and provides for a maximum management fee equal to 15% of gross revenues of Silverleaf Club, but our right to receive such a fee on an annual basis is limited to the amount of Silverleaf Club's net income. However, if we do not receive the maximum fee, such deficiency is deferred for payment to succeeding years, subject again to the annual net income limitation. The Management Agreement between Orlando Breeze Resort Club and us authorizes us to supervise management and operation of Orlando Breeze Resort and provides for a maximum annual management fee equal to 15% of gross revenues of Orlando Breeze Resort Club, but our right to receive such a fee on an annual basis is limited to the amount of Orlando Breeze Resort Club’s net income. However, if we do not receive the maximum fee, such deficiency is deferred for payment to succeeding years, subject again to the annual net income limitation. Due to anticipated refurbishment of units at the Existing Resorts, together with the operational and maintenance expenses associated with our current expansion and development plans, our 2006 management fees were subject to the annual net income limitation. Accordingly, for the year ended December 31, 2006, management fees recognized were $1.9 million. For financial reporting purposes, management fees from Silverleaf Club are recognized based on the lower of (i) the aforementioned maximum fees or (ii) Silverleaf Club’s net income. The Silverleaf Club Management Agreement is effective through March 2010, and will continue year-to-year thereafter unless cancelled by either party. As a result of the past performance of the Silverleaf Club, it is uncertain whether Silverleaf Club will consistently generate positive net income. Therefore, future income to the Company under the Management Agreement with Silverleaf Club could be limited. At December 31, 2006, there were approximately 100,000 Vacation Interval owners who pay dues to Silverleaf Club and approximately 900 Vacation Interval owners who pay dues to Orlando Breeze Resort Club. If we develop new resorts outside of Florida, their respective Clubs are expected to be added to the Silverleaf Club Management Agreement.

Other Operations

Operation of Amenities. We own, operate, and receive the revenues from the marina at The Villages, the golf course and pro shop at Holiday Hills, and the golf course and pro shop at Apple Mountain. Although we own the golf course at Holly Lake, a homeowners’ association in the development operates the golf course. In general, Silverleaf Club receives revenues from the various amenities that require a usage fee, such as watercraft rentals, horseback rides, and restaurants.

Samplers. Revenues related to sampler contracts, which entitle the prospective owner to sample a resort during certain periods, have been and will continue to be deferred until the customer uses the stay or allows the contract to expire. Effective January 1, 2006, sampler sales and related costs are accounted for as incidental operations, whereby incremental costs in excess of incremental revenue are charged to expense as incurred and the operations are presented as a net expense in the consolidated statement of operations. Conversely, incremental revenue in excess of incremental costs is recorded as a reduction of inventory in the consolidated balance sheet. Incremental costs include costs that would not have been incurred had we not sold samplers. During the year ended December 31, 2006, all sampler sales were recorded as a reduction to sales and marketing expense since direct and incremental costs of sampler sales exceeded incremental sampler sales. The amount of the reduction to sales and marketing expense for sampler sales in 2006 was $2.9 million. Prior to SFAS No. 152, sampler sales were reported separately as revenue. We recognized $2.6 million and $2.2 million in revenues from sampler sales for the years ended December 31, 2005 and 2004, respectively.

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Utility Services. At December 31, 2004, we owned the water supply facilities at Piney Shores, The Villages, Hill Country, Holly Lake, Ozark Mountain, Holiday Hills, Timber Creek, and Fox River resorts. We also owned the waste-water treatment facilities at The Villages, Piney Shores, Ozark Mountain, Holly Lake, Timber Creek, and Fox River resorts. We maintained permits to supply and charge third parties for the water supply facilities at The Villages, Holly Lake, Holiday Hills, Ozark Mountain, Hill Country, Piney Shores, and Timber Creek resorts, and the waste-water facilities at the Ozark Mountain, Holly Lake, Piney Shores, Hill Country, and The Villages resorts. In March 2005, all of our utility services assets and liabilities were sold for an aggregate sales price of $13.1 million, which resulted in a pretax gain of $879,000. Certain of the purchasers of these utility assets entered into a services agreement to provide uninterrupted water supply and waste water treatment services to the eight timeshare resorts to which the transferred utility assets relate. The purchasers of these utility assets charge the timeshare resorts the tariffed rate for those utility services that are regulated by the states in which the resorts are located. For any unregulated utility services, the purchasers of these utility assets charge a rate set in accordance with the ratemaking procedures of the Texas Commission on Environmental Quality.

Other Property. At December 31, 2005, we owned approximately 11 acres in Mississippi, and we are entitled to 85% of any profits from this land. An affiliate of a director of the Company owns a 10% net profits interest in this land. We subsequently sold approximately 9 acres of this land during the first quarter of 2006 for approximately $789,000, which resulted in a pretax gain of approximately $499,000.

Since 1998, we owned 1,940 acres of undeveloped land near Philadelphia, Pennsylvania, which we were holding for future development as a timeshare resort. In 2005, we sold this property for an aggregate sales price of $6.1 million after related expenses, which resulted in a gain of $3.6 million.

We also own a 500-acre tract of land in the Berkshire Mountains of Western Massachusetts that we are in the initial stages of developing. We have not yet finalized our future development plans for this site; however, we believe that its proximity to major population centers in the Northeastern United States and the year-round outdoor recreational attractions in the Berkshire region make this property suitable for future development as a timeshare resort.

Policies with Respect to Certain Activities

Our board of directors sets policies with regard to all aspects of our business operations without a vote of security holders. In some instances the power to set certain policies may be delegated by the board of directors to a committee comprised of its members, or to the officers of the Company. As set forth herein under the headings “Customer Financing” and “Description of Certain Indebtedness,” we borrow money to finance all of our operations and we make loans to our customers to finance the purchase of our Vacation Intervals.

We do not:

· invest in the securities of unaffiliated issuers for the purpose of exercising control;

· underwrite securities of other issuers;

· engage in the purchase and sale (or turnover) of investments sponsored by other issuers; or

· offer securities in exchange for property.

Nor do we propose to engage in any of the above activities. In the past we have from time to time repurchased or otherwise reacquired our own common stock and other securities. In May 2002 we reacquired $56.9 million in principal amount of our 10 ½% senior subordinated notes in exchange for $28.5 million of our 6% senior subordinated notes and 23.9 million shares of our common stock. In July 2003 we reacquired $7.6 million in principal amount of our 10 ½% senior subordinated notes for approximately $2.4 million of cash, which resulted in a one-time gain of approximately $5.1 million. In June 2004 we completed an offer to exchange $24.7 million in principal amount of our 6% senior subordinated notes due 2007 for $24.7 million in principal amount of our 8% senior subordinated notes due 2010 and a cash payment of approximately $271,000, representing accrued, unpaid interest from April 1, 2004 through June 6, 2004. We have no policy or proposed policy with respect to future repurchases or re-acquisitions of our common stock or other securities; however, our board of directors may approve such repurchase activities if it finds these activities to be in the best interests of the Company and its shareholders.

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Investment Policies

Our board of directors also determines all of our policies concerning investments, including the percentage of assets, which we may invest in any one type of investment, and the principles and procedures we will employ in connection with the acquisition of assets. The board of directors both determines our policies with regard to investment matters and may change these policies without a vote of security holders. We do not propose to invest in any investments or activities not related directly or indirectly to (i) the timeshare business, (ii) the acquisition, development, marketing, selling or financing of Vacation Intervals, or (iii) the management of timeshare resorts. We currently have no policies limiting the geographic areas in which we might engage in investments in the timeshare business, or limiting the percentage of our assets invested in any specific timeshare related property. We primarily acquire assets for income and not to hold for possible capital gain.

Participation in Vacation Interval Exchange Networks

Silverleaf Plus Program. In February 2006 we began offering the new Silverleaf Plus program. This program, administered through Silverleaf Club, includes all of the prior benefits to Silverleaf Owners plus enhanced vacation options through the Silverleaf exchange program. In addition to use of their owned weeks and bonus time, Silverleaf Owners who purchase under the Silverleaf Plus program can also split their weeks into a minimum of 2-day up to 5-day increments, and extend any unused days into the following year.

Internal Exchanges. Each Silverleaf Owner has certain exchange privileges through the Silverleaf Club which may be used on an annual basis to: (i) exchange an interval for a different interval (week) at the same resort so long as the desired interval is of an equal or lower rating; or (ii) exchange an interval for the same interval (week) of equal or lower rating at any other of our Existing Resorts. Silverleaf Owners of Getaway Resorts can only exchange for an interval in a Getaway Resort unless they own a “Presidents” or “Chairmans” Vacation Interval. These exchange rights are a convenience we provide Silverleaf Owners as an accommodation to them, and are conditioned upon availability of the desired interval or resort. Approximately 5,168 exchanges occurred in 2006. Silverleaf Owners pay an exchange fee of $75 to Silverleaf Club for each such internal exchange.

Exchanges. We believe that our Vacation Intervals are made more attractive by our participation in a Vacation Interval exchange network operated by RCI. At December 31, 2006, the Existing Resorts (except for Orlando Breeze) are registered with RCI, and approximately 42% of Silverleaf Owners participate in RCI's exchange network. Membership in RCI allows participating Silverleaf Owners to exchange their occupancy right in a unit in a particular year for an occupancy right at the same time or a different time of the same or lower color rating in another participating resort, based upon availability and the payment of a variable exchange fee. A member may exchange a Vacation Interval for an occupancy right in another participating resort by listing the Vacation Interval as available with the exchange organization and by requesting occupancy at another participating resort, indicating the particular resort or geographic area to which the member desires to travel, the size of the unit desired, and the period during which occupancy is desired.

RCI assigns a rating of “red,” “white,” or “blue” to each Vacation Interval for participating resorts based upon a number of factors, including the location and size of the unit, the quality of the resort, and the period during which the Vacation Interval is available, and attempts to satisfy exchange requests by providing an occupancy right in another Vacation Interval with a similar rating. For example, an owner of a red Vacation Interval may exchange his interval for a red, white, or blue interval. An owner of a white Vacation Interval may exchange only for a white or blue interval, and an owner of a blue interval may exchange only for a blue interval. At December 31, 2006, RCI’s designation of our units of red, white, and blue Vacation Intervals is approximately 67%, 20%, and 13%, respectively. If RCI is unable to meet the member's initial request, it suggests alternative resorts based on availability. The annual membership fees in RCI, which are at the option and expense of the owner of the Vacation Interval, are currently $89. Exchange rights with RCI require an additional fee of approximately $164 for domestic exchanges and $199 for foreign exchanges. Silverleaf Club charges an exchange fee of $75 for each exchange through its internal exchange program. Resorts participating in the exchange networks are required to adhere to certain minimum standards regarding available amenities, safety, security, décor, unit supplies, maid service, room availability, and overall ambiance. See “Risk Factors” for a description of risks associated with the exchange programs.

Orlando Breeze is not under contract with RCI; however it is under contract with Interval International, Inc., a competitor of RCI. An owner of a Vacation Interval at Orlando Breeze may, for annual membership fees and exchange fees similar to those charged by RCI, become a member of the Interval International timeshare exchange system.

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Competition

All of our operations are contained within and are in support of a single industry segment - the vacation ownership industry - and we currently operate in only six geographic areas of the United States. These geographic areas are Texas, Missouri, Massachusetts, Illinois, Georgia, and Florida. We encounter significant competition from other timeshare resorts in the markets that we serve. The timeshare industry is highly fragmented and includes a large number of local and regional resort developers and operators. However, some of the world's most recognized lodging, hospitality, and entertainment companies, such as Marriott International (Marriott Vacation Club brands), The Walt Disney Company, Hilton Hotels Corporation, Hyatt Corporation, and Four Seasons Resorts have entered the industry. Other companies in the timeshare industry, including Sunterra Corporation (“Sunterra”), Wyndham Worldwide Corporation (“Wyndham”), through its Wyndham Vacation Resorts (formerly Fairfield Resorts), and WorldMark by Wyndham (formerly Trendwest Resorts), Starwood Hotels & Resorts Worldwide Inc. (“Starwood”), Ramada Vacation Suites (“Ramada”), and Bluegreen Corporation (“Bluegreen”) are, or are subsidiaries of, public companies with enhanced access to capital and other resources that public ownership implies.

Wyndham, Sunterra, and Bluegreen own timeshare resorts in or near Branson, Missouri, which compete with our Holiday Hills and Ozark Mountain resorts, and to a lesser extent with our Timber Creek Resort. Sunterra also owns a resort that is located near and competes with Piney Shores Resort. Additionally, there are a number of public or privately-owned and operated timeshare resorts in most states in which we own resorts that compete with the Existing Resorts.

Many competitors also own timeshare resorts in or near Orlando, Florida where our newest resort, Orlando Breeze, is located. However sales of Orlando Breeze Vacation Intervals are primarily upgrade and additional week interval sales to our existing customers, with the sales taking place at our other Existing Resorts. We do not have a sales office in Orlando that directly competes with other resort developers and operators located there.

We believe Marriott, Disney, Hilton, Hyatt, and Four Seasons generally target consumers with higher annual incomes than our target market. Our other competitors target consumers with similar income levels as our target market. Our competitors may possess significantly greater financial, marketing, personnel, and other resources than we do. We cannot be certain that such competitors will not significantly reduce the price of their Vacation Intervals or offer greater convenience, services, or amenities than we do.

The American Resort Development Association (“ARDA”) recently published a study entitled State of the Vacation Timeshare Industry, 2006 United States Study (the “ARDA Study”), which reported sales volume in the United States of $8.6 billion for 2005, compared to $4.2 billion in 2000 and $2.2 billion in 1996, equating to a 10-year compound annual growth rate exceeding 16 percent. The study estimated that 4.1 million households owned one or more U.S. timeshare intervals or points equivalent at January 1, 2006, representing a 5.1 percent increase over the amount reported one year earlier; however, there can be no assurance that the existing levels of growth in timeshare demand will continue or that we will not have to compete with larger and better capitalized competitors in future periods for a declining number of potential timeshare purchasers.

While our principal competitors are developers of timeshare resorts, we are also subject to competition from other entities engaged in the commercial lodging business, including condominiums, hotels, and motels, as well as others engaged in the leisure business and, to a lesser extent, from campgrounds, recreational vehicles, tour packages, and second home sales. A reduction in the product costs associated with any of these competitors, or an increase in the Company's costs relative to such competitors' costs, could have a material adverse effect on our results of operations, liquidity, and financial condition.

Numerous businesses, individuals, and other entities compete with us in seeking properties for acquisition and development of new resorts. Some of these competitors are larger and have greater financial and other resources. Such competition may result in a higher cost for properties we wish to acquire or may cause us to be unable to acquire suitable properties for the development of new resorts.

Governmental Regulation

General. Our marketing and sales of Vacation Intervals and other operations are subject to extensive regulation by the federal government and the states and jurisdictions in which the Existing Resorts are located and in which our Vacation Intervals are marketed and sold. On a federal level, the Federal Trade Commission has taken the most active regulatory role through the Federal Trade Commission Act, which prohibits unfair or deceptive acts or competition in interstate commerce. Other federal legislation to which the Company is or may be subject includes the Truth-in-Lending Act and Regulation Z, the Equal Opportunity Credit Act and Regulation B, the Interstate Land Sales Full Disclosure Act, the Real Estate Settlement Procedures Act, the Consumer Credit Protection Act, the Telephone Consumer Protection Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Fair Housing Act, the Civil Rights Acts of 1964 and 1968, the Fair Credit Reporting Act, the Fair Debt Collection Act, and the Americans with Disabilities Act. Additionally, as a publicly owned company, we are subject to all federal and state securities laws, including the Sarbanes-Oxley Act of 2002.

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In response to certain fraudulent marketing practices in the timeshare industry in the 1980's, various states enacted legislation aimed at curbing such abuses. Certain states in which we operate have adopted specific laws and regulations regarding the marketing and sale of Vacation Intervals. The laws of most states require us to file a detailed offering statement and supporting documents with a designated state authority, which describe the Company, the project, and our promotion and sale of Vacation Intervals. The offering statement must be approved by the appropriate state agency before we may solicit residents of such state. The laws of certain states require us to deliver an offering statement (or disclosure statement), together with certain additional information concerning the terms of the purchase, to prospective purchasers of Vacation Intervals who are residents of such states, even if the resort is not located in such state. The laws of Missouri generally only require certain disclosures in sales documents for prospective purchasers. There are also laws in each state where we sell Vacation Intervals that grant the purchaser the right to cancel a contract of purchase at any time within three to fifteen calendar days following the sale.

We market and sell our Vacation Intervals to residents of certain states adjacent or proximate to the states where our resorts are located. Many of these neighboring states also regulate the marketing and sale of Vacation Intervals to their residents. Most states have additional laws which regulate our activities and protect purchasers, such as real estate licensure laws; travel sales licensure laws; anti-fraud laws; consumer protection laws; telemarketing laws; prize, gift, and sweepstakes laws; and other related laws. We do not register all of our resorts in each of the states where we register certain resorts.

Most of the states where we currently operate have enacted laws and regulations that limit our ability to market our resorts through telemarketing activities. These states have enacted “do not call” lists that permit consumers to block telemarketing activities by registering their telephone numbers for a period of years for a nominal fee. We purchase these lists from the various states quarterly and do not contact those telephone numbers listed. Additionally, the federal “Do-Not-Call Implementation Act” (the “DNC Act”), which was enacted on March 11, 2003, provided for the establishment of a National Do Not Call Registry administered by the United States Federal Trade Commission (“FTC”) under its Telemarketing Sales Rule (“TSR”) and the Federal Communications Commission. The FTC began enforcement actions in October 2003 for violations of the TSR by telemarketers. Violations could result in penalties up to $11,000 per violation. The FTC has reported that approximately 107 million telephone numbers had been registered on the National Do Not Call List Registry by the end of 2005. Since the introduction of state and federal Do-Not-Call legislation, we have become somewhat more reliant on direct mail solicitations as an alternative to some of the telemarketing techniques we have historically utilized. Existing and future restrictions on telemarketing practices could cause our sales to decline.

We believe we are in material compliance with applicable federal and state laws and regulations relating to the sales and marketing of Vacation Intervals in the jurisdictions in which we currently do business. However, we are normally and currently the subject of a number of consumer complaints and regulatory inquiries generally relating to our marketing or sales practices. We always attempt to resolve all such complaints or inquiries directly with the consumer or the regulatory authority involved. We cannot be certain that all of these complaints and inquiries by regulators can be resolved without adverse regulatory actions or other consequences, such as class action lawsuits or rescission offers. We expect some level of consumer complaints in the ordinary course of business as we aggressively market and sell Vacation Intervals to households, which may include individuals who may not be financially sophisticated. We cannot be certain that the costs of resolving consumer complaints, regulatory inquiries, or of qualifying under Vacation Interval ownership regulations in all jurisdictions in which we conduct sales or wish to conduct sales in the future will not be significant, that we are in material compliance with applicable federal and state laws and regulations, or that violations of law will not have adverse implications, including negative public relations, potential litigation, and regulatory sanctions. The expense, negative publicity, and potential sanctions associated with the failure to comply with applicable laws or regulations could have a material adverse effect on our results of operations, liquidity, or financial condition. Further, we cannot be certain that either the federal government or states having jurisdiction over our business will not adopt additional regulations or take other actions that would adversely affect our results of operations, liquidity, and financial condition.

During the 1980's and continuing through the present, the timeshare industry has been and continues to be afflicted with negative publicity and prosecutorial attention due to, among other things, marketing practices which were widely viewed as deceptive or fraudulent. Among the many timeshare companies which have been the subject of federal, state, and local enforcement actions and investigations in the past were certain of the partnerships and corporations that were merged into the Company prior to 1996 (the “Merged Companies,” or individually “Merged Company”). Some of the settlements, injunctions, and decrees resulting from litigation and enforcement actions (the “Orders”) to which certain of the Merged Companies consented in the 1980’s purport to bind all successors and assigns, and accordingly may also be enforceable against the Company. In addition, at that time the Company was directly a party to one such Order issued in Missouri. No past or present officers, directors, or employees of the Company or any Merged Company were named as subjects or respondents in any of these Orders; however, each Order purports to bind generically unnamed “officers, directors, and employees” of certain Merged Companies. Therefore, certain of these Orders may be interpreted to be enforceable against the present officers, directors, and employees of the Company even though they were not individually named as subjects of the enforcement actions which resulted in these Orders. These Orders require, among other things, that all parties bound by the Orders, including the Company, refrain from engaging in deceptive sales practices in connection with the offer and sale of Vacation Intervals. The requirements of the Orders are substantially what applicable state and federal laws and regulations mandate, but the consequence of violating the Orders may be that sanctions (including possible financial penalties and suspension or loss of licensure) may be imposed more summarily and may be harsher than would be the case if the Orders did not bind the Company. In addition, the existence of the Orders may be viewed negatively by prospective regulators in jurisdictions where the Company does not now do business, with attendant risks of increased costs and reduced opportunities.

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In early 1997, we were the subject of some consumer complaints that triggered governmental investigations into the Company's affairs. In March 1997, we entered into an Assurance of Voluntary Compliance with the Texas Attorney General, in which we agreed to make additional disclosure to purchasers of Vacation Intervals regarding the limited availability of our Bonus Time program during certain periods. We paid $15,200 for investigatory costs and attorneys' fees of the Texas Attorney General in connection with this matter. Also, in March 1997, we entered into an agreed order (the “Agreed Order”) with the Texas Real Estate Commission requiring that we comply with certain aspects of the Texas Timeshare Act, Texas Real Estate License Act, and Rules of the Texas Real Estate Commission, with which we had allegedly been in non-compliance until mid-1995. The allegations included (i) our admitted failure to register the Missouri Destination Resorts in Texas (due to our misunderstanding of the reach of the Texas Timeshare Act); (ii) payment of referral fees for Vacation Interval sales, the receipt of which was improper on the part of the recipients; and (iii) miscellaneous other actions alleged to violate the Texas Timeshare Act, which we denied. While the Agreed Order acknowledged that we independently resolved ten consumer complaints referenced in the Agreed Order, discontinued the practices complained of, and registered the Missouri Destination Resorts during 1995 and 1996, the Texas Real Estate Commission ordered us to cease these discontinued practices and enhance our disclosure to purchasers of Vacation Intervals. In the Agreed Order, we agreed to make a voluntary donation of $30,000 to the State of Texas. The Agreed Order also directed that we revise our training manual for timeshare salespersons and verification officers. While the Agreed Order resolved all of the alleged violations contained in complaints received by the Texas Real Estate Commission through December 31, 1996, we have encountered and expect to encounter some level of additional consumer complaints, regulatory scrutiny, and periodic remedial action in the ordinary course of our business. In this regard, during 2004 we renewed our timeshare-offering plan in the state of New York, which we inadvertently allowed to lapse in 2001. As part of this renewal process, we rescinded approximately $897,000 of sales to New York residents that were made in 2001 after our timeshare offering plan lapsed.

We have established compliance and supervisory methods in training sales and marketing personnel as to adherence to legal requirements. With regard to direct mailings, a designated compliance employee reviews all mailings to determine if they comply with applicable state legal requirements. With regard to telemarketing, our marketing management personnel prepare a script for telemarketers based upon applicable state legal requirements. All telemarketers receive training that includes, among other things, directions to adhere strictly to the approved script. Telemarketers are also monitored by their supervisors to ensure that they do not deviate from the approved script. Additionally, sales personnel receive training as to such applicable legal requirements. We have a salaried employee at each sales office who reviews the sales documents prior to closing a sale to review compliance with legal requirements. Periodically, we are notified by regulatory agencies to revise our disclosures to consumers and to remedy other alleged inadequacies regarding the sales and marketing process. In such cases, we revise our direct mailings, telemarketing scripts, or sales disclosure documents, as appropriate, to comply with such requests. We have supervisors to monitor compliance with all state and federal Do-Not-Call regulations.

We are not currently aware of any non-compliance with any state or federal statute, rule, or regulation which we believe would have a material adverse effect on our business, results of operations, or financial condition.

Environmental Matters. Under various federal, state, and local environmental laws, ordinances, and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at such property, and may be held liable to a governmental entity or to third parties for property damage and tort liability and for investigation and clean-up costs incurred by such parties in connection with the contamination. Such laws typically impose clean-up responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants, and the liability under such laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The cost of investigation, remediation, or removal of such substances may be substantial, and the presence of such substances, or the failure to properly remediate the contamination on such property, may adversely affect the owner's ability to sell such property or to borrow using such property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances at a disposal or treatment facility also may be liable for the costs of removal or remediation of a release of hazardous or toxic substances at such disposal or treatment facility, whether or not such facility is owned or operated by such person. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. Finally, the owner or operator of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site or from environmental regulatory violations. In connection with our ownership and operation of our properties, we may be potentially liable for such claims.

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Certain federal, state, and local laws, regulations, and ordinances govern the removal, encapsulation, or disturbance of asbestos-containing materials (“ACMs”) when such materials are in poor condition or in the event of construction, remodeling, renovation, or demolition of a building. Such laws may impose liability for release of ACMs and may provide for third parties to seek recovery from owners or operators of real properties for personal injury associated with ACMs. In connection with our ownership and operation of our properties, we may be potentially liable for such costs. In 1994, we conducted a limited asbestos survey at each of our Existing Resorts, which surveys did not reveal material potential losses associated with ACMs at certain of the Existing Resorts.

In addition, recent studies have linked radon, a naturally occurring substance, to increased risks of lung cancer. While there are currently no state or federal requirements regarding the monitoring for, presence of, or exposure to radon in indoor air, the EPA and the Surgeon General recommend testing residences for the presence of radon in indoor air, and the EPA further recommends that concentrations of radon in indoor air be limited to less than 4 picocuries per liter of air (Pci/L) (the “Recommended Action Level”). The presence of radon in concentrations equal to or greater than the Recommended Action Level in one or more of our properties may adversely affect our ability to sell Vacation Intervals at such properties and the market value of such property. We have not tested our properties for radon. Recently-enacted federal legislation will eventually require us to disclose to potential purchasers of Vacation Intervals at our resorts that were constructed prior to 1978 any known lead-paint hazards and will impose treble damages for failure to so notify.

Electric transmission lines are located in the vicinity of some of our properties. Electric transmission lines are one of many sources of electromagnetic fields (“EMFs”) to which people may be exposed. Research into potential health impacts associated with exposure to EMFs has produced inconclusive results. Notwithstanding the lack of conclusive scientific evidence, some states now regulate the strength of electric and magnetic fields emanating from electric transmission lines, while others have required transmission facilities to measure for levels of EMFs. In addition, we understand that lawsuits have, on occasion, been filed (primarily against electric utilities) alleging personal injuries resulting from exposure as well as fear of adverse health effects. In addition, fear of adverse health effects from transmission lines has been a factor considered in determining property value in obtaining financing and in condemnation and eminent domain proceedings brought by power companies seeking to construct transmission lines. Therefore, there is a potential for the value of a property to be adversely affected as a result of its proximity to a transmission line and for the Company to be exposed to damage claims by persons exposed to EMFs.

We conducted Phase I environmental assessments at each of our resorts during 2001 or later, in order to identify potential environmental concerns. These Phase I assessments were carried out in accordance with accepted industry practices and consisted of non-invasive investigations of environmental conditions at the properties, including a preliminary investigation of the sites and identification of publicly known conditions concerning properties in the vicinity of the sites, physical site inspections, review of aerial photographs and relevant governmental records where readily available, interviews with knowledgeable parties, investigation for the presence of above ground and underground storage tanks presently or formerly at the sites, and the preparation and issuance of written reports. Our Phase I assessments of the properties did not reveal any environmental liability that we believe would have a material adverse effect on our business, assets, or results of operations taken as a whole; nor are we aware of any such material environmental liability. Nevertheless, it is possible that our Phase I assessments did not reveal all environmental liabilities or that there are material environmental liabilities of which we are unaware. Moreover, there can be no assurance that (i) future laws, ordinances, or regulations will not impose any material environmental liability or (ii) the current environmental condition of the properties will not be affected by the condition of land or operations in the vicinity of the properties (such as the presence of underground storage tanks) or by third parties unrelated to us. We do not believe that compliance with applicable environmental laws or regulations will have a material adverse effect on our results of operations, liquidity, or financial condition.

We believe that our properties are in compliance in all material respects with all federal, state, and local laws, ordinances, and regulations regarding hazardous or toxic substances. We have not been notified by any governmental authority or any third party, and are not otherwise aware, of any material noncompliance, liability, or claim relating to hazardous or toxic substances or petroleum products in connection with any of our present properties.

Utility Regulation. At December 31, 2004, we owned the water supply and waste-water treatment facilities at several of the Existing Resorts, which are regulated by various governmental agencies. The Texas Natural Resource Conservation Commission is the primary state umbrella agency regulating utilities at the resorts in Texas; and the Missouri Department of Natural Resources and Public Service Commission of Missouri are the primary state umbrella agencies regulating utilities at the resorts in Missouri. The Environmental Protection Agency, division of Water Pollution Control, and the Illinois Commerce Commission are the primary state agencies regulating water utilities in Illinois. These agencies regulate the rates and charges for the services (allowing a reasonable rate of return in relation to invested capital and other factors), the size and quality of the plants, the quality of water supplied, the efficacy of waste-water treatment, and many other aspects of the utilities' operations. The agencies have approval rights regarding the entity owning the utilities (including its financial strength) and the right to approve a transfer of the applicable permits upon any change in control of the entity holding the permits. Other federal, state, regional, and local environmental, health, and other agencies also regulate various aspects of the provision of water and waste-water treatment services. In March 2005, all of our utility services assets and liabilities were sold for an aggregate sales price of $13.1 million, which resulted in a pretax gain of $879,000.

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Other Regulation. Under various state and federal laws governing housing and places of public accommodation, we are required to meet certain requirements related to access and use by disabled persons. Although we believe that our facilities are generally in compliance with present requirements of such laws, we are aware of certain of our properties that are not in full compliance with all aspects of such laws. We are presently responding, and expect to respond in the future, to inquiries, claims, and concerns from consumers and regulators regarding our compliance with existing state and federal regulations affording the disabled access to housing and accommodations. It is our practice to respond positively to all such inquiries, claims and concerns and to work with regulators and consumers to resolve all issues arising under existing regulations concerning access and use of our properties by disabled persons. We believe that we will incur additional costs of compliance and/or remediation in the future with regard to the requirements of such existing regulations. Future legislation may also impose new or further burdens or restrictions on owners of timeshare resort properties with respect to access by the disabled. The ultimate cost of compliance with such legislation and/or remediation of conditions found to be non-compliant is not currently ascertainable, and while such costs are not expected to have a material effect on our business, such costs could be substantial. Limitations or restrictions on the completion of certain renovations may limit application of our growth strategy in certain instances or reduce profit margins on our operations. We are also subject to a variety of local, state, and federal laws and regulations concerning health and sanitation, facility operations, fire safety and occupational safety.

Employees

At December 31, 2006, we had 1,956 full and part-time employees and the Clubs collectively had 770 full and part-time employees. Our employee relations are good, both at the Company and at the Clubs.None of our employees are represented by a labor union and we are not aware of any union organization efforts with respect to any of our employees.

Insurance

We carry comprehensive liability, fire, hurricane, and storm insurance with respect to our resorts, with policy specifications, insured limits, and deductibles customarily carried for similar properties, which we believe are adequate. There are, however, certain types of losses (such as losses arising from floods and acts of war) that are not generally insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could lose the capital invested in a resort, as well as the anticipated future revenues from such resort, and would continue to be obligated on any mortgage indebtedness or other obligations related to the property. Any such loss could have a material adverse effect on our results of operations, liquidity, or financial condition. We self-insure for employee medical claims reduced by certain stop-loss provisions. We also self-insure for property damage to certain vehicles and heavy equipment.

DESCRIPTION OF OUR INDEBTEDNESS AND SENIOR CREDIT FACILITIES AT DECEMBER 31, 2006

Existing Indebtedness. We use the following credit agreements to finance the sale of Vacation Intervals, to finance construction, and for working capital needs. The loans are collateralized (or cross-collateralized) by customer notes receivable, inventory, construction in process, land, improvements, and related equipment at certain of the Existing Resorts. The credit facilities secured by customer notes receivable allow advances ranging from 75% to 80% of the unpaid balance of certain eligible customer notes receivable. The following table summarizes our credit agreements with our senior lenders, our wholly-owned and consolidated special purpose finance subsidiaries, and our off-balance sheet qualified special purpose entity, SF-III, as of December 31, 2006 (in thousands):

	MaximumAmount Available		12/31/06 Balance
Receivable Based Revolving Facilities	$	295,000	$	51,827
Receivable Based Non-Revolving Facilities		152,438		152,438
Inventory Loans		62,115		40,976
Sub-Total On Balance Sheet		509,553		245,241
Off-Balance Sheet Receivable Based Term Loan		52,295		52,295
Grand Total	$	561,848	$	297,536

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Textron Facility. We have a long-standing relationship with Textron Financial Corporation dating back to August 1995. Since that time, we have had various loan facilities in place with Textron. Our facilities with Textron Financial are as follows at December 31, 2006:

· Receivables Loan - During the third quarter of 2005 we reached an agreement with Textron to consolidate, amend, and restate all prior receivables loan agreements between our two companies. Under the terms of the new agreement, we entered into a $100 million revolving loan agreement, of which $60 million is currently available, secured by notes receivable from timeshare sales and unsold inventory of timeshare intervals. The additional $40 million under the agreement will not be available unless Textron seeks and finds third party participants, which by agreement with us they are not currently doing. The agreement matures in June 2011 and bears interest at a rate of Prime plus 1%, with a 6% floor.

· Inventory Loans - We have two revolving inventory loan facilities in the aggregate amount of $16 million, revolving through June 2008 and due in August 2010, which bear interest at a rate of LIBOR plus 3.25% and Prime plus 3% with a 6% floor, respectively. We also have a $5 million inventory term loan facility with Textron that is due in March 2007 and bears interest at a rate of Prime plus 3% with a 6% floor.

· Conduit Loans - During the fourth quarter of 2003, we closed a $66.4 million conduit term loan transaction through our conduit financing subsidiary, SF-II, which was arranged through Textron. Under the terms of the SF-II conduit loan, we sold approximately $78.1 million of our Vacation Interval receivables to SF-II for an amount equal to the aggregate principal balances of the receivables. Textron financed the purchase of these receivables through a one-time advance to SF-II of $66.4 million, which is approximately 85% of the outstanding balance of the receivables SF-II purchased from us. All customer receivables that we transferred to SF-II have been pledged as security to Textron. Textron has also received as additional collateral a pledge of all of our equity interest in SF-II and a $15.7 million demand note from us to SF-II under which payment may be demanded if SF-II defaults on its loan from the senior lender. Textron's conduit loan to SF-II will mature in 2014 and bears interest at a fixed annual rate of 7.035%. During the first quarter of 2005, we entered into a $26.3 million amendment and expansion of our conduit term loan agreement with SF-II. Under the terms of the amendment, we sold approximately $31.0 million of notes receivable and received cash proceeds of approximately $26.3 million. The new conduit term loan with SF-II will mature in 2011 and bears interest at a fixed annual rate of 7.9%.

CapitalSource Facility. During the second quarter of 2005, we entered into a $50 million receivables loan agreement with CapitalSource, which matures in April 2008 and bears interest at a rate of Prime plus 0.75%. We also have a $30 million revolving inventory loan facility with CapitalSource, which revolves through April 2009, is due in April 2011, and bears interest at a rate of Prime plus 1.5%.

Resort Funding Facility.During the second quarter of 2005, we entered into a $25 million receivables loan agreement with Resort Funding, which revolves through May 2007, matures in May 2010, and bears interest at a rate of Prime plus 1.5% with a 6.5% floor. We have not borrowed against this loan facility.

Wells Fargo Foothill Facility. During the fourth quarter of 2005, we entered into a $50 million receivables loan agreement with Wells Fargo Foothill, which was subsequently reduced to $35 million during the fourth quarter of 2006. This facility matures in December 2011 and bears interest at a rate of Prime plus 0.5% with a 6% floor. We also have a $15 million revolving inventory loan facility with Wells Fargo Foothill, which revolves through December 2008, matures in December 2010, and bears interest at a rate of Prime plus 2% with a 6% floor.

Silverleaf Finance III Facility. During the third quarter of 2005 we closed a term securitization transaction with a wholly-owned off-balance sheet qualified special purpose finance subsidiary, SF-III, a Delaware limited liability company, which was formed for the purpose of issuing $108.7 million of its Series 2005-A Notes in a private placement through UBS Real Estate Securities Inc. (“UBS”). The Series 2005-A Notes were issued pursuant to an Indenture between Silverleaf, as servicer of the timeshare receivables, SF-III, and Wells Fargo Bank, National Association, as Indenture Trustee, Custodian, Backup Servicer, and Account Intermediary. The Series 2005-A Notes were issued by SF-III in four classes ranging from Class A through Class D notes with a blended fixed rate of 5.4%. The Class A Notes, Class B Notes, Class C Notes and Class D Notes have received a rating from Moody's Investor Services, Inc. of “Aaa”, “Aa2”, “A2” and “Baa2”, respectively.

The Series 2005-A Notes are secured by timeshare receivables sold to SF-III by us pursuant to a transfer agreement between SF-III and us. Under that agreement, we sold to SF-III approximately $132.8 million in timeshare receivables that were previously pledged as collateral under revolving credit facilities with our senior lenders and our qualified special purpose entity, SF-I. We dissolved SF-I simultaneously with the sale of timeshare receivables to SF-III. The timeshare receivables we sold to SF-III are without recourse to us, except for breaches of certain representations and warranties at the time of sale. We are responsible for servicing the timeshare receivables purchased by SF-III pursuant to the terms of the Indenture and will receive a fee for our services. Such fees received approximate our internal cost of servicing such receivables, and approximates the fee a third party would receive to service such receivables. As a result, the related net servicing asset or liability was estimated to be insignificant.

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Silverleaf Finance IV Facility. During the first quarter of 2006 we closed a $100 million revolving senior credit facility through a newly-formed, wholly-owned and consolidated special purpose finance subsidiary, Silverleaf Finance IV, LLC, a Delaware limited liability company. SF-IV was formed for the purpose of issuing a $100 million variable funding note to UBS. During the fourth quarter of 2006 the facility was amended to increase the availability from $100 million to $125 million. The funding period was originally scheduled to end in March 2007 but was extended to December 2008, and the interest rate on advances by UBS to SF-IV was reduced from the initial rate of LIBOR plus 1.5% to LIBOR plus 1.25%. The revised facility will mature in December 2010. The VFN is secured by customer notes receivable sold to SF-IV. Proceeds from the sale of customer notes receivable to SF-IV are used to fund normal business operations and for general working capital purposes. The VFN was issued pursuant to the terms and conditions of an indenture between SF-IV, UBS, and Wells Fargo Bank, National Association, as indenture trustee. We will service the customer notes receivable sold to SF-IV under the terms of an agreement with the indenture trustee and SF-IV.

Silverleaf Finance V Facility. In August 2006, we closed a $128 million term securitization transaction through a newly-formed, wholly-owned and consolidated special purpose finance subsidiary, Silverleaf Finance V, L.P., a Delaware limited partnership. SF-V was formed for the purpose of issuing approximately $128.0 million of its Timeshare Loan-Backed Notes Series 2006-A (“Series 2006-A Notes”) in a private offering and sale through UBS. The Series 2006-A Notes were issued pursuant to the terms and conditions of an indenture between ourselves as servicer, SF-V, as issuer, Silverleaf Finance V, LLC, as general partner of SF-V, and Wells Fargo Bank, National Association, as indenture trustee, custodian, backup servicer, and account intermediary. The Series 2006-A Notes were issued in seven classes ranging from Class A through Class G notes with a blended fixed rate of 6.7%. The Class A through Class G notes have been rated Aaa, Aa2, A2, Baa1, Baa2, Baa3, and Ba2 respectively by Moody’s Investors Service, Inc., and have a final maturity of July 2018.

The Series 2006-A Notes are secured by customer notes receivable sold to SF-V by SF-IV and Silverleaf in three separate transactions from August 2006 to November 2006. The original amount of notes receivable purchased by SF-V to secure the Series 2006-A Notes was $155.1 million and the balance of eligible notes receivable pledged as collateral at December 31, 2006 was $132.2 million. The proceeds from the sale of the customer notes receivable to SF-V were primarily used to pay down consolidated indebtedness to senior lenders. All customer notes receivable purchased by SF-V are being acquired without recourse, except in the case of breaches of customary representations and warranties made in connection with the sale of the notes. We will continue to service the customer notes receivable sold to SF-V under the terms of the indenture and will receive a fee for our services.

Senior Subordinated Notes. We have $3.8 million of 6% senior subordinated notes due April 2007, $2.1 million of 10½% senior subordinated notes due April 2008, and $24.7 million of 8% senior subordinated notes due April 2010, with interest payable semi-annually on April 1 and October 1. Our payment and performance under these senior subordinated notes has been guaranteed by all of our present and future domestic restricted subsidiaries.

The following table summarizes our notes payable, capital lease obligations, and senior subordinated notes at December 31, 2005 and 2006 (in thousands):

	December 31,				Revolving				Interest
	2005		2006		Term		Maturity		Rate
$100 million Textron receivable-based revolver (the loan agreement is currently limited to $60 million of availability).	$	53,661	$	28,903		6/30/08		6/30/11		Prime + 1.00%
$50 million CapitalSource receivable-based revolver		28,800		22,831		4/29/08		4/29/08		Prime + 0.75%
$35 million Wells Fargo Foothill receivable-based revolver		—		93		12/31/08		12/31/11		Prime + 0.50%
$125 million SF-IV receivable-based revolver		—		—		12/3/08		12/3/10		LIBOR+1.25%
$25 million Resort Funding receivable-based revolver		—		—		5/20/07		5/20/10		Prime + 1.50%
$66.4 million Textron receivable-based non-revolving conduit loan		37,224		25,090		—		3/22/14		7.035%
$26.3 million Textron receivable-based non-revolving conduit loan		20,839		14,210		—		9/22/11		7.90%
$128 million SF-V receivable-based non-revolver		—		113,138		—		7/16/18		6.70%
$10 million Textron inventory loan agreement		10,000		10,000		8/31/08		8/31/10		LIBOR+3.25%
$6 million Textron inventory loan agreement		—		5,000		8/31/08		8/31/10		Prime + 3.00%
$5 million Textron inventory loan agreement		3,335		1,115		—		3/31/07		Prime + 3.00%
$30 million CapitalSource inventory loan agreement		15,000		18,876		4/29/09		4/29/11		Prime + 1.50%
$15 million Wells Fargo Foothill inventory loan agreement		6,000		5,985		12/31/08		12/31/10		Prime + 2.00%
Various notes, due from January 2009 through August 2016, collateralized by various assets with interest rates ranging from 6.0% to 8.5%		2,282		7,590		—		various		various
Total notes payable		177,141		252,831
Capital lease obligations		128		1,719		—		various		various
Total notes payable and capital lease obligations		177,269		254,550
6.0% senior subordinated notes, due 2007		3,796		3,796		—		4/1/07		6.00%
10½% senior subordinated notes, due 2008		2,146		2,146		—		4/1/08		10.50%
8.0% senior subordinated notes, due 2010		24,671		24,671		—		4/1/10		8.00%
Interest on the 6.0% senior subordinated notes, due 2007		2,562		854		—		4/1/07		6.00%
Total senior subordinated notes		33,175		31,467
Total	$	210,444	$	286,017

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We have $264.3 million available funding under our current debt facilities. At December 31, 2006, the LIBOR rates on our senior credit facilities were 5.32% (1 month) and 5.37% (3 month) and the Prime rate on these facilities was 8.25%.

Financial Covenants Under Senior Credit Facilities.

The Company’s senior credit facilities discussed above provide certain financial covenants that we must satisfy. Any failure to comply with the financial covenants in any single loan agreement will result in a cross default under the various facilities. The financial covenants as they exist at December 31, 2006 are described below.

Tangible Net Worth Covenant. Each of our senior lenders has a somewhat different requirement, the most restrictive being that we must maintain a Tangible Net Worth at all times greater than the Tangible Net Worth as of December 31, 2004, or $132.1 million, plus 50% of the aggregate amount of Consolidated Net Income after December 31, 2004. “Tangible Net Worth” is (i) the consolidated net worth of the Company and our consolidated subsidiaries, plus (ii) to the extent not otherwise included in the such consolidated net worth, unsecured subordinated indebtedness of the Company and our consolidated subsidiaries the terms and conditions of which are reasonably satisfactory to the required banks, minus (iii) the consolidated intangibles of the Company and our consolidated subsidiaries, including, without limitation, goodwill, trademarks, trade names, copyrights, patents, patent applications, licenses and rights in any of the foregoing and other items treated as intangibles in accordance with generally accepted accounting principles. “Consolidated Net Income” is the consolidated net income of the Company and our subsidiaries, after deduction of all expenses, taxes, and other proper charges (but excluding any extraordinary profits or losses), determined in accordance with generally accepted accounting principles.

Marketing and Sales Expenses Covenant. Our ratio of marketing expenses to Vacation Interval sales for the latest rolling 12 months then ended must not equal or exceed 55% as of the last day of any fiscal quarter. Two senior lenders have increased the ratio we are required to stay below to 57% as of the last day of each fiscal quarter.

Minimum Loan Delinquency Covenant. Our over 30-day delinquency rate on our entire consumer loan portfolio may not be greater than 10% as of the last day of each fiscal quarter.

Debt Service Covenant. Our ratio of (i) earnings before interest, income taxes, depreciation and amortization (“EBITDA”) less capital expenditures as determined in accordance with generally accepted accounting principles to (ii) the interest expense minus all non-cash items constituting interest expense for such period, for the latest rolling 12 months then ending must not be less than 1.25 to 1 as of the last day of each fiscal quarter.

Profitable Operations Covenant. Our Consolidated Net Income (i) for any fiscal year must not be less than $1.00, (ii) for any two consecutive fiscal quarters (reviewed on an individual rather than on an aggregate basis) must not be less than $1.00, and (iii) for any rolling 12-month period must not be less than $1.00.

Leverage Ratio Covenant. Our ratio of debt to Tangible Net Worth must not exceed 6.0 to 1 at any time during the term of the loans.

FICO Score Covenant. Our weighted average FICO Credit Bureau Score for all sales to Silverleaf Owners with respect to which a FICO score can be obtained must not be less than 640 for any fiscal calendar quarter.

Our credit facilities also contain covenants including requirements that we (i) preserve and maintain the collateral securing the loans; (ii) pay all taxes and other obligations relating to the collateral; and (iii) refrain from selling or transferring the collateral or permitting any encumbrances on the collateral. The credit agreements also contain restrictive covenants which include (i) restrictions on liens against and dispositions of collateral, (ii) restrictions on distributions to affiliates and prepayments of loans from affiliates, (iii) restrictions on changes in control and management of the Company, (iv) restrictions on sales of substantially all of the assets of the Company, and (v) restrictions on mergers, consolidations, or other reorganizations of the Company. Under certain credit facilities, a sale of all or substantially all of the assets of the Company, a merger, consolidation, or reorganization of the Company, or other changes of control of the ownership of the Company, would constitute an event of default and permit the senior lenders to accelerate the maturity of the facility.

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As of December 31, 2003 and all periods thereafter, we have been in full compliance with our debt covenants in our credit facilities with all of our senior lenders.

Termination of Silverleaf Finance I Facility

During the fourth quarter of 2000, our qualified special purpose entity, SF-I, entered into a loan and security agreement with Autobahn Funding Company LLC (“Autobahn”), as Lender, DZ Bank, as Agent, and other parties. We serviced receivables that we sold to SF-I under a separate agreement. SF-I pledged the receivables it purchased from us as collateral for funds borrowed from Autobahn. The facility began with a maximum borrowing capacity of $100 million and a scheduled maturity of October 2005. It was subsequently extended to revolve through March 2006 with a final maximum borrowing capacity of $75 million. We dissolved SF-I simultaneously with the sale of our timeshare receivables to SF-III during the third quarter of 2005.

ITEM 1A. RISK FACTORS

If our assumptions and estimates in our business model are wrong, our future results could be negatively impacted.

The financial covenants in our credit facilities are based upon a business model prepared by our management. We used a number of assumptions and estimates in preparing the business model, including:

· We estimated that we will sell our existing and planned inventory of Vacation Intervals within 15 years;

· We assumed that our level of sales and operating profits and costs can be maintained and will grow in future periods;

· We assumed the availability of credit facilities necessary to sustain our operations and anticipated growth; and

· We assumed that we can raise the prices on our products and services as market conditions allow.

These assumptions and estimates are subject to significant business, economic and competitive risks and uncertainties. If our assumptions and estimates are wrong, our future financial condition and results of operations may vary significantly from those projected in the business model.

Neither our past nor present independent auditors have reviewed or expressed an opinion about our business model or our ability to achieve it.

Changes in the timeshare industry could affect our operations.

We operate principally within the timeshare industry. Our results of operations and financial condition could be negatively affected by any of the following events:

· An oversupply of timeshare units,

· A reduction in demand for timeshare units,

· Changes in travel and vacation patterns,

· A decrease in popularity of our resorts with our consumers,

· Governmental regulations or taxation of the timeshare industry, and

· Negative publicity about the timeshare industry.

We may be impacted by general economic conditions.

Our customers may be more vulnerable to deteriorating economic conditions than consumers in the luxury or upscale timeshare markets. An economic slowdown in the United States could depress consumer spending for Vacation Intervals. Additionally, significant increases in the cost of transportation may limit the number of potential customers who travel to our resorts for a sales presentation. During an economic slowdown we could experience increased delinquencies in the payment of Vacation Interval promissory notes and monthly Club dues.

We are at risk for defaults by our customers.

We offer financing to the buyers of Vacation Intervals at our resorts. Notes receivable from timeshare buyers constitute one of our principal assets. These buyers make down payments of at least 10% of the purchase price and deliver promissory notes to us for the balances. The promissory notes generally bear interest at a fixed rate, are payable over a seven-year to ten-year period, and are secured by a first mortgage on the Vacation Interval. We bear the risk of defaults on these promissory notes. Although we prescreen prospects by credit scoring them in the early stages of the marketing and sales process, we generally do not perform a detailed credit history review of our customers, as is the case with most other timeshare developers.

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We recorded 17.3% of the purchase price of Vacation Intervals as estimated uncollectible revenue for the year ended December 31, 2006, which resulted in a decrease in our sales revenue of $32.5 million for the year 2006, in accordance with SFAS 152 which we adopted effective January 1, 2006. When a buyer of a Vacation Interval defaults, we foreclose on the Vacation Interval and attempt to resell it. The associated marketing, selling, and administrative costs from the original sale are not recovered; and we will incur such costs again when we resell the Vacation Interval. Although we may have recourse against a Vacation Interval buyer for the unpaid price, certain states have laws that limit our ability to recover personal judgments against customers who have defaulted on their loans. For example, if we were to file a lawsuit to collect the balance owed to us by a customer in Texas (where approximately 61% of Vacation Interval sales took place in 2006), the customer could file a court proceeding to determine the fair market value of the property foreclosed upon. In such event, we may not recover a personal judgment against the customer for the full amount of the deficiency. We would only recover an amount that the indebtedness owed to us exceeds the fair market value of the property. Accordingly, we have generally not pursued this remedy.

At December 31, 2006, we had Vacation Interval customer notes receivable in the approximate principal amount of $297.4 million, and had an allowance for uncollectible notes of approximately $68.1 million. We cannot be certain that this allowance is adequate.

We must borrow funds to finance our operations.

Our business is dependent on our ability to finance customer notes receivable through our banks. At December 31, 2006, we either directly or through our fully consolidated finance subsidiaries owed approximately $245.2 million of principal to our senior lenders.

Borrowing Base. We have receivable-based loan agreements with senior lenders to borrow up to approximately $447.4 million. We pledged our customer promissory notes and mortgages as security under these agreements. Our senior lenders typically lend us 75% to 80% of the principal amount of our customers' notes, and payments from Silverleaf Owners on such notes are credited directly to the senior lender and applied against our loan balance. At December 31, 2006, we had a portfolio of approximately 36,104 Vacation Interval customer notes receivable in the approximate principal amount of $297.4 million. Approximately $4.7 million in principal amount of our customers' notes were 61 days or more past due and, therefore, ineligible as collateral. The amount of customer notes receivable eligible as collateral in the future may not be sufficient to support the borrowings we may require for our liquidity and continued growth.

Negative Cash Flow. We ordinarily receive only 10% to 15% of the purchase price as a down payment on the sale of a Vacation Interval, but we must pay in full the costs of development, marketing, and sale of the interval. Maximum borrowings available under our credit facilities may not be sufficient to cover these costs, thereby straining our capital resources, liquidity, and capacity to grow.

Interest Rate Mismatch. At December 31, 2006, our portfolio of customer loans had a weighted average fixed interest rate of 15.7%. At such date, our borrowings (which bear interest predominantly at variable rates) against the portfolio had a weighted average cost of funds of 7.9%. We have historically derived net interest income from our operating activities because the interest rates we charge our customers who finance the purchase of their Vacation Intervals exceed the interest rates we pay to our senior lenders. Because 38% of our existing indebtedness currently bears interest at variable rates and our customer notes receivable bear interest at fixed rates, increases in interest rates charged by our senior lenders would erode the spread in interest rates that we have historically enjoyed and could cause the interest expense on our borrowings to exceed our interest income on our portfolio of customer notes receivable. Therefore, any increase in interest rates, particularly if sustained, could have a material adverse effect on our results of operations, liquidity, and financial condition. To the extent interest rates decrease on loans available to our customers, we face an increased risk that customers will pre-pay their loans, which would reduce our income from operating activities.

To partially offset an increase in interest rates, we have engaged in two interest rate hedging transactions, or derivatives, related to our conduit loan with Silverleaf Finance II, Inc., a Delaware corporation, for a notional amount of $39.3 million at December 31, 2006, that expires between September 2011 and March 2014. Our VFN with SF-IV also acts as an interest rate hedge since it contains a provision for an interest rate cap, however there are no amounts outstanding under this line of credit at December 31, 2006.

In addition, the Series 2005-A Notes related to our off-balance sheet special purpose finance subsidiary, SF-III, with a balance of $52.3 million at December 31, 2006, bear interest at a blended fixed rate of 5.4%, and our Series 2006-A Notes related to SF-V bear interest at a blended fixed rate of 6.7%.

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Maturity Mismatch. We typically provide financing to our customers over a seven-year to ten-year period. Our customer notes had an average maturity of 6.75 years at December 31, 2006. Our senior credit facilities have scheduled maturity dates between April 2008 and July 2018. Additionally, should our revolving credit facilities be declared in default, the amount outstanding could be declared to be immediately due and payable. Accordingly, there could be a mismatch between our anticipated cash receipts and cash disbursements in 2007 and subsequent periods. Although we have historically been able to secure financing sufficient to fund our operations, we do not presently have agreements with our senior lenders to extend the term of our existing funding commitments beyond their scheduled maturity dates or to replace such commitments upon their expiration, with the exception of our debt with Textron Financial Corporation, noted directly below. If we are unable to refinance our existing loans, we could be required to sell our portfolio of customer notes receivable, probably at a substantial discount, or to seek other alternatives to enable us to continue in business. We cannot be certain that we will be able to obtain required financing in the future.

In the first quarter of 2007, we consolidated our debt with Textron Financial Corporation into one revolving loan. As a result of the amended and restated loan and security agreement, the funding period on the consolidated debt has been extended from June 2008 to January 2010, with revised maturity dates of January 31, 2013 for the receivables component and January 31, 2012 on both the acquisition and inventory components. In addition, the interest rates previously charged have been reduced. This transaction is described in more detail under the heading “Subsequent Events” in Note 17 to our Consolidated Financial Statements beginning on page F-1.

Impact on Sales. Limitations on the availability of financing would inhibit sales of Vacation Intervals due to (i) the lack of funds to finance the initial negative cash flow that results from sales that we finance and (ii) reduced demand if we are unable to provide financing to purchasers of Vacation Intervals.

We may not be able to obtain additional financing.

Several unpredictable factors may cause our adjusted EBITDA to be insufficient to meet debt service requirements or satisfy financial covenants. We incurred net losses in one of the past five years. Should we record net losses in future periods, our cash flow and our ability to obtain additional financing could be materially and adversely impacted.

Many of the factors that will determine whether or not we generate sufficient EBITDA to meet current or future debt service requirements and satisfy financial covenants are inherently difficult to predict. These factors include:

·   the number of sales of Vacation Intervals;

·   the average purchase price per interval;

·   the number of customer defaults;

·   our cost of borrowing;

·   our sales and marketing costs and other operating expenses; and

·   the continued sale of notes receivable.

Our current and planned expenses and debt repayment levels are and will be to a large extent fixed in the short term, and are based in part on past expectations as to future revenues and cash flows. We may be unable to reduce spending in a timely manner to compensate for any past or future revenue or cash flow shortfall. It is possible that our revenue, cash flow or operating results may not meet the expectations of our business model, and may even result in our being unable to meet the debt repayment schedules or financial covenants contained in the various agreements which evidence our indebtedness.

Our leverage is significant and may impair our ability to obtain additional financing, reduce the amount of cash available for operations, and make us more vulnerable to financial downturns.

Our agreements with our various lenders may:

· require a substantial portion of our cash flow to be used to pay interest expense and principal;

· impair our ability to obtain on acceptable terms, if at all, additional financing that might be necessary for working capital, capital expenditures or other purposes; and

· limit our ability to further refinance or amend the terms of our existing debt obligations, if necessary or advisable.

We may not be able to manage our financial leverage as we intend, and we may not be able to achieve an appropriate balance between the rate of growth which we consider acceptable and future reductions in financial leverage. If we are not able to achieve growth in adjusted EBITDA, we may not be able to refinance our existing debt obligations and we may be precluded from incurring additional indebtedness due to cash flow coverage requirements under existing or future debt instruments.

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Our business is highly regulated.

We are subject to substantial governmental regulation in the conduct of our business. See “Item 1. Business - Governmental Regulation, Environmental Matters, Utility Regulation, Other Regulation, and Item 3. Legal Proceedings.” If we are found to have violated any statute, rule, or regulation applicable to us, our assets, or our business, it could have a material adverse effect on our results of operations, liquidity, and financial condition.

We are dependent on our key personnel.

The loss of the services of the key members of management or our inability to hire when needed, retain, and integrate needed new or replacement management and employees could have a material adverse effect on our results of operations, liquidity, and financial condition in future periods.

We will incur costs at our resorts for additional development and construction activities.

We intend to continue to develop our Existing Resorts. We also intend to acquire or develop additional timeshare resorts; however, continued development of our resorts places substantial demands on our liquidity and capital resources, as well as on our personnel and administrative capabilities. Risks associated with our development and construction activities include:

· construction costs or delays at a property may exceed original estimates which could make the development uneconomical or unprofitable; 

· sales of Vacation Intervals at a newly completed property may not be sufficient to make the property profitable; and 

· financing may not be available on favorable terms for development of or the continued sales of Vacation Intervals at a property.

We cannot be certain that we will have the liquidity and capital resources to develop and expand our resorts as we presently intend.

Our development and construction activities, as well as our ownership and management of real estate, are subject to comprehensive federal, state, and local laws regulating such matters as environmental and health concerns, protection of endangered species, water supplies, zoning, land development, land use, building design and construction, marketing and sales, and other matters. Our failure to maintain the requisite licenses, permits, allocations, authorizations, and other entitlements pursuant to such laws could impact the development, completion, and sale of Vacation Intervals at our resorts. The enactment of “slow growth” or “no-growth” initiatives or changes in labor or other laws in any area where our resorts are located could also delay, affect the cost or feasibility of, or preclude entirely the expansion planned at one or more of our resorts.

Most of our resorts are located in rustic areas; which in the past have often required us to provide public utility water and sanitation services in order to proceed with development. This development is subject to permission and regulation by governmental agencies, the denial or conditioning of which could limit or preclude development. Although we are not currently operating any such utilities, if future development requires that we do, we would be subject to risk of liability in connection with both the quality of fresh water provided and the treatment and discharge of waste-water.

In March 2005, we sold the water distribution and waste water treatment utilities assets at eight of our resorts located in Texas, Illinois and Missouri. The purchasers of those assets entered into separate services agreements to provide uninterrupted water supply and waste water treatment services to the eight resorts and to maintain the utilities assets. The purchasers have also agreed to provide sufficient future capital additions at each resort as will be required to provide at least the same level of utility services to the resort as is currently provided. Failure by the purchasers of these utility assets to supply service to the resorts or to adequately maintain and expand when required the water distribution and waste water treatment utilities assets could impact our ability to provide the utilities necessary to operate the resorts or to expand them, either of which could have a material effect on our results of operation.

We must incur costs to comply with laws governing accessibility of facilities to disabled persons.

We are subject to a number of state and federal laws, including the Fair Housing Act and the Americans with Disabilities Act (the “ADA”), that impose requirements related to access and use by disabled persons of a variety of public accommodations and facilities. The ADA requirements did not become effective until after January 1, 1991. Although we believe our Existing Resorts are substantially in compliance with these laws, we will incur additional costs to fully comply with these laws. Additional federal, state, and local legislation may impose further restrictions or requirements on us with respect to access by disabled persons. The ultimate cost of compliance with such legislation is not currently known, however such costs are not expected to have a material effect on our results of operations, liquidity, and financial condition.

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We may be vulnerable to regional conditions.

Our performance and the value of our properties are affected by regional factors, including local economic conditions (which may be adversely impacted by business layoffs or downsizing, industry slowdowns, changing demographics, and other factors) and the local regulatory climate. Our current geographic concentration could make us more susceptible to adverse events or conditions that affect these areas in particular. At December 31, 2006, 54% of our owners lived in Texas, 15% lived in Illinois, 8% lived in Massachusetts, and 4% lived in Missouri. Our remaining customer base lives primarily in other states within the United States of America.

We may be liable for environmental claims.

Under various federal, state, and local laws, ordinances, and regulations, as well as common law, the owner or operator of real property generally is liable for the costs of removal or remediation of certain hazardous or toxic substances located on, in, or emanating from, such property, as well as related costs of investigation and property damage. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of the hazardous or toxic substances. The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner's ability to sell or lease a property or to borrow money using such real property as collateral. Other federal and state laws require the removal or encapsulation of asbestos-containing material when such material is in poor condition or in the event of construction, demolition, remodeling, or renovation. Other statutes may require the removal of underground storage tanks. Noncompliance with these and other environmental, health, or safety requirements may result in the need to cease or alter operations at a property. Further, the owner or operator of a site may be subject to common law claims by third parties based on damages and costs resulting from violations of environmental regulations or from contamination associated with the site. Phase I environmental reports (which typically involve inspection without soil sampling or ground water analysis) were prepared in 2001 or later by independent environmental consultants for all of the Existing Resorts. The reports did not reveal, nor are we aware of, any environmental liability that would have a material adverse effect on our results of operations, liquidity, or financial condition. We cannot be certain that the Phase I reports revealed all environmental liabilities or that no prior owner created any material environmental condition not known to us.

Certain environmental laws impose liability on a previous owner of property to the extent hazardous or toxic substances were present during the prior ownership period. A transfer of the property may not relieve an owner of such liability. Thus, we may have liability with respect to properties previously sold by us or by our predecessors.

We believe that we are in compliance in all material respects with all federal, state, and local ordinances and regulations regarding hazardous or toxic substances. We have not been notified by any governmental authority or third party of any non-compliance, liability, or other claim in connection with any of our present or former properties.

Our sales could decline if our resorts do not qualify for participation in an exchange network.

The attractiveness of Vacation Interval ownership is enhanced by the availability of exchange networks that allow Silverleaf Owners to exchange in a particular year the occupancy right in their Vacation Interval for an occupancy right in another participating network resort. According to ARDA, the ability to exchange Vacation Intervals was cited by many buyers as an important reason for purchasing a Vacation Interval. Several companies, including RCI, provide broad-based Vacation Interval exchange services, and as of December 31, 2006, the Existing Resorts are qualified for participation in the RCI exchange network (except for Orlando Breeze, which is qualified through Interval International, a competitor of RCI). We cannot be certain that we will be able to continue to qualify the Existing Resorts or any future resorts for participation in these networks or any other exchange network. If such exchange networks cease to function effectively, or if our resorts are not accepted as exchanges for other desirable resorts, our sales of Vacation Intervals could decline.

Our sales would be affected by a secondary market for Vacation Intervals.

We believe the market for resale of Vacation Intervals is very limited and that resale prices are substantially below the original purchase price of a Vacation Interval. This may make ownership of Vacation Intervals less attractive to prospective buyers. Owners of Vacation Intervals who wish to sell their Vacation Interval compete with our sales. Vacation Interval resale clearing houses and brokers, including Internet-based clearinghouses, do not currently have a material impact on our sales. However, if the secondary market for Vacation Intervals becomes more organized and liquid, whether through Internet-based clearinghouses and brokers or other means, the availability of resale intervals at lower prices could materially adversely affect our prices and our ability to sell new Vacation Intervals.

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Our sales are seasonal in nature.

Our sales of Vacation Intervals have generally been lower in the months of November and December. Cash flow and earnings may be impacted by the timing of development, the completion of future resorts, and the potential impact of weather or other conditions in the regions where we operate. Our operating results could be negatively impacted by these factors.

We are not insured for certain types of losses.

We do not insure certain types of losses (such as losses arising from floods and acts of war) either because insurance is unavailable or unaffordable. Should an uninsured loss or a loss in excess of insured limits occur, we could be required to repair damage at our expense or lose our capital invested in a resort, as well as the anticipated future revenues from such resort. We would continue to be obligated on any mortgage indebtedness or other obligations related to the property. Our results of operations, liquidity, and financial condition could be adversely affected by such losses.

We will continue to be leveraged.

Our ability to finance customer notes receivable and develop our resorts is dependent upon borrowed funds, which would be collateralized by certain of our assets. In addition, our loan agreements contain financial covenants that must be complied with in order to continue to borrow additional funds. Failure to comply with such covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on our results of operations, liquidity, and financial condition. Future loan agreements would likely contain similar restrictions.

The indentures pertaining to our 6% and 8% senior subordinated notes permit us to incur certain additional indebtedness, including indebtedness secured by our customer notes receivable. Accordingly, to the extent our customer notes receivable increase and we have sufficient credit facilities available, we may be able to borrow additional funds. The indentures pertaining to our 6% and 8% senior subordinated notes also permit us to borrow additional funds in order to finance development of our resorts. Future construction loans will likely result in liens against the respective properties.

Common Stock could be impacted by our indebtedness.

The level of our indebtedness could negatively impact holders of our Common Stock, because:

· a substantial portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness;

· our ability to obtain additional debt financing in the future for working capital, capital expenditures or acquisitions may be limited;

· our level of indebtedness could limit our flexibility in reacting to changes in the industry and economic conditions generally;

· negative covenants in our loan agreements may limit our management’s ability to operate our business in the best interests of our shareholders;

· some of our loans are at variable rates of interest, and a substantial increase in interest rates could adversely affect our ability to meet debt service obligations; and

· increased interest expense will reduce earnings, if any.

We could lose the right to manage the Clubs.

Each Existing Resort has a Club that operates through a centralized organization called Silverleaf Club, to manage most of our Existing Resorts on a collective basis, except for Orlando Breeze, which has its own Club. The consolidation of operations at most of our Existing Resorts through Silverleaf Club permits:

· a centralized reservation system for all resorts;

· substantial cost savings by purchasing goods and services for all resorts on a group basis, which generally results in a lower cost of goods and services than if such goods and services were purchased by each resort on an individual basis;

· centralized management for the entire resort system;

· centralized legal, accounting, and administrative services for the entire resort system; and

· uniform implementation of various rules and regulations governing all resorts.

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We currently have the right to unilaterally appoint the board of directors or governors of the Clubs until the respective control periods have expired (typically triggered by the cessation of sales of the planned development), unless otherwise provided by the bylaws of the association or under applicable law. Thereafter, the bylaws of certain of the Clubs require that a majority of the members of the board of directors or governors of those Clubs be owners of Vacation Intervals of those resorts. The loss of control of the board of directors or governors of the Clubs could result in our being unable to unilaterally cause the renewal of the Management Agreement with the Silverleaf Club when it expires in 2010. This could result in a loss of revenue and have other materially adverse effects on our business, financial condition, or results of operations.

We could issue Preferred Stock that would have rights and preferences senior to Common Stock.

Our Articles of Incorporation authorize the Board of Directors to issue up to 10,000,000 shares of Preferred Stock in one or more series and to establish the preferences and rights (including the right to vote and the right to convert into Common Stock) of any series of Preferred Stock issued. Such preferences and rights would likely grant to the holders of the Preferred Stock certain preferences in right of payment upon a dissolution of the Company and the liquidation of our assets that would not be available to the holders of our Common Stock. To the extent that our credit facilities would permit, the Board could also establish a dividend payable to the holders of the Preferred Stock that would not be available to the holders of the Common Stock.

Our cash flow may not be adequate upon an acceleration of deferred taxes.

While we report sales of Vacation Intervals as income for financial reporting purposes at the time of the sale after receiving a 10% to 15% down payment, for federal income tax purposes, we report substantially all Vacation Interval sales on the installment method. Under the installment method, we recognize income for regular federal income tax purposes on the sale of Vacation Intervals when cash is received in the form of a down payment and as payments on customer loans are received. Our liability for deferred taxes (i.e., taxes owed to taxing authorities in the future in consequence of income previously reported in the financial statements) was $88.7 million at December 31, 2006, primarily attributable to this method of reporting Vacation Interval sales, before utilization of any available deferred tax benefits (up to $71.0 million at December 31, 2006), including net operating loss carryforwards, limitations on the use of which are discussed below. These amounts do not include accrued interest on the deferred taxes, which will be payable if the deferred taxes become payable, the amount of which is not now reasonably ascertainable. If we should sell the installment notes or be required to factor them or if the notes were foreclosed on by one of our senior lenders or otherwise disposed of, the deferred gain would be reportable for regular federal tax purposes and the deferred taxes, including interest on the taxes for the period the taxes were deferred, as computed under Section 453 of the Internal Revenue Code of 1986, as amended (the “Code”), would become due. We cannot be certain that we would have sufficient cash resources to pay those taxes and interest nor can we be certain how the payment of such taxes may affect our operational liquidity needs. Furthermore, if our sales of Vacation Intervals should decrease in the future, our diminished operations may not generate either sufficient tax losses to offset taxable income or funds to pay the deferred tax liability from prior periods.

We will be subject to Alternative Minimum Taxes.

For purposes of computing the 20% alternative minimum tax (“AMT”) imposed under Section 55 of the Code on our alternative minimum taxable income (“AMTI”), the installment sale method is generally not allowed. The Code requires an adjustment to our AMTI for a portion of our adjusted current earnings (“ACE”). Our ACE must be computed without application of the installment sale method. Accordingly, we anticipate that we will pay significant AMT in future years. Section 53 of the Code does provide that we will be allowed a credit (“minimum tax credit”) against our regular federal income tax liability for all or a portion of any AMT previously paid.

Due to losses incurred in 2000 and 2001, we received refunds of AMT totaling $8.3 million during 2001 and $1.6 million during 2002 as a result of the carryback of our 2000 and 2001 AMT losses to 1999, 1998, and 1997. For 2006, we estimate our AMT liability is approximately $7.2 million, with the result that we will have total AMT credit carryforwards of approximately $8.5 million as of December 31, 2006.

Due to the exchange offer described under the next heading, an ownership change, within the meaning of Section 382(g) of the Code occurred. Under Section 383, the amount of the excess credits which exist as of the date of an ownership change can be used to offset tax liability for post-change years only to the extent of the Section 383 Credit Limitation, which amount is defined as the tax liability which is attributable to so much of the taxable income as does not exceed the Section 382 limitation for such post-change year to the extent available after the application of various adjustments. As a result of the above-described refunds of previously paid AMT, there is no minimum tax credit that is subject to Section 383 of the Code as a result of our ownership change. If it is subsequently determined that we have an AMT liability for prior years, and thus a minimum tax credit as of the time of the exchange offer, or if additional “ownership changes” within the meaning of Section 382(g) of the Code occur in the future, we cannot be certain that such ownership changes will not result in a limitation on the use of any such minimum tax credit. See the discussion under the next heading regarding possible future ownership changes.

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Our use of net operating loss carryforwards could be limited by an ownership change.

We had net operating loss (“NOL”) carryforwards of approximately $162.4 million at December 31, 2006, for regular federal income tax purposes, related primarily to the immediate deduction of expenses and the simultaneous deferral of installment sale gains. In addition to the general limitations on the carryback and carryforward of NOLs under Section 172 of the Code, Section 382 of the Code imposes additional limitations on the utilization of NOLs by a corporation following various types of ownership changes which result in more than a 50 percentage point change in ownership of a corporation within a three year period.

Our completion in 2002 of our exchange offer with certain holders of our senior subordinated notes resulted in an ownership change within Section 382(g) as of May 2, 2002 (the “change date”). As a result, the future utilization of approximately $36.2 million of our NOL as of December 31, 2006, is subject to limitation for regular federal income tax purposes. There is an annual limitation of approximately $768,000, which was the value of our stock immediately before the ownership change, multiplied by the applicable long term tax exempt rate. However, that annual limitation may be increased for any recognized built in gain, which existed as of the change date to the extent allowed in Section 382 of the Code. We believe that the built in gain associated with the installment sale gains as of the change date increases the annual limitation and will allow the utilization of most of the $36.2 million portion of our NOL as needed. Nevertheless, we cannot be certain that the limitations of Section 382 will not limit or deny our future utilization of the $36.2 million portion of our NOL. Such limitation or denial could require us to pay substantial additional federal and state taxes and interest.

Moreover, we cannot be certain that future ownership changes will not limit or deny our future utilization of all of our NOL. The more than 50 percentage point test for a change in ownership is based on a three year lookback and will be determined for the three years commencing May 26, 2006, by including the 8,000,000 shares sold by two of our principal shareholders on that date, which resulted in an approximately 21.3 percentage point change in ownership based on the shares outstanding on that date. Therefore, that change in ownership, when combined with other changes before and after that date, could result in another more than 50 percentage point change in ownership in the future.

If we cannot utilize our NOL, we will be required to pay substantial additional federal and state taxes and interest. Such tax and interest liabilities may adversely affect our liquidity.

We could be liable for back payroll taxes if our independent contractors are reclassified as employees.

Although we treat all on-site sales personnel as employees for payroll tax purposes, we do have independent contractor agreements with certain sales and marketing persons or entities. We have not treated these independent contractors as employees and do not withhold payroll taxes from the amounts paid to such persons or entities. In the event the Internal Revenue Service or any state or local taxing authority were to successfully classify such persons or entities as employees, rather than as independent contractors, we could be liable for back payroll taxes. This could have a material adverse effect on our results of operations, liquidity and financial condition.

We could be negatively impacted by National and state Do Not Call Lists.

We rely heavily on telemarketing activities to arrange tours of our resorts to potential customers. On July 3, 2003, the Federal Communications Commission (“FCC”) released new rules and regulations promulgated under the Telephone Consumer Protection Act of 1991, which could have a negative impact on our telemarketing activities. The FCC has implemented, in conjunction with the Federal Trade Commission (“FTC”), a National Do Not Call Registry, which applies to both interstate and intrastate commercial telemarketing calls. The FTC has reported that approximately 107 million telephone numbers had been registered on the National Do Not Call Registry by the end of 2005. This could sharply limit the number of contacts we will be able to make through our telemarketing activities. We will continue to telemarket to individuals who do not place their telephone numbers on a do-not-call list and those with whom we have an established business relationship. Our use of autodialers to call potential customers in our database could also be restricted by new call abandonment standards specified in the FCC rules and regulations. We cannot currently determine the impact that these new regulations could have on our sales; however, the large number of telephone numbers registered on the National Do Not Call Registry and the restrictions on our use of autodialers could negatively affect our sales and marketing efforts and require us to use less effective, more expensive alternative marketing methods. The new rules became effective on October 1, 2003 and we have experienced a decline in the number of telemarketing calls we are able to complete as a result of the changes in the rules relating to the use of automatic dialers. All companies involved in telemarketing expect some negative impact to their businesses as a result of the do-not-call rules and other federal and state legislation, which seeks to protect the privacy of consumers from various types of marketing solicitations. Because of our historical dependence on telemarketing, we believe that these changes in the law will continue to have a material impact on our operations and will require us to modify our historical marketing practices in order to both remain compliant with the law and to achieve the levels of resort tours by consumers which are necessary for our profitable operation. We will continue to assess both the rules' impact on operations and alternative methods of marketing, such as direct mail, that are not impacted by the new rules. In addition to the National Do Not Call List, various states have implemented Do Not Call legislation that also may affect our business.

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The substantially increased costs of our compliance with the requirements of the Sarbanes-Oxley Act, including the requirements of Section 404, may adversely affect our available cash, our management team’s attention to our core business, and the price of our stock.

We are not yet required to fully comply with the internal control reporting provisions of §404 of the Sarbanes-Oxley Act of 2002, and the rules and regulations promulgated thereunder by the SEC to implement §404. Unless extended further by the SEC, companies of our size (i.e., non-accelerated filers) are required to be in full compliance with §404 for fiscal years ending on or after July 15, 2007. If we become subject to §404, we will be required to furnish a report by our management to include in our Annual Report on Form 10-K regarding the effectiveness of our internal control over financial reporting. The report would include, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. Section 404 would also require our auditors to express an opinion on the effectiveness of our internal control. In an effort to be prepared to comply with the requirements of §404, we have taken steps over the last several years to increase the effectiveness of our internal control over financial reporting. These internal control enhancements have resulted in substantially increased costs to us. Our management also regularly evaluates the effectiveness and design and operation of our disclosure controls and procedures and our internal control over financial reporting. While we currently believe our disclosure controls and procedures and our internal controls over financial reporting which are in place are effective and properly documented, we may find it necessary to continue to incur substantially increased costs in future periods to further enhance our internal controls over financial reporting. There can be no assurance that our continuing assessment of the effectiveness of our internal control over financial reporting will not result in increased costs of compliance which may adversely affect our available cash, our management team’s attention to our core business, and our stock price.

The market trading price of our Common Stock has been and is likely to continue to be volatile.

The market trading price of our common stock has been and is likely to continue to be subject to significant fluctuations. For example, the closing market trading price for our common stock has fluctuated over the past two years from a low of $1.20 to a high of $5.00. Because of our stock’s history of trading volatility, we believe that significant market fluctuations are likely to continue in future periods.

The trading market for our Common Stock may be limited.

Approximately 45% of our shares are held by non-affiliates and there has historically been a low and inconsistent trading volume for our shares. For example, the average daily trading volume for our shares for the two-month period ended February 28, 2007 was approximately 79,000 shares. There can be no assurance that an active and steady trading market, which is not subject to extreme fluctuations, will develop for our shares.

Sales of Common Stock by existing shareholders, including officers or directors, may adversely affect the market price of our Common Stock.

Approximately 55% of our common stock is held by affiliates, including our officers and directors. Volume sales of stock by these affiliates in the trading market coupled with the historically low daily trading volume for our common stock may materially and adversely affect the market price of our common stock.

We may fail to meet the continued listing requirements of The NASDAQ Capital Market.

Effective as of February 28, 2007, we began trading on The NASDAQ Capital Market and ceased trading on AMEX. However, due to the historic volatility of the market trading price of our common stock, there can be no assurance that we will continue to meet the requirements for continued listing on NASDAQ. Our failure to comply with NASDAQ listing standards could result in the delisting of our common stock by NASDAQ, thereby limiting the ability of our shareholders to sell our common stock.

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Certain of our existing shareholders have the ability to exert a significant amount of control over the Company.

As of December 31, 2006, Robert E. Mead, our Chairman of the Board and Chief Executive Officer, beneficially owned approximately 24.7% of our outstanding common stock and one related entity, Grace Brothers, Ltd. (“Grace”), beneficially owned 16.2% of our common stock.  As a result, these individuals and entities are able to exert significant influence over the Company and its activities, including the nomination, election and removal of our board of directors, the adoption of amendments to our charter documents, and the outcome of any corporate transaction or other matter submitted to our shareholders for approval, including mergers, consolidations, and the sale of all or substantially all of our assets.

Mr. Mead's interests and Grace's interest may conflict with the interests of other holders of our common stock and they may take actions affecting us with which other shareholders may disagree. For example, if they determined to act in concert, Grace and Mr. Mead may decide not to enter into a transaction in which our shareholders would receive consideration for their shares that is much higher than the cost of their investment in our common stock, or than the then current market price of our common stock.

Available Information

We file reports with the Securities and Exchange Commission (“SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished to the SEC pursuant to the requirements of the Securities Exchange Act of 1934. The general public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room located at 100 F Street N.E., Washington, DC 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. This site is located at www.sec.gov.

Our Internet address is www.silverleafresorts.com. On our Internet website, we provide a link to the SEC’s website where our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished to the SEC pursuant to the requirements of the Securities Exchange Act of 1934 can be viewed. Upon request, we will make available free of charge copies of the aforementioned reports, as well as copies of the charters of the three independent committees of our board of directors and our Code of Business Conduct and Ethics. This information can be obtained by written request to us at: Silverleaf Resorts, Inc. Attention: Sandra G. Cearley, Corporate Secretary, 1221 River Bend Drive, Suite 120, Dallas, Texas 75247. The information contained on our website, or on other websites linked to our website, is not part of this report.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our principal executive office, located in Dallas, Texas, is approximately 66,000 square feet of leased space. We also maintain two leased telemarketing centers in the Dallas area. Our sales are conducted primarily through sales centers located at our various resorts and a leased off-site sales center in Irving, Texas, which opened in March 2006.

At December 31, 2006, we owned a total of 13 timeshare resorts. Each of these resorts was encumbered by various liens and security agreements at December 31, 2006 due to inventory from each resort being pledged as collateral under our inventory credit facilities with our senior lenders. See Note 8 - Debt, in the Notes to our Consolidated Financial Statements for a further description of these credit facilities. Principal developmental activity which occurred at our Existing Resorts during 2006 and future plans are summarized below.

Continued Development of The Villages Resort. The Villages Resort, located approximately 100 miles east of Dallas, Texas, has 346 existing units. We intend to develop approximately 84 additional units (4,368 Vacation Intervals) at this resort in the future. During 2006 we did not add any new units at this resort.

Continued Development of Piney Shores Resort. Piney Shores Resort, located near Conroe, Texas, north of Houston, has 190 existing units. We intend to develop approximately 102 additional units (5,304 Vacation Intervals) at this resort. During 2006, we added 12 new units at this resort.

Continued Development of Timber Creek Resort. Timber Creek Resort, located in Desoto, Missouri, has 72 existing units. We intend to develop approximately 24 additional units (1,248 Vacation Intervals) at this resort. During 2006, we did not add any new units at this resort.

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Continued Developmentof Fox River Resort. Fox River Resort, located 70 miles southwest of Chicago, in Sheridan, Illinois, has 228 existing units. We intend to develop approximately 222 additional units (11,544 Vacation Intervals) at this resort. During 2006, we added 6 new units at this resort.

Continued Developmentof Apple Mountain Resort. Apple Mountain Resort, located approximately 125 miles north of Atlanta, Georgia, has 72 existing units. We intend to develop approximately 144 additional units (7,488 Vacation Intervals) at this resort. During 2006, we did not add any new units at this resort.

Continued Developmentof Ozark Mountain Resort. Ozark Mountain Resort, located approximately 15 miles from Branson, Missouri, has 148 existing units. We intend to develop approximately 12 additional units (624 Vacation Intervals) at this resort. During 2006, we added 12 new units at this resort.

Continued Developmentof Holiday Hills Resort. Holiday Hills Resort, located two miles east of Branson, Missouri, in Taney County, has 446 existing units. We intend to develop approximately 456 additional units (23,712 Vacation Intervals) at this resort. During 2006, we added 24 units at this resort. In addition, in December 2005 we acquired approximately 81 acres of land near this resort that we intend to newly develop in the future.

Continued Developmentof Hill Country Resort. Hill Country Resort, located near Canyon Lake in the hill country of central Texas between Austin and San Antonio, has 302 existing units. We intend to develop approximately 210 additional units (10,920 Vacation Intervals) at this resort. During 2006, we added 12 new units at this resort.

ContinuedDevelopment of Oak N' Spruce Resort. Oak N’ Spruce Resort, located 134 miles west of Boston, Massachusetts, has 308 existing units. We intend to develop approximately 42 additional units (2,184 Vacation Intervals) at this resort in the future. During 2006, we added 24 new units at this resort.

Continued Developmentof Silverleaf’s Seaside Resort. Silverleaf’s Seaside Resort, located in Galveston, Texas, has 120 existing units. We intend to develop approximately 288 additional units (14,976 Vacation Intervals) at this resort. During 2006, we added 24 new units at this resort.

Continued Development of Orlando Breeze Resort. Orlando Breeze Resort, located in Davenport, Florida, just outside Orlando, Florida, has 48 existing units. We intend to develop approximately 24 additional units (1,248 Vacation Intervals) at this resort. During 2006, we did not add any new units at this resort. On January 4, 2006, we purchased an additional 30 acres contiguous to the Orlando Breeze Resort. We have not yet finalized plans for development of this property.

As of December 31, 2006, we had construction commitments of approximately $21.8 million.

Pinnacle Lodge. In April 2006 we purchased Pinnacle Lodge, a 64 room hotel property located near the Winter Park recreational area in Colorado which provides our owners with another destination vacation alternative and gives Silverleaf an entry point into this increasingly popular destination area.

In December 1998, we purchased 1,940 acres of undeveloped land near Philadelphia, Pennsylvania, for approximately $1.9 million. The property was intended to be developed as a Getaway Resort (i.e., Beech Mountain Resort). We received regulatory approval to develop 408units (21,216 Vacation Intervals), but we did not schedule dates for construction, completion of initial units, or commencement of marketing and sales efforts. In 2003, we determined that we would not develop this property as initially planned. In 2005, we sold this property for an aggregate sales price of $6.1 million after related expenses, which resulted in a gain of $3.6 million.

We also own a 500-acre tract of land in the Berkshire Mountains of Western Massachusetts that we are in the initial stages of developing. We have not yet finalized our future development plans for this site; however, we believe that its proximity to major population centers in the Northeastern United States and the year-round outdoor recreational attractions in the Berkshire region make this property suitable for future development as a timeshare resort.

Future Growth Strategy

Our future growth strategy is to conservatively increase annual revenues through a combination of:

· continuing to develop new or existing resorts;

· maintaining marketing, sales, and development activities at those resorts in accordance with our current business model;

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· concentrating on marketing to existing members, including sales of upgraded Vacation Intervals, additional week sales, and existing owner referral programs;

· adding other assets and amenities to attract our customers by enhancing vacation experiences;

· opening new off-site sales centers in major metropolitan areas; and

· emphasizing our secondary products, such as biennial (alternate year) intervals, to broaden our potential market with a wider price range of products for first time buyers.

Competitive Advantages

We believe our business affords us the following competitive advantages:

Convenient Getaway Locations. Our Getaway Resorts are located within a two-hour drive of a majority of our target customers' residences, which accommodates what we believe to be the growing demand for shorter, more frequent, close-to-home vacations. This proximity of our customer base to our resorts facilitates use of our Bonus Time program, allowing Silverleaf Owners to use vacant units, subject to availability and certain limitations. We believe we are the only timeshare operator that offers customers these expanded use benefits. Silverleaf Owners can also conveniently drive to and enjoy non-lodging resort amenities at our resorts year-round on a day use “country-club” type basis.

Substantial Internal Growth Capacity. At December 31, 2006, we had an inventory of 28,801 Vacation Intervals and a master plan to construct new units which will result in up to 83,616 additional Vacation Intervals at our Existing Resorts. Our master plan for construction of new units is contingent upon future sales at our Existing Resorts and the availability of financing, granting of governmental permits, and future land-planning and site-layout considerations.

In-House Operations. We have in-house marketing, sales, financing, development, and property management capabilities. While we utilize outside contractors to supplement internal resources, our internal capabilities provide greater control over all phases of our operations, help maintain operating standards, and reduce overall costs.

Lower Construction and Operating Costs. We have developed and generally employ standard architectural designs and operating procedures, which we believe significantly reduce construction and operating expenses. Standardization and integration also allow us to rapidly develop new inventory in response to demand. Weather permitting, new units at Existing Resorts can normally be constructed on an “as needed” basis within 180 to 270 days.

Centralized Property Management Supervision. We presently supervise the operation of all of our Existing Resorts (except for Orlando Breeze) on an integrated, centralized, and collective basis through our Management Agreement with Silverleaf Club with operating and maintenance costs paid from Silverleaf Owners' monthly dues. While our Orlando Breeze resort in Florida has its own separate Club (Orlando Breeze Resort Club) we also provide centralized supervision of its operations under the terms of a written agreement, to ensure the quality of services provided to Orlando Breeze timeshare owners. We believe that consolidation of resort operations benefits Silverleaf Owners by providing them with a uniform level of service, accommodations, and amenities on a standardized, cost-effective basis. Integration also facilitates our internal exchange program and the Bonus Time program.

Experienced Management. Our senior management has extensive experience in the acquisition, development, marketing, sales, and operation of timeshare resorts. The senior officers have an average of seventeen years of experience in the timeshare industry.

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Resorts Summary

The following tables set forth certain information regarding each of the Existing Resorts at December 31, 2006, unless otherwise indicated.

Existing Resorts

   

		Units at Resorts				Vacation Intervals At Resorts				Vacation Intervals Sold
Resort/Location	Primary Market Served	Inventory At 12/31/06		Planned Expansion(b)		Inventory At 12/31/06	Planned Expansion		Date Sales Commenced	Through 12/31/06 (c)	In 2006 Only (a)	Percentage Through 12/31/06			Average Sales Price in 2006(a)	Amenities/ Activities(d)
Getaway Resorts
Holly Lake	Dallas-	130		—		2,132	—		1982	4,368	311	67.2	%	$	9,008	B,F,G,H,M,S,T
Hawkins, TX	Ft. Worth, TX
The Villages	Dallas-	346		84		5,606	4,368	(g)	1980	11,978	1,399	68.1	%		10,502	B,F,H,M,S,T
Flint, TX	Ft. Worth, TX
Lake O' The Woods	Dallas-	64		—		847	—		1987	2,353	261	73.5	%		7,801	F,M,S,T(e)
Flint, TX	Ft. Worth, TX
Piney Shores	Houston, TX	190		102	(g)	3,432	5,304	(g)	1988	6,256	659	64.6	%		12,127	B,F,H,M,S,T
Conroe, TX
Timber Creek	St. Louis,	72		24	(g)	1,768	1,248	(g)	1997	1,976	42	52.8	%		11,744	B,F,G,M,S,T
DeSoto, MO	MO
Fox River	Chicago, IL	228		222	(g)	3,105	11,544	(g)	1997	8,751	865	73.8	%		12,063	B,F,G,M,S,T
Sheridan, IL
Apple Mountain	Atlanta, GA	72		144	(g)	2,083	7,488	(g)	1999	1,661	257	44.4	%		10,692	G,H,M,S,T
Clarkesville, GA
Destination Resorts	Locations
Ozark Mountain	Branson,	148		12	(g)	937	624	(g)	1982	6,535	952	87.5	%		10,962	B,F,M,S,T
Kimberling City, MO	MO
Holiday Hills	Branson,	446		456	(g)	2,734	23,712	(g)	1984	20,322	1,343	88.1	%		14,230	G,S,T(e)
Branson, MO	MO
Hill Country	Austin-San	302	(f)	210	(g)	1,493	10,920	(g)	1984	13,839	1,912	90.3	%		11,912	M,S,T(e)
Canyon Lake, TX	Antonio, TX
Oak N' Spruce	Boston, MA-	308		42	(g)	2,173	2,184	(g)	1998	13,843	1,309	86.4	%		11,506	F,M,S,T
South Lee, MA	New York, NY
Silverleaf's Seaside	Galveston,	120		288	(g)	1,012	14,976	(g)	2000	5,228	530	83.8	%		11,631	S,T
Galveston, TX	TX
Orlando Breeze	Orlando,	48		24	(g)	1,479	1,248	(g)	2005	1,017	15	40.8	%		24,697	S
Davenport, FL	FL
Total		2,474		1,608		28,801	83,616			98,127	9,855	77.3	%	$	11,681

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(a) These totals do not reflect sales of upgraded Vacation Intervals to existing Silverleaf Owners. In this context, a sale of an “upgraded Vacation Interval” refers to an exchange of a lower priced interval for a higher priced interval in which the Silverleaf Owner is given credit for all principal payments previously made toward the purchase of the lower priced interval. For the year ended December 31, 2006, upgrade sales at the Existing Resorts were as follows:

Resort	Upgraded Vacation Intervals Sold		Average Sales Price For the Year Ended 12/31/06 — Net of Exchanged Interval
Holly Lake		58	$	5,773
The Villages		713		7,153
Lake O' The Woods		49		6,105
Piney Shores		645		7,766
Hill Country		1,547		7,705
Timber Creek		7		6,415
Fox River		301		8,476
Ozark Mountain		485		7,946
Holiday Hills		2,293		8,799
Oak N’ Spruce		793		8,201
Apple Mountain		56		5,423
Silverleaf's Seaside		1,196		8,559
Orlando Breeze		634		9,518
		8,777

The average sales price for the 8,777 upgraded Vacation Intervals sold was $8,245 for the year ended December 31, 2006.

(b) Represents units included in our master plan. This plan is subject to change based upon various factors, including consumer demand, the availability of financing, grant of governmental land-use permits, and future land-planning and site layout considerations. The following chart reflects the status of certain planned units at December 31, 2006:

	Land-Use Process Not Started		Land-Use Process Pending		Land-Use Process Complete		Currently in Construction		Total
The Villages		—		—		68		16		84
Piney Shores		—		—		102		—		102
Timber Creek		—		—		24		—		24
Fox River		—		—		210		12		222
Apple Mountain		—		90		42		12		144
Ozark Mountain		—		—		12		—		12
Holiday Hills		—		—		444		12		456
Hill Country		—		—		182		28		210
Oak N' Spruce		—		—		30		12		42
Silverleaf's Seaside		—		112		164		12		288
Orlando Breeze		—		—		24		—		24
—		—		202		1,302		104		1,608

“Land-Use Process Pending” means that we have commenced the process which we believe is required under current law in order to obtain the necessary land-use authorizations from the applicable local governmental authority with jurisdiction, including submitting for approval any architectural drawings, preliminary plats, or other attendant items as may be required.

“Land-Use Process Complete” means either that (i) we believe that we have obtained all necessary land-use authorizations under current law from the applicable local governmental authority with jurisdiction, including the approval and filing of any required preliminary or final plat and the issuance of building permit(s), in each case to the extent applicable, or (ii) upon payment of any required filing or other fees, we believe that we will under current law obtain such necessary authorizations without further process.

(c) These totals are net of intervals received from upgrading customers and from intervals received from cancellations.

(d) Principal amenities available to Silverleaf Owners at each resort are indicated by the following symbols: B — boating; F — fishing; G — golf; H — horseback riding; M — miniature golf; S — swimming pool; and T — tennis.

(e) Boating is available near the resort.

(f) Includes three units which have not been finished-out for accommodations and which are currently used for other purposes.

(g) Engineering, architectural, and construction estimates have not been completed, and we cannot be certain that we will develop these properties at the unit numbers currently projected.

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Features Common to Existing Resorts

Getaway Resorts are primarily located in rustic areas offering Silverleaf Owners a quiet, relaxing vacation environment. Furthermore, the resorts offer different vacation activities, including golf, fishing, boating, swimming, horseback riding, tennis, and archery. Destination Resorts are located in or near areas with national tourist appeal. Features common to the Existing Resorts include the following:

Bonus Time Program. Silverleaf Club’s Bonus Time program offers Silverleaf Owners a benefit not typically enjoyed by other timeshare owners. In addition to the right to use a unit one week per year, the Bonus Time program allows all Silverleaf Owners, who are current on their dues and installment payments, to use vacant units for up to three nights at a time at any of our owned resorts. Sunday through Thursday night stays are currently without charge, while Friday through Saturday stays presently cost $49.95 per night payable to Silverleaf Club. The Bonus Time program is limited based on the availability of units. Availability is created when a Silverleaf Owner does not use his or her owned week. Silverleaf Owners who have utilized the resort less frequently are given priority to use the program and may only use an interval with an equal or lower rating than their owned Vacation Interval. We believe this program is important as many vacationers prefer shorter two to three day vacations. Owners of unused intervals that are utilized by the Bonus Time program are not compensated other than by their participation in the Bonus Time program.

Silverleaf Plus Program. In February 2006, we began offering the new Silverleaf Plus program. This program, administered through Silverleaf Club, includes all of the prior benefits to Silverleaf Owners plus enhanced vacation options through the Silverleaf exchange program. In addition to use of their owned weeks and bonus time, Silverleaf Owners who purchase under the Silverleaf Plus program can also split their weeks into a minimum of 2-day up to 5-day increments, and extend any unused days into the following year.

Year-Round Use of Amenities. Even when not using the lodging facilities, Silverleaf Owners have unlimited year-round day usage of the amenities located at the Existing Resorts, such as boating, fishing, miniature golf, tennis, swimming, or hiking, for little or no additional cost. Certain amenities, however, such as golf, horseback riding, or watercraft rentals, may require a usage fee.

Exchange Privileges. Each Silverleaf Owner has certain exchange privileges through the Silverleaf Club which may be used on an annual basis to (i) exchange an interval for a different interval (week) at the same resort so long as the desired interval is of an equal or lower rating; or (ii) exchange an interval for the same interval (week) of equal or lower rating at any other of our Existing Resorts. Silverleaf Owners of Getaway Resorts can only exchange for an interval in a Getaway Resort unless they own a “Presidents” or “Chairmans” Vacation Interval. These exchange rights are a convenience we provide Silverleaf Owners as an accommodation to them, and are conditioned upon availability of the desired interval or resort. Approximately 5,168 exchanges occurred in 2006. Silverleaf Owners pay an exchange fee of $75 to Silverleaf Club for each such internal exchange. In addition, most Silverleaf Owners may join the exchange program administered by RCI for an annual fee of $89. Orlando Breeze, is not under contract with RCI; however it is under contract with Interval International, Inc., a competitor of RCI.

Deeded Ownership. We typically sell a Vacation Interval that entitles the owner to use a specific unit for a designated one-week interval each year. The Vacation Interval purchaser receives a recorded deed, which grants the purchaser a percentage interest in a specific unit for a designated week. We also sell a biennial (alternate year) Vacation Interval that allows the owner to use a unit for a one-week interval every other year with reduced dues.

Management Club. Each of the Existing Resorts has a Club for the benefit of the timeshare owners. At December 31, 2006, the Clubs (except for the club at Orlando Breeze) operate under Silverleaf Club to manage the Existing Resorts on a centralized and collective basis. We have contracted with Silverleaf Club to perform the supervisory and management functions granted by the Clubs. Costs of these operations are covered by monthly dues paid by timeshare owners to their respective Clubs together with income generated by the operation of certain amenities at each respective resort. Our destination resort in Florida, Orlando Breeze, has its own club, Orlando Breeze Resort Club, which operates independently of Silverleaf Club; however, we supervise the management and operation of the Orlando Breeze Resort Club under the terms of a written agreement.

On-Site Security. Each of the Resorts is patrolled by security personnel who are either employees of the Management Club or personnel of independent security service companies that have contracted with the Clubs.

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Description Of Timeshare Resorts Owned and Operated By Silverleaf

Getaway Resorts

Holly Lake Resort. Holly Lake is a family-oriented golf resort located in the Piney Woods of east Texas, approximately 105 miles east of Dallas, Texas. The timeshare portion of Holly Lake is part of a 4,300 acre mixed-use development of single-family lots and timeshare units with other third-party developers. We own approximately 1,205 acres within Holly Lake, of which approximately 1,133 acres may not be developed due to deed restrictions. At December 31, 2006, approximately 26 acres were developed. We currently have no future development plans.

At December 31, 2006 130 units were completed and no additional units are planned for development. Three different types of units are offered at the resort: (i) two bedroom, two bath, vinyl siding, fourplexes; (ii) one bedroom, one bath, one sleeping loft, log construction duplexes; and (iii) two bedroom, two bath, log construction fourplexes. Each unit has a living room with sleeper sofa and full kitchen. Other amenities within each unit include whirlpool tub, color television, and vaulted ceilings. Certain units include interior ceiling fans, imported ceramic tile, over-sized sliding glass doors, and rattan and pine furnishings.

Amenities at the resort include an 18-hole golf course with pro shop, 19th-hole private club, country store, indoor rodeo arena and stables, five tennis courts (four lighted), two different lakes (one with sandy swimming beach, one with boat launch for water-skiing), three outdoor swimming pools with bathhouses and pavilion, hiking/nature trails, children's playground area, two miniature golf courses, five picnic areas, activity center with grill, big screen television, game room with arcade games and pool tables, horseback trails, and activity areas for basketball, horseshoes, volleyball, shuffleboard, and archery. Silverleaf Owners can also rent canoes, bicycles, and water trikes. Homeowners in neighboring subdivisions are entitled to use the amenities at Holly Lake pursuant to easements or use agreements.

At December 31, 2006, the resort contained 6,500 Vacation Intervals, of which 2,132 intervals remained available for sale. We have no plans to build additional units. Vacation Intervals at the resort are currently priced from $8,500 to $12,800 for one-week stays. During 2006, 311 Vacation Intervals were sold.

The Villages and Lake O' The Woods Resorts. The Villages and Lake O' The Woods are sister resorts located on the shores of Lake Palestine, approximately 100 miles east of Dallas, Texas. The Villages, located approximately five miles northwest of Lake O' The Woods, is an active sports resort popular for water-skiing and boating. Lake O' The Woods is a quiet wooded resort where Silverleaf Owners can enjoy the seclusion of dense pine forests less than two hours from the Dallas-Fort Worth metroplex. The Villages is a mixed-use development of single-family lots and timeshare units, while Lake O' The Woods has been developed solely as a timeshare resort. The two resorts contain approximately 619 acres, of which approximately 379 may not be developed due to deed restrictions. At December 31, 2006, approximately 148 acres were developed.

At December 31, 2006, 346 units were completed at The Villages and 64 units were completed at Lake O' The Woods. An additional 84 units are planned for development at The Villages and no additional units are planned for development at Lake O' The Woods. There are five different types of units at these resorts: (i) three bedroom, two and one-half bath, wood siding exterior duplexes and fourplexes (two units); (ii) two bedroom, two and one-half bath, wood siding exterior duplexes and fourplexes; (iii) two bedroom, two bath, brick and siding exterior fourplexes; (iv) two bedroom, two bath, wood and vinyl siding exterior fourplexes, sixplexes, twelveplexes and a sixteenplex; and (v) one bedroom, one bath with two-bed loft sleeping area, log construction duplexes. Amenities within each unit include full kitchen, whirlpool tub, and color television. Certain units include interior ceiling fans, ceramic tile, and/or a fireplace. “Presidents Harbor” units feature a larger, more spacious floor plan with a back veranda, washer and dryer, and a more elegant decor.

Both resorts are situated on Lake Palestine, a 27,000 acre public lake. Recreational facilities and improvements at The Villages include a full service marina with convenience store, gas dock, boat launch, water-craft rentals, and covered and locked rental boat stalls; three swimming pools; two lighted tennis courts; miniature golf course; nature trails; camp sites; riding stables; soccer/softball field; children's playground; RV sites; a 9,445 square foot activity center with theater room with wide-screen television, reading room, grill, tanning beds, pool table, sauna, and small indoor gym; and competitive sports facilities which include horseshoe pits, archery range, and shuffleboard, volleyball, and basketball courts. Silverleaf Owners at The Villages can also rent or use motor boats, paddle boats, and pontoon boats. Neighboring homeowners are also entitled to use these amenities pursuant to a use agreement.

In 2006 we commenced construction of an indoor water park at the Villages. This planned attraction is focused on indoor fun and entertainment for people of all ages. When completed, the water park will include inner tube and body slides, a wave pool, a lazy river ride and an interactive play system topped by a tipping water bucket.

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Recreational facilities at Lake O' The Woods include swimming pool, bathhouse, lighted tennis court, a recreational beach area with picnic areas, a fishing pier on Lake Palestine, nature trails, soccer/softball field, children's playground, RV sites, an activity center with wide-screen television and pool table, horseshoe pits, archery range, miniature golf course, shuffleboard, volleyball, and basketball courts.

At December 31, 2006, the Villages contained 17,584 total Vacation Intervals, of which 5,606 remained available for sale. We plan to build 84 additional units at The Villages, which would yield an additional 4,368 Vacation Intervals available for sale. At December 31, 2006, Lake O' The Woods contained 3,200 total Vacation Intervals, of which 847 remained available for sale. We have no plans to build additional units at Lake O' The Woods. Vacation Intervals at The Villages and Lake O' The Woods are currently priced from $8,500 to $16,800 for one-week stays (and start at $5,100 for biennial intervals), while one-week “Presidents Harbor” intervals are priced at $10,500 to $23,000 depending on the value rating of the interval. During 2006, 1,399 and 261 Vacation Intervals were sold at The Villages and Lake O' The Woods, respectively.

Piney Shores Resort. Piney Shores Resort is a quiet, wooded resort ideally located for day-trips from metropolitan areas in the southeastern Gulf Coast area of Texas. Piney Shores Resort is located on the shores of Lake Conroe, approximately 40 miles north of Houston, Texas. The resort contains approximately 112 acres. At December 31, 2006, approximately 71 acres were developed.

At December 31, 2006, 190 units were completed and 102 units are planned for development at Piney Shores Resort. All units are two bedroom, two bath units and will comfortably accommodate up to six people. Amenities include a living room with sleeper, full kitchen, whirlpool tub, color television, and interior ceiling fans. Certain “lodge-style” units feature stone fireplaces, white-washed pine wall coverings, “age-worn” paint finishes, and antique furnishings. “Presidents Cove” units feature a larger, more spacious floor plan with a back veranda, washer and dryer, and a more elegant décor.

The primary recreational amenity at the resort is Lake Conroe, a 21,000 acre public lake. Other recreational facilities and improvements available at the resort include two swimming pools and a spa, a bathhouse complete with outdoor shower and restrooms, lighted tennis court, miniature golf course, stables, horseback riding trails, children's playground, picnic areas, boat launch, beach area, 4,626-square foot activity center, 32-seat theatre room with big screen television, covered wagon rides, and facilities for horseshoes, archery, shuffleboard, and basketball.

At December 31, 2006, the resort contained 9,688 Vacation Intervals, of which 3,432 remained available for sale. We intend to build 102 additional units, which would yield an additional 5,304 Vacation Intervals available for sale. Vacation Intervals at the resort are currently priced from $8,500 to $16,800 for one-week stays (and start at $5,100 for biennial intervals), while one-week “Presidents Cove” intervals are priced at $10,500 to $23,000 depending on the value rating of the interval. During 2006, 659 Vacation Intervals were sold.

Timber Creek Resort. Timber Creek Resort, in Desoto, Missouri, is located approximately 50 miles south of St. Louis, Missouri. The resort contains approximately 329 acres. At December 31, 2006, approximately 177 acres were developed.

At December 31, 2006, 72 units were completed and an additional 24 units are planned for future development at Timber Creek Resort. All units are two bedroom, two bath units. Amenities within each new unit include a living room with sleeper sofa, full kitchen, whirlpool tub, and color television. Certain units include a fireplace, ceiling fans, imported ceramic tile, French doors, and rattan or pine furniture.

The primary recreational amenity available at the resort is a 40-acre fishing lake. Other amenities include a clubhouse, a five-hole par three executive golf course, swimming pool, two lighted tennis courts, themed miniature golf course, volleyball court, shuffleboard/multi-use sports court, fitness center, horseshoes, archery, a welcome center, playground, arcade, movie room, tanning bed, cedar sauna, sales and registration building, hook-ups for recreational vehicles, and boat docks. We are obligated to maintain and provide campground facilities for members of the previous owner's campground system.

At December 31, 2006, the resort contained 3,744 Vacation Intervals and 1,768 Vacation Intervals remained available for sale. We plan to build 24 additional units, which would collectively yield 1,248 additional Vacation Intervals available for sale. Vacation Intervals at the resort are currently priced from $8,500 to $16,800 for one-week stays (and start at $5,100 for biennial intervals). During 2006, 42 Vacation Intervals were sold.

Fox River Resort. Fox River Resort, in Sheridan, Illinois, is located approximately 70 miles southwest of Chicago, Illinois. The resort contains approximately 363 acres. At December 31, 2006, approximately 147 acres were developed.

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At December 31, 2006, 228 units are completed and 222 units are planned for future development at Fox River Resort. All units are two bedroom, two bath units. Amenities within each unit include a living room with sleeper sofa, full kitchen, whirlpool tub, and color television. Certain units include ceiling fans, ceramic tile, and rattan or pine furniture. “Presidents Lakeside” units feature a larger, more spacious floor plan with a back veranda, washer and dryer, and a more elegant décor.

Amenities currently available at the resort include five-hole par three executive golf course, outdoor swimming pool, clubhouse, covered pool, miniature golf course, horseback riding trails, stable and corral, welcome center, sales and registration buildings, hook-ups for recreational vehicles, a tennis court, a basketball court / seasonal ice-skating rink, shuffleboard courts, sand volleyball courts, outdoor pavilion, and playgrounds. We also offer winter recreational activities at this resort, including ice-skating, snowmobiling, and cross-country skiing. We are obligated to maintain and provide campground facilities for members of the previous owner's campground system.

At December 31, 2006, the resort contained 11,856 Vacation Intervals and 3,105 Vacation Intervals remained available for sale. We plan to build 222 additional units, which would collectively yield 11,544 additional Vacation Intervals available for sale. Vacation Intervals at the resort are currently priced from $8,500 to $16,800 for one-week stays (and start at $5,100 for biennial intervals), while one-week “Presidents Lakeside” intervals are priced at $10,500 to $31,500 depending on the value rating of the interval. During 2006, 865 Vacation Intervals were sold.

Apple Mountain Resort. Apple Mountain Resort, in Clarkesville, Georgia, is located approximately 125 miles north of Atlanta, Georgia. The resort is situated on 285 acres of beautiful open pastures and rolling hills, with 150 acres being the resort’s golf course. At December 31, 2006, approximately 181 acres were developed.

At December 31, 2006, 72 units are completed and 144 units are planned for development at Apple Mountain Resort. The “lodge-style” units were the first units developed. Each unit is approximately 824 square feet with all units being two bedrooms, two full baths. Amenities within each unit include a living room with sleeper sofa, full kitchen, whirlpool tub, and color television. Certain units include ceiling fans, imported ceramic tile, electronic door locks, and rattan or pine furniture.

Amenities at the resort include a 9,445 square foot administration building and activity center featuring a theatre room with a wide screen television, a member services building, pool tables, arcade games, and snack area. Other amenities at the resort include two tennis courts, horseback riding, swimming pool, shuffleboard, miniature golf course, and volleyball and basketball courts. This resort is located in the Blue Ridge Mountains and offers accessibility to many other outdoor recreational activities, including Class 5 white water rapids.

The primary recreational amenity available to the resort is an established 18-hole golf course situated on approximately 150 acres of open fairways and rolling hills. Elevation of the course is 1,530 feet at the lowest point and 1,600 feet at the highest point. The course is designed with approximately 104,000 square feet of bent grass greens. The course's tees total approximately 2 acres, fairways total approximately 24 acres, and primary roughs total approximately 29 acres, all covered with TIF 419 Bermuda. The balance of grass totals approximately 95 acres and is covered with Fescue. The course has 19 sand bunkers totaling 19,800 square feet and there are approximately seven miles of cart paths. Lining the course are apple orchards totaling approximately four acres, with white pine roughs along twelve of the fairways. The course has a five-acre irrigation lake and a pond of approximately 900 square feet located on the fifteenth hole. The driving range covers approximately nine acres and has 20,000 square feet of tee area covered in TIF 419 Bermuda. The pro shop offers a full line of golfing accessories and equipment. There is also a golf professional on site to offer lessons and to plan events for the club.

At December 31, 2006, the resort contained 3,744 Vacation Intervals, of which 2,083 remained available for sale. We plan to build 144 additional units, which would yield an additional 7,488 Vacation Intervals available for sale. Vacation Intervals at the resort are currently priced from $8,500 to $16,800 for one-week stays (and start at $5,100 for biennial intervals). During 2006, 257 Vacation Intervals were sold.

Destination Resorts

Ozark Mountain Resort. Ozark Mountain Resort is a family-oriented resort located on the shores of Table Rock Lake, which features bass fishing. The resort comprises 115 acres and is located approximately 15 miles from Branson, Missouri, a family music and entertainment center, 233 miles from Kansas City, and 276 miles from St. Louis. Ozark Mountain Resort is a mixed-use development of timeshare and condominium units. At December 31, 2006, approximately 114 acres were developed. There are 8 acres that may not be developed due to deed restrictions.

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At December 31, 2006, 148 units are completed and 12 units are planned for development at Ozark Mountain Resort. There are two types of units at the resort: (i) two bedroom, two bath, one-story fourplexes and (ii) two bedroom, two bath, three-story sixplexes. Each standard unit includes two large bedrooms, two bathrooms, living room with sleeper sofa, and full kitchen. Other amenities within each unit include whirlpool tub, color television, and vaulted ceilings. Certain units contain interior ceiling fans, imported ceramic tile, oversized sliding glass doors, rattan or pine furnishings, or fireplace. “Presidents View” units feature a panoramic view of Table Rock Lake, a larger, more spacious floor plan with front and back verandas, washer and dryer, and a more elegant decor.

The primary recreational amenity available at the resort is Table Rock Lake, a 43,100-acre public lake. Other recreational facilities and improvements at the resort include a swimming beach with dock, an activities center with pool table, covered boat dock and launch ramp, olympic-sized swimming pool, lighted tennis court, nature trails, two picnic areas, playground, miniature golf course, and a competitive sports area accommodating volleyball, basketball, tetherball, horseshoes, shuffleboard, and archery. Guests can also rent or use canoes, or paddle boats. Owners of neighboring condominium units we developed in the past are also entitled to use these amenities pursuant to use agreements they have with us.

At December 31, 2006, the resort contained 7,472 Vacation Intervals, of which 937 remained available for sale. We plan to build 12 additional units, which would yield an additional 624 Vacation Intervals available for sale. Vacation Intervals at the resort are currently priced from $10,000 to $17,500 for one-week stays, while one-week “Presidents View” intervals are priced at $13,500 to $25,500 depending on the value rating of the interval. During 2006, 952 Vacation Intervals were sold.

Holiday Hills Resort. Holiday Hills Resort is a resort community located in Taney County, Missouri, two miles east of Branson, Missouri. The resort is 224 miles from Kansas City and 267 miles from St. Louis. The resort is heavily wooded by cedar, pine, and hardwood trees, and is favored by Silverleaf Owners seeking quality golf and nightly entertainment in nearby Branson. Holiday Hills Resort is a mixed-use development of single-family lots, condominiums, and timeshare units. The resort contains approximately 484 acres, including a 91-acre golf course. At December 31, 2006, approximately 300 acres were developed.

At December 31, 2006, 446 units were completed and an additional 456 units are planned for future development. There are four types of timeshare units at this resort: (i) two bedroom, two bath, one-story fourplexes, (ii) one bedroom, one bath, with upstairs loft, log construction duplexes, (iii) two bedroom, two bath, two-story fourplexes, and (iv) two bedroom, two bath, three-story sixplexes and twelveplexes. Each unit includes a living room with sleeper sofa, full kitchen, whirlpool tub, and color television. Certain units include a fireplace, ceiling fans, imported tile, oversized sliding glass doors, vaulted ceilings, and rattan or pine furniture. “Presidents Fairway” and “Chairmans Fairway” units feature a larger, more spacious floor plan with back veranda, washer and dryer, and a more elegant décor.

Taneycomo Lake, a popular lake for trout fishing, is approximately three miles from the resort, and Table Rock Lake is approximately ten miles from the resort. Amenities at the resort include an 18-hole golf course, tennis court, picnic areas, camp sites, basketball court, activity area which includes shuffleboard, horseshoes, and a children’s playground, a 5,356 square foot clubhouse that includes a pro shop, restaurant, and meeting space, a 2,800 square foot outdoor swimming pool, and a sports pool. Lot and condominium unit owners are also entitled to use these amenities pursuant to use agreements we have with certain homeowners’ associations.

At December 31, 2006, the resort contained 23,056 Vacation Intervals, of which 2,734 remained available for sale. We plan to build 456 additional units, which would yield an additional 23,712 Vacation Intervals available for sale. Vacation Intervals at the resort are currently priced from $9,995 to $17,500 for one-week stays (and start at $6,240 for biennial intervals), while one-week “Presidents Fairway” intervals are priced at $13,500 to $27,500 and “Chairmans Fairway” intervals are priced from $18,000 to $38,000, depending on the value rating of the interval. During 2006, 1,343 Vacation Intervals were sold.

Hill Country Resort. Hill Country Resort is located near Canyon Lake in the hill country of central Texas between Austin and San Antonio. The resort contains approximately 110 acres. At December 31, 2006, approximately 39 acres were developed.

At December 31, 2006, 302 units were completed and 210 units are planned for development at Hill Country Resort. Some units are single story, while certain other units are two-story structures in which the bedrooms and baths are located on the second story. Each unit contains two bedrooms, two bathrooms, living room with sleeper sofa, and full kitchen. Other amenities within each unit include whirlpool tub, color television, and interior design details such as vaulted ceilings. Certain units include interior ceiling fans, imported ceramic tile, over-sized sliding glass doors, rattan and pine furnishings, or fireplace. 122 units feature our “lodge style.” 68 “Presidents Villas” units feature a larger, more spacious floor plan with back veranda, washer and dryer, and a more elegant decor.

Amenities at the resort include a 7,943-square foot activity center with electronic games, pool table, and wide-screen television, miniature golf course, a children's playground areas, barbecue and picnic area, enclosed swimming pool and heated spa, children's wading pool, tennis court, and activity areas for basketball, horseshoes, shuffleboard and sand volleyball court. Area sights and activities include water-tubing on the nearby Guadeloupe River and visiting the many tourist attractions in San Antonio, such as Sea World, The Alamo, The River Walk, Fiesta Texas, and the San Antonio Zoo.

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At December 31, 2006, the resort contained 15,332 Vacation Intervals, of which 1,493 remained available for sale. We plan to build 210 additional units, which collectively would yield 10,920 additional Vacation Intervals available for sale. Vacation Intervals at the resort are currently priced from $7,500 to $17,500 for one-week stays (and start at $5,100 for biennial intervals), while one-week “Presidents Villas” intervals are priced at $10,500 to $35,500 depending on the value rating of the interval. During 2006, 1,912 Vacation Intervals were sold.

Oak N' Spruce Resort. In December 1997, we acquired the Oak N' Spruce Resort in the Berkshire mountains of western Massachusetts. The resort is located approximately 134 miles west of Boston, Massachusetts, and 114 miles north of New York City. Oak N' Spruce Resort is a mixed-use development which includes a hotel and timeshare units. The resort contains approximately 244 acres. At December 31, 2006, approximately 37 acres were developed. There are 206 acres that we may not develop.

At December 31, 2006 the resort had 308 units completed and 42 units are planned for development. There are six types of existing units at the resort: (i) one-bedroom flat, (ii) one-bedroom townhouse, (iii) two-bedroom flat, (iv) two-bedroom townhouse, (v) two-bedroom, flex-time, and (vi) two-bedroom lodge style and “Presidents” style units. There is also a 21-room hotel at the resort that could be converted to timeshare use. Amenities within each new unit include a living room with sleeper sofa, full kitchen, whirlpool tub, and color television. Certain units include ceiling fans, ceramic tile, and rattan or pine furniture.

Amenities at the resort include two indoor heated swimming pools with hot tubs, an outdoor pool with sauna, health club, lounge, ski rentals, miniature golf, shuffleboard, basketball and tennis courts, horseshoe pits, hiking and ski trails, and an activity area for badminton. The resort is also near Beartown State Forest.

At December 31, 2006, the resort contained 16,016 Vacation Intervals, of which 2,173 remained available for sale. We plan to build 42 additional units, which would yield an additional 2,184 Vacation Intervals available for sale. Vacation Intervals at the resort are currently priced from $8,500 to $18,500 for one-week stays (and start at $5,400 for biennial intervals), while one-week “Presidents Oak” intervals are priced at $10,500 to $31,500 depending on the value rating of the interval. During 2006, 1,309 Vacation Intervals were sold.

Silverleaf’s Seaside Resort. Silverleaf’s Seaside Resort is located in Galveston, Texas, approximately 50 miles south of Houston, Texas. The resort contains approximately 87 acres. At December 31, 2006, approximately 50 acres were developed.

At December 31, 2006, the resort had 120 units and an additional 288 are planned for development. The two bedroom, two bath units are situated in three-story twelveplex buildings. Amenities within each unit include two large bedrooms, two bathrooms (one with a whirlpool tub), living room with sleeper sofa, full kitchen, color television, and electronic door locks.

With 635 feet of beachfront, the primary amenity at the resort is the Gulf of Mexico. Other amenities include a lodge with kitchen, tennis court, swimming pool, sand volleyball court, playground, picnic pavilion, horseshoes, and shuffleboard.

At December 31, 2006, the resort contained 6,240 Vacation Intervals of which 1,012 remained available for sale. We plan to build 288 additional units, which would yield an additional 14,976 Vacation Intervals for sale. Vacation Intervals at the resort are currently priced from $9,500 to $19,000 for one-week stays (and start at $5,100 for biennial intervals), while one-week “Presidents Seaside” intervals are priced at $13,500 to $35,500 depending on the value rating of the interval. During 2006, 530 Vacation Intervals were sold.

Orlando Breeze Resort. In October 2004, we acquired a 4.8-acre tract of land located in Davenport, Florida, just outside Orlando, Florida, for an aggregate purchase price of approximately $6.0 million. The site, formerly known as the Villas at Polo Park, is near the major Florida tourist attractions of Walt Disney World, Sea World, and Universal Studios. At December 31, 2006, approximately 4 acres were developed. In January 2006, we purchased approximately 30 acres of undeveloped land contiguous to the 4.8 acre tract of land in Davenport, Florida. Extensive pre-development work must be completed before we develop the property. Any development of the property is subject to State and Local Governmental approvals necessary for timeshare operations.

At December 31, 2006, the resort had 48 units and an additional 24 are planned for development. The units consist of two and three bedroom units, with eight two-bedroom units and eight three-bedroom units having been refurbished during 2005. Amenities within each refurbished unit include a living room with sleeper sofa, full kitchen, color television, ceiling fans, ceramic tile, Broyhill furniture, and aluminum patio furniture. Amenities at the resort include a heated outdoor swimming pool with whirlpool, fitness center, arcade, playground, sand volleyball and basketball courts.

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At December 31, 2006, the resort contained 2,496 Vacation Intervals of which 1,479 remained available for sale. We plan to build 24 additional units, which would yield an additional 1,248 Vacation Intervals for sale. Vacation Intervals at the resort are currently priced from $25,500 to $35,500 for one-week stays. During 2006, 15 Vacation Intervals were sold.

ITEM 3. LEGAL PROCEEDINGS

We are currently subject to litigation arising in the normal course of our business. From time to time, such litigation includes claims regarding employment, tort, contract, truth-in-lending, the marketing and sale of Vacation Intervals, and other consumer protection matters. Litigation has been initiated from time to time by persons seeking individual recoveries for themselves, as well as, in some instances, persons seeking recoveries on behalf of an alleged class. In our judgment, none of the lawsuits currently pending against us, either individually or in the aggregate, is likely to have a material adverse effect on our business, results of operations, or financial condition.

Various legal actions and claims may be instituted or asserted in the future against us and our subsidiaries, including those arising out of our sales and marketing activities and contractual arrangements. Some of the matters may involve claims, which, if granted, could be materially adverse to our financial condition.

Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. We will establish reserves from time to time when deemed appropriate under generally acceptable accounting principles. However, the outcome of a claim for which we have not deemed a reserve to be necessary may be decided unfavorably against us and could require us to pay damages or make other expenditures in amounts or a range of amounts that could be materially adverse to our business, results of operations, or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

STOCK PERFORMANCE GRAPH

The Stock Performance Graph below shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act or under the Exchange Act, except to the extent we specifically incorporate this information by reference, and it shall not otherwise be deemed filed under such Acts.

Set forth below is a line graph comparing the total cumulative return of our Common Stock since December 31, 2001 to (a) the S&P 500 Index, a broad equity market index, (b) the Russell 2000 Index, an index that measures the performance of stocks with small to medium-small market capitalization and (c) the Russell MicroCap Index, an index that measures the performance of stocks in the micro-cap segment of market capitalization. The comparisons in this table are required by the Securities and Exchange Commission and are not intended to forecast or be indicative of possible future performance of the Common Stock.

Only a few other publicly held companies engage in our principal line of business - the sale of vacation ownership intervals. Prominent among this limited group are The Walt Disney Company, Hilton Hotels Corporation, and Marriott International Inc. which are (i) diversified, with far less than 50% of their respective revenues attributable to vacation ownership interval sales, and (ii) substantially larger than we are in terms of revenue, assets and market capitalization. Therefore, we concluded that there was not a sufficient body of reliable market data for us to use a comparison peer group. Therefore, since 1998 we have used the Russell 2000 Index as an index of issuers with similar market capitalization. In 2006 our stock was added to the Russell MicroCap Index. As a result, we have elected to compare the performance of our stock to the S&P 500 Index and the Russell MicroCap Index for all future years and to cease comparing our stock to the Russell 2000. The following graph compares the performance of our stock to the S&P 500 Index, the Russell 2000 Index and the Russell MicroCap Index.

The graph assumes $100 was invested on December 31, 2001 in our stock, the S&P 500, the Russell 2000 and the Russell MicroCap and assumes dividends are reinvested. Silverleaf’s cumulative total return of $7,450 is due to the growth in the bid price of our common stock from $0.06 at December 31, 2001 to $4.47 at December 31, 2006.

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	Measurement Period (Fiscal Year Covered)
	12/01		12/02		12/03		12/04		12/05		12/06
Silverleaf Resorts, Inc.		100.00		583.33		1333.33		2300.00		5433.33		7450.00
S & P 500		100.00		77.90		100.24		111.15		116.61		135.03
Russell 2000		100.00		79.52		117.09		138.55		144.86		171.47
Russell MicroCap		100.00		83.90		139.57		159.31		163.40		190.43

The following table sets forth the high and low closing prices of our Common Stock for the quarterly periods indicated, which correspond to the quarterly fiscal periods for financial reporting purposes. The Common Stock prices from January 2005 to September 18, 2005 are the closing bid prices as quoted on the OTC Bulletin Board. During the third quarter of 2005 the American Stock Exchange (“AMEX”) approved our application to list our shares of Common Stock under the ticker symbol “SVL”. Our stock began trading on the AMEX effective September 19, 2005. From that point forward the Common Stock prices shown are the closing bid prices as quoted on the AMEX.

	High		Low
Year Ended December 31, 2005:
First Quarter	$	1.60	$	1.20
Second Quarter		1.58		1.25
Third Quarter		2.05		1.41
Fourth Quarter		4.29		1.35
Year Ended December 31, 2006:
First Quarter	$	3.89	$	2.95
Second Quarter		5.00		3.10
Third Quarter		3.82		3.13
Fourth Quarter		4.47		3.82

As of December 31, 2006, we believe that there were approximately 2,207 holders of our Common Stock, which is the only class of our equity securities outstanding.

We listed our common stock on The NASDAQ Capital Market, under the symbol “SVLF”, effective as of the opening of the market on February 28, 2007. As a result, trading in Silverleaf common stock ceased on the American Stock Exchange effective at the closing of the markets on February 27, 2007.

Our stock option plans provide for the award of nonqualified stock options to directors, officers, and key employees, and the grant of incentive stock options to salaried key employees. Stock options provide for the right to purchase common stock at a specified price, which may be less than or equal to fair market value on the date of grant (but not less than par value). Stock options may be granted for any term and upon such conditions determined by our Board of Directors.

Dividend Policy

We have never declared or paid any cash dividends on our capital stock and do not anticipate paying cash dividends on our Common Stock in the foreseeable future. We currently intend to retain future earnings to finance our operations and fund the growth of our business. Any payment of future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, contractual and other restrictions in respect to payment of dividends under our senior credit facilities, and other factors that our Board of Directors deems relevant.

Shares Authorized for Issuance under Equity Compensation Plans

Please see “Security Ownership of Certain Beneficial Owners and Management” under item 12 of this annual report on Form 10-K for information regarding shares authorized under our equity compensation plans.

Recent Sales of Unregistered Securities

There have been no recent sales of unregistered securities.

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ITEM 6. SELECTED FINANCIAL DATA

Selected Consolidated Historical Financial and Operating Information

The Selected Consolidated Historical Financial and Operating Information should be read in conjunction with the Consolidated Financial Statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this report on Form 10-K. As discussed under the heading “Significant Accounting Policies Summary” in Note 2 to our Consolidated Financial Statements beginning on page F-1, in 2006 we changed our accounting for real estate time-sharing transactions in connection with the adoption of Statement of Financial Accounting Standards No. 152, Accounting for Real Estate Time-Sharing Transactions, and changed our accounting for stock-based compensation in connection with the adoption of FASB Statement No. 123(R), Share-Based Payment. As a result, some of the amounts in the following tables for 2002 to 2005 may not be comparable to 2006.

	Year Ended December 31,
	2002			2003			2004		2005		2006
	(in thousands, except share and per share amounts)
Statement of Income Data:
Revenues:
Vacation Interval sales	$	122,805		$	123,585		$	138,046	$	146,416	$	187,481
Estimated uncollectible revenue		—			—			—		—		(32,491	)
Sampler sales		3,634			1,765			2,150		2,623		—
Net sales		126,439			125,350			140,196		149,039		154,990
Interest income		37,537			34,730			37,843		38,154		46,248
Management fee income		1,920			1,547			1,201		1,856		1,861
Gain on sale of notes receivable		6,838			3,205			1,915		6,457		—
Other income		2,324			2,834			2,522		6,402		3,785
Total revenues		175,058			167,666			183,677		201,908		206,884
Costs and operating expenses:
Cost of Vacation Interval sales		23,123			22,657			24,964		23,427		19,003
Sales and marketing		66,384			65,775			71,890		74,667		93,957
Provision for uncollectible notes		24,562			53,673			26,811		23,649		—
Operating, general and administrative		31,432			26,209			25,639		28,038		32,315
Depreciation		4,486			3,806			3,588		2,723		2,539
Interest expense and lender fees		22,192			16,550			17,627		17,253		21,662
Total costs and operating expenses		172,179			188,670			170,519		169,757		169,476
Other income:
Gain on early extinguishment of debt		17,885			6,376			—		—		—
Total other income		17,885			6,376			—		—		—
Income (loss) before (benefit) provision for income taxes and discontinued operations		20,764			(14,628	)		13,158		32,151		37,408
(Benefit) provision for income taxes		(1,523	)		86			23		9,725		14,402
Income (loss) from continuing operations		22,287			(14,714	)		13,135		22,426		23,006
Discontinued operations:
Gain on sale of discontinued operations (net of taxes)		—			—			—		613		—
Income from discontinued operations (net of taxes)		506			794			624		128		—
Income from discontinued operations		506			794			624		741		—
Net income (loss)	$	22,793		$	(13,920	)	$	13,759	$	23,167	$	23,006
Net income (loss) per share — Basic (a)
Income (loss) from continuing operations	$	0.77		$	(0.40	)	$	0.35	$	0.61	$	0.61
Income (loss) from discontinued operations		0.02			0.02			0.02		0.02		—
Net income (loss)	$	0.79		$	(0.38	)	$	0.37	$	0.63	$	0.61
Net income (loss) per share — Diluted (a)
Income (loss) from continuing operations	$	0.77		$	(0.40	)	$	0.33	$	0.57	$	0.59
Income (loss) from discontinued operations		0.02			0.02			0.02		0.02		—
Net income (loss)	$	0.79		$	(0.38	)	$	0.35	$	0.59	$	0.59
Weighted average number of shares issued and outstanding — Basic		28,825,882			36,826,906			36,852,133		36,986,926		37,579,462
Weighted average number of shares issued and Outstanding — Diluted		28,825,882			36,826,906			38,947,854		39,090,921		39,261,652

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	December 31,
	2002		2003		2004		2005		2006
	(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	1,153	$	4,093	$	10,935	$	10,990	$	11,450
Notes receivable, net of allowance for uncollectible notes		233,237		193,379		196,466		177,572		229,717
Amounts due from affiliates		750		150		288		680		1,251
Inventories		102,505		101,399		109,303		117,597		147,759
Total assets		398,245		351,787		369,506		361,796		474,530
Amounts due to affiliates		2,221		656		929		544		246
Notes payable and capital lease obligations		236,413		215,337		218,310		177,269		254,550
Senior subordinated notes		45,919		36,591		34,883		33,175		31,467
Total liabilities		296,626		264,088		268,038		236,961		326,338
Shareholders' equity		101,619		87,699		101,468		124,835		148,192
Cash Flows Data:
Net cash provided by (used in) operating activities	$	57,294	$	23,953	$	9,404	$	75,681	$	(45,648	)

In previously issued Statements of Cash Flows, we reported the operating and investing activities of our discontinued operations on a combined basis as a single amount. In 2006, we separately disclosed those activities within our other operating and investing activities. In addition, during 2006 we reflected cash restricted for repayment of debt as a financing activity rather than an operating activity. Accordingly, we revised the 2002 to 2005 Cash Flows Data above for comparability purposes to 2006.

	As of and For the Year Ended December 31,
	2002		2003		2004		2005		2006
	(dollars in thousands)
Other Operating Data:
Number of Existing Resorts at period end		19		12		12		13		13
Number of Vacation Intervals sold (excluding Upgrades)(b)		8,224		9,560		10,431		8,332		9,855
Number of in-house Vacation Intervals sold		7,746		4,833		4,816		6,576		8,777
Number of Vacation Intervals in inventory		24,121		24,255		22,857		27,396		28,801
Average price of Vacation Intervals sold (excluding Upgrades)(b)(c)	$	9,846	$	9,510	$	10,031	$	11,124	$	11,681
Average price of upgraded Vacation Intervals sold (net of exchanged interval)	$	5,401	$	6,759	$	6,938	$	8,171	$	8,245

(a) Net income (loss) per share is based on the weighted average number of shares issued and outstanding.

(b) Vacation Intervals sold during the years ended December 31, 2002, 2003, 2004, 2005, and 2006, include 1,572 biennial intervals (counted as 786 annual Vacation Intervals), 1,620 biennial intervals (counted as 810 annual Vacation Intervals), 2,556 biennial intervals (counted as 1,278 annual Vacation Intervals), 2,780 biennial intervals (counted as 1,390 annual Vacation Intervals), and 5,117 biennial intervals (counted as 2,558 annual Vacation Intervals), respectively.

(c) Includes annual and biennial Vacation Interval sales for one-bedroom and two-bedroom units.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the “Selected Financial Data” and our Financial Statements and the notes thereto and other financial data included elsewhere herein. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements.

Executive Summary

We are in the business of owning and operating thirteen timeshare resorts as of December 31, 2006. Our income is derived principally from marketing and selling timeshare interests at our resorts in one-week intervals, and from the interest earned from financed sales of such timeshare interests. As of December 31, 2006, seven of our resorts are located within one and one half to two hours of major metropolitan areas (“getaway resorts”), which are the primary market for timeshare sales to new purchasers. Six of our resorts are in destination resort areas located further from major metropolitan areas (“destination resorts”). The principal purchasers of timeshare interests at the destination resorts are existing owners who are upgrading or buying additional interests.

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The following economic or industry-wide factors are relevant to us:

· We sell a vacation and recreational product, predominantly to customers who drive to our locations. We believe that this type of usage is somewhat immune from issues that would affect the travel industry as a whole (i.e. the disruptions to the airline industry and destination resort industry after September 11, 2001), but major increases in gasoline prices or other issues that cause the U.S population to drive less could have a negative impact on us.

· Telemarketing is a very important element in the generation of tours to potential new customers of timeshare interests. We presently comply with state and national do not call regulations. Changes to existing regulations could have a negative impact on our ability to generate the necessary tours to sell timeshare interests.

· We finance the majority of our sales over seven to ten years. An economic downturn could negatively affect the ability of our customers to pay their principal and interest, which might result in additional provision for uncollectible notes.

· Our fixed-to-floating debt ratio is 62% fixed and 38% floating. An increase in interest rates above the floor rates on our variable rate facilities could have a negative impact on our profitability.

· Since we predominantly finance our sales of timeshare interests, we require credit facilities to have the liquidity necessary to fund our costs and expenses. We presently have adequate credit facilities to fund our operations through December 2008. A disruption in the availability of credit facilities would severely impact our ability to continue marketing and selling timeshare interests as we do today. In the first quarter of 2007, we consolidated our debt with Textron Financial Corporation into one revolving loan. As a result of the amended and restated loan and security agreement, the funding period on the consolidated debt has been extended from June 2008 to January 2010, with revised maturity dates of January 31, 2013 for the receivables component and January 31, 2012 on both the acquisition and inventory components. In addition, the interest rates previously charged have been reduced. This transaction is described in more detail under the heading “Subsequent Events” in Note 17 to our Consolidated Financial Statements beginning on page F-1.

· We believe there are two areas which are particularly important to our success as a business:

▪▪ The first area is identifying potential customers who are likely to pay their principal and interest payments when due after purchasing timeshare intervals, thereby resulting in an acceptable provision for uncollectible notes.

▪▪ The second area is to keep sales and marketing expenses at an acceptable level to result in a favorable percentage relationship between sales and marketing expense and Vacation Interval sales.

We earn revenue and income and finance our operations as follows:

· Our primary source of revenue is Vacation Interval sales. Vacation Interval sales are a combination of sales to new customers and upgrade and/or additional week sales to existing customers. We have been focusing on increasing the percentage mix of sales to existing customers in 2004, 2005, and 2006. In addition we have been focusing on identifying potential new customers who have better credit characteristics that will ultimately be more likely to pay their principal and interest when due. To manage sales we assess separately sales to potential new customers and sales to existing customers. For sales to potential new customers we measure sales per tour in order to ascertain that our marketing programs are delivering the proper types of family tours to effectively and efficiently sell to new customers. State law allows purchasers of timeshares to rescind their purchase within three to fifteen days depending on the state. We also measure rescission amounts and rates of new customers to ascertain that our marketing and sales programs continue effectively. The number of tours to existing customers is not meaningful. As a result, we begin our assessment of sales to existing customers by totaling gross sales to existing customers. Rescissions by existing customers are generally much lower than rescissions by new customers. We do measure rescission amounts and rates to calculate net sales to existing customers. We then combine net sales to new and existing customers to calculate total Vacation Interval sales.

One product that is sold to new customers is a Sampler, which gives the customer the right to use the resorts on an “as available” basis from Sunday to Thursday. Revenues related to sampler contracts, which entitle the prospective owner to sample a resort during certain periods, have been and will continue to be deferred until the customer uses the stay or allows the contract to expire. Effective January 1, 2006, sampler sales and related costs are accounted for as incidental operations, whereby incremental costs in excess of incremental revenue are charged to expense as incurred and the operations are presented as a net expense in the consolidated statement of operations. Conversely, incremental revenue in excess of incremental costs is recorded as a reduction of inventory in the consolidated balance sheet. Incremental costs include costs that would not have been incurred had we not sold samplers. During the year ended December 31, 2006, all sampler sales were recorded as a reduction to sales and marketing expense since direct and incremental costs of sampler sales exceeded incremental sampler sales. The amount of the reduction to sales and marketing expense for sampler sales in 2006 was $2.9 million. Prior to SFAS No. 152, sampler sales were reported separately as revenue. We recognized $2.6 million and $2.2 million in revenues from sampler sales for the years ended December 31, 2005 and 2004, respectively.

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The following table shows the elements management considers important to assessing our Vacation Interval sales (dollars in thousands, except for sales per tour):

	Year Ended December 31,
	2004			2005			2006
Tours to potential new purchasers		73,065			74,244			86,950
Sales per tour	$	1,183		$	1,160		$	1,217
Gross sales to new customers		86,466			86,156			105,785
Rescission of sales to new customers		(18,619	)		(17,932	)		(19,970	)
Net sales to new customers		67,847			68,224			85,815
Gross sales to existing customers		77,010			87,083			109,524
Rescission of sales to existing customers		(4,661	)		(6,268	)		(4,953	)
Net sales to existing customers		72,349			80,815			104,571
Total sales		140,196			149,039			190,386
Less sampler sales		(2,150	)		(2,623	)		(2,905	)
Total Vacation Interval sales	$	138,046		$	146,416		$	187,481
Rescission rate for new customers		21.5	%		20.8	%		18.9	%
Rescission rate for existing customers		6.1	%		7.2	%		4.5	%
Rescission rate for all customers		14.2	%		14.0	%		11.6	%

· In assessing the effectiveness of our sales and marketing programs, we believe it is also important to compare sales and marketing expenses to sales. The separate elements of sales and marketing expense that we assess are the cost of marketing to new purchasers, the cost of marketing to existing purchasers, offsite marketing, commissions, and sales and marketing overhead, as detailed in the following table (dollars in thousands, except for cost per tour):

	Year Ended December 31,
	2004			2005			2006
Tours to potential new purchasers		73,065			74,244			86,950
Cost per tour (rounded to nearest whole dollar)	$	431		$	463		$	424
Cost of marketing to new purchasers		31,490			34,378			36,875
Cost of marketing to existing purchasers		7,885			8,000			11,649
Offsite marketing		—			—			6,041
Commissions		23,513			23,178			29,733
Sales and marketing overhead		9,002			9,111			12,564
Sampler sales offset		—			—			(2,905	)
Total sales and marketing expense	$	71,890		$	74,667		$	93,957
As a percentage of Vacation Interval sales:
Cost of marketing to new purchasers		22.8	%		23.5	%		19.7	%
Cost of marketing to existing purchasers		5.7	%		5.5	%		6.2	%
Offsite marketing		0.0	%		0.0	%		3.2	%
Commissions		17.1	%		15.8	%		15.9	%
Sales and marketing overhead		6.5	%		6.2	%		6.7	%
Sampler sales offset		0.0	%		0.0	%		(1.6	)%
Total sales and marketing expense		52.1	%		51.0	%		50.1	%

· Our second most important source of revenue is interest income, which is predominantly earned on our notes receivable. Interest income as a percentage of notes receivable has increased each year from 2002 through 2006as a result of periodically increasing the interest rate we charged our new customers.

· We have three lesser revenue sources. They are management fees, predominantly from Silverleaf Club, gain on sale of notes receivable from our sale of notes receivable to our off-balance sheet special purpose entities, and other income. The gain on sale of notes receivable were $1.9 million, $6.5 million and $0 for the years ended December 31, 2004, 2005 and 2006, respectively.

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· We generate cash from the collection of down payments, principal and interest from purchasers of timeshare interval sales, the sales of notes receivable and from management fees and other income. We also generated cash in 2005 and 2006 from the sale of undeveloped land at locations that had been previously acquired for the possible development of new resorts.

· Since the majority of our sales are financed, we have revolving credit facilities that are drawn on monthly to fund our costs, expenses and capital expenditures.

We operate principally in only one business segment, the timeshare industry. Further, we only operate in the United States. As of December 31, 2006, we operate resorts in six states (Texas, Missouri, Illinois, Massachusetts, Georgia, and Florida), and sell primarily to residents of those states, with limited sales to residents of nearby states. In April 2006, we purchased Pinnacle Lodge, a hotel property located near the Winter Park recreational area in Colorado which provides our owners with another destination vacation alternative and gives Silverleaf an entry point into this increasingly popular destination area.

Our principal short-term focus is on continuing to conservatively increase annual revenues. We will continue to identify new and existing customers with acceptable credit characteristics that will allow us to profitably sell new, upgrade, and additional Vacation Intervals at our Existing Resorts. Long term, if the opportunities present themselves, we will consider adding and developing new resorts where timeshare intervals can be marketed and sold at a profit.

Critical Accounting Policies

Revenue and Expense Recognition — As required, we adopted SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions” as of January 1, 2006. The adoption of SFAS No. 152 prospectively revises the classification of certain revenue and cost activity. However, the adoption of SFAS No. 152 did not have a material effect on our reported net income for the year ended December 31, 2006, nor did it result in a cumulative effect adjustment.

A substantial portion of Vacation Interval sales are made in exchange for mortgage notes receivable, which are secured by a deed of trust on the Vacation Interval sold. We recognize the sale of a Vacation Interval under the full accrual method after a binding sales contract has been executed, the buyer has made a down payment of at least 10%, and the statutory rescission period has expired. If all accrual method criteria are met except that significant development costs remain to complete the project or phase, revenues are recognized on the percentage-of-completion basis. Under this method, the amount of revenue recognized (based on the sales value) at the time a sale is recognized is measured by the relationship of costs already incurred to the total of costs already incurred and estimated future costs. The remaining amount is deferred and recognized as the remaining costs are incurred. There were no sales deferred at December 31, 2006 related to the percentage-of-completion method.

Both of the above methods employ the relative sales value method in accounting for costs of sales and inventory, which are applied to each phase separately. Generally, we consider each building a separate phase. Pursuant to the provisions of SFAS No. 152, in determining relative sales value, an estimate of uncollectibility is used to reduce the estimate of total Vacation Interval revenue under the project, both actual to date plus expected future revenue. The relative sales value method is used to allocate inventory cost and determine cost of sales in conjunction with a sale. Under the relative sales value method, cost of sales is estimated as a percentage of net sales using a cost of sales percentage which represents the ratio of total estimated cost, including both costs already incurred plus estimated costs to complete the phase, if any, to total estimated Vacation Interval revenue under the project. Common costs, including amenities, are allocated to inventory cost among the phases that those costs are expected to benefit, and are included in total estimated costs.

The estimate of total revenue for a phase, which includes both actual to date revenues and expected future revenues, incorporates factors such as actual or estimated uncollectibles, changes in sales mix and unit sales prices, repossessions of intervals, effects of upgrade programs, and past and expected sales programs to sell slow moving inventory units. On at least a quarterly basis, we evaluate the estimated cost of sales percentage, using updated information for total estimated phase revenue and total estimated phase costs, both actual to date and expected in the future. The effects of changes in estimates are accounted for in the period in which they first become known on a retrospective basis using a current period adjustment.

Certain Vacation Interval sales transactions are deferred until the minimum down payment has been received. We account for these transactions utilizing the deposit method. Under this method, the sale is not recognized, a receivable is not recorded, and inventory is not relieved. Any cash received is carried as a deposit until the sale can be recognized. When these types of sales are cancelled without a refund, deposits forfeited are recognized as income and the interest portion is recognized as interest income. This income is not significant.

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In addition to sales of Vacation Intervals to new prospective owners, we sell additional and upgraded Vacation Intervals to existing owners. Revenues are recognized on an additional Vacation Interval sale, which is a new interval sale that is treated as a separate transaction from the original Vacation Interval for accounting purposes, when the buyer makes a down payment of at least 10%, excluding any equity from the original Vacation Interval purchased. Revenues are recognized on an upgrade Vacation Interval sale, which is a modification and continuation of the original sale, by including the buyer’s equity from the original Vacation Interval towards the down payment of at least 10%. The additional accrual method criteria described above must also be satisfied for revenue recognition of additional and upgraded Vacation Intervals. The revenue recognized on upgrade Vacation Interval sales is the difference between the upgrade sales price and traded-in sales price, and cost of sales is the incremental increase in the cost of the Vacation Interval purchased.

We recognize interest income as earned. Interest income is accrued on notes receivable, net of an estimated amount that will not be collected, until the individual notes become 90 days delinquent. Once a note becomes 90 days delinquent, the accrual of interest income ceases until collection is deemed probable.

We receive fees for management services provided to each timeshare resort’s owners’ association (a “Club”). These revenues are recognized on an accrual basis in the period the services are provided if collection is deemed probable.

Services and other income are recognized on an accrual basis in the period service is provided.

Sales and marketing costs are charged to expense in the period incurred. Commissions, however, are recognized in the same period as the revenue is recognized.

Allowance for Uncollectible Notes - Beginning January 1, 2006, estimated uncollectible revenue, which is an offset to Vacation Interval sales, is recorded at an amount sufficient to maintain the allowance for uncollectible notes at a level management considers adequate to provide for anticipated losses resulting from customers' failure to fulfill their obligations under the terms of their notes. Prior to the adoption of SFAS No. 152, this line item was recorded as an expense: provision for uncollectible notes. The allowance for uncollectible notes is adjusted based upon periodic analysis of the notes receivable portfolio, historical credit loss experience, and current economic factors.

Credit losses take three forms. The first is the full cancellation of the note, whereby the customer is relieved of the obligation and we recover the underlying inventory. The second form is a deemed cancellation, whereby we record the cancellation of all notes that become 90 days delinquent, net of notes that are no longer 90 days delinquent. The third form is the note receivable reduction that occurs when a customer trades a higher value product for a lower value product. In estimating the allowance, we project future cancellations and credit losses for each sales year by using historical cancellations experience.

The allowance for uncollectible notes is reduced by actual cancellations and losses experienced, including losses related to previously sold notes receivable which became delinquent and were reacquired pursuant to the recourse obligations discussed herein. Recourse to the Company on sales of customer notes receivable is governed by the agreements between the purchasers and the Company.

The provision for uncollectible notes as a percentage of Vacation Interval sales was reported as 0% in the provision expense line for the year ended December 31, 2006. In accordance with SFAS No. 152 and as discussed previously, estimated losses on Vacation Interval notes receivable are recorded as a reduction to Vacation Interval sales beginning in 2006 rather than as an expense item: provision for uncollectible notes, as it was recorded prior to 2006.

Our estimated uncollectible revenue as a percentage of Vacation Interval sales was 17.3% for the year ended December 31, 2006. Our provision for uncollectible notes as a percentage of Vacation Interval sales was 19.4% and 16.2% for the years ended December 31, 2004 and 2005. As noted above, an estimate for the value of inventory recoveries was included as a reduction to the provision for uncollectible notes prior to 2006 but is now included as a component in the relative sales value method of our inventory costing and allocation accounting. Considering the estimate for inventory recoveries, our net provision for expected credit losses would have been lower for the year ended December 31, 2006 versus the year ended December 31, 2005. The net improvement is due to the improved performance of notes originated in 2003 through 2006 as compared to notes originated in earlier years, before we implemented programs focused on selling to customers with a higher quality of credit. We will continue our current collection programs and seek new programs to reduce note defaults and improve the credit quality of our customers. However, there can be no assurance that these efforts will be successful.

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Inventories - Inventories are stated at the lower of cost or market value. Cost includes amounts for land, construction materials, amenities and common costs, direct labor and overhead, taxes, and capitalized interest incurred in the construction or through the acquisition of resort dwellings held for timeshare sale. Timeshare unit costs are capitalized as inventory and are allocated to cost of Vacation Interval sales based upon their relative sales values.

We estimate the total cost to complete all amenities at each resort. This cost includes both costs incurred to date and expected costs to be incurred. At December 31, 2006, the estimated costs not yet incurred, which are expected to complete promised amenities was $2.1 million. We allocate the estimated promised and completed amenities cost to cost of Vacation Interval sales based on Vacation Intervals sold in a given period as a percentage of total Vacation Intervals expected to sell over the life of a particular resort project.

The relative sales value method of recording Vacation Interval cost of sales has been amended by SFAS No. 152 beginning January 1, 2006 to include estimated future defaults of uncollectible sales and the subsequent resale of the recovered Vacation Intervals reacquired on future cancelled sales in our total estimate of revenues we expect to earn on a project. We periodically review the carrying value of our inventory on an individual project basis for impairment, to ensure that the carrying value does not exceed market value.

Management periodically reviews the carrying value of our inventory on an individual project basis to ensure that the carrying value does not exceed market value.

Vacation Intervals may be reacquired as a result of (i) foreclosure (or deed in lieu of foreclosure) and (ii) trade-in associated with the purchase of an upgraded or downgraded Vacation Interval. Vacation Intervals reacquired are recorded in inventory at the lower of their original cost or market value. Vacation Intervals that have been reacquired are relieved from inventory on a specific identification basis when resold. Inventory acquired several years ago through our program to reacquire Vacation Intervals owned but not actively used by Silverleaf Owners has a significantly lower average cost basis than recently constructed inventory, contributing significantly to historical operating margins. Newer inventory added through our construction and acquisition programs has a higher average cost than our older inventory.

Liquidity and Capital Resources

As of December 31, 2003 and all periods thereafter, we have been in full compliance with our debt covenants in our credit facilities with all of our senior lenders. The following table summarizes our credit agreements with our senior lenders and our off-balance sheet special purpose finance subsidiary, SF-III, as of December 31, 2006 (in thousands):

	Maximum Amount Available		12/31/06 Balance
Receivable Based Revolvers	$	295,000	$	51,827
Receivable Based Non-Revolvers		152,438		152,438
Inventory Loans		62,115		40,976
Sub-Total On Balance Sheet		509,553		245,241
Off-Balance Sheet Receivable Based Term Loan		52,295		52,295
Grand Total	$	561,848	$	297,536

We use these credit agreements to finance the sale of Vacation Intervals, to finance construction, and for working capital needs. The loans mature between April 2008 and July 2018, and are collateralized (or cross-collateralized) by customer notes receivable, inventory, construction in process, land, improvements, and related equipment at certain of the Existing Resorts. Our fixed-to-floating debt ratio at December 31, 2006 was 62% fixed rate debt to 38% floating rate debt. The credit facilities that bear interest at variable rates are tied to the prime rate, LIBOR, or the corporate rate charged by certain banks. The credit facilities secured by customer notes receivable allow advances of 75% to 80% of the unpaid balance of certain eligible customer notes receivable. In addition, we have $3.8 million of senior subordinated notes due April 2007, $2.1 million of senior subordinated notes due April 2008, and $24.7 million of senior subordinated notes due April 2010, with interest payable semi-annually on April 1 and October 1, guaranteed by all of our present and future domestic restricted subsidiaries.

Sources of Cash. We generate cash primarily from the cash received on the sale of Vacation Intervals, the financing of customer notes receivable from Silverleaf Owners, the sale of notes receivable to our special purpose entities, management fees, sampler sales, marina income, golf course and pro shop income, and utility operations (through the first quarter of 2005). We typically receive a 10% to 15% down payment on sales of Vacation Intervals and finance the remainder by receipt of a seven-year to ten-year customer promissory note. We generate cash from the financing of customer notes receivable by (i) borrowing at an advance rate of 75% to 80% of eligible customer notes receivable, (ii) selling notes receivable, and (iii) from the spread between interest received on customer notes receivable and interest paid on related borrowings. Because we use significant amounts of cash in the development and marketing of Vacation Intervals, but collect cash on customer notes receivable over a seven-year to ten-year period, borrowing against receivables has historically been a necessary part of normal operations. During the years ended December 31, 2004 and 2005, we had net cash provided by operating activities of $9.4 million and $75.7 million, respectively. In 2005, the increase in cash provided by operating activities was primarily the result of increased sales of notes receivable, partially offset by the increase in our maximum exposure to loss regarding our involvement with SF-III.

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Operating activities typically reflect net cash provided by operations; however for the year ended December 31, 2006 we had net cash used in operating activities of $45.6 million. The net decrease in cash flow of $121.3 million between 2005 and 2006 resulted primarily from cash provided by the sale of notes receivable in 2005 of $104.2 million. There were no sales of notes receivable in 2006. In addition, we had a 28.0% increase in Vacation Interval sales in 2006 which resulted in a $44.8 million increase in cash used for financing of sales between 2005 and 2006. Construction of additional units at our existing resorts also increased $9.6 million in 2006.

Although it appears we have adequate liquidity to meet our needs through 2008, we are continuing to identify additional financing arrangements into 2009 and beyond. To finance our growth, development, and any future expansion plans, we may at some time be required to consider the issuance of other debt, equity, or collateralized mortgage-backed securities. Any debt we incur or issue may be secured or unsecured, have fixed or variable rate interest, and may be subject to such terms as management deems prudent. In the first quarter of 2007, we consolidated our debt with Textron Financial Corporation into one revolving loan. As a result of the amended and restated loan and security agreement, the funding period on the consolidated debt has been extended from June 2008 to January 2010, with revised maturity dates of January 31, 2013 for the receivables component and January 31, 2012 on both the acquisition and inventory components. In addition, the interest rates previously charged have been reduced. This transaction is described in more detail under the heading “Subsequent Events” in Note 17 to our Consolidated Financial Statements beginning on page F-1.

Uses of Cash. Investing activities typically reflect a net use of cash due to capital additions and property acquisitions. However, for the year ended 2005, net cash provided by investing activities was $18.5 million. In 2005, the net cash provided by investing activities was primarily due to the sale of our water distribution and waste water treatment utilities assets at eight of our resorts, and the sale of undeveloped land located in Luzerne County, Pennsylvania. Net cash used in investing activities for the years ended December 31, 2004 and 2006 was $1.3 million and $13.6 million, respectively. In 2004 the net cash used in investing activities consisted of equipment purchases. The increase in net cash used in investing activities for the year 2006 was primarily due to the purchase of the following assets in 2006; Pinnacle Lodge, a 64 room hotel located near the Winter Park recreational area in Colorado, two offsite sales offices, and a corporate aircraft. We also began construction on a water park at one of our resorts in 2006. We evaluate sites for additional new resorts or acquisitions on an ongoing basis.

Net cash used in financing activities for the years ended December 31, 2004 and 2005 was $1.2 million and $94.1 million, respectively. During 2005, the increase in cash used in financing activities was the result of increased payments on borrowings against pledged notes receivable and the repurchase of previously sold notes. We paid fair value for the outstanding balance of notes receivable under SF-I, two non-revolving loans with one of our senior lenders, three term notes with another senior lender, and the outstanding balance under both the receivable and inventory loans with a third senior lender. Net cash provided by financing activities was $59.7 million during the year ended December 31, 2006. This was due primarily to borrowings under the SF-V Series 2006-A Notes which originated in 2006.

At December 31, 2006, our senior credit facilities provided for loans of up to $509.6 million, of which approximately $245.2 million of principal related to advances under the credit facilities was outstanding. At December 31, 2006, the weighted average cost of funds for all borrowings was 7.9%. Customer defaults have a significant impact on cash available to us from financing customer notes receivable in that notes more than 60 days past due are not eligible as collateral. As a result, we must repay borrowings against such delinquent notes. As of December 31, 2006, $4.7 million of notes were more than 60 days past due.

Certain debt agreements include restrictions on our ability to pay dividends based on minimum levels of net income and cash flow. The payment of dividends might also be restricted by the Texas Business Corporation Act.

Off-Balance Sheet Arrangements. We entered into a $100 million revolving credit agreement to finance Vacation Interval notes receivable through SF-I, our off-balance-sheet special purpose entity during 2000. We agreed to reduce the principal amount of the facility from $100 million to $85 million in 2003, and during the first quarter of 2005 the facility amount was further reduced to $75 million. During 2003, we sold $40.4 million of notes receivable to SF-I and recognized pre-tax gains of $3.2 million. In conjunction with these sales, we received cash consideration of $31.8 million, which was primarily used to pay down borrowings under our revolving loan facilities. During 2004, we sold $27.4 million of notes receivable to SF-I and recognized pre-tax gains of $1.9 million. In conjunction with these sales, we received cash consideration of $20.6 million, which was used to pay down borrowings under our revolving loan facilities. During 2005, we sold $8.0 million of notes receivable to SF-I and recognized pre-tax gains of $669,000. In conjunction with these sales, we received cash consideration of $6.0 million, which was used to pay down borrowings under our revolving loan facilities. SF-I funded all of these purchases through advances under a credit agreement arranged for this purpose. We receive fees for servicing sold receivables, calculated based on 1% of eligible receivables held by the facility. Such fees were $684,000, $355,000, and $0 for the years ended December 31, 2004, 2005, and 2006, respectively. Such fees received approximate our internal cost of servicing such receivables, and approximates the fee a third party would receive to service such receivables. As a result, the related servicing asset or liability was estimated to be insignificant.

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During the third quarter of 2005 we closed a term securitization transaction with a wholly-owned off-balance sheet qualified special purpose finance subsidiary, SF-III, a Delaware limited liability company, which was formed for the purpose of issuing $108.7 million of its Series 2005-A Notes in a private placement through UBS Securities LLC. The Series 2005-A Notes were issued pursuant to an Indenture (“Indenture”) between Silverleaf, as servicer of the timeshare loans, SF-III, and Wells Fargo Bank, National Association, as Indenture Trustee, Custodian, Backup Servicer, and Account Intermediary. The Series 2005-A Notes were issued in four classes ranging from Class A through Class D notes with a blended fixed rate of 5.4%. The Class A Notes, Class B Notes, Class C Notes and Class D Notes have received a rating from Moody's Investor Services, Inc. of “Aaa”, “Aa2”, “A2” and “Baa2”, respectively.

The Series 2005-A Notes are secured by timeshare receivables sold to SF-III by us pursuant to a transfer agreement between SF-III and us. Under that agreement, we sold to SF-III approximately $132.8 million in timeshare receivables that were previously pledged as collateral under revolving credit facilities with our senior lenders and SF-I, and recognized a pre-tax gain of 5.8 million. In connection with this sale, we received gross cash consideration of $108.7 million, which was primarily used to pay off in full the credit facility of SF-I and to pay down amounts we owed under credit facilities with our senior lenders. We dissolved SF-I simultaneously with the sale of the timeshare receivables to SF-III. The timeshare receivables we sold to SF-III are without recourse to us, except for breaches of certain representations and warranties at the time of sale. We are responsible for servicing the timeshare receivables purchased by SF-III pursuant to the terms of the Indenture and will receive a fee for our services equal to 1.75% of eligible timeshare receivables held by the facility. Such fees were $1.5 million and $1.1 million for the years ended December 31, 2006 and 2005, respectively. Such fees received approximate our internal cost of servicing such timeshare receivables, and approximates the fee a third party would receive to service such receivables. As a result, the related servicing asset or liability was estimated to be insignificant. At December 31, 2006, SF-III held notes receivable totaling $62.7 million, with related borrowings of $52.3 million. Except for the repurchase of notes that fail to meet initial eligibility requirements, we are not obligated to repurchase defaulted or any other contracts sold to SF-III. As the Servicer of the notes receivable sold to SF-III, we are obligated by the terms of the conduit facility to foreclose upon the Vacation Interval securing a defaulted note receivable. We may, but are not obligated to, purchase the foreclosed Vacation Interval for an amount equal to the net fair market value of the Vacation Interval if the net fair market value is no less than fifteen percent of the original acquisition price that the customer paid for the Vacation Interval. For the year ended December 31, 2006, we paid approximately $2.1 million to repurchase the Vacation Intervals securing defaulted contracts to facilitate the re-marketing of those Vacation Intervals. Our total investment in SF-III was carried at $13.0 million at December 31, 2006, which represents our maximum exposure to loss regarding our involvement with SF-III.

Our special purpose entities allow us to realize the benefit of additional credit availability we have with our current senior lenders. We require credit facilities to have the liquidity necessary to fund our costs and expenses, therefore it is vitally important to our liquidity plan to have financing available to us in order to finance future sales, since we finance the majority of our timeshare sales over seven to ten years.

Income Taxes. For regular federal income tax purposes, we report substantially all of the Vacation Interval sales we finance under the installment method. Under this method, income on sales of Vacation Intervals is not recognized until cash is received, either in the form of a down payment or as installment payments on customer notes receivable. The deferral of income tax liability conserves cash resources on a current basis. Interest is imposed, however, on the amount of tax attributable to the installment payments for the period beginning on the date of sale and ending on the date the payment is received. If we are not subject to tax in a particular year, no interest is imposed since the interest is based on the amount of tax paid in that year. The consolidated financial statements do not contain an accrual for any interest expense that would be paid on the deferred taxes related to the installment method as the interest expense is not estimable.

In addition, we are subject to current alternative minimum tax (“AMT”) as a result of the deferred income that results from the installment sales treatment. Payment of AMT creates a deferred tax asset in the form of a minimum tax credit, which, unless otherwise limited, reduces the future regular tax liability attributable to Vacation Interval sales. Due to AMT losses in certain years prior to 2003, which offset all AMT income for years prior to 2003, no minimum tax credit exists for years prior to 2003. Nevertheless, we had significant AMT for 2006 and anticipate that we will pay significant AMT in future years.

The federal net operating losses (“NOLs”) expire between 2019 through 2021. Realization of the deferred tax assets arising from

NOLs is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards.

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Due to the exchange offer that took place during 2002, an ownership change within the meaning of Section 382(g) of the Internal Revenue Code (“the Code”) occurred. As a result, a portion of our NOL is subject to an annual limitation for taxable years beginning after the date of the exchange (“change date”) and a portion of the taxable year that includes the change date. This annual limitation may be increased for any recognized built-in gain to the extent allowed in Section 382(h) of the Code. There is an annual limitation of approximately $768,000, which was the value of our stock immediately before the ownership change, multiplied by the applicable long term tax exempt rate. We believe that approximately $36.2 million of our net operating loss carryforwards as of December 31, 2006, are subject to the Section 382 limitations.

Discontinued Operations. In accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), the water and utility property assets and liabilities were designated as held for sale effective December 31, 2004. In accordance with the provisions of SFAS No. 144, the results of operations of these properties are included in income from discontinued operations. Prior periods have been reclassified for comparability, as required. The carrying amounts of the water and utility property assets were $0 as of December 31, 2005.

On March 11, 2005, we sold the water distribution and waste water treatment utilities assets at eight of our timeshare resorts for an aggregate sales price of $13.1 million, which resulted in a pretax gain of $879,000 during the third quarter of 2005, once all conditions of the sale were met. The purchasers of the utilities are Algonquin Water Resources, of Texas, LLC, a Texas limited liability company; Algonquin Water Resources of Missouri, LLC, a Missouri limited liability company; Algonquin Water Resources of Illinois, LLC, an Illinois limited liability company; Algonquin Water Resources of America, Inc., a Delaware corporation; and Algonquin Power Income Fund, an open-ended investment trust established under the laws of Ontario, Canada (collectively, the “Purchasers”). Certain of the Purchasers have entered into a services agreement to provide uninterrupted water supply and waste water treatment services to our eight timeshare resorts to which the transferred utility assets relate. The Purchasers will charge our timeshare resorts the tariffed rate for those utility services that are regulated by the states in which the resorts are located. For any unregulated utility services, the Purchasers will charge a rate set in accordance with the ratemaking procedures of the Texas Commission on Environmental Quality. The proceeds of our sale of these utility assets were used to reduce senior debt in accordance with our loan agreements with our senior lenders.

Notwithstanding the closing of this sale of utilities assets, our agreement with the Purchasers contains provisions relating to the required post-closing receipt of customary governmental approvals from utility regulators in Missouri and Texas. During the third quarter of 2005, the Purchasers received governmental approval from the utility regulators in Missouri. Approval from the utility regulators in Texas is still pending at this time. However, we entered into an amendment during July 2006 in which the deadline for obtaining required approvals from the appropriate Texas regulatory agencies was extended from September 2006 to March 2007. During February 2007, the deadline for obtaining approval from the Texas regulatory agencies was extended another 90 days from March 2007 to June 2007. If the Purchasers do not receive required approvals from Texas regulators relating to the utility assets in Texas (the “Texas Assets”) by June 2007, the Texas Assets will be reconveyed to us, the transaction involving the Texas Assets will be rescinded, and we will be obligated to return to the Purchasers approximately $6.2 million of the purchase price attributable to the Texas Assets.

The condensed consolidated statements of operations for discontinued operations are summarized as follows (in thousands):

	Year Ended December 31,
	2004		2005
REVENUES:
Gain on sale of discontinued operations	$	—	$	879
Other income		2,860		438
Total revenues		2,860		1,317
COSTS AND OPERATING EXPENSES:
Other expense		1,376		278
Depreciation		859		—
Interest expense		1		—
Total costs and operating expenses		2,236		278
Income from discontinued operations		624		1,039
Provision for income taxes		—		(298	)
Income from discontinued operations	$	624	$	741

There were no discontinued operations during the year ended December 31, 2006.

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Results of Operations

The following table sets forth certain operating information for the Company.

	Years Ended December 31,
	2004			2005			2006
As a percentage of total revenues:
Vacation Interval sales		75.1	%		72.5	%		90.6	%
Estimated uncollectible revenue		0.0	%		0.0	%		(15.7	)%
Sampler sales		1.2	%		1.3	%		0.0	%
Net sales		76.3	%		73.8	%		74.9	%
Interest income		20.6	%		18.9	%		22.4	%
Management fee income		0.7	%		0.9	%		0.9	%
Gain on sale of notes receivable		1.0	%		3.2	%		0.0	%
Other income		1.4	%		3.2	%		1.8	%
Total revenues		100.0	%		100.0	%		100.0	%
As a percentage of Vacation Interval sales:
Cost of Vacation Interval sales		18.1	%		16.0	%		10.1	%
Sales and marketing		52.1	%		51.0	%		50.1	%
Provision for uncollectible notes		19.4	%		16.2	%		0.0	%
As a percentage of total revenues:
Operating, general and administrative		14.0	%		13.9	%		15.6	%
Depreciation		2.0	%		1.3	%		1.2	%
As a percentage of interest income:
Interest expense and lender fees		46.6	%		45.2	%		46.8	%

Results of Operations for the Years Ended December 31, 2006 and December 31, 2005

Revenues

Revenues in 2006 were $206.9 million, representing a $5.0 million, or 2.5%, increase compared to revenues of $201.9 million for the year ended December 31, 2005. This increase primarily relates to increased Vacation Interval sales, discussed below, net of gain on sales of notes receivable and other income in 2005.

In accordance with SFAS No. 152, total revenue for the year ended December 31, 2006 is decreased by estimated uncollectible revenue of $32.5 million, which represents estimated future gross cancellations of notes receivable prior to any recoveries of inventory. In addition, under SFAS No. 152, sampler sales are accounted for as incidental operations, which require that any such incidental revenues be recorded as a reduction of incremental costs or expenses. Accordingly, $2.9 million of sampler sales, which would have been reported as revenue prior to adoption of SFAS No. 152, were accounted for as a reduction to sales and marketing expense in the year ended December 31, 2006. Had these two changes mandated by SFAS No. 152 not been made, revenues would have increased by 20.0% to $242.3 million.

The following table summarizes our Vacation Interval sales (dollars in thousands, except average price).

	2005						2006
					Average						Average
	$ Sales		Units		Price		$ Sales		Units		Price
Interval Sales to New Customers	$	65,601		5,364	$	12,230	$	82,909		6,557	$	12,644
Upgrade Interval Sales to Existing Customers		53,734		6,576		8,171		72,366		8,777		8,245
Additional Interval Sales to Existing Customers		27,081		2,968		9,124		32,206		3,298		9,765
Total	$	146,416					$	187,481

Overall, Vacation Interval sales increased 28.0% in 2006 versus 2005, due to increased interval sales to both new and existing customers as a result of increased demand from our existing customers for upgraded intervals, higher closing percentages, and lower rescission rates. The number of interval sales to new customers increased 22.2% and average prices increased 3.4%, resulting in a 26.4% net increase in Vacation Interval sales to new customers in 2006 versus 2005. The number of interval sales to existing customers increased 26.5% and average prices increased 2.3%, resulting in a 29.4% net increase in sales to existing customers during 2006 versus 2005.

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We anticipate continued growth in our annual Vacation Interval sales in 2007. This growth will be achieved through a combination of:

· Increased sales to new customers.

· Increased upgrade sales and additional week sales to existing customers.

· Potentially opening new resorts. We have identified potential markets for future expansion that may include Winter Park, Colorado, Washington DC, Las Vegas, Wisconsin Dells, and/or Myrtle Beach, South Carolina. Depending on the size and location, a new resort’s land, infrastructure, and amenities will cost between $5.0 million and $15.0 million.

· Anticipate a permanent opening of our second off site sales center near Chicago, Illinois.

Estimated uncollectible revenue was $32.5 million for the year ended December 31, 2006 versus $0 reported on this line for 2005. As discussed previously, SFAS No. 152 requires the estimated uncollectible revenue to be recorded as a reduction to Vacation Interval sales and no longer net of inventory recovery beginning in 2006 rather than as an expense item: provision for uncollectible notes, as it was previously recorded.

Sampler sales primarily function as a marketing program, allowing us additional opportunities to sell a Vacation Interval to a prospective customer. Sampler sales are not recognized in the consolidated statement of operations until the customer uses the stay or our obligation has elapsed, which often does not occur until the sampler contract expires eighteen months after the sale is consummated. Sampler sales for the year 2006 were reported as $0 compared to $2.6 million for 2005. Beginning in 2006 per SFAS No. 152, sampler sales and related costs are accounted for as incidental operations, whereby incremental costs in excess of incremental revenue are charged to expense as incurred and the operations are presented as a net expense in the consolidated statement of operations. Conversely, incremental revenue in excess of incremental costs is recorded as a reduction of inventory. Incremental costs include costs that would not have been incurred had we not sold samplers. During the year ended December 31, 2006, all sampler sales of $2.9 million were recorded as a reduction to sales and marketing expense, since incremental costs of sampler sales exceeded incremental sampler sales.

Interest income increased $8.0 million, or 21.2%, to $46.2 for the year ended December 31, 2006 from $38.2 million for 2005. The increase primarily resulted from a higher average notes receivable balance in 2006 versus the same period of 2005, a $2.1 million increase in interest accretion related to the investment in special purpose entity for the year ended December 31, 2006 versus the year ended December 31, 2005, and an increase in the average yield on our outstanding notes receivable to 15.7% at December 31, 2006 from 15.3% at December 31, 2005.

Management fee income, which consists of management fees collected from the resorts’ management clubs, cannot exceed the management clubs’ net income. Management fee income remained constant at $1.9 million for both years ended December 31, 2006 and 2005.

There were no sales of notes receivable during the year of 2006. Gain on sale of notes receivable was $6.5 million during 2005, resulting from the sale of $8.0 million and $132.8 million of notes receivable to SF-I and SF-III, respectively, and recognizing pre-tax gains of $669,000 and $5.8 million, respectively. In connection with the sale to SF-I, we received cash consideration of $6.0 million, which was used to pay down borrowings under our senior revolving loan facilities. In connection with the sale to SF-III, we received gross cash consideration of $108.7 million, which was used to pay off in full the credit facility of SF-I and to pay down borrowings under our senior revolving loan facilities.

Other income consists of marina income, golf course and pro shop income, and other miscellaneous items. Other income decreased $2.6 million to $3.8 million for the year ended December 31, 2006, compared to $6.4 million for the year ended December 31, 2005. The decrease is primarily due to a $3.6 million gain on the sale of undeveloped land located in Pennsylvania during 2005, which is partially offset by a $0.5 million gain on the sale of two parcels of Mississippi land during 2006. Other than these two land sales, other income remained fairly constant for the years ended December 31, 2006 and 2005.

Cost of Vacation Interval Sales

Cost of sales as a percentage of Vacation Interval sales decreased to 10.1% in 2006, versus 16.0% in 2005. This decrease is primarily due to the implementation of SFAS No. 152 effective January 1, 2006, which amends the relative sales value method of recording Vacation Interval cost of sales to include an estimate of future defaults of uncollectible revenue, both actual to date plus expected future revenue. The relative sales value method is used to allocate inventory cost and determine cost of sales in conjunction with a sale. Under the relative sales value method, cost of sales is estimated as a percentage of net sales using a cost of sales percentage which represents the ratio of total estimated cost, including both costs already incurred plus costs to complete the phase, if any, to total estimated Vacation Interval revenue under the project, including amounts already recognized and future revenues. Common costs, including amenities, are allocated to inventory cost among the phases that those costs are expected to benefit. The estimate of total revenue for a phase, which includes both actual to date revenues and expected future revenues, incorporates factors such as actual or estimated uncollectibles, changes in sales mix and unit sales prices, repossessions of intervals, effects of upgrade programs, and past and expected future sales programs to sell slow moving inventory units.

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For comparability, had cost of sales not been reduced by the estimated future recoveries of inventory, as described above, cost of sales for 2006 would have been 14.5% of Vacation Interval Sales versus 16.0% in 2005. Higher average sales prices during 2006 compared to 2005 contributed to the reduction in cost of sales as a percentage of Vacation Interval sales.

Sales and Marketing

Sales and marketing expenses as a percentage of Vacation Interval sales decreased to 50.1% for the year ended December 31, 2006 versus 51.0% for the same period of 2005. In accordance with SFAS No. 152 and as discussed in sampler sales above, $2.9 million of sampler revenues were recorded as a reduction to sales and marketing expense since the incremental costs of our sampler sales exceeded incremental sampler revenue. Had sales and marketing expense not been reduced by sampler sales, sales and marketing expense would have been 51.7% of Vacation Interval sales for the year ended December 31, 2006. The increase compared to the previous year is due to our costs associated with our newly opened off-site sales centers as well as the investment in securing additional personnel and processes ahead of the expected growth for which we are planning.

Provision for Uncollectible Notes

The provision for uncollectible notes as a percentage of Vacation Interval sales was reported as 0% in the provision expense line for 2006. In accordance with SFAS No. 152 and as discussed previously, estimated losses on Vacation Interval notes receivable are recorded as a reduction to Vacation Interval sales beginning in 2006 rather than as an expense item: provision for uncollectible notes, as it was recorded prior to 2006.

Our estimated uncollectible revenue as a percentage of Vacation Interval sales was 17.3% for 2006. Our provision for uncollectible notes as a percentage of Vacation Interval sales was 16.2% during 2005. As noted above, an estimate for the value of inventory recoveries was included as a reduction to the provision for uncollectible notes prior to 2006 but is now included as a component in the relative sales value method of our inventory costing and allocation accounting. Considering the estimate for inventory recoveries of approximately 4.3% of Vacation Interval sales, our net provision for expected credit losses was 13.0% during 2006, which compares favorably to 16.2% for 2005. The net percentage improvement is due to the improved performance of notes originated in 2003 through 2006 as compared to notes originated in earlier years, before we implemented programs focused on selling to customers with a higher quality of credit. We will continue our current collection programs and seek new programs to reduce note defaults and improve the credit quality of our customers. However, there can be no assurance that these efforts will be successful.

Operating, General and Administrative

Operating, general and administrative expenses as a percentage of total revenues increased to 15.6% in 2006 from 13.9% in 2005. Overall, operating, general and administrative expenses increased $4.3 million during 2006 as compared to 2005, primarily due to increased professional fees of $1.9 million and increased salaries of $1.5 million. Excluding the impact of SFAS No. 152 on our revenues during 2006 as described above, operating, general and administrative expenses as a percentage of total revenues would have been 13.3% during 2006.

Depreciation

Depreciation expense as a percentage of total revenues decreased to 1.2% in 2006 from 1.3% in 2005. Overall, depreciation expense decreased $184,000 for the year of 2006 versus the same period of 2005.

Interest Expense and Lender Fees

Interest expense and lender fees as a percentage of interest income increased to 46.8% for the year ended December 31, 2006, compared to 45.2% for the same period of 2005. Overall, interest expense and lender fees increased $4.4 million for 2006 versus 2005, primarily due to a larger average debt balance outstanding during 2006, net of a decrease in our weighted average cost of borrowings from 8.1% for the year ended December 31, 2005 to 7.9% for same period of 2006.

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Income before Provision for Income Taxes and Discontinued Operations

Income before provision for income taxes and discontinued operations increased to income of $37.4 million for the year ended December 31, 2006, as compared to $32.2 million for the year ended December 31, 2005, as a result of the above-mentioned operating results.

Provision for Income Taxes

Provision for income taxes as a percentage of income before provision for income taxes and discontinued operations was a provision of 38.5% for 2006, as compared to 30.2% for 2005. The higher effective income tax rate during 2006 was the result of utilizing a sufficient level of the NOL carryforward and other deferred tax assets during 2005, which caused us to move into a net deferred tax liability position for all of 2006.

Income from Continuing Operations

Income from continuing operations increased to $23.0 million for the year ended December 31, 2006, as compared to $22.4 million for the year ended December 31, 2005, as a result of the above-mentioned operating results.

Income from Discontinued Operations

Income from discontinued operations was $741,000, net of income taxes, during the year ended December 31, 2005, compared to $0 during the same period of 2006. We recognized a gain on sale of discontinued operations, net of income taxes, of $613,000 during 2005 related to the sale of our water distribution and waste water treatment utilities assets at eight of our timeshare resorts. We sold these assets during the first quarter of 2005, thus there has been no income (loss) from discontinued operations since that time.

Net Income

Net income was $23.0 million for the year ended December 31, 2006, as compared to $23.2 million for the year ended December 31, 2005, as a result of the above-mentioned operating results.

Results of Operations for the Years Ended December 31, 2005 and December 31, 2004

Revenues

Revenues in 2005 were $201.9 million, representing an $18.2 million, or 9.9%, increase compared to revenues of $183.7 million for the year ended December 31, 2004. This increase primarily relates to increased Vacation Interval sales, discussed below, and to a lesser extent, gain on sales of notes receivable and other income.

The following table summarizes our Vacation Interval sales (dollars in thousands, except average price).

	2004						2005
	$ Sales		Units		Average Price		$ Sales		Units		Average Price
Interval Sales to New Customers	$	65,697		5,713	$	11,500	$	65,601		5,364	$	12,230
Upgrade Interval Sales to Existing Customers		33,416		4,816		6,938		53,734		6,576		8,171
Additional Interval Sales to Existing Customers		38,933		4,718		8,252		27,081		2,968		9,124
Total	$	138,046					$	146,416

Overall, Vacation Interval sales increased 6.1% in 2005 versus 2004. The number of interval sales to new customers decreased 6.1% as a result of our marketing strategy to improve the sales margin by increasing the proportion of sales to existing customers over sales to new customers. Average prices of sales to new customers increased 6.3% however, resulting in relatively no change in interval sales to new customers in 2005 versus 2004. The number of interval sales to existing customers increased 0.1% in 2005 versus 2004, and average prices increased 11.6%, resulting in an 11.7% net increase in the sales amount to existing customers during the year ended December 31, 2005 versus the year ended December 31, 2004.

Sampler sales increased to $2.6 million in 2005 compared to $2.2 million in 2004. Sampler sales were not recognized as revenue until our obligation had elapsed, which often did not occur until the sampler contract expired eighteen months after the sale was consummated. Hence, a significant portion of sampler sales recognized in 2005 relate to 2003 and 2004 sales activity.

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Interest income increased 0.8% to $38.2 million for the year ended December 31, 2005 from $37.8 million for 2004. The average yield on our outstanding notes receivable at December 31, 2005 was approximately 15.3%, compared to 15.1% at December 31, 2004.

Management fee income, which consists of management fees collected from the resorts’ management clubs, cannot exceed the management clubs’ net income. Management fee income increased $655,000 in the year ended December 31, 2005 from the same period of 2004, due primarily to increased profitability of the resorts’ management clubs during 2005 versus 2004.

Gain on sales of notes receivable was $6.5 million during 2005, resulting from the sale of $8.0 million and $132.8 million of notes receivable to SF-I and SF-III, respectively, and recognizing pre-tax gains of $669,000 and $5.8 million, respectively. In connection with the sale to SF-I, we received cash consideration of $6.0 million, which was used to pay down borrowings under our senior revolving loan facilities. In connection with the sale to SF-III, we received gross cash consideration of $108.7 million, which was used to pay off in full the credit facility of SF-I and to pay down borrowings under our senior revolving loan facilities. The $1.9 million gain during 2004 resulted from the sale of $27.4 million of notes receivable to SF-I.

Other income consists of marina income, golf course and pro shop income, and other miscellaneous items. Other income increased $3.9 million to $6.4 million for the year ended December 31, 2005, compared to $2.5 million for the year ended December 31, 2004. The increase is primarily due to a $3.6 million gain on the sale of undeveloped land located in Pennsylvania during 2005. In addition, condo rentals at our Orlando Breeze resort, acquired in the fourth quarter of 2004, contributed to the increase.

Cost of Vacation Interval Sales

Cost of sales as a percentage of Vacation Interval sales decreased to 16.0% in 2005, from 18.1% in 2004, primarily due to selling a much higher percentage of our lower cost inventory during 2005 versus selling primarily our higher cost inventory during 2004. Higher average sales prices during 2005 compared to 2004 also contributed to the reduction in cost of sales as a percentage of Vacation Interval sales. The $1.5 million decrease in cost of sales during 2005 compared to 2004 is primarily due to increased sales of lower cost inventory. Cost of sales as a percentage of Vacation Interval sales is expected to increase in future periods as we continue to deplete our inventory of low-cost Vacation Intervals and shift our sales mix to more recently constructed units, which were built at higher average costs.

Sales and Marketing

Sales and marketing expense as a percentage of Vacation Interval sales decreased to 51.0% for the year ended December 31, 2005 versus 52.1% for the same period of 2004. This reduction is the result of our marketing strategy to improve the sales margin and increase the proportion of sales to existing customers over sales to new customers, as sales to existing customers require less sales and marketing expense. For the year ended December 31, 2005, sales to existing customers increased to 55.2% of Vacation Interval sales, up from 52.4% during 2004. The $2.8 million overall increase in sales and marketing expense is primarily attributable to the overall increase in Vacation Interval sales during 2005 versus 2004.

Provision for Uncollectible Notes

Provision for uncollectible notes as a percentage of Vacation Interval sales decreased to 16.2% for the year ended December 31, 2005 from 19.4% for 2004. The decrease from 2004 to 2005 was due to improved performance of notes originated in 2003, 2004, and 2005 as compared to notes originated in earlier years, before we focused on selling to customers with a higher quality of credit. The allowance for doubtful accounts was 22.8% and 21.1% of gross notes receivable as of December 31, 2005 and December 31, 2004, respectively. We will continue our current collection programs and seek new programs to reduce note defaults and improve the credit quality of our customers. However, there can be no assurance that these efforts will be successful.

Operating, General and Administrative

Operating, general and administrative expenses as a percentage of total revenues decreased to 13.9% in 2005 from 14.0% in 2004. Overall, operating, general and administrative expenses increased $2.4 million during 2005 as compared to 2004, primarily due to increased salaries and professional fees.

Depreciation

Depreciation expense as a percentage of total revenues decreased to 1.3% in 2005 from 2.0% in 2004. Overall, depreciation expense decreased $865,000 in 2005 versus 2004 due to a general reduction in capital expenditures since 2000. In addition, depreciation of our water distribution and waste water treatment utilities assets was ceased effective December 31, 2004 due to the assets being designated as held for sale.

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Interest Expense and Lender Fees

Interest expense and lender fees as a percentage of interest income remained fairly constant at 45.2% for the year ended December 31, 2005, compared to 46.6% for the year ended December 31, 2004.

Income before Provision for Income Taxes and Discontinued Operations

Income before provision for income taxes and discontinued operations increased to $32.2 million for the year ended December 31, 2005, as compared to $13.2 million for the year ended December 31, 2004, as a result of the above-mentioned operating results.

Provision for Income Taxes

Provision for income taxes as a percentage of income before provision for income taxes and discontinued operations was 30.2% for 2005, as compared to 0.2% for 2004. The higher effective income tax rate during 2005 was the result of utilizing enough of the NOL carryforward and other deferred tax assets during the year, causing us to move into a net deferred tax liability position at year-end. The low effective income tax rate during the same period of 2004 was the result of being in a net deferred tax asset position for our 2004 year-end, which was offset by a valuation allowance, which reduced the net deferred tax assets to zero due to the unpredictability of recovery.

Income from Continuing Operations

Income from continuing operations increased to $22.4 million for the year ended December 31, 2005, as compared to $13.1 million for the year ended December 31, 2004, as a result of the above-mentioned operating results.

Income from Discontinued Operations

Income from discontinued operations increased to $741,000 during the year ended December 31, 2005, compared to $624,000 during the same period of 2004. We recognized a gain on sale of discontinued operations, net of income taxes, of $613,000 during 2005 related to the sale of our water distribution and waste water treatment utilities assets at eight of our timeshare resorts. We sold these assets during the first quarter of 2005, thus there has been no income (loss) from discontinued operations since that time.

Net Income

Net income increased to income of $23.2 million for the year ended December 31, 2005, as compared to $13.8 million for the year ended December 31, 2004, as a result of the above-mentioned operating results.

Contractual Obligations and Commitments

The following table summarizes our scheduled contractual commitments as of December 31, 2006 (in thousands):

	2007		2008		2009		2010		2011		Thereafter
Long-term debt	$	28,888	$	46,829	$	19,987	$	63,542	$	74,700	$	195,642
Capital leases		592		585		505		115		114		—
Operating leases		2,619		2,260		1,731		857		360		88
Other purchase obligations:
Construction commitments		21,843		—		—		—		—		—
Employment agreements		1,335		—		—		—		—		—
Total	$	55,277	$	49,674	$	22,223	$	64,514	$	75,174	$	195,730

Long term debt includes $145.3 million of future interest and capital leases include $192,000 of future interest, using an approximate interest rate of 7.9%, which is our weighted average cost of borrowing at December 31, 2006. We also have a $15.7 million demand note with SF-II, our wholly owned on-balance sheet conduit financing subsidiary that is not included in long-term debt, since the note represents only a potential, future cash outlay, and in addition, is eliminated on a consolidated basis.

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Inflation

Inflation and changing prices have not had a material impact on our revenues, operating income, and net income during any of the three most recent fiscal years. However, to the extent inflationary trends affect short-term interest rates, a portion of our debt service costs may be affected as well as the rates we charge on our customer notes receivable.

Recent Accounting Pronouncements

SFAS No. 155 - In February 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments (“SFAS No. 155”). SFAS No. 155 amends Financial Accounting Standards Board Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”) and Financial Accounting Standards Board Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The statement applies to certain hybrid financial instruments, which are instruments that contain embedded derivatives. The new standard establishes a requirement to evaluate beneficial interests in securitized financial assets to determine if the interests represent freestanding derivatives or are hybrid financial instruments containing embedded derivatives requiring bifurcation. This new standard also permits an election for fair value re-measurement of any hybrid financial instrument containing an embedded derivative that otherwise would require bifurcation under SFAS No. 133. The fair value election can be applied on an instrument-by-instrument basis to existing instruments at the date of adoption and can be applied to new instruments on a prospective basis. This statement shall be effective for all financial instruments acquired, issued, or subject to a remeasurement (new basis) event occurring after the beginning of an entity's first fiscal year that begins after September 15, 2006. The fair value election provided for in paragraph 4(c) of this Statement may also be applied upon adoption of this Statement for hybrid financial instruments that had been bifurcated under paragraph 12 of Statement 133 prior to the adoption of this Statement. Earlier adoption is permitted as of the beginning of an entity's fiscal year, provided the entity has not yet issued financial statements, including financial statements for any interim period for that fiscal year. The adoption of SFAS No. 155 is not expected to have a material impact on our consolidated financial condition or results of operations.

SFAS No. 156 - In March 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets (“SFAS No. 156”). The statement allows for the adoption of the fair value method of accounting for servicing assets, as opposed to the lower of amortized cost or market value, including mortgage servicing rights, which represent an entity’s right to a future stream of cash flows based upon the contractual servicing fee associated with servicing mortgage loans. The statement is effective as of the beginning of any fiscal year beginning after September 15, 2006, with early adoption permitted as of January 1, 2006. We are still evaluating the impact the adoption of SFAS No. 156 will have on our consolidated financial condition and results of operations.

FIN No. 48 -In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. We are still evaluating the impact the adoption of FIN No. 48 will have on our consolidated financial condition and results of operations.

SFAS No. 157- In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements(“SFAS No. 157”), which clarifies that the term fair value is intended to mean a market-based measure, not an entity-specific measure, and gives the highest priority to quoted prices in active markets in determining fair value. SFAS No. 157 requires disclosures about (1) the extent to which companies measure assets and liabilities at fair value, (2) the methods and assumptions used to measure fair value, and (3) the effect of fair value measures on earnings.  SFAS No. 157 is effective for fiscal years beginning after November 15, 2007.  We are still evaluating the impact the adoption of SFAS No. 157 will have on our consolidated financial condition and results of operations.

SAB 108-In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 provides interpretive guidance on how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in the current year financial statements. SAB 108 requires registrants to quantify misstatements using both an income statement (“rollover”) and balance sheet (“iron curtain”) approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly applied its previous approach and all relevant facts and circumstances were considered. If prior years are not restated, the cumulative effect adjustment is recorded in opening accumulated earnings as of the beginning of the fiscal year of adoption. SAB 108 is effective for fiscal years ending on or after November 15, 2006, with earlier adoption encouraged. The adoption of SAB 108 did not have a material impact on our consolidated financial condition or results of operations.

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SFAS No. 159 -In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”), which allows an irrevocable election to measure certain financial assets and financial liabilities at fair value on an instrument-by-instrument basis, with unrealized gains and losses recognized currently in earnings. Under SFAS No. 159, the fair value option may only be elected at the time of initial recognition of a financial asset or financial liability or upon the occurrence of certain specified events. Additionally, SFAS No. 159 provides that application of the fair value option must be based on the fair value of an entire financial asset or financial liability and not selected risks inherent in those assets or liabilities. SFAS No. 159 requires that assets and liabilities which are measured at fair value pursuant to the fair value option be reported in the financial statements in a manner that separates those fair values from the carrying amounts of similar assets and liabilities which are measured using another measurement attribute. SFAS No. 159 also provides expanded disclosure requirements regarding the effects of electing the fair value option on the financial statements. SFAS No. 159 is effective prospectively for fiscal years beginning after November 15, 2007, with early adoption permitted for fiscal years in which interim financial statements have not been issued, provided that all of the provisions of SFAS No. 157 are early adopted as well. We are currently assessing the financial impact the adoption of SFAS No. 159 will have on our consolidated financial condition and results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest on our notes receivable portfolio, senior subordinated debt, capital leases, and miscellaneous notes is fixed, whereas interest on our primary loan agreements which had a total facility amount of $509.6 million at December 31, 2006, have a fixed-to-floating debt ratio of 62% fixed rate debt to 38% floating rate debt. The impact of a one-point effective interest rate change on the $92.8 million balance of variable-rate financial instruments at December 31, 2006, on our annual results of operations would be approximately $928,000, or approximately $0.02 per diluted share.

At December 31, 2006, the carrying value of our notes receivable portfolio approximates fair value because the weighted average interest rate on the portfolio approximates current interest rates received on similar notes. If interest rates on our notes receivable are increased or perceived to be above market rates, the fair market value of our fixed-rate notes will decline, which may negatively impact our ability to sell new notes. The impact of a one-point interest rate change on the portfolio at December 31, 2006 could result in a fair value impact of approximately $9.9 million over the 6.75 year weighted average remaining life of our notes receivable portfolio.

Credit Risk— We are exposed to on-balance sheet credit risk related to our notes receivable. We are exposed to off-balance sheet credit risk related to notes sold.

We offer financing to the buyers of Vacation Intervals at our resorts. These buyers generally make a down payment of at least 10% of the purchase price and deliver a promissory note to us for the balance. The promissory notes generally bear interest at a fixed rate, are payable over a seven-year to ten-year period, and are secured by a first mortgage on the Vacation Interval. We bear the risk of default on these promissory notes.

If a buyer of a Vacation Interval defaults, we generally must foreclose on the Vacation Interval and attempt to resell it; the associated marketing, selling, and administrative costs from the original sale are not recovered; and such costs must be incurred again to resell the Vacation Interval. Although in many cases we may have recourse against a Vacation Interval buyer for the unpaid price, certain states have laws that limit our ability to recover personal judgments against customers who have defaulted on their loans. Accordingly, we have generally not pursued this remedy.

Interest Rate Risk — We have historically derived net interest income from our operating activities because the interest rates we charge our customers who finance the purchase of their Vacation Intervals have exceeded the interest rates we pay to our senior lenders. Because 38% of our indebtedness bears interest at variable rates and our customer receivables bear interest at fixed rates, increases in interest rates will erode the income that we have historically obtained due to this spread and could cause the rate on our borrowings to exceed the rate at which we provide financing to our customers.

To partially offset an increase in interest rates, we have engaged in two interest rate hedging transactions, or derivatives, related to our conduit loan with SF-II, for a notional amount of $39.3 million at December 31, 2006, that expires between September 2011 and March 2014. Our VFN with SF-IV also acts as an interest rate hedge since it contains a provision for an interest rate cap, however there are no amounts outstanding under this line of credit at December 31, 2006.

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In addition, the Series 2005-A Notes related to our off-balance sheet special purpose finance subsidiary, SF-III, with a balance of $52.3 million at December 31, 2006, bear interest at a blended fixed rate of 5.4%, and the Series 2006-A Notes related to SF-V bear interest at a blended fixed rate of 6.7%.

Availability of Funding Sources — We fund substantially all of our notes receivable, timeshare inventories, and land inventories which we originate or purchased with borrowings through our financing facilities, sales of notes receivable, internally generated funds, and proceeds from public debt and equity offerings. Borrowings are in turn repaid with the proceeds we receive from repayments of such notes receivable. To the extent that we are not successful in maintaining or replacing existing financings, we would have to curtail our operations or sell assets, thereby having a material adverse effect on our results of operations, cash flows, and financial position.

In the first quarter of 2007, we consolidated our debt with Textron Financial Corporation into one revolving loan. As a result of the amended and restated loan and security agreement, the funding period on the consolidated debt has been extended from June 2008 to January 2010, with revised maturity dates of January 31, 2013 for the receivables component and January 31, 2012 on both the acquisition and inventory components. In addition, the interest rates previously charged have been reduced. This transaction is described in more detail under the heading “Subsequent Events” in Note 17 to our Consolidated Financial Statements beginning on page F-1.

Geographic Concentration — Our notes receivable are primarily originated in Texas (where approximately 61% of Vacation Interval sales took place in 2006), Missouri, Illinois, Massachusetts, and Georgia. The risk inherent in such concentrations is dependent upon regional and general economic stability, which affects property values and the financial stability of the borrowers. Our Vacation Interval inventories are concentrated in Texas, Missouri, Illinois, Massachusetts, Georgia, and Florida. The risk inherent in such concentrations is in the continued popularity of the resort destinations, which affects the marketability of our products and the collection of notes receivable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the information set forth on Index to Consolidated Financial Statements appearing on page F-1 of this report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

An evaluation as of the end of the period covered by this report was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness and design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period covered by this report, those disclosure controls and procedures are effective. There were no changes made in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the fourth quarter of 2006 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

There is no other information that we were required to disclose in a report on Form 8-K during the quarter ended December 31, 2006 that was not reported.

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PART III

MANAGEMENT

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The information required by this Item 10 is set forth in our proxy statement relating to our 2007 meeting of annual shareholders under the headings “Section 16(a) Beneficial Ownership Reporting Compliance”, “Directors and Executive Officers” and “Executive Compensation,” and this information is incorporated by reference to such proxy statement.

The information with respect to our audit committee financial expert is contained under the caption “Directors and Executive Officers” in our proxy statement for our 2007 annual meeting of shareholders and is incorporated by reference to such proxy statement.

The following table sets forth certain information concerning each person who was a director or executive officer of the Company as of December 31, 2006.

Name	Age	Position
Robert E. Mead	60	Chairman of the Board and Chief Executive Officer
Sharon K. Brayfield	46	President
David T. O'Connor	64	Executive Vice President — Sales
Joe W. Conner	49	Chief Operating Officer
Harry J. White, Jr.	52	Chief Financial Officer and Treasurer
Edward L. Lahart	42	Executive Vice President — Operations
Thomas J. Morris	41	Senior Vice President — Capital Markets
Sandra G. Cearley	45	Corporate Secretary
James B. Francis, Jr.	58	Director
J. Richard Budd, III	54	Director
Herbert B. Hirsch	70	Director
Rebecca Janet Whitmore	52	Director

The term of office of the officers is from the date of their election until their successor shall have been elected and qualified. Our directors serve annual terms, which expire at our next annual meeting of shareholders following the date of election of each director. Our five directors were last elected by the shareholders at our 2006 annual meeting on May 9, 2006.

The following table sets forth certain information concerning other officers of the Company as of December 31, 2006.

Name	Age	Position
Michael D. Jones	40	Vice President — Information Systems
Robert G. Levy	58	Vice President — Resort Operations
Darla Cordova	42	Vice President — Sales Administration
Herman Jay Hankamer Barbara L. Lewis Michael P. Lowrey Lelori (“Buzz”) Marconi	67 42 48 54	Vice President — Resort Development Vice President — Financial Services Vice President — Call Center Operations Vice President — Preview Center Marketing
Phillip B. Davis	36	Vice President — Finance

ITEM 11. EXECUTIVE COMPENSATION

The information contained under the captions “Director Compensation” and “Executive Compensation” in our proxy statement for our 2007 annual meeting of shareholders is incorporated herein by reference to such proxy statement.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Equity Compensation Plan Information

The following table sets forth information about our equity compensation plans as of December 31, 2006:

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights		Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity Compensation Plans Approved by Security Holders		2,823,807	$	4.63		4,559
Equity Compensation Plans Not Approved by Security Holders		—		—		—
Total		2,823,807	$	4.63		4,559

There are a combined 4,559 options remaining available of the 1,600,000 approved options under our 1997 Stock Option Plan and the 2,209,614 approved options under our 2003 Stock Option Plan.

Security Ownership of Certain Beneficial Owners and Management

The information concerning (a) persons that have reported beneficial ownership of more than 5 percent of our common stock, and (b) the ownership of our common stock by the Chief Executive Officer and the four other most highly compensated executive officers and directors as a group, that is contained under the caption “Security Ownership of Certain Beneficial Owners and Management” in our proxy statement for our 2007 annual meeting, is incorporated herein by reference to such proxy statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information contained under the caption “Certain Relationships and Related Transactions, and Director Independence” in our proxy statement for our 2007 annual meeting of shareholders is incorporated herein by reference to such proxy statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information with respect to principal accountant fees and services contained under the caption “Proposal to Ratify Appointment of Independent Auditors” in our proxy statement for our 2007 annual meeting of shareholders is incorporated herein by reference to such proxy statement.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)The following documents are filed as part of this report:

Exhibit Number		Description
3.1	—	Third Amended and Restated Articles of Incorporation of the Registrant dated December 17, 2003 (incorporated by reference to Exhibit 3.1 to Registrant's Form 8-K filed December 29, 2003).
3.2	—	Articles of Correction dated February 9, 2004 to Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 of Registrant’s Form 10-K for year ended December 31, 2003).
3.3	—	Second Amended and Restated Bylaws of Silverleaf Resorts, Inc. (incorporated by reference to Exhibit 3.1 to Registrant’s Form 10-Q for quarter ended September 30, 2005).
3.4	—	Amended and Restated Certificate of Incorporation of Silverleaf Finance II, Inc. dated December 23, 2003 (incorporated by reference to Exhibit 3.2 to Registrant's Form 8-K filed December 29, 2003).
4.1	—	Form of Stock Certificate of Registrant (incorporated by reference to Exhibit 4.1 to Amendment No. 1 dated May 16, 1997 to Registrant's Registration Statement on Form S-1, File No. 333-24273).
4.2	—	Amended and Restated Indenture dated May 2, 2002, between the Company, Wells Fargo Bank Minnesota, National Association, as Trustee, and the Subsidiary Guarantors for the Company's 10½% Senior Subordinated Notes due 2008 (incorporated by reference to Exhibit 4.1 to Registrant's Form 10-Q for the quarter ended June 30, 2002).
4.3	—	Certificate No. 001 of 10½% Senior Subordinated Notes due 2008 in the amount of $75,000,000 (incorporated by reference to Exhibit 4.2 to Registrant’s Form 10-Q for quarter ended March 31, 1998).

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4.4	—	Subsidiary Guarantee dated April 8, 1998 by Silverleaf Berkshires, Inc.; Bull’s Eye Marketing, Inc.; Silverleaf Resort Acquisitions, Inc.; Silverleaf Travel, Inc.; Database Research, Inc.; and Villages Land, Inc. (incorporated by reference to Exhibit 4.3 to Registrant’s Form 10-Q for the quarter ended March 31, 1998).
4.5	—	Indenture dated May 2, 2002, between the Company, Wells Fargo Bank Minnesota, National Association, as Trustee, and the Subsidiary Guarantors for the Company's 6% Senior Subordinated Notes due 2007 (incorporated by reference to Exhibit 4.2 to Registrant's Form 10-Q for the quarter ended June 30, 2002).
4.6	—	Certificate No. 001 of 6% Senior Subordinated Notes due 2007 in the amount of $28,467,000 (incorporated by reference to Exhibit 4.3 to Registrant's Form 10-Q for the quarter ended June 30, 2002).
4.7	—	Subsidiary Guarantee dated May 2, 2002 by Awards Verification Center, Inc., Silverleaf Travel, Inc., Silverleaf Resort Acquisitions, Inc., Bull's Eye Marketing, Inc., Silverleaf Berkshires, Inc., and eStarCommunications, Inc. (incorporated by reference to Exhibit 4.4 to Registrant's Form 10-Q for the quarter ended June 30, 2002).
4.8	—	Indenture dated June 7, 2004 by and among the Company, the Subsidiary Guarantors, and Wells Fargo Bank, National Association for the Company’s 8% Senior Subordinated Notes due 2010 (incorporated by reference to Exhibit 4.1 of Registrant’s Form 10-Q for the quarter ended June 30, 2004).
4.9	—	Certificate No. 001 dated June 7, 2004 of 8% Senior Subordinated Notes due 2010 in the amount of $24,761,000 (incorporated by reference to Exhibit 4.2 of Registrant’s Form 10-Q for the quarter ended June 30, 2004).
4.10	—	Subsidiary Guarantee dated June 7, 2004 by Awards Verification Center, Inc., Silverleaf Travel, Inc., Silverleaf Resort Acquisition, Inc., Bull’s Eye Marketing, Inc., Silverleaf Berkshires, Inc., eStarCommunications, Inc., People Really Win Sweepstakes, Inc., and SLR Research, Inc. (incorporated by reference to Exhibit 4.3 of Registrant’s Form 10-Q for the quarter ended June 30, 2004).
9.1	—	Voting Trust Agreement dated November 1, 1999 between Robert E. Mead and Judith F. Mead (incorporated by reference to Exhibit 9.1 of the Registrant’s Form 10-K for the year ended December 31, 1999).
10.1	—	Form of Registration Rights Agreement between Registrant and Robert E. Mead (incorporated by reference to Exhibit 10.1 to Amendment No. 1 dated May 16, 1997 to Registrant's Registration Statement on Form S-1, File No. 333-24273).
10.2	—	1997 Stock Option Plan of Registrant (incorporated by reference to Exhibit 10.3 to Amendment No. 1 dated May 16, 1997 to Registrant's Registration Statement on Form S-1, File No. 333-24273).
10.3	—	Silverleaf Club Agreement between the Silverleaf Club and the resort clubs named therein (incorporated by reference to Exhibit 10.4 to Registrant's Registration Statement on Form S-1, File No. 333-24273).
10.4	—	Management Agreement between Registrant and the Silverleaf Club (incorporated by reference to Exhibit 10.5 to Registrant's Registration Statement on Form S-1, File No. 333-24273).
10.5	—	Form of Indemnification Agreement (between Registrant and all officers, directors, and proposed directors) (incorporated by reference to Exhibit 10.18 to Registrant's Registration Statement on Form S-1, File No. 333-24273).
10.6	—	Resort Affiliation and Owners Association Agreement between Resort Condominiums International, Inc., Ascension Resorts, Ltd., and Hill Country Resort Condoshare Club, dated July 29, 1995 (similar agreements for all other Existing Owned Resorts) (incorporated by reference to Exhibit 10.19 to Registrant's Registration Statement on Form S-1, File No. 333-24273).
10.7	—	First Amendment to Silverleaf Club Agreement, dated March 28, 1990, among Silverleaf Club, Ozark Mountain Resort Club, Holiday Hills Resort Club, the Holly Lake Club, The Villages Condoshare Association, The Villages Club, Piney Shores Club, and Hill Country Resort Condoshare Club (incorporated by reference to Exhibit 10.22 to Amendment No. 1 dated May 16, 1997 to Registrant's Registration Statement on Form S-1, File No. 333-24273).
10.8	—	First Amendment to Management Agreement, dated January 1, 1993, between Master Endless Escape Club and Ascension Resorts, Ltd. (incorporated by reference to Exhibit 10.23 to Amendment No. 1 dated May 16, 1997 to Registrant's Registration Statement on Form S-1, File No. 333-24273).
10.9	—	Silverleaf Club Agreement dated September 25, 1997, between Registrant and Timber Creek Resort Club (incorporated by reference to Exhibit 10.13 to Registrant's Form 10-Q for quarter ended September 30, 1997).
10.10	—	Second Amendment to Management Agreement, dated December 31, 1997, between Silverleaf Club and Registrant (incorporated by reference to Exhibit 10.33 to Registrant’s Annual Report on Form 10-K for year Ended December 31, 1997).
10.11	—	Silverleaf Club Agreement, dated January 5, 1998, between Silverleaf Club and Oak N' Spruce Resort Club (incorporated by reference to Exhibit 10.34 to Registrant’s Annual Report on Form 10-K for year ended December 31, 1997).
10.12	—	Master Club Agreement, dated November 13, 1997, between Master Club and Fox River Resort Club (incorporated by reference to Exhibit 10.43 to Registrant’s Annual Report on Form 10-K for year ended December 31, 1997).
10.13	—	Management Agreement dated October 13, 1998, by and between the Company and Eagle Greens, Ltd. (incorporated by reference to Exhibit 10.6 to Registrant’s Form 10-Q for quarter ended September 30, 1998).
10.14	—	First Amendment to 1997 Stock Option Plan for Silverleaf Resorts, Inc., effective as of May 20, 1998 (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-Q for the quarter ended June 30, 1998).
10.15	—	Second Amendment to 1997 Stock Option Plan dated November 19, 1999 (incorporated by reference to Exhibit 10.46 to Registrant's Form 10-K for the year ended December 31, 1999).
10.16	—	Eighth Amendment to Management Agreement, dated March 9, 1999, between the Registrant and the Silverleaf Club (incorporated by reference to Exhibit 10.47 to Registrant's Form 10-K for the year ended December 31, 1999).
10.17	—	Developer Transfer Agreement dated as of December 19, 2003 between the Registrant and Silverleaf Finance II, Inc. (incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed on December 29, 2003).
10.18	—	2003 Stock Option Plan of the Registrant (incorporated by reference to Exhibit 10.55 to Registrant's Form 10-K for year ended December 31, 2003).
10.19	—	Asset Purchase Agreement dated August 29, 2004 between the Company; Algonquin Water Resources of Texas, LLC; Algonquin Water Resources of Missouri, LLC; Algonquin Water Resources of Illinois, LLC; Algonquin Water Resources of America, Inc.; and Algonquin Power Income Fund (incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K dated March 16, 2005).
10.20	—	First Amendment dated as of October 12, 2004 to Asset Purchase Agreement between the Company; Algonquin Water Resources of Texas, LLC; Algonquin Water Resources of Missouri, LLC; Algonquin Water Resources of Illinois, LLC; Algonquin Water Resources of America, Inc.; and Algonquin Power Income Fund (incorporated by reference to Exhibit 10.2 to Registrant's Form 8-K dated March 16, 2005).
10.21	—	Second Amendment dated as of October 20, 2004 to Asset Purchase Agreement between the Company; Algonquin Water Resources of Texas, LLC; Algonquin Water Resources of Missouri, LLC; Algonquin Water Resources of Illinois, LLC; Algonquin Water Resources of America, Inc.; and Algonquin Power Income Fund (incorporated by reference to Exhibit 10.3 to Registrant's Form 8-K dated March 16, 2005).

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10.22	—	Third Amendment dated as of November 10, 2004 to Asset Purchase Agreement between the Company; Algonquin Water Resources of Texas, LLC; Algonquin Water Resources of Missouri, LLC; Algonquin Water Resources of Illinois, LLC; Algonquin Water Resources of America, Inc.; and Algonquin Power Income Fund (incorporated by reference to Exhibit 10.4 to Registrant's Form 8-K dated March 16, 2005).
10.23	—	Fourth Amendment dated as of November 12, 2004 to Asset Purchase Agreement between the Company; Algonquin Water Resources of Texas, LLC; Algonquin Water Resources of Missouri, LLC; Algonquin Water Resources of Illinois, LLC; Algonquin Water Resources of America, Inc.; and Algonquin Power Income Fund (incorporated by reference to Exhibit 10.5 to Registrant's Form 8-K dated March 16, 2005).
10.24	—	Fifth Amendment dated as of November 16, 2004 to Asset Purchase Agreement between the Company; Algonquin Water Resources of Texas, LLC; Algonquin Water Resources of Missouri, LLC; Algonquin Water Resources of Illinois, LLC; Algonquin Water Resources of America, Inc.; and Algonquin Power Income Fund (incorporated by reference to Exhibit 10.6 to Registrant's Form 8-K dated March 16, 2005).
10.25	—	Sixth Amendment dated as of November 30, 2004 to Asset Purchase Agreement between the Company; Algonquin Water Resources of Texas, LLC; Algonquin Water Resources of Missouri, LLC; Algonquin Water Resources of Illinois, LLC; Algonquin Water Resources of America, Inc.; and Algonquin Power Income Fund (incorporated by reference to Exhibit 10.7 to Registrant's Form 8-K dated March 16, 2005).
10.26	—	Seventh Amendment dated as of January 2005 to Asset Purchase Agreement between the Company; Algonquin Water Resources of Texas, LLC; Algonquin Water Resources of Missouri, LLC; Algonquin Water Resources of Illinois, LLC; Algonquin Water Resources of America, Inc.; and Algonquin Power Income Fund (incorporated by reference to Exhibit 10.8 to Registrant's Form 8-K dated March 16, 2005).
10.27	—	Eighth Amendment dated as of February 22, 2005 to Asset Purchase Agreement between the Company; Algonquin Water Resources of Texas, LLC; Algonquin Water Resources of Missouri, LLC; Algonquin Water Resources of Illinois, LLC; Algonquin Water Resources of America, Inc.; and Algonquin Power Income Fund (incorporated by reference to Exhibit 10.9 to Registrant's Form 8-K dated March 16, 2005).
10.28	—	Ninth Amendment dated as of July 27, 2006 to Asset Purchase Agreement between the Company; Algonquin Water Resources of Texas, LLC; Algonquin Water Resources of Missouri, LLC; Algonquin Water Resources of Illinois, LLC; Algonquin Water Resources of America, Inc.; and Algonquin Power Income Fund (incorporated by reference to Exhibit 10.3 to Registrant’s Form 10-Q for the period ended June 30, 2006).
10.29	—	Services Agreement dated as of March 8, 2005 between the Company, Algonquin Water Resources of Texas, LLC, Algonquin Water Resources of America, Inc.; and Algonquin Power Income Fund (incorporated by reference to Exhibit 10.10 to Registrant's Form 8-K dated March 16, 2005).
10.30	—	Amendment No. 1 to Developer Transfer Agreement dated as of March 28, 2005 between the Registrant and Silverleaf Finance II, Inc. (incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed on March 31, 2005).
10.31	—	Receivables Loan and Security Agreement between the Registrant and CapitalSource Finance, LLC dated as of April 29, 2005 (incorporated by reference to Exhibit 10.2 to Registrant's Form 8-K filed May 5, 2005).
10.32	—	Hypothecation Loan Agreement between the Registrant and Resort Funding LLC dated May 20, 2005 (incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed July 6, 2005).
10.33	—	Indenture dated as of July 1, 2005 between Silverleaf Finance III, LLC, as Issuer, the Registrant, as Servicer, and Wells Fargo Bank, National Association, as Indenture Trustee, Backup Servicer, Custodian and Account Intermediary (incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed July 28, 2005).
10.34	—	Standard Definitions to Indenture and Transfer Agreement (incorporated by reference to Exhibit 10.2 to Registrant's Form 8-K filed July 28, 2005).
10.35	—	Transfer Agreement dated as of July 1, 2005 between the Registrant and Silverleaf Finance III, LLC . (incorporated by reference to Exhibit 10.3 to Registrant's Form 8-K filed July 28, 2005).
10.36	—	Contract of Sale dated June 8, 2005 between the Company and Crystal Ridge, L.L.P., a New Jersey limited liability partnership (incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K filed October 5, 2005).
10.37	—	First Amendment to Contract of Sale dated June 8, 2005 between the Company and Crystal Ridge, L.L.P., a New Jersey limited liability partnership (incorporated by reference to Exhibit 10.2 to Registrant's Form 8-K filed October 5, 2005).
10.38	—	First Amendment to Inventory Loan and Security Agreement dated October 5, 2005 between the Registrant and CapitalSource Finance LLC (incorporated by reference to Exhibit 10.1 to Registrant's Form 10-Q for the quarter ended September 30, 2005).
10.39	—	First Amendment to Loan and Security Agreement-Inventory dated as of October 6 , 2006, between the Registrant and Wells Fargo Foothill, Inc.
10.40	—	Loan and Security Agreement--Receivables between the Registrant and Well Fargo Foothill, Inc., dated as of December 16, 2005 (incorporated by reference to Exhibit 10.2 to Registrant's Form 8-K filed on December 23, 2005).
10.41	—	First Amendment to Loan and Security Agreement-Receivables dated as of October 6, 2006, between the Registrant and Wells Fargo Foothill, Inc.
10.42	—	Contract of Sale dated May 31, 2005 between the Registrant and Virgil M. Casey, Trustee of the Casey Family Trust dated June 3, 1992 (incorporated by reference to Exhibit 10.84 to Registrant’s Form 10-K for year ended December 31, 2005).
10.43	—	Contract of Sale dated June 23, 2005 between the Registrant and Joe Wang, Trustee (incorporated by reference to Exhibit 10.85 to Registrant’s Form 10-K for year ended December 31, 2005).
10.44	—	Indenture dated as of March 2, 2006 by and among Silverleaf Finance IV, LLC, UBS Real Estate Securities Inc. and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 10.2 to Registrant’s Form 8-K filed on March 8, 2006).
10.45	—	First Supplement to Indenture dated as of December 22, 2006 by and among Silverleaf Finance IV, LLC, UBS Real Estate Securities Inc. and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 10.2 to Registrant’s Form 8-K filed on December 29, 2006).
10.46	—	Amended and Restated Sale and Servicing Agreement dated as of December 22, 2006 between the Registrant, Silverleaf Finance IV, LLC and Wells Fargo Bank, National Association, as Backup Servicer, Trustee and Account Intermediary (incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on December 29, 2006).
10.47	—	Annex A—Amended and Restated Defined Terms to Indenture and Amended and Restated Sale and Servicing Agreement dated as of December 22, 2006 (incorporated by reference to Exhibit 10.3 to Registrant’s Form 8-K filed on December 29, 2006).

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10.48	—	Asset Purchase and Sale Agreement between the Company and The Fitzpatrick Family Limited Partnership (incorporated by reference to Registrant’s Exhibit 10.1 to Form 10-Q for the period ended March 31, 2006).
10.49	—	First Amendment to Asset Purchase and Sale Agreement between the Company and The Fitzpatrick Family Limited Partnership (incorporated by reference to Registrant’s Exhibit 10.2 to Form 10-Q for the period ended March 31, 2006).
10.50	—	Ratification of Asset Purchase and Sale Agreement between the Company and Fitzpatrick Land Company, LLC (incorporated by reference to Registrant’s Exhibit 10.3 to Form 10-Q for the period ended March 31, 2006).
10.51	—	Amended, Extended and Restated Employment Agreement between the Company and Robert E. Mead (incorporated by reference to Annex A of the Proxy Statement on Schedule 14A filed with the SEC on April 6, 2006)
10.52	—	First Amendment to Loan and Security Agreement dated as of April 28, 2006 between CapitalSource Finance LLC and the Company (incorporated by reference to Registrant’s Exhibit 10.7 to Form 10-Q for the period ended March 31, 2006).
10.53	—	Amended and Restated Inventory Loan and Security Agreement dated as of April 28, 2006 between CapitalSource Finance LLC and the Company (incorporated by reference to Registrant’s Exhibit 10.8 to Form 10-Q for the period ended March 31, 2006).
10.54	—	Form of Securities Purchase Agreement, dated May 24, 2006, by and among the Registrant, the selling shareholders and the investors (incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on May 26, 2006)
10.55	—	First Supplement to Indenture dated as of February 8, 2006 between the Company, Silverleaf Finance III, LLC and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.1 to Registrant’s Form 10-Q for the period ended June 30, 2006).
10.56	—	Second Supplement to Indenture dated as of July 14, 2006 between the Company, Silverleaf Finance III, LLC and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.2 to Registrant’s Form 10-Q for the period ended June 30, 2006).
10.57	—	Employment Agreement dated March 8, 2007 between the Registrant and Sharon K. Brayfield (incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on March 12, 2007).
10.58	—	Employment Agreement dated March 8, 2007 between the Registrant and Harry J. White, Jr. (incorporated by reference to Exhibit 10.2 to Registrant’s Form 8-K filed on March 12, 2007).
10.59	—	Employment Agreement dated March 8, 2007 between the Registrant and Joe W. Conner (incorporated by reference to Exhibit 10.3 to Registrant’s Form 8-K filed on March 12, 2007).
10.60	—	Employment Agreement dated March 8, 2007 between the Registrant and David T. O’Connor (incorporated by reference to Exhibit 10.4 to Registrant’s Form 8-K filed on March 12, 2007).
*10.61	—	Consolidated, Amended and Restated Loan and Security Agreement dated as of February 21, 2007 between the Company and Textron Financial Corporation.
*10.62	—	Letter Agreement dated March 1, 2007 between the Registrant and Wells Fargo Foothill, Inc., Individually and as Agent
14.1	—	Code of Ethics adopted by the Registrant on December 16, 2003 (incorporated by reference to Exhibit 14.1 to Registrant's Form 10-K for year ended December 31, 2003).
*21.1	—	Subsidiaries of Silverleaf Resorts, Inc.
*23.1	—	Consent of BDO Seidman, LLP.
*31.1	—	Certification of Chief Executive Officer Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	—	Certification of Chief Financial Officer Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1	—	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2	—	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*filed herewith

(b) Reports on Form 8-K

We filed the following Current Reports on Form 8-K with the SEC during the quarter ended December 31, 2006:

Current report on Form 8-K filed with the SEC on October 12, 2006 relating to amendments to two loan agreements with Wells Fargo Foothill, Inc.

Current report on Form 8-K filed with the SEC on October 31, 2006 relating to press release announcing the scheduled release of financial results for the three- and nine-month periods ended September 30, 2006.

Current report on Form 8-K filed with the SEC on November 3, 2006 relating to earnings release for the three- and nine-months ended September 30, 2006.

Current report on Form 8-K filed with the SEC on December 29, 2006 relating to the amendment of a revolving credit facility through its wholly-owned and fully consolidated special purpose finance subsidiary Silverleaf Finance IV, LLC.

(c) The exhibits required by Item 601 of Regulation S-K have been listed in Item 15(a) above. The exhibits listed in Item 15(a) above are either (a) filed with this report, or (b) have previously been filed with the SEC and are incorporated herein by reference to the particular previous filing.

67

(d) Financial Statement Schedules

None. Schedules are omitted because of the absence of the conditions under which they are required or because the information required by such omitted schedules is set forth in the consolidated financial statements or the notes thereto.

68

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 in the City of Dallas, State of Texas, on March 15, 2007.

SILVERLEAF RESORTS, INC.
By:	/s/ ROBERT E. MEAD
	Name: Robert E. Mead Title: Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below on behalf of the Registrant in the capacities and on the dates indicated.

Signature	Title	Date
/s/ ROBERT E. MEAD Robert E. Mead	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)	March 15, 2007
/s/ HARRY J. WHITE, JR, Harry J. White, Jr.	Chief Financial Officer (Principal Financial and Accounting Officer)	March 15, 2007
/s/ J. RICHARD BUDD, III J. Richard Budd, III	Director	March 15, 2007
/s/ JAMES B. FRANCIS, JR. James B. Francis, Jr.	Director	March 15, 2007
/s/ HERBERT B. HIRSCH Herbert B. Hirsch	Director	March 15, 2007
/s/ REBECCA JANET WHITMORE Rebecca Janet Whitmore	Director	March 15, 2007

69

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Financial Statements
Consolidated Balance Sheets as of December 31, 2005 and 2006	F-3
Consolidated Statements of Operations for the years ended December 31, 2004, 2005, and 2006..	F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2004, 2005, and 2006	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2005, and 2006	F-6
Notes to the Consolidated Financial Statements	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Silverleaf Resorts, Inc. and Subsidiaries

Dallas, Texas

We have audited the accompanying consolidated balance sheets of Silverleaf Resorts, Inc. and subsidiaries as of December 31, 2006 and 2005 and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial condition of Silverleaf Resorts, Inc. and subsidiaries at December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the financial statements, in 2006 the Company changed its accounting for real estate time-sharing transactions in connection with the adoption of Statement of Financial Accounting Standards No. 152, “Accounting for Real Estate Time-Sharing Transactions,” changed its accounting for stock-based compensation in connection with the adoption of FASB Statement No. 123(R), “Share-Based Payment” and has retroactively presented the operating and investing portions of the cash flows attributable to its discontinued operations, which in prior periods were reported on a combined basis as a single amount.

/s/ BDO Seidman, LLP

Dallas, Texas

March 13, 2007

F-2

SILVERLEAF RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	December 31,
	2005		2006
ASSETS
Cash and cash equivalents	$	10,990	$	11,450
Restricted cash		4,893		15,771
Notes receivable, net of allowance for uncollectible notes of
$52,479 and $68,118, respectively		177,572		229,717
Accrued interest receivable		2,243		2,936
Investment in special purpose entity		22,802		13,008
Amounts due from affiliates		680		1,251
Inventories		117,597		147,759
Land, equipment, buildings, and leasehold improvements, net		10,441		28,040
Land held for sale		495		205
Prepaid and other assets		14,083		24,393
TOTAL ASSETS	$	361,796	$	474,530
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES Accounts payable and accrued expenses	$	9,556	$	14,192
Accrued interest payable		1,354		1,792
Amounts due to affiliates		544		246
Unearned samplers		5,310		6,245
Income taxes payable		1,268		163
Deferred income taxes		8,485		17,683
Notes payable and capital lease obligations		177,269		254,550
Senior subordinated notes		33,175		31,467
Total Liabilities		236,961		326,338
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY
Preferred stock, 10,000,000 shares authorized, none issued and outstanding		—		—
Common stock, par value $0.01 per share, 100,000,000 shares authorized, 37,494,304 and 37,808,154 shares issued and outstanding at December 31, 2005 and 2006, respectively		375		378
Additional paid-in capital		112,207		112,555
Retained earnings		12,253		35,259
Total Shareholders' Equity		124,835		148,192
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	361,796	$	474,530

The accompanying notes are an integral part of these consolidated financial statements.

F-3

SILVERLEAF RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

	Year Ended December 31,
	2004		2005		2006
Revenues:
Vacation Interval sales	$	138,046	$	146,416	$	187,481
Estimated uncollectible revenue Estimated uncollectible revenue		—		—		(32,491	)
Sampler sales		2,150		2,623		—
Net sales		140,196		149,039		154,990
Interest income		37,843		38,154		46,248
Management fee income		1,201		1,856		1,861
Gain on sale of notes receivable		1,915		6,457		—
Other income		2,522		6,402		3,785
Total revenues		183,677		201,908		206,884
Costs and Operating Expenses:
Cost of Vacation Interval sales		24,964		23,427		19,003
Sales and marketing		71,890		74,667		93,957
Provision for uncollectible notes		26,811		23,649		—
Operating, general and administrative		25,639		28,038		32,315
Depreciation		3,588		2,723		2,539
Interest expense and lender fees		17,627		17,253		21,662
Total costs and operating expenses		170,519		169,757		169,476
Income before provision for income taxes and discontinued operations		13,158		32,151		37,408
Provision for income taxes		23		9,725		14,402
Income from continuing operations		13,135		22,426		23,006
Discontinued Operations
Gain on sales of discontinued operations (net of taxes)		—		613		—
Income from discontinued operations (net of taxes)		624		128		—
Income from discontinued operations		624		741		—
Net Income	$	13,759	$	23,167	$	23,006
Basic income per share:
Income from continuing operations	$	0.35	$	0.61	$	0.61
Income from discontinued operations	$	0.02	$	0.02	$	—
Net income	$	0.37	$	0.63	$	0.61
Diluted income per share:
Income from continuing operations	$	0.33	$	0.57	$	0.59
Income from discontinued operations	$	0.02	$	0.02	$	—
Net income	$	0.35	$	0.59	$	0.59
Weighted average basic common shares issued and outstanding		36,852,133		36,986,926		37,579,462
Weighted average diluted common shares issued and outstanding		38,947,854		39,090,921		39,261,652

The accompanying notes are an integral part of these consolidated financial statements.

F-4

SILVERLEAF RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands, except share amounts)

	Common Stock
	Number of		$0.01		Additional			Retained
	Shares		Par		Paid-in			Earnings			Treasury Stock
	Issued		Value		Capital			(Deficit)			Shares			Cost			Total
January 1, 2004		37,249,006	$	372	$	116,999		$	(24,673	)		422,100		$	(4,999	)	$	87,699
Exercise of stock options		—		—		(385	)		—			(33,332	)		395			10
Net income		—		—		—			13,759			—			—			13,759
December 31, 2004		37,249,006		372		116,614			(10,914	)		388,768			(4604	)		101,468
Exercise of stock options		245,298		3		(4,407	)		—			(388,768	)		4,604			200
Net income		—		—		—			23,167			—			—			23,167
December 31, 2005		37,494,304		375		112,207			12,253			—			—			124,835
Stock-based compensation		—		—		252			—			—			—			252
Exercise of stock options		313,850		3		96			—			—			—			99
Net income		—		—		—			23,006			—			—			23,006
December 31, 2006		37,808,154	$	378	$	112,555		$	35,259			—		$	—		$	148,192

The accompanying notes are an integral part of these consolidated financial statements.

F-5

SILVERLEAF RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2004			2005			2006
	Revised - see Note 2			Revised - see Note 2
OPERATING ACTIVITIES:
Net income	$	13,759		$	23,167		$	23,006
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Income from discontinued operations		(624	)		(741	)		—
Estimated uncollectible revenue / provision for uncollectible notes		26,811			23,649			32,491
Deferred income taxes		—			8,485			9,198
Depreciation		3,588			2,723			2,539
Gain on sale of notes receivable		(1,915	)		(6,457	)		—
Gain on sale of land held for sale		—			(3,635	)		(499	)
Proceeds from sale of notes receivable, net		20,587			104,193			—
Stock-based compensation		—			—			252
Cash effect from changes in operating assets and liabilities:
Restricted cash		699			(1,153	)		(663	)
Notes receivable		(47,733	)		(51,579	)		(96,422	)
Accrued interest receivable		(38	)		(36	)		(693	)
Investment in special purpose entity		880			(17,629	)		9,794
Amounts due from / to affiliates		1,618			(914	)		(869	)
Inventories		(8,741	)		(8,824	)		(18,376	)
Prepaid and other assets		(1,899	)		936			(10,310	)
Accounts payable and accrued expenses		1,275			1,500			4,636
Accrued interest payable		215			52			438
Unearned samplers		922			676			935
Income taxes payable		—			1,268			(1,105	)
Net cash provided by (used in) operating activities		9,404			75,681			(45,648	)
INVESTING ACTIVITIES:
Purchases of land, equipment, buildings, and leasehold improvements		(1,334	)		(761	)		(14,347	)
Proceeds from sale of discontinued operations		—			13,101			—
Proceeds from sale of land held for sale		—			6,131			789
Net cash (used in) provided by investing activities		(1,334	)		18,471			(13,558	)
FINANCING ACTIVITIES:
Proceeds from borrowings from unaffiliated entities		111,767			150,666			320,341
Payments on borrowings to unaffiliated entities		(110,502	)		(244,651	)		(250,559	)
Restricted cash for repayment of debt		(2,503	)		(312	)		(10,215	)
Proceeds from exercise of stock options		10			200			99
Net cash provided by (used in) financing activities		(1,228	)		(94,097	)		59,666
Net change in cash and cash equivalents		6,842			55			460
CASH AND CASH EQUIVALENTS:
Beginning of period		4,093			10,935			10,990
End of period	$	10,935		$	10,990		$	11,450
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized	$	16,557		$	15,532		$	19,192
Income taxes paid		—			1,200			7,500
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Land, equipment, buildings and leasehold improvements acquired under capital leases		99			62			1,691
Land, equipment, buildings, and leasehold improvements acquired through financing		—			—			4,100
Notes receivable, net of allowance for uncollectible notes, acquired from SPE		—			62,884			—
Notes payable acquired from SPE		—			50,386			—
Other assets, liabilities, and equity acquired from SPE		—			12,498			—

The accompanying notes are an integral part of these consolidated financial statements.

F-6

SILVERLEAF RESORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2004, 2005, and 2006

1. NATURE OF BUSINESS

Silverleaf Resorts, Inc., a Texas Corporation (the “Company,” “Silverleaf,” “we,” or “our”) is in the business of marketing and selling vacation intervals (“Vacation Intervals”). Our principal activities, in this regard, consist of (i) developing and acquiring timeshare resorts; (ii) marketing and selling one-week annual and biennial Vacation Intervals to new owners; (iii) marketing and selling upgrade and additional week Vacation Intervals to existing Silverleaf owners (“Silverleaf Owners”); (iv) providing financing for the purchase of Vacation Intervals; and (v) operating timeshare resorts under management agreements. We have in-house sales, marketing, financing, and property management capabilities and coordinate the operation of our 13 owned resorts (the “Existing Resorts”) and our one hotel property, Pinnacle Lodge, as of December 31, 2006, and the development of any new timeshare resort, including site selection, design, and construction. Sales of Vacation Intervals are marketed to individuals primarily through direct mail and telephone solicitation.

Each Existing Resort has a timeshare owners’ association (a “Club”). Each Club (other than Orlando Breeze) operates through a centralized organization to manage the Existing Resorts on a collective basis. The principal of such organization is Silverleaf Club. Orlando Breeze has its own club, Orlando Breeze Resort Club, which operates independently of Silverleaf Club; however, we supervise the management and operation of the Orlando Breeze Resort Club under the terms of a written agreement. Silverleaf Club has contracted with us to perform the supervisory, management, and maintenance functions at the Existing Resorts. All costs of operating the Existing Resorts, including management fees to the Company, are to be covered by monthly dues paid by Silverleaf Owners to their respective Clubs as well as income generated by the operation of certain amenities and revenue-producing assets at the Existing Resorts. Subject to availability of funds from the Clubs, we are entitled to a management fee to compensate us for the services provided. We evaluate the Clubs in accordance with FASB Interpretation No. 46, Consolidation of Variable Interest Entities, FIN No. 46. We are not the primary beneficiaries, therefore consolidation is not necessary.

In addition to Vacation Interval sales revenues, we generate revenue from interest income derived from operating activities, management fees received from Silverleaf Club, selling notes receivable to special purpose entities, and other sources. All of the operations are directly related to the resort real estate development industry.

Our consolidated financial statements as of and for the years ended December 31, 2004, 2005, and 2006 reflect the operations of the Company and its wholly-owned subsidiaries, Silverleaf Travel, Inc., Awards Verification Center, Inc., Silverleaf Resort Acquisitions, Inc., Bull’s Eye Marketing, Inc., Silverleaf Berkshires, Inc., eStarCommunications, Inc., People Really Win Sweepstakes, Inc., SLR Research, Inc., Silverleaf Finance II, Inc., (“SF-II”), Silverleaf Finance IV, LLC, (“SF-IV”) and Silverleaf Finance V, L.P., (“SF-V”). SF-II, SF-IV and SF-V are all described in more detail under the heading “Debt” in Note 8. Silverleaf Resort Acquisitions, Inc. and eStarCommunications, Inc. were both dissolved during the fourth quarter of 2004. Bull’s Eye Marketing, Inc. was dissolved during the third quarter of 2005. Historical operations of these dissolved entities are insignificant.

2. SIGNIFICANT ACCOUNTING POLICIES SUMMARY

Basis of Presentation — The accompanying consolidated financial statements have been prepared in conformity with accounting policies generally accepted in the United States of America. In our opinion, the accompanying consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly our financial position, our results of operations and changes in our cash flows.

Principles of Consolidation — The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, excluding Silverleaf Finance I, Inc., our wholly-owned qualified special purpose entity dissolved during the third quarter of 2005 (“SF-I”), and Silverleaf Finance III, LLC, a wholly-owned off-balance sheet qualified special purpose finance subsidiary, formed during the third quarter of 2005 (“SF-III”). All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Adoption of SFAS No. 152 — In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 152, “Accounting for Real Estate Time-Sharing Transactions” (“SFAS No. 152”). SFAS No. 152 is effective for financial statements for fiscal years beginning after June 15, 2005, and is to be reported as a cumulative effect of a change in accounting principle. Accordingly, we adopted SFAS No. 152 effective January 1, 2006. However, we did not have a cumulative effect of a change in accounting principle as our adoption of SFAS No. 152 had an immaterial impact on our prior years’ results. SFAS No. 152 amends Financial Accounting Standards Board Statement No. 66, “Accounting for Sales of Real Estate”, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in American Institute of Certified Public Accountants Statement of Position 04-2, “Accounting for Real Estate Time-Sharing Transactions” (“SOP 04-2”). This Statement also amends Financial Accounting Standards Board Statement No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects”, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. SFAS No. 152 provides guidance on determining revenue recognition for timeshare transactions, evaluation of uncollectibility of Vacation Interval receivables, accounting for costs of Vacation Interval sales, operations during holding periods (or incidental operations), and other accounting transactions specific to time share operations. Restatement or reclassification of previously reported financial statements is not permitted. Accordingly, as a result of the adoption of SFAS No. 152, our financial statements for periods beginning on or after January 1, 2006 are not comparable, in all respects, with those prepared for periods ending on or prior to December 31, 2005.

F-7

Specifically, SFAS No. 152 requires the following changes to our accounting for time-sharing transactions:

· The relative sales value method of recording Vacation Interval cost of sales has been amended to include estimated future defaults of uncollectible sales and the subsequent resale of the recovered Vacation Intervals reacquired on future cancelled sales in our total estimate of revenues we expect to earn on a project.

· The estimated uncollectible revenue on Vacation Interval sales excludes an estimate for the value of inventory recoveries. Prior to SFAS No. 152 we included a reduction to our provision for uncollectible notes for our estimate of inventory recoveries.

· The estimated uncollectible revenue (i.e. provision for uncollectible notes) is recorded as a reduction to Vacation Interval sales rather than as an expense, as it was previously recorded prior to SFAS No. 152.

· Revenues related to sampler contracts, which entitle the prospective owner to sample a resort during certain periods, have been and will continue to be deferred until the customer uses the stay or allows the contract to expire. Effective January 1, 2006, sampler sales and related costs are accounted for as incidental operations, whereby incremental costs in excess of incremental revenue are charged to expense as incurred and the operations are presented as a net expense in the consolidated statement of operations. Conversely, incremental revenue in excess of incremental costs is recorded as a reduction of inventory in the consolidated balance sheet. Incremental costs include costs that would not have been incurred had we not sold samplers. During the year ended December 31, 2006, all sampler sales were recorded as a reduction to sales and marketing expense since direct and incremental costs of sampler sales exceeded incremental sampler sales. Prior to SFAS No. 152, sampler sales were reported separately as revenue.

Revenue and Expense Recognition — A substantial portion of Vacation Interval sales are made in exchange for mortgage notes receivable, which are secured by a deed of trust on the Vacation Interval sold. We recognize the sale of a Vacation Interval under the full accrual method after a binding sales contract has been executed, the buyer has made a down payment of at least 10%, and the statutory rescission period has expired. If all accrual method criteria are met except that significant development costs remain to complete the project or phase, revenues are recognized on the percentage-of-completion basis. Under this method, the amount of revenue recognized (based on the sales value) at the time a sale is recognized is measured by the relationship of costs already incurred to the total of costs already incurred and estimated future costs to complete the development of the phase. The remaining amount is deferred and recognized as the remaining costs are incurred. There were no sales deferred at December 31, 2006 related to the percentage-of-completion method.

Both of the above methods employ the relative sales value method in accounting for costs of sales and inventory, which are applied to each phase separately. Generally, we consider each building a separate phase. Pursuant to the provisions of SFAS No. 152, in determining relative sales value, an estimate of uncollectibility is used to reduce the estimate of total Vacation Interval revenue under the project, both actual to date plus expected future revenue. The relative sales value method is used to allocate inventory cost and determine cost of sales in conjunction with a sale. Under the relative sales value method, cost of sales is estimated as a percentage of net sales using a cost of sales percentage which represents the ratio of total estimated cost, including both costs already incurred plus estimated costs to complete the phase, if any, to total estimated Vacation Interval revenue under the project. Common costs, including amenities, are allocated to inventory cost among the phases that those costs are expected to benefit, and are included in total estimated costs.

The estimate of total revenue for a phase, which includes both actual to date revenues and expected future revenues, incorporates factors such as actual or estimated uncollectibles, changes in sales mix and unit sales prices, repossessions of intervals, effects of upgrade programs, and past and expected sales programs to sell slow moving inventory units. On at least a quarterly basis, we evaluate the estimated cost of sales percentage, using updated information for total estimated phase revenue and total estimated phase costs, both actual to date and expected in the future. The effects of changes in estimates are accounted for in the period in which they first become known on a retrospective basis using a current period adjustment.

F-8

Certain Vacation Interval sales transactions are deferred until the minimum down payment has been received. We account for these transactions utilizing the deposit method. Under this method, the sale is not recognized, a receivable is not recorded, and inventory is not relieved. Any cash received is carried as a deposit until the sale can be recognized. When these types of sales are cancelled without a refund, deposits forfeited are recognized as income and the interest portion is recognized as interest income. This income is not significant.

In addition to sales of Vacation Intervals to new prospective owners, we sell additional and upgraded Vacation Intervals to existing owners. Revenues are recognized on an additional Vacation Interval sale, which is a new interval sale that is treated as a separate transaction from the original Vacation Interval for accounting purposes, when the buyer makes a down payment of at least 10%, excluding any equity from the original Vacation Interval purchased. Revenues are recognized on an upgrade Vacation Interval sale, which is a modification and continuation of the original sale, by including the buyer’s equity from the original Vacation Interval towards the down payment of at least 10%. The additional accrual method criteria described above must also be satisfied for revenue recognition of additional and upgraded Vacation Intervals. The revenue recognized on upgrade Vacation Interval sales is the difference between the upgrade sales price and traded-in sales price, and cost of sales is the incremental increase in the cost of the Vacation Interval purchased.

We recognize interest income as earned. Interest income is accrued on notes receivable, net of an estimated amount that will not be collected, until the individual notes become 90 days delinquent. Once a note becomes 90 days delinquent, the accrual of interest income ceases until collection is deemed probable.

We receive fees for management services provided to Silverleaf Club and Orlando Breeze Resort Club. These revenues are recognized on an accrual basis in the period the services are provided if collection is deemed probable.

Services and other income are recognized on an accrual basis in the period service is provided.

Sales and marketing costs are charged to expense in the period incurred. Commissions, however, are recognized in the same period as the revenue is recognized.

Cash and Cash Equivalents — Cash and cash equivalents consist of all highly liquid investments with an original maturity at the date of purchase of three months or less. Cash and cash equivalents include cash, certificates of deposit, and money market funds.

Restricted Cash— Restricted cash consists of certificates of deposit that serve as collateral for construction bonds and cash restricted for repayment of debt.

Investment in Special Purpose Entities —We were party to a $75 million revolving credit agreement to finance Vacation Interval notes receivable through SF-I, an off-balance-sheet qualified special purpose entity through July 2005. Sales of notes receivable from the Company to SF-I that met certain underwriting criteria occurred on a periodic basis. SF-I funded these purchases through advances under a credit agreement arranged for this purpose.

In August 2005, we closed a securitization transaction with SF-III which is a qualified special purpose entity formed for the purpose of issuing $108.7 million of Timeshare Loan-Backed Notes Series 2005-A (“Series 2005-A Notes”) in a private placement during the third quarter of 2005. The Series 2005-A Notes are secured by timeshare receivables sold to SF-III by the Company pursuant to a transfer agreement between us and SF-III. Under that agreement, we sold to SF-III approximately $132.8 million in timeshare receivables that were previously pledged as collateral under revolving credit facilities with our senior lenders and SF-I. The proceeds from the sale of the timeshare receivables to SF-III were used to pay off in full the credit facility of SF-I and to pay down amounts we owed under our senior credit facilities. The timeshare receivables we sold to SF-III are without recourse, except for breaches of certain representations and warranties at the time of sale. We are responsible for servicing the timeshare receivables purchased by SF-III pursuant to the terms of the agreement and will receive a fee for our services. Such fees received approximate our internal cost of servicing such timeshare receivables, and approximates the fee a third party would receive to service such receivables. As a result, the related servicing asset or liability was estimated to be insignificant.

We account for and evaluate our investment in special purpose entities in accordance with Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS No. 140”), EITF 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to be Held by a Transferor in Securitized Financial Assets, and Statement of Financial Accounting Standards No.115, Accounting for Certain Investments in Debt and Equity Securities, as applicable. The gain or loss on the sale is determined based on the proceeds received, the fair value assigned to the investment in special purpose entities, and the recorded value of notes receivable sold. The fair value of the investment in special purpose entities is estimated based on the present value of future cash flows we expect to receive from the notes receivable sold. We utilized the following key assumptions to estimate the fair value of such cash flows related to SF-I: customer prepayment rate - ranging from 2.3% to 4.3%; expected accounts paid in full as a result of upgrades - ranging from 5.8% to 6.2%; expected credit losses - ranging from 5.6% to 8.1%; discount rate - ranging from 13.5% to 19%; base interest rate - ranging from 3.3% to 4.4%; agent fee - ranging from 2% to 2.37%; and loan servicing fees - 1%. We utilized the following key assumptions to estimate the fair value of such cash flows related to SF-III: customer prepayment rate (including expected accounts paid in full as a result of upgrades) - 15.9%; expected credit losses - 8.81% to 11.38%; discount rate - 15% to 21.5%; base interest rate - 5.37%; and loan servicing fees - 1.75%. Our assumptions are based on experience with our notes receivable portfolio, available market data, estimated prepayments, the cost of servicing, and net transaction costs. Such assumptions are assessed quarterly and, if necessary, adjustments are made to the carrying value of the investment in special purpose entities on a prospective basis as a change in accounting estimate, with the amount of periodic interest accretion adjusted over the remaining life of the beneficial interest. The carrying value of the investment in special purpose entities represents our maximum exposure to loss regarding our involvement with our special purpose entities.

F-9

At December 31, 2006, the sensitivity of the current fair value of residual cash flows to immediate 10 percent and 20 percent adverse changes to key assumptions are as follows (in thousands):

Customer Prepayment Rate (including accounts paid
in full as a result of upgrades):
Impact on fair value of a 10% adverse change	$	235
Impact on fair value of a 20% adverse change	$	478
Expected Credit Losses Rate:
Impact on fair value of a 10% adverse change	$	478
Impact on fair value of a 20% adverse change	$	1,033
Discount Rate:
Impact on fair value of a 10% adverse change	$	248
Impact on fair value of a 20% adverse change	$	489

Allowance for Uncollectible Notes — Beginning January 1, 2006, estimated uncollectible revenue, which is an offset to Vacation Interval sales, is recorded at an amount sufficient to maintain the allowance for uncollectible notes at a level management considers adequate to provide for anticipated losses resulting from customers' failure to fulfill their obligations under the terms of their notes. Prior to the adoption of SFAS No. 152, this line item was recorded as an expense: provision for uncollectible notes. The allowance for uncollectible notes is adjusted based upon periodic analysis of the notes receivable portfolio, historical credit loss experience, and current economic factors.

Credit losses take three forms. The first is the full cancellation of the note, whereby the customer is relieved of the obligation and we recover the underlying inventory. The second form is a deemed cancellation, whereby we record the cancellation of all notes that become 90 days delinquent, net of notes that are no longer 90 days delinquent. The third form is the note receivable reduction that occurs when a customer trades a higher value product for a lower value product. In estimating the allowance, we project future cancellations and credit losses for each sales year by using historical cancellations experience.

The allowance for uncollectible notes is reduced by actual cancellations and losses experienced, including losses related to previously sold notes receivable which became delinquent and were reacquired pursuant to the recourse obligations discussed herein. Recourse to the Company on sales of customer notes receivable is governed by the agreements between the purchasers and the Company.

Inventories — Inventories are stated at the lower of cost or market value. Cost includes amounts for land, construction materials, amenities and common costs, direct labor and overhead, taxes, and capitalized interest incurred in the construction or through the acquisition of resort dwellings held for timeshare sale. Timeshare unit costs are capitalized as inventory and are allocated to cost of Vacation Interval sales based upon their relative sales values.

We estimate the total cost to complete all amenities at each resort. This cost includes both costs incurred to date and expected costs to be incurred. At December 31, 2006, the estimated costs not yet incurred, which are expected to complete promised amenities was $2.1 million. We allocate the estimated promised and completed amenities cost to cost of Vacation Interval sales based on Vacation Intervals sold in a given period as a percentage of total Vacation Intervals expected to sell over the life of a particular resort project.

The relative sales value method of recording Vacation Interval cost of sales has been amended by SFAS No. 152 beginning January 1, 2006 to include estimated future defaults of uncollectible sales and the subsequent resale of the recovered Vacation Intervals reacquired on future cancelled sales in our total estimate of revenues we expect to earn on a project. We periodically review the carrying value of our inventory on an individual project basis for impairment, to ensure that the carrying value does not exceed market value.

Land, Equipment, Buildings, and Leasehold Improvements— Land, equipment (including equipment under capital lease), buildings, and leasehold improvements are stated at cost. When assets are disposed of, the cost and related accumulated depreciation are removed, and any resulting gain or loss is reflected in income for the period. Maintenance and repairs are charged to expense as incurred; significant betterments and renewals, which extend the useful life of a particular asset, are capitalized. Depreciation is calculated for all fixed assets, other than land, using the straight-line method over the estimated useful life of the assets, ranging from 3 to 20 years. We periodically review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

F-10

Prepaid and Other Assets— Prepaid and other assets consists primarily of prepaid insurance, prepaid postage, commitment fees, debt issuance costs, deferred commissions, novelty inventories, deposits, collected cash in senior lender lock boxes which has not yet been applied to the loan balances by the senior lenders, and miscellaneous receivables. Commitment fees and debt issuance costs are amortized over the life of the related debt.

Income Taxes— Deferred income taxes are recorded for temporary differences between the basis of assets and liabilities as recognized by tax laws and their carrying value as reported in the consolidated financial statements. A provision is made or benefit recognized for deferred income taxes relating to temporary differences for financial reporting purposes. To the extent a deferred tax asset does not meet the criteria of “more likely than not” for realization, a valuation allowance is recorded. Our federal tax return includes all items of income, gain, loss, expense and credit of SF-III, since it is a disregarded entity for federal income tax purposes. We have a tax sharing agreement with SF-III.

Derivative Financial Instruments — We follow Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”) as amended, which establishes accounting and reporting standards for derivative financial instruments, including certain derivative instruments embedded in other contracts and hedging activities. All derivatives, whether designed as hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings.

Earnings Per Share (“EPS”) — Basic earnings per share is computed by dividing net income by the weighted average common shares outstanding. Earnings per share assuming dilution is computed by dividing net income by the weighted average number of common shares and potentially dilutive shares outstanding. The number of potentially dilutive shares is computed using the treasury stock method, which assumes that the increase in the number of common shares resulting from the exercise of the stock options is reduced by the number of common shares that we could have repurchased with the proceeds from the exercise of the stock options.

Outstanding stock options totaling 2,777,147; 2,270,657 and 1,996,807 were dilutive securities that were included in the computation of diluted EPS at December 31, 2004, 2005 and 2006, respectively. Outstanding stock options totaling 874,500, 867,000 and 827,000 were not dilutive at December 31, 2004, 2005 and 2006, respectively, because the exercise price for such options exceeded the market price for our common shares.

Stock-Based Compensation —In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Share-Based Payment, revised SFAS No. 123R, effective for the next fiscal year beginning after June 15, 2005. Accordingly, we adopted the provisions of SFAS No. 123R effective January 1, 2006. SFAS No. 123R addresses the accounting for share-based payments to employees, including grants of employee stock options. Under the new standard, we are no longer able to account for share-based compensation transactions using the intrinsic method in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, or the pro forma disclosure requirements of SFAS No. 148, Accounting for Stock Based Compensation - Transition and Disclosure, as if we had accounted for our employee stock options under the fair value method of SFAS No. 123. Instead, we are required to account for such transactions using a fair-value method and recognize the expense in the consolidated statement of operations.

We adopted SFAS No. 123R using the modified prospective method. Under this transition method, for all stock options granted on or prior to December 31, 2005 that remain outstanding as of that date, compensation cost is recognized for the unvested portion over the remaining requisite service period, using the fair value for these options as estimated at the date of grant using the Black-Scholes option-pricing model under the original provisions of SFAS No. 123 for pro-forma disclosure purposes. Furthermore, compensation cost will be recognized for any stock option grants issued, modified, repurchased, or canceled after December 31, 2005. We recognized $252,000 of stock-based compensation expense for the year ended December 31, 2006.

See Note 10 under the heading “Equity” for a table that illustrates the effect on net income and net income per share had we applied the fair-value recognition provisions of SFAS No. 123 to our outstanding stock option grants as of the years ended December 31, 2004 and 2005, prior to the adoption of SFAS No. 123R.

F-11

There were no stock options granted during 2004. There were 267,000 stock options granted during 2005 with an exercise price of $1.62 per share and a fair value of $1.59 per share. The fair value of the stock options granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected volatility ranging from 143.2% to 264.4% for all grants, risk-free interest rates which vary for each grant and range from 4.1% to 12.2%, expected life of 7 years for all grants, and no distribution yield for all grants.

There were no stock options granted, forfeited, or expired during 2006. There were 313,850 stock options exercised during 2006 at a weighted average exercise price of $0.315 per share. At December 31, 2006 there is $230,000 of unamortized compensation expense related to the stock option grants during 2005, which will be fully recognized by August 2008.

Use of Estimates— The preparation of the consolidated financial statements requires the use of management’s estimates and assumptions in determining the carrying values of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from those estimated. Significant management estimates include the allowance for uncollectible notes, estimates for taxes, valuation of SF-III, and the future sales plan and estimated recoveries used to allocate certain costs to inventory phases and cost of sales.

Revised Statements of Cash Flows Presentation — In previously issued Statements of Cash Flows, we reported the operating and investing activities of our discontinued operations on a combined basis as a single amount. In 2006, we separately disclosed those activities within the Company’s other operating and investing activities. There were no activities from discontinued operations during 2006, however during 2005 we previously disclosed a net use of cash for operating activities of $841,000 and in 2004 we previously disclosed net cash provided by operating activities of $389,000 pertaining to discontinued operations. In addition, we have revised both the 2005 and 2004 Statements of Cash Flows to reflect cash restricted for repayment of debt as a financing activity rather than an operating activity, in the amounts of $312,000 and $2.5 million, respectively.

Our 2005 and 2004 Statements of Cash Flows presentation have been adjusted as follows to reflect these revisions (in thousands):

	Cash Provided		Cash Provided by (Used in)			Cash Provided by (Used in)
	By Operating		Investing			Financing
	Activities		Activities			Activities
2005, as previously reported	$	76,150	$	18,531		$	(93,785	)
2005, revised	$	75,681	$	18,471		$	(94,097	)
2004, as previously reported	$	5,748	$	(570	)	$	1,275
2004, revised	$	9,404	$	(1,334	)	$	(1,228	)

Other Recent Accounting Pronouncements —

SFAS No. 155 - In February 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments (“SFAS No. 155”). SFAS No. 155 amends SFAS No. 133 and SFAS No. 140. The statement applies to certain hybrid financial instruments, which are instruments that contain embedded derivatives. The new standard establishes a requirement to evaluate beneficial interests in securitized financial assets to determine if the interests represent freestanding derivatives or are hybrid financial instruments containing embedded derivatives requiring bifurcation. This new standard also permits an election for fair value re-measurement of any hybrid financial instrument containing an embedded derivative that otherwise would require bifurcation under SFAS No. 133. The fair value election can be applied on an instrument-by-instrument basis to existing instruments at the date of adoption and can be applied to new instruments on a prospective basis. This statement shall be effective for all financial instruments acquired, issued, or subject to a remeasurement (new basis) event occurring after the beginning of an entity's first fiscal year that begins after September 15, 2006. The fair value election provided for in paragraph 4(c) of this Statement may also be applied upon adoption of this Statement for hybrid financial instruments that had been bifurcated under paragraph 12 of Statement 133 prior to the adoption of this Statement. Earlier adoption is permitted as of the beginning of an entity's fiscal year, provided the entity has not yet issued financial statements, including financial statements for any interim period for that fiscal year. The adoption of SFAS No. 155 is not expected to have a material impact on our consolidated financial condition or results of operations.

SFAS No. 156 - In March 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets (“SFAS No. 156”). The statement allows for the adoption of the fair value method of accounting for servicing assets, as opposed to the lower of amortized cost or market value, including mortgage servicing rights, which represent an entity’s right to a future stream of cash flows based upon the contractual servicing fee associated with servicing mortgage loans. The statement is effective as of the beginning of any fiscal year beginning after September 15, 2006, with early adoption permitted as of January 1, 2006. We are still evaluating the impact the adoption of SFAS No. 156 will have on our consolidated financial condition and results of operations.

F-12

FIN No. 48- In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. We are still evaluating the impact the adoption of FIN No. 48 will have on our consolidated financial condition and results of operations.

SFAS No. 157- In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements(“SFAS No. 157”), which clarifies that the term fair value is intended to mean a market-based measure, not an entity-specific measure, and gives the highest priority to quoted prices in active markets in determining fair value.  SFAS No. 157 requires disclosures about (1) the extent to which companies measure assets and liabilities at fair value, (2) the methods and assumptions used to measure fair value, and (3) the effect of fair value measures on earnings.  SFAS No. 157 is effective for fiscal years beginning after November 15, 2007.  We are still evaluating the impact the adoption of SFAS No. 157 will have on our consolidated financial condition and results of operations.

SAB 108-In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 provides interpretive guidance on how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in the current year financial statements. SAB 108 requires registrants to quantify misstatements using both an income statement (“rollover”) and balance sheet (“iron curtain”) approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly applied its previous approach and all relevant facts and circumstances were considered. If prior years are not restated, the cumulative effect adjustment is recorded in opening accumulated earnings as of the beginning of the fiscal year of adoption. SAB 108 is effective for fiscal years ending on or after November 15, 2006, with earlier adoption encouraged. The adoption of SAB 108 did not have a material impact on our consolidated financial condition or results of operations.

SFAS No. 159- In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”), which allows an irrevocable election to measure certain financial assets and financial liabilities at fair value on an instrument-by-instrument basis, with unrealized gains and losses recognized currently in earnings. Under SFAS No. 159, the fair value option may only be elected at the time of initial recognition of a financial asset or financial liability or upon the occurrence of certain specified events. Additionally, SFAS No. 159 provides that application of the fair value option must be based on the fair value of an entire financial asset or financial liability and not selected risks inherent in those assets or liabilities. SFAS No. 159 requires that assets and liabilities which are measured at fair value pursuant to the fair value option be reported in the financial statements in a manner that separates those fair values from the carrying amounts of similar assets and liabilities which are measured using another measurement attribute. SFAS No. 159 also provides expanded disclosure requirements regarding the effects of electing the fair value option on the financial statements. SFAS No. 159 is effective prospectively for fiscal years beginning after November 15, 2007, with early adoption permitted for fiscal years in which interim financial statements have not been issued, provided that all of the provisions of SFAS No. 157 are early adopted as well. We are currently assessing the financial impact the adoption of SFAS No. 159 will have on our consolidated financial condition and results of operations.

3. CONCENTRATIONS OF RISK

Credit Risk — We are exposed to credit risk related to our notes receivable.

We offer financing to the buyers of Vacation Intervals at our resorts. These buyers generally make a down payment of at least 10% of the purchase price and deliver a promissory note to us for the balance. The promissory notes generally bear interest at a fixed rate, are payable over a seven-year to ten-year period, and are secured by a first mortgage on the Vacation Interval. We bear the risk of default on these promissory notes. Although we prescreen prospects by credit scoring them in the early stages of the marketing and sales process, we generally do not perform a detailed credit history review of our customers.

If a buyer of a Vacation Interval defaults, we generally must foreclose on the Vacation Interval and attempt to resell it; the associated marketing, selling, and administrative costs from the original sale are not recovered; and such costs must be incurred again to resell the Vacation Interval. Although in many cases we may have recourse against a Vacation Interval buyer for the unpaid price, certain states have laws that limit our ability to recover personal judgments against customers who have defaulted on their loans. Accordingly, we have not generally pursued this remedy.

Interest Rate Risk — We have historically derived net interest income from our operating activities because the interest rates we charge our customers who finance the purchase of their Vacation Intervals exceed the interest rates we pay to our senior lenders. Because 38% of our indebtedness bears interest at variable rates and our customer receivables bear interest at fixed rates, increases in interest rates will erode the spread in interest rates that we have historically obtained and could cause the rate on our borrowings to exceed the rate at which we provide financing to our customers. Therefore, any increase in interest rates, particularly if sustained, could have a material adverse effect on our results of operations, cash flows, and financial condition.

F-13

To partially offset an increase in interest rates, we have engaged in two interest rate hedging transactions, or derivatives, related to our conduit loan with SF-II, for a notional amount of $39.3 million at December 31, 2006, that expires between September 2011 and March 2014. Our variable funding note (“VFN”) with SF-IV also acts as an interest rate hedge since it contains a provision for an interest rate cap, however there are no amounts outstanding under this line of credit at December 31, 2006.

In addition, the Series 2005-A Notes related to our off-balance sheet special purpose finance subsidiary, SF-III, with a balance of $52.3 million at December 31, 2006, bear interest at a blended fixed rate of 5.4%, and the Series 2006-A Notes related to SF-V bear interest at a blended fixed rate of 6.7%.

Availability of Funding Sources — We fund substantially all of our notes receivable, timeshare inventories, and land inventories which we originate or purchase with borrowings through our financing facilities, sales of notes receivable, internally generated funds, and proceeds from public debt and equity offerings. Borrowings are in turn repaid with the proceeds we receive from repayments of such notes receivable. To the extent that we are not successful in maintaining or replacing existing financings, we would have to curtail our operations or sell assets, thereby having a material adverse effect on our results of operations, cash flows, and financial position.

Geographic Concentration — Our notes receivable are primarily originated in Texas (where approximately 61% of Vacation Interval sales took place in 2006), Missouri, Illinois, Massachusetts, and Georgia. The risk inherent in such concentrations is dependent upon regional and general economic stability, which affects property values and the financial stability of the borrowers. Our Vacation Interval inventories are concentrated in Texas, Missouri, Illinois, Massachusetts, and Georgia. The risk inherent in such concentrations is in the continued popularity of the resort destinations, which affects the marketability of our products and the collection of notes receivable.

4. NOTES RECEIVABLE

We provide financing to the purchasers of Vacation Intervals, which are collateralized by their interest in such Vacation Intervals. The notes receivable generally have initial terms of seven to ten years. The average yield on outstanding notes receivable at December 31, 2006 and 2005 was approximately 15.7% and 15.3%, respectively, with individual rates ranging from 0% to 17.5%. The Vacation Interval notes receivable with interest rates of 0% originated between 1997 and 2003, and have an outstanding balance at December 31, 2006 of approximately $156,000. In connection with the sampler program, we routinely enter into notes receivable with terms of 10 months. Notes receivable from sampler sales were $2.3 million and $3.1 million at December 31, 2005 and 2006, respectively, and are non-interest bearing.

We ceased accruing interest on delinquent notes of $30.3 million and $38.2 million as of December 31, 2005 and 2006, respectively, as collection of interest on such notes was deemed improbable.

Notes receivable are scheduled to mature as follows at December 31, 2006 (in thousands):

2007	$	37,068
2008		35,811
2009		38,040
2010		38,858
2011		40,690
Thereafter		107,368
		297,835
Less allowance for uncollectible notes		(68,118	)
Notes receivable, net	$	229,717

There were no notes sold with recourse during the years ended December 31, 2004, 2005, and 2006.

We sold $27.4 million and $8.0 million, respectively, of notes receivable to SF-I and recognized pre-tax gains of $1.9 million and $669,000, respectively, during the years ended December 31, 2004 and 2005. In conjunction with these sales, we received cash consideration of $20.6 million and $6.0 million, respectively, for the years ended December 31, 2004 and 2005, which was primarily used to pay down borrowings under our revolving loan facilities. SF-I funded all of these purchases through advances under a credit agreement arranged for this purpose.

During the third quarter of 2005, we closed a term securitization transaction with SF-III, which is a qualified special purpose entity formed for the purpose of issuing $108.7 million of its Series 2005-A Notes in a private placement through UBS Securities LLC (“UBS”). The Series 2005-A Notes were issued pursuant to an Indenture (“Indenture”) between Silverleaf, as servicer of the timeshare loans, SF-III, and Wells Fargo Bank, National Association, as Indenture Trustee, Custodian, Backup Servicer, and Account Intermediary. The Series 2005-A Notes were issued in four classes ranging from Class A through Class D notes with a blended fixed rate of 5.4%.

F-14

The Series 2005-A Notes are secured by timeshare receivables sold to SF-III by us pursuant to a transfer agreement between us and SF-III. Under that agreement, we sold to SF-III approximately $132.8 million in timeshare receivables that were previously pledged as collateral under revolving credit facilities with our senior lenders and SF-I, and recognized a pre-tax gain of $5.8 million. In connection with this sale, we received gross cash consideration of $108.7 million, which was primarily used to pay off in full the credit facility of SF-I and to pay down amounts we owed under credit facilities with our senior lenders. Simultaneous with the sale of the timeshare receivables to SF-III, SF-I was dissolved, and notes receivable net of allowance for uncollectible notes of $62.9 million and notes payable of $50.4 million were assumed from SF-I, along with other assets, liabilities, and equity of $12.5 million. The timeshare receivables we sold to SF-III are without recourse to us, except for breaches of certain representations and warranties at the time of sale.

At December 31, 2006, SF-III held notes receivable totaling $62.7 million, with related borrowings of $52.3 million. We are responsible for servicing the timeshare receivables pursuant to the terms of the Indenture and will receive a fee for our services equal to 1.75% of eligible receivables held by the facility. Such fees were $1.1 million and $1.5 million for the years ended December 31, 2005 and 2006, respectively. We also serviced notes receivable sold to SF-I for a fee of 1% of eligible receivables held by SF-I. We received fees of $684,000 and $355,000 for the years ended December 31, 2004 and 2005, respectively, for servicing those receivables. Such fees received approximate our internal cost of servicing such receivables, and approximates the fee a third party would receive to service such receivables. As a result, the related servicing asset or liability was estimated to be insignificant.

Except for the repurchase of timeshare receivables that fail to meet initial eligibility requirements, we are not obligated to repurchase defaulted or any other contracts sold to SF-III. As the Servicer of the notes receivable sold to SF-III, we are obligated by the terms of the conduit facility to foreclose upon the Vacation Interval securing a defaulted note receivable. We may, but are not obligated to, purchase the foreclosed Vacation Interval for an amount equal to the net fair market value of the Vacation Interval if the net fair market value is no less than fifteen percent of the original acquisition price that the customer paid for the Vacation Interval. For the years ended December 31, 2005 and 2006, we paid approximately $386,000 and $2.1 million, respectively, to repurchase the Vacation Intervals securing defaulted contracts to facilitate the re-marketing of those Vacation Intervals. We had a similar arrangement in place with SF-I in regard to repurchasing the Vacation Intervals securing defaulted contracts. For the years ended December 31, 2004 and 2005, we paid approximately $2.5 million and $988,000, respectively, at public auction to repurchase defaulted Vacation Intervals from SF-I.

In the event cash flows from the notes receivable held by the special purpose entities are sufficient to pay all debt service obligations, fees, and expenses, we may receive distributions from the special purpose entities. For the year ended December 31, 2005, we received $4.3 million in cash distributions from SF-I. We received distributions of $1.6 million and $16.6 million from SF-III during 2005 and 2006, respectively.

We consider accounts over 60 days past due to be delinquent. As of December 31, 2006, $4.7 million of notes receivable, net of accounts charged off, were considered delinquent. An additional $27.5 million of notes, of which $24.7 million is pledged to senior lenders, would have been considered to be delinquent, had we not granted payment concessions to the customers, which brings a delinquent note current and extends the maturity date if two consecutive payments are made.

The activity in gross notes receivable is as follows for the years ended December 31, 2005 and 2006 (in thousands):

	December 31,
	2005			2006
Balance, beginning of period	$	248,972		$	230,051
Sales		142,984			164,208
Collections		(64,640	)		(67,786	)
Receivables charged off, gross		(30,108	)		(28,638	)
Receivables received via dissolution of SF-I		73,687			—
Sold notes receivable		(140,844	)		—
Balance, end of period	$	230,051		$	297,835

Prior to the adoption of SFAS No. 152, we provided for estimated Vacation Interval defaults at the time the Vacation Interval revenue was recorded by a charge to the provision for uncollectible notes and an increase to the allowance for uncollectible notes. The provision was calculated as the estimated future losses for newly originated Vacation Intervals offset by estimated future recoveries of inventory. Beginning January 1, 2006 with the adoption of SFAS No. 152, we now record estimated uncollectible revenue as a reduction to Vacation Interval sales. The estimated uncollectible revenue is calculated as gross losses for newly originated Vacation Intervals and does not include an offset for inventory recoveries, which is now a component of the relative sales value method.

F-15

The activity in the allowance for uncollectible notes is as follows for the years ended December 31, 2004, 2005, and 2006 (in thousands):

	December 31,
	2004			2005			2006
Balance, beginning of period	$	48,372		$	52,506		$	52,479
Reclassification of estimated inventory recoveries on future charge offsuture charge offs		—			—			11,786
Estimated uncollectible revenueEstimated uncollectible revenue		—			—			32,491
Provision for uncollectible notes		26,811			23,649			—
Receivables charged off, gross		(36,941	)		(30,108	)		(28,638	)
Receivables charged off, inventory recoveries		13,023			9,390			—
Receivables charged off, sales provision		4,073			2,629			—
Allowance received via dissolution of SF-I		—			10,803			—
Allowance related to notes sold		(2,832	)		(16,390	)		—
Balance, end of period	$	52,506		$	52,479		$	68,118

The allowance for uncollectible notes was 22.8% and 22.9% of gross notes receivable as of December 31, 2005 and 2006, respectively. We will continue our current collection programs and seek new programs to reduce note defaults and improve the credit quality of our customers. However, there can be no assurance that these efforts will be successful.

5. INVENTORIES

Inventories consist of the following at December 31, 2005 and 2006 (in thousands):

	December 31,
	2005		2006
Timeshare units	$	54,553	$	82,892
Amenities		41,867		48,001
Land		11,833		16,132
Recovery of canceled and traded intervals		9,174		—
Other		170		734
Total	$	117,597	$	147,759

Realization of inventories is dependent upon execution of our long-term sales plan for each resort, which extends for up to fifteen years. Such sales plans depend upon our ability to obtain financing to facilitate the build-out of each resort and marketing of the Vacation Intervals over the planned time period.

6. LAND, EQUIPMENT, BUILDINGS, AND LEASEHOLD IMPROVEMENTS

Land, equipment, buildings, and leasehold improvements consist of the following at December 31, 2005 and 2006 (in thousands):

	December 31,
	2005			2006
Land	$	1,989		$	2,734
Vehicles and equipment		4,211			9,457
Office equipment and furniture		28,992			34,091
Buildings and leasehold improvements		10,425			19,454
		45,617			65,736
Less accumulated depreciation		(35,176	)		(37,696	)
Land, equipment, buildings, and leasehold improvements	$	10,441		$	28,040

Depreciation expense for the years ended December 31, 2004, 2005, and 2006 was $3.6 million, $2.7 million, and $2.5 million, respectively, which includes amortization of equipment acquired under capital leases.

F-16

7. INCOME TAXES

Income tax expense from continuing operations consists of the following components for the years ended December 31, 2004 2005, and 2006 (in thousands):

	2004		2005		2006
Current income tax expense - Federal	$	—	$	—	$	5,025
Current income tax expense - State		23		201		179
Total current income tax expense		23		201		5,204
Deferred income tax expense - Federal		—		8,658		7,811
Deferred income tax expense - State		—		866		1,387
Total deferred income tax expense		—		9,524		9,198
Total income tax expense	$	23	$	9,725	$	14,402

A reconciliation of income tax expense on reported pre-tax income from continuing operations at statutory rates to actual income tax expense for the years ended December 31, 2004, 2005, and 2006 is as follows (in thousands):

	2004						2005						2006
	Dollars			Rate			Dollars			Rate			Dollars			Rate
Income tax expense at statutory rates	$	4,824			35.0	%	$	11,253			35.0	%	$	13,093			35.0	%
State income taxes, net of Federal income tax benefit		427			3.1	%		1,125			3.5	%		1,309			3.5	%
Deferred tax asset reserve		(7,376	)		(53.5	)%		—			0.0	%		—			0.0	%
Reconciliation to prior year tax return		1,464			10.6	%		—			0.0	%		(527	)		(1.5	)%
Permanent differences		—			0.0	%		(3,094	)		(9.7	)%		96			0.3	%
Other		684			5.0	%		441			1.4	%		431			1.2	%
Total income tax expense	$	23			0.2	%	$	9,725			30.2	%	$	14,402			38.5	%

Deferred income tax assets and liabilities as of December 31, 2005 and 2006 are as follows (in thousands):

	2005		2006
Deferred tax liabilities:
Depreciation	$	71	$	—
Installment sales income		79,524		88,689
Other		484		—
Total deferred tax liabilities		80,079		88,689
Deferred tax assets:
Net operating loss carryforward - pre exchange offer		22,257		13,939
Net operating loss carryforward - post exchange offer		46,419		48,578
AMT tax credit		2,918		8,489
Total deferred tax assets		71,594		71,006
Net deferred tax liability	$	8,485	$	17,683

We report substantially all Vacation Interval sales, which we finance, on the installment method for federal income tax purposes. Under the installment method, we do not recognize income on sales of Vacation Intervals until we receive the down payment or installment payment on customer receivables. Interest is imposed, however, on the amount of tax attributable to the installment payments for the period beginning on the date of sale and ending on the date the payment is received. If we are otherwise not subject to tax in a particular year, no interest is imposed since the interest is based on the amount of tax paid in that year. The consolidated financial statements do not contain an accrual for any interest expense that would be paid on the deferred taxes related to the installment method. The amount of interest expense is not estimable as of December 31, 2006.

We have been subject to Alternative Minimum Tax (“AMT”) as a result of the deferred income that results from the installment sales treatment of Vacation Interval sales for regular tax purposes. The AMT liability creates a deferred tax asset in the form of a minimum tax credit, which, unless otherwise limited, reduces any future tax liability from regular federal income tax. This deferred tax asset has an unlimited carryover period. We estimate our AMT liability for 2006 is approximately $7.2 million, with the result that we will have total minimum tax credits of approximately $8.5 million as of December 31, 2006. We also anticipate that we will pay significant AMT in future years.

We applied for and received refunds of AMT of $8.3 million and $1.6 million during 2001 and 2002, respectively, as the result of the carryback of our 2000 AMT loss to 1999, 1998, and 1997. Due to AMT losses, including carryforwards, we did not have any AMT liability in 2001 and 2002. Therefore, our current minimum tax credits are not limited by the ownership change discussed below.

The federal net operating losses (“NOL”) expire between 2019 through 2021. Realization of the deferred tax assets arising from the NOL is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards.

F-17

Due to a restructuring in 2002, an ownership change within the meaning of Section 382(g) of the Internal Revenue Code (“the Code”) occurred. As a result, our NOL is subject to an annual limitation for the current and future taxable years. This annual limitation may be increased for any recognized built-in gain to the extent allowed in Section 382(h) of the Code. There is an annual limitation of approximately $768,000, which was the value of our stock immediately before the ownership change, multiplied by the applicable long term tax exempt rate. We believe that approximately $36.2 million of our net operating loss carryforwards as of December 31, 2006, are subject to the Section 382 limitations.

The following are the expiration dates and the approximate net operating loss carryforwards at December 31, 2006 (in thousands):

Expiration Dates
2019	$	2,650
2020		132,278
2021		27,455
	$	162,383

8. DEBT

The following table summarizes our notes payable, capital lease obligations, and senior subordinated notes at December 31, 2005 and 2006 (in thousands):

	December 31,				Revolving				Interest
	2005		2006		Term		Maturity		Rate
$100 million Textron receivable-based revolver(the loan agreement is currently limited to $60 million of availability).	$	53,661	$	28,903		6/30/08		6/30/11		Prime + 1.00%
$50 million CapitalSource receivable-based revolver		28,800		22,831		4/29/08		4/29/08		Prime + 0.75%
$35 million Wells Fargo Foothill receivable-based revolver		—		93		12/31/08		12/31/11		Prime + 0.50%
$125 million SF-IV receivable-based revolver		—		—		12/3/08		12/3/10		LIBOR+1.25%
$25 million Resort Funding receivable-based revolver		—		—		5/20/07		5/20/10		Prime + 1.50%
$66.4 million Textron receivable-based non-revolving conduit loan		37,224		25,090		—		3/22/14		7.035%
$26.3 million Textron receivable-based non-revolving conduit loan		20,839		14,210		—		9/22/11		7.90%
$128 million SF-V receivable-based non-revolver		—		113,138		—		7/16/18		6.70%
$10 million Textron inventory loan agreement		10,000		10,000		8/31/08		8/31/10		LIBOR+3.25%
$6 million Textron inventory loan agreement		—		5,000		8/31/08		8/31/10		Prime + 3.00%
$5 million Textron inventory loan agreement		3,335		1,115		—		3/31/07		Prime + 3.00%
$30 million CapitalSource inventory loan agreement		15,000		18,876		4/29/09		4/29/11		Prime + 1.50%
$15 million Wells Fargo Foothill inventory loan agreement		6,000		5,985		12/31/08		12/31/10		Prime + 2.00%
Various notes, due from January 2009 through August 2016, collateralized by various assets with interest rates ranging from 6.0% to 8.5%		2,282		7,590		—		various		various
Total notes payable		177,141		252,831
Capital lease obligations		128		1,719		—		various		various
Total notes payable and capital lease obligations		177,269		254,550
6.0% senior subordinated notes, due 2007		3,796		3,796		—		4/1/07		6.00%
10½% senior subordinated notes, due 2008		2,146		2,146		—		4/1/08		10.50%
8.0% senior subordinated notes, due 2010		24,671		24,671		—		4/1/10		8.00%
Interest on the 6.0% senior subordinated notes, due 2007		2,562		854		—		4/1/07		6.00%
Total senior subordinated notes		33,175		31,467
Total	$	210,444	$	286,017

We have $264.3 million available funding under our current debt facilities. At December 31, 2006, the LIBOR rates on our senior credit facilities were 5.32% (1 month) and 5.37% (3 month) and the Prime rate on these facilities was 8.25%.

Financial Covenants Under Senior Credit Facilities.

The Company’s senior credit facilities discussed above provide certain financial covenants that we must satisfy. Any failure to comply with the financial covenants in any single loan agreement will result in a cross default under the various facilities. Certain of the above debt agreements include restrictions on the Company's ability to pay dividends based on minimum levels of net income and cash flow. The debt agreements contain covenants including requirements that the Company (i) preserve and maintain the collateral securing the loans; (ii) pay all taxes and other obligations relating to the collateral; and (iii) refrain from selling or transferring the collateral or permitting any encumbrances on the collateral. The debt agreements also contain restrictive covenants, which include (i) restrictions on liens against and dispositions of collateral, (ii) restrictions on distributions to affiliates and prepayments of loans from affiliates, (iii) restrictions on changes in control and management of the Company, (iv) restrictions on sales of substantially all of the assets of the Company, and (v) restrictions on mergers, consolidations, or other reorganizations of the Company. Under certain credit facilities, a sale of all or substantially all of the assets of the Company, a merger, consolidation, or reorganization of the Company, or other changes of control of the ownership of the Company, would constitute an event of default and permit the senior lenders to accelerate the maturity thereof.

F-18

Such credit facilities also contain operating covenants as of December 31, 2006, requiring us to (i) maintain a minimum tangible net worth, the most restrictive being to maintain a minimum tangible net worth at all times greater than the tangible net worth as of December 31, 2004, or $132.1 million, plus 50% of the aggregate amount of net income after December 31, 2004, sales and marketing expenses as a percentage of sales below 55.0% for the latest rolling 12 months, maintain notes receivable delinquency rate below 10%, maintain a minimum interest coverage ratio of 1.25 to 1 for the latest rolling 12 months, maintain positive net income for each year end, and for any two consecutive fiscal quarters, maintain a leverage ratio of at least 6.0 to 1, and maintain a minimum weighted average FICO Credit Bureau Score of 640 for all fiscal calendar quarter sales with respect to which a FICO score can be obtained; (ii) maintain our legal existence and be in good standing in any jurisdiction where we conduct business; (iii) maintain our management agreement with our Resorts; and (iv) refrain from modifying or terminating certain timeshare documents. The credit facilities also include customary events of default, including, without limitation (i) failure to pay principal, interest, or fees when due, (ii) untruth of any representation of warranty, (iii) failure to perform or timely observe covenants, (iv) defaults under other indebtedness, and (v) bankruptcy.

In December 2003, we closed a $66.4 million conduit term loan transaction through a wholly-owned financing subsidiary, Silverleaf Finance II, Inc. This conduit loan was arranged through one of our existing senior lenders. Under the terms of the conduit loan, we sold approximately $78.1 million of our Vacation Interval receivables to our subsidiary SF-II for an amount equal to the aggregate principal balances of the receivables. The purchase of these receivables was financed by the existing senior lender through a one-time advance to SF-II of $66.4 million, which is approximately 85% of the outstanding balance of the receivables SF-II purchased from us. All customer receivables that we transferred to SF-II have been pledged as security to the senior lender. The senior lender also received as additional collateral a pledge of all of our equity interest in SF-II and a $15.7 million demand note from us to SF-II under which payment may be demanded if SF-II defaults on its loan from the senior lender. There is no additional recourse to the Company other than SF-II and the demand note. Proceeds from the sale of the receivables to SF-II were used to pay down approximately $65.5 million of amounts outstanding under our senior revolving credit facilities. The senior lender's conduit loan to SF-II will mature in 2014 and bears interest at a fixed annual rate of 7.035%.

In June 2004, we completed an offer to exchange $24.7 million in principal amount of our 6% senior subordinated notes due 2007 for $24.7 million in principal amount of our 8% senior subordinated notes due 2010 and a cash payment of approximately $271,000, representing accrued, unpaid interest from April 1, 2004 through June 6, 2004.

During 2005, we entered into a $26.3 million amendment and expansion of our conduit term loan agreement with SF-II. Under the terms of the amendment, we sold approximately $31.0 million of notes receivable and received cash proceeds of approximately $26.3 million. The new conduit term loan with SF-II will mature in 2011 and bears interest at a fixed annual rate of 7.9%. We also entered into receivables and inventory loan agreements with three new senior lenders during 2005. These new loan agreements contain a cumulative borrowing capacity of $155 million, are due between April 2008 and December 2011, and bear interest at rates ranging from Prime plus 0.5% to Prime plus 2%. We also consolidated, amended, and restated the receivable facilities with another senior lender, and paid in full the $20.7 million of term loans and $6.0 million under one inventory loan we had outstanding with that same senior lender. We also paid in full the aggregate outstanding balance of $37.8 million we had outstanding under receivables and inventory loans with two other senior lenders.

During the first quarter of 2006 we closed a $100 million revolving senior credit facility through a newly-formed, wholly-owned and consolidated special purpose finance subsidiary, Silverleaf Finance IV, LLC, a Delaware limited liability company. SF-IV was formed for the purpose of issuing a $100 million variable funding note to UBS. During the fourth quarter of 2006 the facility was amended to increase the availability from $100 million to $125 million. The funding period was originally scheduled to end in March 2007 but was extended to December 2008, and the interest rate on advances by UBS to SF-IV was reduced from the initial rate of LIBOR plus 1.5% to LIBOR plus 1.25%. The revised facility will mature in December 2010. The VFN is secured by customer notes receivable sold to SF-IV. Proceeds from the sale of customer notes receivable to SF-IV are used to fund normal business operations and for general working capital purposes. The VFN was issued pursuant to the terms and conditions of an indenture between SF-IV, UBS, and Wells Fargo Bank, National Association, as indenture trustee. We will service the customer notes receivable sold to SF-IV under the terms of an agreement with the indenture trustee and SF-IV.

In August 2006, we closed a $128 million term securitization transaction through a newly-formed, wholly-owned and consolidated special purpose finance subsidiary, Silverleaf Finance V, L.P., a Delaware limited partnership. SF-V was formed for the purpose of issuing approximately $128.0 million of its Timeshare Loan-Backed Notes Series 2006-A in a private offering and sale through UBS. The Series 2006-A Notes were issued pursuant to the terms and conditions of an indenture between ourselves as servicer, SF-V, as issuer, Silverleaf Finance V, LLC, as general partner of SF-V, and Wells Fargo Bank, National Association, as indenture trustee, custodian, backup servicer, and account intermediary. The Series 2006-A Notes were issued in seven classes ranging from Class A through Class G notes with a blended fixed rate of 6.7%, and have a final maturity of July 2018.

The Series 2006-A Notes are secured by customer notes receivable sold to SF-V by SF-IV and Silverleaf in three separate transactions from August 2006 to November 2006. The original amount of notes receivable purchased by SF-V to secure the Series 2006-A Notes was $155.1 million and the balance of eligible notes receivable pledged as collateral at December 31, 2006 was $132.2 million. The proceeds from the sale of the customer notes receivable to SF-V were primarily used to pay down consolidated indebtedness to senior lenders. All customer notes receivable purchased by SF-V are being acquired without recourse, except in the case of breaches of customary representations and warranties made in connection with the sale of the notes. We will continue to service the customer notes receivable sold to SF-V under the terms of the indenture and will receive a fee for our services.

F-19

Notes payable secured by customer notes receivable require that collections from customers be remitted to the senior lenders upon receipt. In addition, we are required to calculate the appropriate “Borrowing Base” for each note payable monthly. Such Borrowing Base determines whether the loans are collateralized in accordance with the applicable loan agreements and whether additional amounts can be borrowed. In preparing the monthly Borrowing Base reports for the senior lenders, we have classified certain notes as eligible for Borrowing Base that might be considered ineligible in accordance with the loan agreements. A significant portion of the potentially ineligible notes relates to cancelled notes from customers who have upgraded to a higher value product and notes that have been subject to payment concessions.

We have developed programs under which customers may be granted payment concessions in order to encourage delinquent customers to make additional payments. The effect of these concessions is to extend the term of the customer notes. Upon granting a concession, we consider the customer account to be current. Under our notes payable agreements, customer notes that are less than 60 days past due are considered eligible as Borrowing Base. As of December 31, 2005 and 2006, a total of $28.3 million and $24.8 million of customer notes, respectively, have been considered eligible for Borrowing Base purposes which would have been considered ineligible had payment concessions and the related reclassification as current not been granted. In addition, as of December 31, 2005 and 2006, approximately $125,000 and $349,000, respectively, of cancelled notes from customers who have upgraded to a different product have been treated as eligible for Borrowing Base purposes.

Principal maturities of notes payable, capital lease obligations, and senior subordinated notes are as follows at December 31, 2006 (in thousands):

2007	$	7,990
2008		27,265
2009		1,208
2010		46,008
2011		62,460
Thereafter		141,086
Total	$	286,017

Total interest expense and lender fees for the years ended December 31, 2004, 2005, and 2006 was $17.6 million, $17.3 million, and $21.7 million, respectively. Interest of $322,000, $1.1 million, and $869,000 was capitalized to inventory during the years ended December 31, 2004, 2005, and 2006, respectively.

As of December 31, 2006, eligible customer notes receivable with a face amount of $263.3 million and interval inventory of $41.0 million were pledged as collateral.

9. COMMITMENTS AND CONTINGENCIES

We are currently subject to litigation arising in the normal course of our business. From time to time, such litigation includes claims regarding employment, tort, contract, truth-in-lending, the marketing and sale of Vacation Intervals, and other consumer protection matters. Litigation has been initiated from time to time by persons seeking individual recoveries for themselves, as well as, in some instances, persons seeking recoveries on behalf of an alleged class. In our judgment, none of the lawsuits currently pending against us, either individually or in the aggregate, is likely to have a material adverse effect on our business, results of operations, or financial position.

Various legal actions and claims may be instituted or asserted in the future against us and our subsidiaries, including those arising out of our sales and marketing activities and contractual arrangements. Some of the matters may involve claims, which, if granted, could be materially adverse to our financial position.

Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. We will establish reserves from time to time when deemed appropriate under generally acceptable accounting principles. However, the outcome of a claim for which we have not deemed a reserve to be necessary may be decided unfavorably against us and could require us to pay damages or make other expenditures in amounts or a range of amounts that could be materially adverse to our business, results of operations, or financial position.

F-20

We have entered into noncancelable operating leases covering office and storage facilities and equipment, which will expire at various dates through 2012. The total rental expense incurred during the years ended December 31, 2004, 2005, and 2006 was $2.3 million, $2.2 million, and $2.7 million, respectively. We have also acquired equipment by entering into capital leases.

The following table summarizes our scheduled contractual commitments as of December 31, 2006 (in thousands):

	2007		2008		2009		2010		2011		Thereafter
Capital leases	$	592	$	585	$	505	$	115	$	114	$	—
Operating leases		2,619		2,260		1,731		857		360		88
Other purchase obligations:
Construction commitments		21,843		—		—		—		—		—
Employment agreements		1,335		—		—		—		—		—
Total	$	26,389	$	2,845	$	2,236	$	972	$	474	$	88

Capital leases include $192,000 of future interest, using an approximate interest rate of 5.4%, which is our weighted average cost of borrowings on our capital lease obligations at December 31, 2006. We also have a $15.7 million demand note with SF-II, our wholly owned on-balance sheet conduit financing subsidiary that is not included, since the note represents only a potential, future cash outlay, and in addition, is eliminated on a consolidated basis.

Equipment acquired under capital leases consists of the following at December 31, 2005 and 2006 (in thousands):

	2005			2006
Amount of equipment under capital leases	$	2,643		$	2,006
Less accumulated depreciation		(2,408	)		(237	)
	$	235		$	1,769

At December 31, 2006, we had notes receivable (including notes unrelated to Vacation Intervals) in the approximate principal amount of $297.8 million with an allowance for uncollectible notes of approximately $68.1 million.

Periodically, we enter into employment agreements with certain executive officers, which provide for minimum annual base salaries and other fringe benefits as determined by our Board of Directors. Certain of these agreements provide for bonuses based on our operating results. The agreements have varying terms of up to three years and typically can be terminated by either party upon 30 days notice, subject to severance provisions. Certain employment agreements provide that such person will not directly or indirectly compete with the Company in any county in which it conducts its business or markets its products for a period of two years following the termination of the agreement. These agreements also provide that such persons will not influence any employee or independent contractor to terminate its relationship with us or disclose any of our confidential information.

10.EQUITY

Our stock option plans provide for the award of nonqualified stock options to directors, officers, and key employees, and the grant of incentive stock options to salaried key employees. Nonqualified stock options provide for the right to purchase common stock at a specified price which may be less than or equal to fair market value on the date of grant (but not less than par value). Nonqualified stock options may be granted for any term and upon such conditions determined by our Board of Directors. We have reserved 3.8 million shares of common stock for issuance pursuant to our stock option plans.

Outstanding options have a graded vesting schedule, with equal installments of shares vesting up through three years from the original grant date. These options are exercisable at prices ranging from $0.29 to $25.50 per share and expire 10 years from the date of grant.

Stock option transactions during 2004, 2005 and 2006 are summarized as follows:

	2004					2005					2006
	Number of Shares			Weighted Average Exercise Price per Share		Number of Shares			Weighted Average Exercise Price per Share		Number of Shares			Weighted Average Exercise Price per Share
Options outstanding, beginning of year		3,704,979		$	3.64		3,651,647		$	3.60		3,137,657		$	4.20
Granted		—		$	—		267,000		$	1.62		—		$	—
Exercised		(33,332	)	$	0.32		(634,066	)	$	0.32		(313,850	)	$	0.32
Expired		—		$	—		—		$	—		—		$	—
Forfeited		(20,000	)	$	16.74		(146,924	)	$	1.33		—		$	—
Options outstanding, end of year		3,651,647		$	3.60		3,137,657		$	4.20		2,823,807		$	4.63
Exercisable, end of year		1,953,549		$	6.45		2,356,105		$	5.34		2,645,807		$	4.83

F-21

For stock options outstanding at December 31, 2006:

Range of Exercise Prices	Number of Options Outstanding		Weighted Average Exercise Price per Option		Weighted Average Remaining Life in Years		Number of Options Exercisable		Weighted Average Exercise Price of Options Exercisable
$16.00 - $25.50		643,500	$	16.71		1.5		643,500	$	16.71
$7.31 - $7.31		148,500		7.31		3.0		148,500		7.31
$3.59 - $3.69		75,000		3.64		4.0		75,000		3.64
$1.62 - $1.62		267,000		1.62		9.0		89,000		1.62
$0.29 - $0.32		1,689,807		0.31		6.7		1,689,807		0.31
Total		2,823,807						2,645,807

The aggregate intrinsic value of our outstanding and exercisable options at December 31, 2006 is $7.9 million and $7.3 million, respectively, with weighted average remaining lives of 6.9 years and 6.7 years, respectively. The intrinsic value of stock options exercised during each of the three years ended December 31, 2004, 2005 and 2006 was $31,000, $1.1 million and $1.1 million, respectively.

We adopted SFAS No. 123R using the modified prospective method. Under this transition method, for all stock options granted on or prior to December 31, 2005 that remain outstanding as of that date, compensation cost is recognized for the unvested portion over the remaining requisite service period, using the fair value for these options as estimated at the date of grant using the Black-Scholes option-pricing model under the original provisions of SFAS No. 123 for pro-forma disclosure purposes. The fair value of the stock options granted is estimated using the following weighted average assumptions: expected volatility ranging from 143.2% to 264.4% for all grants, risk-free interest rates which vary for each grant and range from 4.1% to 12.2%, expected life of 7 years for all grants, and no distribution yield for all grants.

Compensation cost will be recognized for any stock option grants issued, modified, repurchased, or canceled after December 31, 2005. We recognized $252,000 of stock-based compensation expense for the year ended December 31, 2006. The following table illustrates the effect on net income and net income per share had we applied the fair-value recognition provisions of SFAS No. 123 to our outstanding stock option grants as of December 31, 2004 and 2005, prior to the adoption of SFAS No. 123R (in thousands, except per share amounts):

	Year Ended December 31, 2004			Year Ended December 31, 2005
Net income — as reported	$	13,759		$	23,167
Deduct: Stock-based compensation expense computed under the fair value method, net of tax		(297	)		(278	)
Net income — pro forma	$	13,462		$	22,889
Net income per share, basic
As reported	$	0.37		$	0.63
Pro forma	$	0.37		$	0.62
Net income per share, diluted
As reported	$	0.35		$	0.59
Pro forma	$	0.35		$	0.59

The fair value of the stock options granted during 2005 was $1.59. There were no stock options granted during 2004 or 2006.

11.DISCONTINUED OPERATIONS

In accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), the water and utility property assets and liabilities were designated as held for sale effective December 31, 2004. In accordance with the provisions of SFAS No. 144, the results of operations of these properties are included in income from discontinued operations.

On March 11, 2005, we sold the water distribution and waste water treatment utilities assets at eight of our timeshare resorts for an aggregate sales price of $13.1 million, which resulted in a pretax gain of $879,000 during the third quarter of 2005, once all conditions of the sale were met. The purchasers of the utilities are Algonquin Water Resources, of Texas, LLC, a Texas limited liability company; Algonquin Water Resources of Missouri, LLC, a Missouri limited liability company; Algonquin Water Resources of Illinois, LLC, an Illinois limited liability company; Algonquin Water Resources of America, Inc., a Delaware corporation; and Algonquin Power Income Fund, an open-ended investment trust established under the laws of Ontario, Canada (collectively, the “Purchasers”). Certain of the Purchasers have entered into a services agreement to provide uninterrupted water supply and waste water treatment services to our eight timeshare resorts to which the transferred utility assets relate. The Purchasers will charge our timeshare resorts the tariffed rate for those utility services that are regulated by the states in which the resorts are located. For any unregulated utility services, the Purchasers will charge a rate set in accordance with the ratemaking procedures of the Texas Commission on Environmental Quality. The proceeds of our sale of these utility assets were used to reduce senior debt in accordance with our loan agreements with our senior lenders.

F-22

Notwithstanding the closing of this sale of utilities assets, our agreement with the Purchasers contains provisions relating to the required post-closing receipt of customary governmental approvals from utility regulators in Missouri and Texas. During the third quarter of 2005, the Purchasers received governmental approval from the utility regulators in Missouri. Approval from the utility regulators in Texas is still pending at this time. However, we entered into an amendment during July 2006 in which the deadline for obtaining required approvals from the appropriate Texas regulatory agencies was extended from September 2006 to March 2007. During February 2007, the deadline for obtaining approval from the Texas regulatory agencies was extended another 90 days from March 2007 to June 2007. If the Purchasers do not receive required approvals from Texas regulators relating to the utility assets in Texas (the “Texas Assets”) by June 2007, the Texas Assets will be reconveyed to us, the transaction involving the Texas Assets will be rescinded, and we will be obligated to return to the Purchasers approximately $6.2 million of the purchase price attributable to the Texas Assets.

The condensed consolidated statements of operations for discontinued operations are summarized as follows (in thousands):

	Year Ended December 31,
	2004		2005
REVENUES:
Gain on sale of discontinued operations	$	—	$	879
Other income		2,860		438
Total revenues		2,860		1,317
COSTS AND OPERATING EXPENSES:
Other expense		1,376		278
Depreciation		859		—
Interest expense		1		—
Total costs and operating expenses		2,236		278
Income from discontinued operations		624		1,039
Provision for income taxes		—		(298	)
Income from discontinued operations	$	624	$	741

There were no discontinued operations during the year ended December 31, 2006.

12.RELATED PARTY TRANSACTIONS

Each timeshare owners’ association (except for the Club at Orlando Breeze) has entered into a management agreement with Silverleaf Club, which authorizes the Clubs to manage the resorts. Silverleaf Club has in turn entered into a management agreement with the Company, whereby we supervise the management and operations of the resorts. Pursuant to the management agreement with Silverleaf Club, we earn a maximum management fee equal to 15% of gross revenues of Silverleaf Club, but our right to receive such a fee on an annual basis is limited to the amount of Silverleaf Club's net income. However, if we do not receive the maximum fee, such deficiency is deferred for payment to succeeding years, subject again to the annual net income limitation. The Silverleaf Club management agreement is effective through March 2010, and will continue year-to-year thereafter unless cancelled by either party. During the years ended December 31, 2004, 2005, and 2006, we recorded management fees of $1.2 million, $1.9 million, and $1.9 million, respectively, in management fee income.

Orlando Breeze has its own Club, Orlando Breeze Resort Club, which operates independently of Silverleaf Club; however, we supervise the management and operation of the Orlando Breeze Resort Club under the terms of a written agreement. The management agreement with Orlando Breeze Resort Club provides for a maximum annual management fee equal to 15% of gross revenues of Orlando Breeze Resort Club, but our right to receive such a fee on an annual basis is limited to the amount of Orlando Breeze Resort Club’s net income. However, if we do not receive the maximum fee, such deficiency is deferred for payment to succeeding years, subject again to the annual net income limitation. As of December 31, 2006, we have not received payment of management fees from Orlando Breeze Resort Club.

The direct expenses of operating the resorts are paid by the Clubs. To the extent the Clubs provide payroll, administrative, and other services that directly benefit the Company, we are charged a separate allocation by the Clubs. During the years ended December 31, 2004, 2005, and 2006, we incurred $252,000, $266,000, and $312,000, respectively, of expenses under these agreements. Likewise, to the extent we provide payroll, administrative, and other services that directly benefit the Clubs, we charge a separate allocation to the Clubs. During the years ended December 31, 2004, 2005, and 2006, we charged the Clubs $3.3 million, $3.3 million, and $3.3 million, respectively, under these agreements.

F-23

The following schedule represents amounts due from and to affiliates at December 31, 2005 and 2006 (in thousands):

	December 31,
	2005		2006
Timeshare owners associations and other, net	$	511	$	880
Amount due from Silverleaf Club		169		371
Total amounts due from affiliates	$	680	$	1,251
Amount due to special purpose entities	$	544	$	246
Total amounts due to affiliates	$	544	$	246

During 2001, Silverleaf Club entered into a loan agreement for $1.8 million, whereby we guaranteed such debt with certain of our assets. Silverleaf Club’s related note payable balance of $161,000 was paid in full during November 2005.

At December 31, 2005 and 2006, the amount due to our special purpose entities primarily relates to upgrades of sold notes receivable. Upgrades represent sold notes that are replaced by new notes when holders of said notes upgrade to a more valuable Vacation Interval.

The William H. Francis Trust (the “Trust”), a trust for which one of our directors serves as trustee, is entitled to a 10% net profits interest from sales of certain land in Mississippi. The net profits interest was granted to the Trust pursuant to a Net Profits Agreement dated July 20, 1995, between the Trust and a subsidiary of the Company, which was dissolved after its assets and liabilities, including the Net Profits Agreement, were acquired by the Company. Pursuant to the Net Profits Agreement, the affiliate agreed to provide consulting services to us. During 2006, we paid the Trust $58,744 under the Net Profits Agreement due to the sale of land subject to the net profits interest. As of December 31, 2006, we own less than 2 acres of developable land that is subject to this net profits interest.

As a 2003 bonus to Mr. Mead, the Compensation Committee approved assigning to him approximately 449 acres of flood plain land owned by the Company. We also agreed to quitclaim to Mr. Mead all of our rights, including reversionary rights from the Sabine River Authority (“SRA”), in two other tracts of flood plain land of approximately 619 and 466 acres each, which were owned by the SRA but held by the Company and a homeowner's association under a long term ground lease. The Compensation Committee determined that the aggregate market value at December 31, 2003 of our ownership interests and other rights in these three tracts of flood plain land was approximately $73,000. This determination of market value was based upon an independent appraisal from an independent appraisal firm retained by the Compensation Committee. Our basis in these three tracts of flood plain land was zero, and we had an offsetting gain of approximately $73,000 in adjusting it to fair value at December 31, 2003. Subsequently, in February 2005 the Board of Directors (with Mr. Mead abstaining) approved a correction of the 2003 bonus transaction to make a county road the dividing line between the properties. This involved a conveyance of approximately 25 acres back to us, the conveyance of approximately 42 acres to Mr. Mead, and a cash payment by Mr. Mead for the 17 acre difference based on market value, as previously determined by the independent appraiser retained by the Compensation Committee.

During 2004, we retained the services of Francis Enterprises, Inc., a government affairs consulting firm owned by Mr. Francis, to advise us with respect to certain regulatory actions taken by the Federal Trade Commission and the Federal Communications Commission in implementing the national do-not-call list. We paid Mr. Francis' firm $75,000 during 2004 for such services. No payments were made to Francis Enterprises, Inc. during 2005 or 2006.

During 2005, we retained the services of TradeMark Consulting, Co. (“TradeMark”), a consulting company owned and operated by Thomas J. Morris, who became one of our executive officers in August 2005. Mr. Morris entered into an employment agreement with us which provided that the Independent Contractor Consulting Agreement (“Consulting Agreement”) we had with Trademark would not be affected by the employment agreement and that Mr. Morris’ operation of such company would not be a violation of the noncompetition provisions of his employment agreement. The Consulting Agreement provided for certain bonuses to be paid upon Silverleaf’s completion of specified financing transactions. Pursuant to the Consulting Agreement, as amended, with TradeMark, we paid TradeMark $375,324 in fees and other contractual payments as provided for by the Consulting Agreement. These fees and payments were for services rendered before Mr. Morris became one of our executive officers in August 2005. We paid Mr. Morris’ company a bonus of $100,000 in 2006 as a result of the completion of a financing transaction on March 2, 2006. The Consulting Agreement terminated on March 15, 2006.

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash and cash equivalents, other receivables, amounts due from or to affiliates, and accounts payable and accrued expenses approximates fair value due to the relatively short-term nature of the financial instruments. The carrying value of the notes receivable approximates fair value because the weighted average interest rate on the portfolio of notes receivable approximates current interest rates to be received on similar current notes receivable. The carrying value of notes payable and capital lease obligations approximates their fair value because the interest rates on these instruments are adjustable or approximate current interest rates charged on similar current borrowings.

F-24

We had senior subordinated notes of $33.2 million and $31.5 million as of December 31, 2005 and 2006, respectively. The estimated fair value of these senior subordinated notes at December 31, 2005 and 2006 was approximately $20.8 million and $19.7million, respectively, based on the market value of notes exchanged in the Exchange Offer in 2002. However, these notes were not traded on a regular basis and were therefore subject to large variances in offer prices. Accordingly, the estimated fair value may not be indicative of the amount at which a transaction could be completed.

Considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts we could realize in a current market exchange. The use of different market assumptions and estimation methodologies may have a material effect on the estimated fair value amounts.

14. SUBSIDIARY GUARANTEES

All subsidiaries of the Company, except SF-II, SF-III, SF-IV, and SF-V have guaranteed the $31.5 million of senior subordinated notes. Separate financial statements and other disclosures concerning each guaranteeing subsidiary (each, a “Guarantor Subsidiary”) are not presented herein because the guarantee of each Guarantor Subsidiary is full and unconditional and joint and several, and each Guarantor Subsidiary is a wholly-owned subsidiary of the Company, and together comprise all of our direct and indirect subsidiaries.

The Guarantor Subsidiaries had no operations for the years ended December 31, 2004, 2005, and 2006. Combined summarized balance sheet information of the Guarantor Subsidiaries as of December 31, 2005 and 2006, is as follows (in thousands):

	December 31,
	2005		2006
Other assets	$	2	$	2
Total assets	$	2	$	2
Investment by parent (includes equity and amounts due to parent)	$	2	$	2
Total liabilities and equity	$	2	$	2

15. 401(k) PLAN

Our 401(k) plan (the “Plan”), a qualified defined contribution retirement plan, covers employees 21 years of age or older who have completed six months of service. The Plan allows eligible employees to defer receipt of up to 15% of their compensation and contribute such amounts to various investment funds. The employee contributions vest immediately. We are not required by the Plan to match employee contributions, however, we may do so on a discretionary basis. We incurred nominal administrative costs related to maintaining the Plan and made no contributions to the Plan during the years ended December 31, 2004, 2005, and 2006.

F-25

16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial data for 2005 and 2006 is set forth below (in thousands, except per share amounts):

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
Total revenues
2006	$	45,672	$	53,033	$	56,100	$	52,078
2005	$	42,080	$	49,355	$	62,305	$	48,168
Total costs and operating expenses
2006	$	35,566	$	42,041	$	46,264	$	45,603
2005	$	39,088	$	42,839	$	44,749	$	43,082
Income from continuing operations
2006	$	6,215	$	6,760	$	6,049	$	3,982
2005	$	2,394	$	4,231	$	12,250	$	3,550
Income from discontinued operations
2006	$	—	$	—	$	—	$	—
2005	$	128	$	—	$	613	$	—
Net income
2006	$	6,215	$	6,760	$	6,049	$	3,982
2005	$	2,522	$	4,231	$	12,863	$	3,550
Income per common share from continuing operations: basic
2006	$	0.17	$	0.18	$	0.16	$	0.11
2005	$	0.07	$	0.11	$	0.33	$	0.10
Income per common share from discontinued operations: basic
2006	$	0.00	$	0.00	$	0.00	$	0.00
2005	$	0.00	$	0.00	$	0.02	$	0.00
Net income per common share: basic
2006	$	0.17	$	0.18	$	0.16	$	0.11
2005	$	0.07	$	0.11	$	0.35	$	0.10
Income per common share from continuing operations: diluted
2006	$	0.16	$	0.17	$	0.15	$	0.10
2005	$	0.06	$	0.11	$	0.31	$	0.09
Income per common share from discontinued operations: diluted
2006	$	0.00	$	0.00	$	0.00	$	0.00
2005	$	0.00	$	0.00	$	0.02	$	0.00
Net income per common share: diluted
2006	$	0.16	$	0.17	$	0.15	$	0.10
2005	$	0.06	$	0.11	$	0.33	$	0.09

As discussed under the heading “Significant Accounting Policies Summary” in Note 2, in 2006 we changed our accounting for real estate time-sharing transactions in connection with the adoption of Statement of Financial Accounting Standards No. 152, Accounting for Real Estate Time-Sharing Transactions, and changed our accounting for stock-based compensation in connection with the adoption of FASB Statement No. 123(R), Share-Based Payment. As a result, some of the amounts for 2005 may not be comparable to 2006.

17. SUBSEQUENT EVENTS

We entered into a consolidated, amended and restated loan and security agreement (the “Agreement”) with Textron Financial Corporation effective February 21, 2007. Our current receivables and inventory financing arrangements were consolidated into one facility, with a reduction in the interest rate on the “receivables component” from Prime Rate plus 1% to Prime Rate. The interest rate on advances under the “acquisition component” and the “inventory component” of the consolidated debt are now Prime Rate plus 1%. The interest rates charged under our prior inventory loan agreements with Textron were the Prime Rate plus 3% and LIBOR plus 3.25%. The funding period has been extended from June 2008 to January 2010. The receivables component matures on January 31, 2013, and the acquisition and inventory component each mature on January 31, 2012.

F-26

EX-10.61

Ex. 10.61

CONSOLIDATED, AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

among

SILVERLEAF RESORTS, INC.

(as Borrower)

and

TEXTRON FINANCIAL CORPORATION

(as Lender)

As of February 21, 2007

Section 1 -Definition Of Terms	3
Section 2 -The Loan	19
2.1 Facility Fee	19
2.2 Revolving Loan and Lending Limits.	20
2.3 Interest Rate	21
2.4 Payments	21
2.5 Prepayments.	24
2.6 Loan Component Ratio	27
2.7 Maximum Obligation of Textron Financial Corporation Under the Loan	27
2.8 Suspension of Advances.	28
2.9 Release of Intervals from Inventory	28
2.10 Intentionally Omitted	28
2.11 Partial Release of Real Property Mortgages	28
Section 3 -Collateral	29
3.1 Grant of Security Interest.	29
3.2 Financing Statements	29
3.3 Insurance	29
3.4 Protection of Collateral; Reimbursement	29
3.5 Additional Eligible Resorts	30
3.6 Modification of Eligible Notes Receivable	30
3.7 Assumption of Obligations under Eligible Notes Receivable	31
3.8 Purchaser/Criteria	31
3.9 Substitution of Inventory	31
3.10 Cross Collateralization	32
3.11 Security Interest in All Pledged Notes Receivable	32
3.12 The Modification to Inventory Mortgages	32
Section 4 -Conditions Precedent To The Closing	32
4.1 Conditions Precedent	32
4.2 Expenses	36
4.3 Proceedings Satisfactory	36
4.4 Conditions Precedent to Funding of Advances with Respect to Additional Eligible Resorts	36
Section 5 -Funding Procedure	42
5.1 The obligation of Lender to make any loan shall be subject to the satisfaction of all of the following conditions precedent:	42
Section 6 -General Representations And Warranties	52
6.1 Organization, Standing, Qualification	52
6.2 Authorization, Enforceability, Etc.	53
6.3 Financial Statements and Business Condition	54
6.4 Taxes	54
6.5 Title to Properties: Prior Liens	55
6.6 Subsidiaries, Affiliates and Capital Structure	55
6.7 Litigation, Proceedings, Etc	55
6.8 Licenses, Permits, Etc	55
6.9 Environmental Matters	55
6.10 Full Disclosure	56
6.11 Use of Proceeds/Margin Stock	56

6.12 Defaults	56
6.13 Compliance with Law	56
6.14 Restrictions of Borrower	57
6.15 Broker’s Fees	58
6.16 Deferred Compensation Plans	58
6.17 Labor Relations	58
6.18 Resorts.	59
6.19 Timeshare Regimen Reports	60
6.20 Operating Contracts	60
6.21 Architectural and Environmental Control	60
6.22 Tax Identification/Social Security Numbers	60
6.23 Inventory Control Procedures.	60
6.24 Real Property	61
6.25 Inventory.	61
6.26 Additional Representations and Warranties	61
Section 7 -Covenants	62
7.1 Affirmative Covenants	62
7.2 Negative Covenants	75
Section 8 -Events Of Default	78
8.1 Nature of Events	78
Section 9 -Remedies	80
9.1 Remedies Upon Default	80
9.2 Notice of Sale	82
9.3 Application of Collateral; Termination of Agreements	82
9.4 Rights of Lender Regarding Collateral	83
9.5 Delegation of Duties and Rights	83
9.6 Lender not in Control	83
9.7 Waivers	83
9.8 Cumulative Rights	84
9.9 Expenditures by Lender	84
9.10 Diminution in Value of Collateral	84
9.11 Lender’s Knowledge	84
Section 10 -Certain Rights Of Lenders	84
10.1 Protection of Collateral	84
10.2 Performance by Lender	84
10.3 No Liability of Lender	85
10.4 Right to Defend Action Affecting Security	85
10.5 Expenses	86
10.6 Lender’s Right of Set-Off	86
10.7 No Waiver	86
10.8 Right of Lender to Extend Time of Payment, Substitute, Release Security, Etc	86
10.9 Assignment of Lender’s Interest	86
10.10 Notice to Purchaser	86
10.11 Collection of the Notes	87
10.12 Power of Attorney	87
10.13 Relief from Automatic Stay, Etc	88

Section 11 -Term Of Agreement	88
Section 12 -Miscellaneous	88
12.1 Notices	88
12.2 Survival	89
12.3 Governing Law	90
12.4 Limitation on Interest	90
12.5 Invalid Provisions	90
12.6 Successors and Assigns	91
12.7 Amendment	91
12.8 Counterparts; Effectiveness	91
12.9 Lender Not Fiduciary	91
12.10 Return of Notes Receivable.	91
12.11 Accounting Principles	91
12.12 Total Agreement	92
12.13 Litigation	92
12.14 Incorporation of Exhibits	92
12.15 Consent to Advertising and Publicity of Timeshare Documents	92
12.16 Directly or Indirectly	93
12.17 Headings	93
12.18 Gender and Number	93
Section 13 -Special Conditions	93
13.1 Effective Date	93
13.2 Release	93

CONSOLIDATED, AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

THIS CONSOLIDATED, AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, dated as of February 21, 2007, entered into by and between SILVERLEAF RESORTS, INC., a Texas corporation (as “Borrower”) and TEXTRON FINANCIAL CORPORATION, a Delaware corporation (the “Lender”).

WITNESSETH:

WHEREAS, Borrower and Lender entered into an Amended and Restated Loan, Security and Agency Agreement (Tranche A), dated as of April 30, 2002 (as amended, the “Tranche A Loan Agreement”), pursuant to which the Borrower executed an Amended and Restated Secured Promissory Note in the original principal amount of $56,894,400.00, dated April 30, 2002, in favor of Lender (the “Tranche A Note”);

WHEREAS, Borrower, Lender, Webster Bank and Bank of Scotland entered into an Amended and Restated Loan, Security and Agency Agreement (Tranche B), dated as of April 30, 2002 (as amended, the “Tranche B Loan Agreement”), pursuant to which Borrower executed: (i) an Amended and Restated Secured Promissory Note in the original principal amount of $40,305,200.00, dated April 30, 2002, in favor of Lender; (ii) an Amended and Restated Secured Promissory Note in the original principal amount of $7,899,500.00, dated April 30, 2002, in favor of Webster Bank; and (iii) a Secured Promissory Note in the original principal amount of $7,899,500.00, dated April 30, 2002, in favor of Bank of Scotland (singly and collectively the “Tranche B Note”);

WHEREAS, Borrower and Lender entered into an Amended and Restated Loan and Security Agreement (Tranche C), dated as of April 17, 2001 (as amended, the “Tranche C Loan Agreement”, collectively with the Tranche A Loan Agreement and the Tranche B Loan Agreement, the “Original Loan Agreement”), pursuant to which Borrower executed an Amended and Restated Secured Promissory Note in the original principal amount of $8,060,000.00, dated April 30, 2002, in favor of Lender (the “Tranche C Note”, collectively with the Tranche A Note and the Tranche B Note, the “Original Note”);

WHEREAS, the Lender and Borrower entered into a Consolidated, Amended and Restated Loan, Security and Agency Agreement, dated as of August 5, 2005 (the “Receivable Loan Agreement”) to consolidate, amend and restate the: (i) Tranche A Loan Agreement; (ii) Tranche B Loan Agreement; and (iii) Tranche C Loan Agreement;

WHEREAS, pursuant to the Receivable Loan Agreement, the Original Note was replaced by a Consolidated, Amended and Restated Secured Promissory Note, dated as of August 5, 2005 in the aggregate principal amount of $100,000,000.00 in favor of Lender, as agent for each of the lenders under the Receivable Loan Agreement (the “Current Receivable Note”);

WHEREAS, Lender and Borrower entered into that certain Loan and Security Agreement, dated as of December 16, 1999, as amended by that certain First Amendment to Loan and Security Agreement, dated as of April 17, 2001, as further amended by that certain Second Amendment to Loan and Security Agreement, dated as of April 30, 2002, as further amended by that certain Letter Amendment, dated as of March 27, 2003, and as further amended by that certain Third Amendment to Loan and Security Agreement (Inventory Loan), dated as of December 19, 2003 (collectively, the “Original Inventory Loan Agreement”);

1

WHEREAS, pursuant to the Original Inventory Loan Agreement, Lender agreed, subject to the terms and conditions of the Original Inventory Loan Agreement, to provide to Borrower, for the purpose of providing liquidity in connection with Borrower’s ownership, purchase and warehousing of Intervals (as such term is hereinafter defined), a loan in the maximum amount of $10,000,000 (the “Original Inventory Loan”), which loan was evidenced by Borrower’s Amended and Restated Secured Promissory Note, dated as of April 30, 2002 (the “Original Inventory Note”);

WHEREAS, Lender and Borrower amended and restated the Original Inventory Loan Agreement in its entirety pursuant to an Amended and Restated Loan, Security and Agency Agreement dated as of March 5, 2004, as amended by that certain Letter Amendment, dated as of April 16, 2004, and as further amended by that certain Letter Amendment, dated as of July 30, 2004 (together with the First Amendment and the Second Amendment, as such terms are hereafter defined, the “Restated Inventory Loan Agreement”);

WHEREAS, pursuant to the Restated Inventory Loan Agreement, Lender agreed, subject to the terms and conditions of the Restated Inventory Loan Agreement, to provide to Borrower, for the purpose of providing liquidity in connection with Borrower’s ownership, purchase and warehousing of Intervals, to make an additional inventory loan to the borrower in the maximum amount of $8,000,000 (the “Additional Inventory Loan”). The Original Inventory Loan and the Additional Inventory Loan are evidenced, respectively, by the Original Inventory Note, in the original principal amount of Ten Million Dollars ($10,000,000), and the Borrower’s Secured Promissory Note, dated March 5, 2004, in the original principal amount of Eight Million Dollars ($8,000,000) (the “Second Inventory Note”);

WHEREAS, pursuant to that certain First Amendment to Amended and Restated Loan and Security Agreement (Inventory Loan) dated as of February 28, 2005 (the “First Amendment”), Lender provided Borrower with an additional inventory loan in the maximum amount of $5,000,000 (the “Inventory Term Loan”) for the purpose of the repaying certain receivable credit facilities made by Lender to Borrower, which Inventory Term Loan increased the Inventory Loan to $21,000,000, and which Inventory Term Loan is evidenced by that certain Secured Promissory Note (Inventory Term Loan) dated February 28, 2005 in the original principal amount of $5,000,000.00 (the “Inventory Term Loan Note”); the Inventory Term Loan together with the Original Inventory Loan and the Additional Inventory Loan are collectively, referred to herein as the “Inventory Loan”);

WHEREAS, pursuant to that certain Second Amendment to Amended and Restated Loan and Security Agreement (Inventory Loan) dated as of October 26, 2005 (the “Second Amendment”), Lender agreed to extend the period during which Borrower may obtain advances pursuant to the Restated Inventory Loan Agreement and to extend the Final Maturity Date under the Restated Inventory Loan Agreement;

2

WHEREAS, Lender and Borrower have agreed to enter into this Agreement, as such term is hereafter defined, to: (A) consolidate, amend and restate the: (i) Receivable Loan Agreement and (ii) Restated Inventory Loan Agreement and (B) to provide to Borrower, subject to the terms and conditions of this Agreement, with acquisition financing in the maximum aggregate amount of $20,000,000 for the purpose of providing liquidity in connection with Borrower’s acquisition and ownership of certain improved and unimproved real property (the “Acquisition Loan”); and

WHEREAS, pursuant to this Agreement: (i) the Current Receivable Note will be replaced by an Amended and Restated Secured Promissory Note (Receivable Component)(the “Receivable Note”), (ii) the Original Inventory Note, the Second Inventory Note and the Inventory Term Loan Note will be replaced by an Amended and Restated Secured Promissory Note (Inventory Component) (the “Inventory Note”) and (iii) Borrower shall issue and deliver to Lender its Secured Promissory Note (Acquisition Component) to evidence the Acquisition Loan (the “Acquisition Note”).

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are acknowledged, the parties to this Agreement, intending to be legally bound, agree as follows:

Section 1-Definition Of Terms

Capitalized terms used in this Agreement are defined in this Section 1. The definitions include the singular and plural forms of the terms defined.

Acquisition Loan Component Collateral. Collectively, all now owned or hereafter acquired right, title and interest of Borrower, in all of the following:

(i)the Real Property;

(ii)documents, instruments, accounts, chattel paper, and general intangibles relating to the Real Property;

(iii)the Receivable Loan Component Collateral;

(iv)the Inventory Loan Component Collateral;

(v)the Silverleaf Finance II Stock;

(vi)the Silverleaf Finance II Subordinated Note;

(vii)all books, records, reports, computer tapes, discs and software relating to the Acquisition Loan Component Collateral; and

(viii)all extensions, additions, improvements, betterments, renewals, substitutions and replacements of, for or to any of the Acquisition Loan Component Collateral, wherever located, together with the products, proceeds, issues, rents and profits thereof, and any replacements, additions or accessions thereto or substitutions thereof.

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Acquisition Loan Component. The Acquisition Loan Component shall be that portion of the Loan that may be used by Borrower to fund the acquisition of the Real Property in an aggregate amount not to exceed $20,000,000.00, subject to the terms and provisions of this Agreement.

Acquisition Note. The term “Acquisition Note” shall have the meaning given to such term in the recitals hereto.

Additional Eligible Resorts or Additional Eligible Resort. The terms “Additional Eligible Resorts” and “Additional Eligible Resort” shall have the meanings ascribed to such terms in Section 3.5 hereof.

Advance. A portion of the proceeds of the Loan advanced from time to time by Lender to Borrower in accordance with the terms of this Agreement.

Affiliate. Any party controlled by, controlling, or under common control with, Borrower.

Agreement. This Consolidated, Amended and Restated Loan and Security Agreement by and between Borrower and Lender, as it may be amended from time to time.

Assignment of Notes Receivable and Mortgages. The term “Assignment of Notes Receivable and Mortgages” shall mean a recordable Collateral Assignment of Notes Receivable and Mortgages, in the form attached hereto as Exhibit A, made by Borrower in favor of Lender, evidencing the assignment to Lender, of all of the Pledged Notes Receivable and Mortgages.

Borrowing Base. With respect to each Eligible Note Receivable pledged to Lender hereunder in connection with each Advance from and after the Effective Date, an amount equal to seventy-five percent (75%) of the remaining principal balance of each such Eligible Note Receivable.

Business Day. Each day that is not a Saturday, a Sunday or a legal holiday under the laws of the State of Rhode Island, the State of Connecticut or the State of Texas.

Collateral. The term “Collateral” shall mean, singly and collectively, the Acquisition Loan Component Collateral, the Inventory Loan Component Collateral and the Receivable Loan Component Collateral.

Closing Date. The term “Closing Date” shall mean the date hereof.

Code. The Uniform Commercial Code in force in the State of Rhode Island as amended from time to time.

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Commitment. The term “Commitment” shall refer singly to the obligation of Lender to make a Loan or Loans to Borrower and collectively to all Loans to be made by Lender to Borrower as provided herein. The maximum aggregate Commitment of Lender hereunder shall be $100,000,000.00, provided, however, that the maximum Commitment of Lender with respect to the Acquisition Loan Component shall be $20,000,000.00, the Maximum Commitment of the Lender with respect to the Inventory Loan Component shall be $40,000,000.00 and the Maximum aggregate Commitment of Lender with respect to the Acquisition Loan Component and the Inventory Loan Component shall be $40,000,000.00.

Common Elements. All common elements, including but not limited to any limited common elements, as each such common element is defined or provided for in the Declaration or other Timeshare Documents.

Custodian. Wells Fargo Bank, National Association having an address of 751 Kasota Ave, MAC# N9328-011, Minneapolis, MN 55414, or such other custodial agent as may be approved by Lender in writing from time to time. Custodian shall be Lender's agent for the purpose of maintaining possession of all present and future Collateral documents described in Section 3 hereof.

Custodial Agreement. The Custodial and Collateral Agency Agreement, dated as of January 13, 2005 by and among Lender, Borrower and Custodian, pursuant to which the Custodian is to maintain possession of all present and future Collateral documents described in Section 3 hereof, or any custodial agreement entered into as a replacement of such agreement.

Debtor Relief Laws. Any applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar law, proceeding or device providing for the relief of debtors from time to time in effect and generally affecting the rights of creditors.

Declaration or Declarations. With respect to each Resort or Real Property, the applicable Declaration or Declarations described on Schedule 1.1(a) attached hereto.

Default. An event or condition the occurrence of which immediately is or, with a lapse of time or the giving or notice or both, becomes an Event of Default.

Default Rate. The term “Default Rate” shall have the meaning given to such term in the applicable Note.

Division or Commission. The governmental authority of each state in which a Resort or any Real Property is located, having jurisdiction over the establishment and operation of the Resorts in question and the sale of Intervals at such Resort.

EBITDA. The term EBITDA means, with respect to any Person for any period: (a) the sum of (i) net income (but excluding any extraordinary gains or losses or any gains or losses from the sale or disposition of assets other than in the ordinary course of business), (ii) interest expense, (iii) depreciation and amortization and other non-cash items properly deducted in determining net income, and (iv) federal, state and local income taxes, in each case for such Person for such period, computed and calculated in accordance with GAAP minus (b) non-cash items properly added in determining net income, in each case for the corresponding period.

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Effective Date. The term “Effective Date” shall have the meaning given in Section 13.1 hereof.

Eligible Notes Receivable. Those Pledged Notes Receivable which satisfy each of the following criteria:

(i)Borrower shall be the sole payee;

(ii)it arises from a bona fide sale by Borrower of one or more Intervals;

(iii)the Interval sale from which it arises shall not have been cancelled by Purchaser, and any statutory or other applicable cancellation or rescission period shall have expired and the Interval sale is otherwise in compliance with this Agreement;

(iv)it is secured by a Mortgage on the purchased Interval;

(v)principal and interest payments on it are payable to Borrower in legal tender of the United States;

(vi)payments of principal and interest on it are payable in equal monthly installments;

(vii)it shall have an original term of no more than one hundred twenty (120) months;

(viii)a cash down payment has been received from Purchaser or the maker in an amount equal to at least ten percent (10%) of the actual purchase price of each Interval, and Purchaser shall have received no cash or other rebates of any kind;

(ix)no monthly installment is more than thirty (30) days contractually past due at the time of an Advance in respect of such Eligible Note Receivable, or more than sixty (60) days contractually past due at any time;

(x)the rate of interest payable on the unpaid balance is at least the rate required so that when the Advance is made in respect of such Eligible Note Receivable the average interest rate on all Eligible Notes Receivable in respect of which Advances are outstanding shall not be less than thirteen percent (13%) per annum at any time, provided, however, that up to two percent (2.0%) of the Pledged Notes Receivable at any one time may consist of Notes Receivable that bear interest at a reduced rate under the Soldiers and Sailors Civil Relief Act, and any such Notes Receivable shall not be included in computing whether the average interest rate satisfies the foregoing requirement;

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(xi)Purchaser of the related Interval has immediate access, for the timeshare “unit week” related to such purchase, to the Interval described in the Mortgage securing such Eligible Note Receivable, which Interval has been completed, developed, and furnished in accordance with the specifications provided in the Purchaser’s purchase contract, public offering statement and other Timeshare Documents; and Purchaser has, subject to the terms of the Declaration, purchase contract, public offering statement and other Timeshare Documents, complete and unrestricted access to the related Interval and the Resort;

(xii)neither Purchaser of the related Interval or any other maker of the Note is an Affiliate of, or related to, or employed by Borrower;

(xiii)Purchaser or other maker has no claim against Borrower and no defense, set-off or counterclaim with respect to the Note Receivable;

(xiv)the maximum remaining principal balance of any such Note Receivable shall not exceed $35,000 and such Note Receivable shall not be executed by a Purchaser or other maker if the total maximum remaining principal balance of the Notes Receivable executed by such Purchaser or other maker shall exceed $60,000 in the aggregate (or such greater amount as may be approved in writing in advance by Lender); provided, however, that up to ten percent (10%) of the outstanding principal balances of Pledged Notes Receivable at any one time may consist of a combination of “Eligible Larger Notes Receivable” and “Eligible Larger Aggregate Notes Receivable”. As used herein, the term “Eligible Larger Notes Receivable” shall mean Notes Receivable in respect of which: [w] the maximum remaining principal balance of any such Note Receivable exceeds $35,000 but does not exceed $150,000 (each a “Larger Note Receivable”); and [x] such Note Receivable satisfies all of the other eligibility criteria set forth in the Agreement. As used herein, the term “Eligible Larger Aggregate Notes Receivable” shall mean Notes Receivable; (y) executed by a Purchaser or other maker obligated in connection with a Larger Note Receivable if the remaining principal balance of all Notes Receivable executed by such Purchaser or other maker does not exceed $250,000; and (z) which satisfy all of the other eligibility criteria set forth in this Agreement;

(xv)it is executed by a U.S. or Canadian resident; provided, however, that no more than ten percent (10%) of the outstanding principal balance of all Eligible Notes Receivable shall at any time be comprised of Notes Receivable executed by Canadian residents, and, to the extent such outstanding principal balance of such Notes exceeds ten percent (10%), they shall not be considered Eligible Notes Receivable;

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(xvi)the original of such Note Receivable has been endorsed to Lender and delivered to the Custodian as provided in this Agreement, and the terms thereof and all instruments related thereto shall comply in all respects with all applicable federal and state laws and the regulations promulgated thereunder;

(xvii)the Unit in which the timeshare Interval being financed or evidenced by such Note Receivable is located, shall not be subject to any Lien which is not previously consented to in writing by Lender; and

(xviii)if the loan is a newly originated Eligible Note Receivable which is replacing an existing Eligible Note Receivable pledged as Collateral under the Agreement and the proceeds have been used to finance the purchase of an Interval which is being upgraded by the Purchaser to a more expensive Interval:

(1)the principal balance of the existing Eligible Note Receivable which is being upgraded may still be included for purposes of calculating the Borrowing Base for a period of time expiring on the earlier to occur of (i) the 31st day after the consumer documents effecting the upgrade have been executed or (ii) the date on which any payment on such Eligible Note Receivable becomes thirty (30) or more days past due;

(2)on or before the second business day after the expiration of the statutory rescission period in connection with any consumer documents executed effecting any upgrade involving an Eligible Note Receivable and in any event within ten (10) days of such upgrade, the Borrower shall deliver to the Lender or its designee the original of the new promissory note, comparable instrument or installment sale contract executed in connection with such upgrade duly endorsed in blank by the Borrower and the Borrower will cause all payments made with respect to such new promissory note, comparable instrument or installment sale contract to be forwarded to the lockbox; and

(3)any new upgraded Note Receivable involving a prior Eligible Note Receivable shall only be included as part of the Borrowing Base if the prior Eligible Note Receivable has been removed from the Borrowing Base and the new upgraded Note Receivable satisfies all conditions for an Eligible Note Receivable.

Encumbered Intervals. The Intervals subject to the Mortgages.

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Environmental Laws. Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time (“CERCLA”), the Resource Conservation and Recovery Act of 1976, as amended from time to time (“RCRA”), the Superfund Amendments and Reauthorization Act of 1986, as amended, the federal Clean Air Act, the federal Clean Water Act, the federal Safe Drinking Water Act, the federal Toxic Substances Control Act, the federal Hazardous Materials Transportation Act, the federal Emergency Planning and Community Right to Know Act of 1986, the federal Endangered Species Act, the federal Occupational Safety and Health Act of 1970, the federal Water Pollution Control Act, all state and local environmental laws, rules and regulations of each state in which a Resort is located, as all of the foregoing legislation may be amended from time to time, and any regulations promulgated pursuant to the foregoing; together with any similar local, state or federal laws, rules, ordinances or regulations either in existence as of the date hereof, or enacted or promulgated after the date of this Agreement, that concern the management, control, storage, discharge, treatment, containment, removal and/or transport of Hazardous Materials or other substances that are or may become a threat to public health or the environment; together with any common law theory involving Hazardous Materials or substances which are (or alleged to be) hazardous to human health or the environment, based on nuisance, trespass, negligence, strict liability or other tortious conduct, or any other federal, state or local statute, regulation, rule, policy, or determination pertaining to health, hygiene, the environment or environmental conditions.

Environmental Indemnification Agreement. The term “Environmental Indemnification Agreement” shall mean the Environmental Indemnification Agreement made by Borrower to Lender pursuant to this Original Loan Agreement, as the same has been and may be amended from time to time.

Exchange Company. Resort Condominiums International, Inc. (“RCI”).

Event of Default. The term “Event of Default” shall have the meaning given to such term in Section 8.1 of this Agreement.

Event of Non Funding. The term “Event of Non Funding” shall have the meaning given to such term in Section 2.6 of this Agreement.

Final Maturity Date. The term “Final Maturity Date” shall mean the applicable maturity date of each Loan Component as follows: (i) January 31, 2013 with respect to the Receivable Loan Component and (ii) January 31, 2012 with respect to each of the Acquisition Loan Component and the Inventory Loan Component.

Financial Statements. The tax returns and balance sheets and statements of income and expense of Borrower, and the related notes and schedules delivered by Borrower to Lender prior to the date of this Agreement; as provided for in Section 4.4(c)(xvii) of this Agreement; and the monthly, quarterly and annual financial statements and reports required to be provided to Lender pursuant to Section 7.1(h).

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GAAP. Generally accepted accounting principles, applied on a consistent basis, as described in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board which are applicable in the circumstances as of the date in question.

Hazardous Materials. “Hazardous substances,” “hazardous waste” or “hazardous constituents,” “toxic substances”, or “solid waste”, as defined in the Environmental Laws, and any other contaminant or any material, waste or substance which is petroleum or petroleum based, asbestos, polychlorinated biphenyls, flammable explosives, or radioactive materials.

Interest Rate. The Interest Rate on: (i) the Receivable Note shall be a variable rate, adjusted as of each Prime Rate Determination Date, equal to the Prime Rate, determined as of each Prime Rate Determination Date and (ii) each of the Acquisition Note and the Inventory Note shall be a variable rate, adjusted as of each Prime Rate Determination Rate, equal to the Prime Rate, determined as of each Prime Rate Determination Date, plus one percent (1%) per annum.

Interval. With respect to each Resort the undivided fractional fee interval ownership interest as a tenant-in-common (sometimes referred to in the Timeshare Documents as a vacation ownership interest, condoshare interest, or condoshare week) in a Unit sold to a Purchaser by delivery of a deed for a time-share period per calendar year (or, in the case of a biennial use period, per alternate calendar year) of one week (as defined in the Declaration), together with all appurtenant rights and interests, including, without limitation, appurtenant rights to use Common Elements, and easement, license, access and use rights in and to all Resort facilities and amenities (as described in the Declaration), all as more particularly described in the Declaration or other Timeshare Documents. Notwithstanding the foregoing, the term “Interval” shall also include, with respect to the Oak N’ Spruce Resort only, the beneficial interest in the entity which owns each of the Units at the Oak N’ Spruce Resort, as evidenced by the delivery to the Purchaser of any such beneficial interest of a certificate of beneficial interest for a timeshare period per calendar year (or, in the case of biennial use period, per alternate calendar year) of one week (as defined in the Oak N’ Spruce Resort Declaration), together with all pertinent rights and interests, including, without limitation, a pertinent right to use Common Elements, and easements, license, access and use rights in and to all Oak N’ Spruce Resort facilities and amenities, all as more particularly described in the Declaration or other Timeshare Documents for the Oak N’ Spruce Resort.

Interval Release Threshold. The term “Interval Release Threshold” shall mean 110% of the Required Retail Value of the Inventory. By way of example only, if the Required Retail Value of the Inventory is $66,666,666.66, the Inventory Release Threshold will be $73,333,333.33.

Inventory. The term “Inventory” shall mean the Intervals from Eligible Resorts, fee title to which is held by the Borrower and on which Lender is granted a first mortgage lien to secure Advances of the Inventory Loan Component.

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Inventory Loan Component. The term “Inventory Loan Component” shall mean that certain $40,000,000.00 timeshare interval inventory loan provided by Lender to Borrower pursuant to this Agreement.

Inventory Loan Component Collateral. Collectively, all now owned or hereafter acquired right, title and interest of Borrower, in all of the following:

(i)the Inventory;

(ii)documents, instruments, accounts, chattel paper, and general intangibles relating to the Inventory;

(iii)the Acquisition Loan Component Collateral;

(iv)the Receivable Loan Component Collateral;

(v)the Silverleaf Finance II Stock;

(vi)the Silverleaf Finance II Subordinated Note;

(vii)all books, records, reports, computer tapes, disks and software relating to the Inventory Loan Component Collateral; and

(viii)all extensions, additions, improvements, betterments, renewals, substitutions and replacements of, for or to any of the Inventory Loan Component Collateral, wherever located, together with the products, proceeds, issues, rents and profits thereof, and any replacements, additions or accessions thereto or substitutions thereof.

Inventory Mortgage or Inventory Mortgages. The term “Inventory Mortgage” or “Inventory Mortgages” shall mean, singly and collectively, a properly recorded, first priority mortgage, deed of trust, deed to secure debt, assignment of beneficial interest or other security instrument, as applicable, executed and delivered by Borrower to Lender encumbering all of the right, title and interest of the Borrower in the Intervals and related Common Elements, and related or appurtenant easement, access and use rights and benefits, that is collateral for the Inventory Loan Component.

Inventory Note. The term “Inventory Note” shall have the meaning given to such term in the Recitals.

Lien. Any interest in property securing an obligation owed to, or claim by, a Person other than the owner of such property, whether such interest arises in equity or is based on the common law, statute, or contract.

Loan or Loans. The terms “Loan” and “Loans” mean, as the context requires, singly each loan and collectively all loans made to Borrower prior to the Effective Date pursuant to the Receivable Loan Agreement and the Restated Inventory Loan Agreement and all Loans made to Borrower after the Effective Date under this Agreement.

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Loan Component. The term “Loan Component” shall mean, singly and collectively, the Acquisition Loan Component, the Inventory Loan Component and the Receivable Loan Component.

Loan Documents. Collectively, the following documents and instruments listed below as such agreements, documents, instruments or certificates may be amended, renewed, extended, restated or supplemented from time to time.

(i)This Agreement;

(ii)The Receivable Note;

(iii)The Inventory Note;

(iv)The Acquisition Note;

(v)The Environmental Indemnification Agreement;

(vi)The Assignment of Notes Receivable and Mortgages;

(vii)The Inventory Mortgages;

(viii)The Real Property Mortgages;

(ix)The Modifications to Inventory Mortgages;

(x)Borrower’s Acquisition Certificate and Request for Advance;

(xi)Borrower’s Inventory Certificate and Request for Advance;

(xii)Borrower’s Receivable Certificate and Request for Advance;

(xiii)The Lockbox Agreement;

(xiv)The Custodial Agreement;

(xv)The Silverleaf II Stock and Subordinated Note Pledge Agreement;

(xvi)Financing Statements; UCC financing statements covering the Collateral, to be filed with the Texas Secretary of State and the Secretary of State and/or such other office where UCC financing statements are required to be filed pursuant to the Code; and

(xvii)Other Items; Such other agreements, documents, instruments, certificates and materials as Lender may request to evidence the Obligations; to evidence and perfect the rights and Liens and security interests of Lender, contemplated by the Loan Documents, and to effectuate the transactions contemplated herein, as such agreements, documents, instruments or certificates may be hereafter amended, renewed, extended, restated or supplemented from time to time.

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Loan to Retail Value Ratio. The term “Loan to Retail Value Ratio” shall mean the ratio of the outstanding principal balance of the Inventory Loan Component, from time to time, to the Retail Value of the Inventory. The maximum Loan to Retail Value Ratio shall be 15%.

Loan Year. The period commencing on the Closing Date through the last day of the next full twelve calendar month period and each successive twelve calendar month period thereafter during the Loan Term.

Lockbox Agent. JP Morgan Chase Bank, a New York banking association having a place of business at 2200 Ross Avenue, Dallas, Texas 75201, or such other financial institution as may be approved by Lender in writing from time to time.

Lockbox Agreement. The Lockbox and Servicing Agreement, dated as of December 16, 1999, by and among Borrower, Lender, Servicing Agent and Lockbox Agent, pursuant to which the Lockbox Agent is to provide lockbox, reporting and related services and is to provide for the receipt of payments on the Notes Receivable and the disbursement of such payments to Lender.

Management Agreements. Shall mean that certain Management Agreement by and between Silverleaf Club and Silverleaf Resorts, Inc., dated as of March 28, 1990, as amended to date and any other management agreement entered into by Borrower or any Affiliate of Borrower with respect to any Resort.

Mandatory Prepayment. Any prepayment required by Section 2.5(a)(ii) and Section 2.5(c)(ii) of this Agreement.

Marketing and Sales Expenses. Shall mean all promotion, lead generation, sales commissions and all other marketing expenses incurred or paid by Borrower pursuant to any marketing agreements or otherwise.

Mortgage. A properly recorded, first priority mortgage, deed of trust, deed to secure debt, assignment of beneficial interest or other security instrument, as applicable, executed and delivered by each Purchaser to Borrower, securing a Pledged Note Receivable and encumbering all of the right, title and interest of such Purchaser in the related Encumbered Interval and Common Elements, and related or appurtenant easement, access and use rights and benefits. Lender acknowledges that assignments of beneficial interest executed by Purchasers of Intervals at Oak N’ Spruce Resort after July 2004 will not be recorded.

Modification(s) to Inventory Mortgages. Properly recorded amendment and restatement(s) or modification(s) of any existing Inventory Mortgages, in form and substance reasonably acceptable to Lender, for the purpose of securing the Loan, including the Acquisition Loan Component and the Receivable Loan Component.

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Net Securitization Cash Flow. The term “Net Securitization Cash Flow” shall mean all right, title and interest of Silverleaf Finance II, Inc., a wholly owned subsidiary of Borrower, in any excess cash flow derived from the Notes Receivable sold by Borrower to Silverleaf Finance II, Inc. and then sold by Silverleaf Finance II, Inc. to Textron Financial Corporation, as Group Two Lender under the Silverleaf Finance II Documents.

Note. The term “Note” shall mean, singly and collectively, the Acquisition Note, in the form and substance attached here as Exhibit B-1, the Inventory Note, in the form and substance attached here as Exhibit B-2, and the Receivable Note, in the form and substance attached here as Exhibit B-3, as the case may be.

Note Receivable. A promissory note executed in favor of Borrower in connection with a Purchaser’s acquisition of an Interval.

Obligations. All amounts due or becoming due to Lender in respect of the Loan or Loans under any of the Loan Documents, including principal, interest, prepayment premiums, contributions, taxes, insurance, loan charges, custodial fees, attorneys’ and paralegals’ fees and expenses and other fees or expenses incurred by Lender or advanced to or on behalf of Borrower by Lender pursuant to any of the Loan Documents, and the prompt and complete payment and performance by Borrower of all obligations, indebtedness and liabilities pursuant to this Agreement or any of the Loan Documents or otherwise

Operating Contract or Operating Contracts. As defined in Section 6.20.

Operating Expenses. Shall mean the total of all expenditures, computed in accordance with Generally Accepted Accounting Principles, of whatever kind relating to the ownership, operation, maintenance and management of the Resorts that are incurred on a regular monthly or other periodic basis, including, without limitation, utilities, ordinary and capital repairs and maintenance, insurance premiums, license fees, property taxes and assessments, management fees, payroll and related taxes, computer processing charges, operational equipment or other lease payments as approved by Lender, and other similar costs.

Participant. Participant shall mean, singly and collectively, any bank or other entity, which is indirectly or directly funding Lender with respect to the Loan, in whole or in part, including, without limitation, any direct or indirect assignee of, or participant in, the Loan.

Payment Authorization Agreement. Pre-authorized electronic debit agreement by a Purchaser for payment of a Note Receivable.

Person. An individual, partnership, corporation, limited liability company, trust, unincorporated organization, other entity, or a government or agency or political subdivision thereof.

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Pledged Notes Receivable. Any Note Receivable which at any time has been pledged to Lender by Borrower pursuant to this Agreement or any of the Loan Documents.

Prescribed Laws. The term “Prescribed Laws” shall mean, collectively, (a) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107 56) (the USA PATRIOT Act), (b) Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, and relating to Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism, (c) the International Emergency Economic Power Act, 50 U.S.C. § 1701 et seq., (d) the Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and (d) all other Legal Requirements relating to money laundering or terrorism, and, in each case, any Executive Orders or regulations promulgated under any such laws.

Prime Rate Determination Date. The term “Prime Rate Determination Date” shall mean the first day of each month, provided, however, that if the first day of any month is not a Business Day, than the Prime Rate Determination Date for such month shall be the Business Day immediately preceding the first day of the month in question. Notwithstanding the foregoing, the initial Prime Rate Determination Date shall be the Effective Date.

Prime Rate. The highest prime rate of interest from time to time announced or published in the Money Rates column of the Wall Street Journal (Eastern Edition) (the “WSJ”). In the event that the prime rate established by the WSJ shall no longer be available, due to either the nonexistence of the WSJ or the WSJ’s failure to publish a prime rate, then the Prime Rate shall be the highest prime rate published by a major money center bank selected by Lender.

Property or Properties. Any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible.

Purchase Price. The total purchase price of a timeshare Interval, as set forth in the Timeshare Documents and Note Receivable relating to the purchase of such Interval.

Purchaser. Any Person who purchases one or more Intervals.

Quarterly Financial Report. Individually and collectively, as applicable, the financial reports delivered in accordance with Section 7.1(h)(i).

Real Property. The term “Real Property” shall mean real property, both improved and unimproved, purchased by the Borrower using proceeds of an Advance of the Acquisition Loan Component in accordance with the terms and conditions of this Agreement. “Unimproved” Real Property shall mean either raw land or Real Property that is partially improved. “Improved” Real Property shall mean Real Property that is improved with completed infrastructure and other improvements suitable, in Lender’s sole discretion, for use as a timeshare resort or for timeshare marketing.

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Real Property Mortgages. The term “Real Property Mortgage(s)” shall mean a first priority mortgage, deed of trust, deed to secure debt or other similar instrument granted by Borrower to Lender, to secure each Advance of the Acquisition Loan Component, in the form and substance attached here as Exhibit C and containing such changes and modifications as are necessary to reflect the law of the state in which the Real Property in question is located.

Receivable Loan Component Collateral. Collectively, all now owned or hereafter acquired right, title and interest of Borrower, in all of the following:

(i)Pledged Notes Receivable and all proceeds of or from them;

(ii)Mortgages and all proceeds of or from them;

(iii)documents, instruments, accounts, chattel paper, and general intangibles relating to the Pledged Notes Receivable and the related Mortgages;

(iv)the Inventory Loan Component Collateral;

(v)the Acquisition Loan Component Collateral;

(vi)the Silverleaf Finance II Stock;

(vii)the Silverleaf Finance II Subordinated Note;

(viii)all books, records, reports, computer tapes, discs and software relating to the Receivable Loan Component Collateral; and

(ix)all extensions, additions, improvements, betterments, renewals, substitutions and replacements of, for or to any of the Receivable Loan Component Collateral, wherever located, together with the products, proceeds, issues, rents and profits thereof, and any replacements, additions or accessions thereto or substitutions thereof.

Receivable Note. The term “Receivable Note” shall have the meaning given to such term in the Recitals.

Release Price. The term “Release Price” shall have the meaning ascribed to such term in Section 2.4(b)(ii).

Retail Value. The term “Retail Value” shall mean the fair market value of the Inventory and each Interval constituting part of the Inventory, as determined by Lender in its sole discretion.

Required Retail Value. The term “Required Retail Value” shall mean the aggregate Retail Value of the Inventory, such that the ratio of the outstanding balance of the Loan, from time to time, to the aggregate Retail Value of the Inventory does not exceed the Loan to Retail Value Ratio. By way of example, if the outstanding principal balance of the Inventory Loan Component were $10,000,000, the Required Retail Value of the Inventory will be $66,666,666.66.

Resort or Resorts (also “Eligible Resort” or “Eligible Resorts”). Individually and collectively, as applicable, each or all of the interval ownership and time-share projects consisting of: (i) (A) Holly Lake Ranch, Hawkins, Texas; (B) Piney Shores Resort, Conroe, Texas; (C) Lake O’ The Woods, Flint, Texas; (D) Hill Country Resort, Canyon Lake, Texas; (E) Ozark Mountain Resort, Kimberling City, Missouri; (F) Holiday Hills Resort, Branson, Missouri; (G) Fox River Resort, LaSalle County, Illinois; (H) Timber Creek Resort, Jefferson County, Missouri (I) Oak N’ Spruce Resort, South Lee, Massachusetts; (J) Apple Mountain Resort, Habersham County, Georgia; (K) The Villages, Flint, Texas; (L) Silverleaf’s Seaside Resort, Galveston County, Texas; (M) Orlando Breeze Resort, Polk County, Florida (also sometimes individually and collectively referred to herein as the “Existing Resorts”) and (ii) subject to Lender’s prior written approval and satisfaction by Borrower of the conditions precedent set forth in Sections 3.5 and 4.4 hereof, the Additional Eligible Resorts. The term “Resort” or “Resorts” includes, among other things, the undivided annual or (biennial) timeshare ownership interests (Intervals) in the respective Resorts, and the appurtenant exclusive rights to use Units in one or more buildings or phases and all appurtenant or related properties, amenities, facilities, equipment, appliances, fixtures, easements, licenses, rights and interests, including without limitation, the Common Elements, as established by and more fully defined and described in the respective Declarations, and the other Timeshare Documents.

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Revenues. Shall mean all proceeds from the sale of Intervals, regardless of whether such proceeds are in the form of cash or Notes Receivable.

Revolving Loan Term. Shall mean the period commencing on the Closing Date and ending on January 31, 2010.

Security. Shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended.

Servicing Agent. Lender’s exclusive agent, which shall be such Person or Persons designated by Borrower and approved by Lender in its sole discretion, for the purposes of billing and collecting amounts due on account of the Pledged Notes Receivable, providing reports pursuant to the Lockbox Agreement and performing other servicing functions not performed by the Lockbox Agent.

Silverleaf Club. Shall mean Silverleaf Club, a Texas non-profit corporation.

Silverleaf Finance II Documents. Shall mean the SPV Loan Agreement, the Developer Transfer Agreement, the Demand Notes and all other agreements or documents executed in connection with the TFC Conduit Loan, as each may be amended, restated or otherwise modified from time to time.

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Silverleaf Finance II Stock. Shall mean all equity interests in Silverleaf Finance II, Inc., all documents, certificates or instruments representing any of the foregoing and all cash, securities, dividends, rights and other property at any time received or receivable in respect of or in exchange for the foregoing, and all proceeds of the foregoing.

Silverleaf Finance II Subordinated Note. Shall mean the Subordinated Note, dated as of December 19, 2003, payable by SPV to the order of Silverleaf Resorts, Inc., and any other promissory note issued in replacement or restatement thereof, or otherwise issued to evidence SPV’s obligation to pay the deferred purchase price of Receivables under the Developer Transfer Agreement which is part of the Silverleaf Finance II Documents, in each case as amended or otherwise modified from time to time, and all proceeds of the foregoing.

Silverleaf Finance II Stock and Subordinated Note Pledge Agreement. Shall mean the agreement pursuant to which the Silverleaf Finance II Stock and the Silverleaf Finance II Subordinated Note is pledged to Lender, as security for the Loan.

SPV. Shall mean Silverleaf Finance II, Inc., a Delaware corporation.

SPV Assets. Shall mean all assets sold or conveyed by Borrower to the SPV pursuant to the Silverleaf Finance II Documents.

SPV Subordination Agreement. Shall mean that certain Subordination Agreement relating to Lender’s interest in the Silverleaf Finance II Stock and the Silverleaf Finance II Subordinated Note, dated as of December 19, 2003 by and among Textron Financial Corporation, in its capacity as Lender and in its capacity as lender under the Group Two Documents (as such term is defined in the SPV Subordination Agreement), as may be amended, restated or modified from time to time.

Stock and Subordinated Note Pledge Agreement. Shall mean the agreement pursuant to which all issued and outstanding shares of Silverleaf Finance II, Inc.’s capital stock and all right, title and interest in such shares, all certificates, instruments or other documents evidencing or representing the same and all dividends and distributions therefrom, including dividends and distributions paid in stock (the “Silverleaf Finance II, Inc. Stock”), and the subordinated note evidencing Silverleaf Finance II, Inc.’s obligation to pay the deferred purchase price of the receivables under the Silverleaf Finance II Documents are pledged to Lender, as security for the Loan.

Survey. A plat or survey of the Resorts or the Real Property, as the case may be, prepared by a licensed surveyor acceptable to Lender and in a form acceptable to Lender.

Term. The period beginning on the Closing Date and ending on the applicable Final Maturity Date.

TFC Conduit Loan. Shall mean that certain loan facility provided by Textron Financial Corporation (TFC) to SPV in accordance with the terms of the Silverleaf Finance II Documents.

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Timeshare Act. Any statute, act, regulation, ordinance, rule or law applicable to the establishment and operation of the Resorts and the sales of the Intervals.

Timeshare Documents. Any registration statement required under any Timeshare Act approving the establishment and operation of the Resorts and the sales of Intervals.

Timeshare Owners’ Association. With respect to each Resort, the applicable not-for-profit corporations described on Schedule 1.1(b).

Tangible Net Worth. Tangible Net Worth means, with respect to any Person, the amount calculated in accordance with GAAP as: (i) the consolidated net worth of such Person and its consolidated subsidiaries, minus (ii) the consolidated intangibles of such Person and its consolidated subsidiaries, including, without limitation, goodwill, trademarks, tradenames, copyrights, patents, patent allocations, licenses and rights in any of the foregoing and other items treated as intangible in accordance with GAAP. Notwithstanding the foregoing, if subsequent to the Effective Date deferred sales are no longer considered an asset under GAAP, Lender agrees, at the request of Borrower, to determine, in its reasonable discretion, whether deferred sales should continue to be considered an asset for purposes of determining Borrower’s Tangible Net Worth.

Total Interest Expense. For any period, the aggregate amount of interest required to be paid or accrued by Borrower and its subsidiaries during such period on all indebtedness of Borrower and its subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any capitalized lease, or any synthetic lease and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money.

UCC Financing Statements. The UCC-1 Financing Statements, naming Borrower as debtor and Lender as secured party, heretofore or hereafter filed in connection with the Loans and all amendments thereto.

Unit. With respect to each Resort, one living unit in a building incorporated into the Resort pursuant to the Declaration, together with all related or appurtenant Common Elements and related or appurtenant interests in services, easements and other rights or benefits, as described and provided for in the Declaration, including but not limited to the right to use the Resort amenities and facilities in accordance with the Timeshare Documents.

Section 2-The Loan

2.1Facility Fee. Borrower acknowledges and agrees that the following facility fees shall be due and payable to Lender: (i) with respect to the Receivable Loan Component, a facility fee in the amount of $90,000.00 shall be paid to Lender and (ii) with respect to the Inventory Loan Component and the Acquisition Loan Component, a facility fee of $247,000.00 shall be paid to Lender. Borrower acknowledges, agrees and confirms that Lender has earned each such facility fee notwithstanding whether the Loan or any portion is funded and further agrees that the facility fee shall be payable by Borrower to Lender upon execution of this Agreement by Borrower.

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2.2Revolving Loan and Lending Limits.

(a)Receivable Loan Component:

(i)Revolving Loan. Upon the terms and subject to the conditions set forth in this Agreement, Lender agrees during the Revolving Loan Term to make a loan or loans to Borrower with respect to the Receivable Loan Component, and Borrower may borrow, repay and reborrow during the Revolving Loan Term with respect to the Receivable Loan Component.

(ii)Lending Limits. Subject to Section 2.7 hereof, Borrower acknowledges, agrees and confirms that the obligations of Lender to make Loans under this Agreement to Borrower is limited to the lesser of: (i) the Borrowing Base or (ii) the maximum aggregate Commitment of $100,000,000.00.

(iii)Note Evidencing Borrower’s Obligations. Borrower’s obligations to pay the principal of and interest on the Loan or Loans made by Lender with respect to the Receivable Loan Component shall be evidenced by the Receivable Note to Lender, which Receivable Note shall be dated as of the date hereof and be in the principal amount of $100,000,000.00. The Receivable Note will mature on the Final Maturity Date applicable to the Receivable Loan Component, bear interest as provided in Section 2.3 hereof and be otherwise entitled to the benefits of this Agreement. Notwithstanding the stated principal amount of the Receivable Note, the aggregate outstanding principal amount of the Loan with respect to the Receivable Loan Component at any time shall be the aggregate principal amount owing on the Receivable Note at such time. Lender is hereby authorized to record in its internal books and records the date and amount of each Advance made by Lender to Borrower with respect to the Receivable Loan Component, the interest rate and interest period applicable thereto and each repayment thereof; and such books and records shall, as between Borrower and Lender, absent manifest error, constitute prima facie evidence of the accuracy of the information contained therein. Failure by Lender to so record any Advance made by Lender to Borrower with respect to the Receivable Loan Component, (or any error in such recordation) or any payment thereon shall not affect the Obligations of Borrower under this Agreement or under the Receivable Note and shall not adversely affect Lender’s rights under this Agreement with respect to the repayment thereof.

(iv)Making of Advances. Upon receipt by Lender from Borrower of a written request for Advance with respect to the Receivable Loan Component in accordance with Section 5 hereof and Borrower’s satisfaction of the requirements set forth in Section 5 hereof, Lender shall fund such Advance to Borrower in accordance with Borrower’s written request as provided in Section 5 hereof.

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(b)Inventory Loan Component. Upon the terms and subject to the conditions set forth in this Agreement, including, but not limited to, Section 2.7 hereof, during the Revolving Loan Term the Lender shall make Advances with respect to the Inventory Loan Component to the Borrower, and the Borrower may borrow, repay and in the aggregate reborrow during the Revolving Loan Term, in an amount not to exceed at any time in the aggregate the lesser of: (i) the Loan to Retail Value Ratio of the Required Retail Value of the Inventory or (ii) $40,000,000.00.

(c)Acquisition Loan Component. Upon the terms and subject to the conditions set forth in this Agreement, including but not limited to Section 2.7 hereof, the Lender shall, in its sole and absolute discretion, make Advances with respect to the Acquisition Loan Component to the Borrower, and the Borrower may, subject to Lender’s approval, borrow, repay and reborrow from the Acquisition Loan Component during the Revolving Loan Term in an amount not to exceed at any time the lesser of (i)[A] with respect to unimproved Real Property, 70% of the actual cost paid by Borrower for said Real Property; or [B] with respect to the improved Real Property, 75% of the actual cost paid by Borrower for such Real Property or (ii) $20,000,000.00; provided, however, that the fair market value of any such property, as determined by Lender in its sole discretion based on an acceptable appraisal, shall in each case equal or exceed such actual costs.

2.3Interest Rate. From and after the Effective Date, the aggregate principal amount of all Advances, that are outstanding from time to time, shall bear interest at the applicable Interest Rate. Each Advance shall bear interest at the applicable Interest Rate as of the date of Lender’s wiring of funds to Borrower through the date of Lender’s receipt of repayment of the applicable Loan Component (if received by Lender later than 12 noon, Eastern Standard Time, then interest accrual shall be through the next Business Day following such receipt). Interest will accrue daily, and shall be payable monthly in arrears. Immediately upon the occurrence of an Event of Default and after the Final Maturity Date (if a Loan Component is not paid in full on the applicable Final Maturity Date), at Lender’s election in its sole discretion, the entire Loan will bear interest at the Default Rate.

2.4Payments. From and after the Effective Date, Borrower agrees punctually to pay or cause to be paid to Lender all principal and interest due under each Note in respect of the Loans. Borrower shall make the following payments on the Loan:

(a)Receivable Loan Component:

(i)Monthly Payments. Borrower shall direct or otherwise cause all makers of all Pledged Notes Receivable to pay all monies due thereunder to the lockbox established pursuant to the Lockbox Agreement, or as otherwise required by Lender. One hundred percent (100%) of the cleared funds collected from the Pledged Notes Receivable each week will be paid to Lender by the Lockbox Agent pursuant to the Lockbox Agreement, and will be applied by Lender first to the payment of costs or expenses incurred by Lender pursuant to this Agreement in creating, maintaining, protecting or enforcing the Liens in and to the Collateral and in collecting any amounts due to Lender in connection with the Loan (“Collection Costs”). After payment of Collection Costs, Lender shall apply each such payment in the following order: (i) to any interest accrued at the applicable Default Rate; (ii) then to interest accrued and payable at the applicable Interest Rate; and (iii) then to outstanding principal. In the event that the payments received by Lender are insufficient to pay the Collection Costs and the amounts described in aforementioned clauses (i)-(ii), then Borrower shall pay the difference to Lender on or before the fifth (5th) day of the following month. In the event Borrower receives any payments on any of the Pledged Notes Receivable directly from or on behalf of the maker or makers thereof, Borrower shall receive all such payments in trust for the sole and exclusive benefit of Lender; and Borrower shall deliver to the Lockbox Agent all such payments (in the form so received by Borrower) as and when received by Borrower, unless Lender shall have notified Borrower to deliver directly to Lender all payments in respect of the Pledged Notes Receivable which may be received by Borrower, in which event all such payments (in the form received) shall be endorsed by Borrower to Lender and delivered to Lender promptly upon Borrower’s receipt thereof.

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(ii)Final Payment. The entire outstanding principal amount of the Receivable Loan Component, together with all other Obligations related to the Receivable Loan Component, shall be due and payable on the applicable Final Maturity Date.

(b)Inventory Loan Component.

(i)Monthly Payments. The Borrower shall pay to Lender, on the first day of each month during the Term, commencing on February 1, 2007, interest on the outstanding principal balance of the Inventory Loan Component, from time to time, at the applicable Interest Rate. Lender shall apply each such payment in the following order: (i) to the payment of all costs or expenses incurred by Lender pursuant to this Agreement in creating, maintaining, protecting or enforcing the Liens in and to the Collateral and in collecting any amount due to Lender in connection with the Loan; (ii) to any interest accrued at the Default Rate; (iii) to the payment of accrued and unpaid interest at the applicable Interest Rate; and (iv) to the reduction of the principal balance of the Inventory Loan Component. If the payment received by Lender with respect to any month is insufficient to pay in full all amounts due from Borrower to Lender under this Section 2.4(b)(i), Borrower shall pay the difference to Lender on or before the fifth (5th) day after notice from Lender to Borrower advising Borrower of such insufficiency.

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(ii)Interval Release Price Payments. Prior to the release by Lender of any Interval from the Collateral in accordance with Section 2.9 hereof, the Borrower shall pay to the Lender an amount equal to the greater of: (i) $1,600 for each such Interval, or (ii) an amount necessary to fully repay the Loan upon sale of 75% of the Inventory (the “Release Price”), which payment shall be applied by Lender in accordance with Section 2.4(b)(i); provided, however, that if the Retail Value of the Inventory, as determined by the Lender, is equal to or greater than the Interval Release Threshold, the Borrower shall not be required to pay a Release Payment with respect to the release of any Interval until the expiration of the Revolving Loan Term.

(iii)Final Payment. The entire outstanding principal amount of the Inventory Loan Component, together with all other Obligations related to shall be paid in full by not later than the applicable Final Maturity Date.

(c)Acquisition Loan Component.

(i)Monthly Payments. The Borrower shall pay to Lender, on the first day of each month during the Term, commencing on February 1, 2007, interest on the outstanding principal balance of the Acquisition Loan Component, from time to time, at the applicable Interest Rate. If an Advance of the Acquisition Loan Component is not repaid within the earlier of (i) two years from the date of such Advance or (ii) the expiration of the Revolving Loan Term, then the remaining principal balance of such Advance will be repaid in equal monthly payments of principal over a three year period, together with interest thereon at the applicable Interest Rate, provided however, that if such three year period would extend beyond the applicable Final Maturity Date, such equal monthly payments, together with interest thereon at the applicable Interest Rate, will be adjusted so that such Advance is paid in full on or before the applicable Final Maturity Date. Lender shall apply each such payment in the following order: (i) to the payment of all costs or expenses incurred by Lender pursuant to this Agreement in creating, maintaining, protecting or enforcing the Liens in and to the Collateral and in collecting any amount due to Lender in connection with the Loan; (ii) to any interest accrued at the Default Rate; (iii) to the payment of accrued and unpaid interest at the applicable Interest Rate; and (iv) to the reduction of the principal balance of the Acquisition Loan Component. If the payment received by Lender with respect to any month is insufficient to pay in full all amounts due from Borrower to Lender under this Section 2.4(c), Borrower shall pay the difference to Lender on or before the fifth (5th) day after notice from Lender to Borrower advising Borrower of such insufficiency.

(ii)Final Payment. The entire outstanding principal amount of the Acquisition Loan Component together with all other Obligations shall be paid in full by not later than the applicable Final Maturity Date.

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2.5Prepayments.

(a)Receivable Loan Component.

(i)Voluntary Prepayments. Except for regular payments of interest and principal as provided hereunder, prepayments, (i) shall not be permitted during the Revolving Loan Term, and (ii) may be made, subject to Section 2.6 hereof, in whole, but not in part, upon five (5) days prior written notice to the Lender at any time after the end of the Revolving Loan Term upon payment of the applicable Prepayment Premium (whether such prepayment results from voluntary payments by Borrower, acceleration, or otherwise); provided, however, that (A) payments or prepayments of Pledged Notes Receivable made by Purchasers who are not directly or indirectly solicited by Borrower to make such prepayment shall not violate this Section 2.5(a)(i), and no Prepayment Premium shall be payable as a result of any such payment by Purchasers; and (B) if at any time the Borrower wishes to release any Pledged Notes Receivable for the purpose of including those Pledged Notes Receivable in a securitization, pooling or similar conduit transaction, and after 30 days’ prior written notice to Lender, Borrower may prepay the principal balance of the Loan in whole or in part, to the extent necessary to cause the then current outstanding unpaid principal balance of the Loan to be equal to or less than the Borrowing Base, and, except as provided in Section 2.6 hereof, no Prepayment Premium will be due where such prepayment is the result of a securitization closing, as certified by Borrower to Lender. If Borrower voluntarily prepays the entire Receivables Loan Component, then Borrower shall pay to Lender the fee described in Section 2.6 hereof, shall no longer be entitled to Advances of the Acquisition Loan Component or the Inventory Loan Component and the outstanding principal balance under the Inventory Loan Component and the Acquisition Loan Component shall be repaid as provided in this Section 2.5(a)(i).

(ii)Mandatory Prepayments.

(1)Overadvances. If at any time the outstanding principal balance of the Receivable Loan Component exceeds the Borrowing Base or the applicable maximum aggregate Commitment, Borrower shall, within five (5) Business Days after notice, either (A) prepay the Loan in an amount necessary to reduce the outstanding principal balance of the Loan with respect to the Receivable Loan Component to an amount within the lending limits set forth in Section 2.2(a)(ii), or (B) pledge and deliver to Lender such additional or replacement Eligible Notes Receivable such that the remaining outstanding principal balance of the Loan is within the lending limits set forth in Section 2.2(a)(ii).

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(2)Ineligible Pledged Notes Receivable. If at any time after the expiration of the Revolving Loan Term, Lender determines that any Pledged Notes Receivable which are included in the Borrowing Base, do not qualify as Eligible Notes Receivable (“Ineligible Notes Receivable”), then Borrower shall, within five (5) Business Days after notice, either (A) prepay the Loan in an amount equal to the balance due under such Pledged Note Receivable, or (B) replace the Ineligible Note Receivable with an Eligible Note Receivable having an outstanding aggregate principal balance equal to or in excess of the outstanding principal balance of such Ineligible Note Receivable. The pledge and delivery to Lender of additional Eligible Notes Receivable shall comply with the document delivery and recordation requirements set forth in Section 5.1 of this Agreement.

(3)No Prepayment Premium. No Prepayment Premium shall be due in connection with any mandatory prepayment made in accordance with Sections 2.5(a)(ii)(1) or 2.5(a)(ii)(2) above.

(iii)Prepayment Premium. Except as specifically set forth in Section 2.5(a)(i) above, any prepayment of the Loan pursuant to Section 2.5(a)(i) above must be accompanied by a prepayment premium (the “Prepayment Premium”) calculated, as of immediately prior to such prepayment, as follows:

Date of Prepayment	Premium
During the first Loan Year after the expiration of the Revolving Loan Term;	three percent (3%) of the then outstanding balance of the Loan;
During the second Loan Year after the expiration of the Revolving Loan Term;	two percent (2%) of the then outstanding balance of the Loan;
During the third Loan Year after the expiration of the Revolving Loan Term;	one percent (1%) of the then outstanding balance of the Loan;
Thereafter	Zero

(iv)Prepayment Premium upon Acceleration. If the Loan is accelerated based on an Event of Default prior to the expiration of the Revolving Loan Term, or if Borrower undertakes a voluntary prepayment prior to expiration of the Revolving Loan Term, at Lender’s sole discretion, payments on the Loan must include the Prepayment Premium that would be applicable if prepayment occurred in the first Loan Year after the expiration of the Revolving Loan Term.

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(b)Acquisition Loan Component. The Acquisition Loan Component may be repaid in full or in part at any time including by a payment from an Advance of the Inventory Loan Component or the Receivable Loan Component. Borrower acknowledges, confirms and agrees that if there is sufficient availability under the Inventory Loan Component and the Receivable Loan Component, Borrower agrees that repayment of the Acquisition Loan Component shall be made first from an Advance of the Inventory Loan Component to the extent that there is availability under the Inventory Loan Component and then from availability under the Receivable Loan Component. Borrower further acknowledges, confirms and agrees that it shall not repay the Acquisition Loan Component from any other source while Borrower has availability to borrow under the Inventory Loan Component and/or the Receivable Loan Component.

(c)Inventory Component.

(i)Voluntary Prepayments. Borrower may not voluntarily prepay the Inventory Loan Component, in whole or in part, except that: (i) provided that no Event of Default shall have occurred and be continuing and (ii) Borrower pays the Release Price in accordance with Section 2.4(b)(ii) hereof, then at any time during the Term of the Loan, the Inventory Loan Component may be prepaid in part in connection with any prepayment which arises from release of any Interval from the Collateral, subject to Section 2.9 hereof, provided, however, that so long as any prepayment is not made with the proceeds of a financing provided to Borrower by any other lender or financial institution (other than a securitization or bond offering), Borrower may prepay the Inventory Component in part so long as the Inventory Loan Component is not paid in full and this Agreement has not been terminated.

(ii)Mandatory Prepayments.If at any time and for any reason, the outstanding unpaid principal balance of the Inventory Loan Component shall exceed the amount which satisfies the Loan to Retail Value Ratio, then, within five (5) Business Days following Borrower’s receipt of telecopied notice from Lender of the occurrence of such excess or, absent such telecopied notice, within fifteen (15) days after the end of the calendar month in which such excess occurred, Borrower shall either: (x) prepay the principal balance of the Inventory Loan Component in an amount equal to the difference between the aggregate principal amount of the Inventory Loan Component and the amount necessary to comply with the Loan to Retail Value Ratio of the Inventory or (y) Borrower shall grant to Lender a first mortgage Lien on additional Intervals from Eligible Resorts so that the Retail Value of the Inventory, including such additional Intervals, equals or exceeds the Required Retail Value of the Inventory and the Loan to Retail Value Ratio is satisfied. In granting to Lender a first mortgage lien on such additional Intervals, Borrower shall comply with the document delivery and recordation requirements set forth in Section 4 of this Agreement and Borrower shall deliver to Lender its written certification that the Retail Value of the Inventory, including such additional Intervals, is equal to or greater than the Required Retail Value and satisfies the Loan to Retail Value Ratio. If Borrower elects to prepay the excess principal balance of the Inventory Loan Component pursuant to this Section (ii) above, no prepayment premium shall be payable in connection with such prepayment.

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(iii)Premiums. Notwithstanding anything herein contained to the contrary, any prepayment under this Section 2.5(c) must include all accrued but unpaid interest, and accrued but unpaid contributions, taxes, insurance, loan charges custodial fees, attorneys’ and paralegals’ fees and expenses, and other fees or expenses incurred by Lender or advanced to or on behalf of Borrower by Lender pursuant to any of the Loan Documents accrued but unpaid.

2.6Loan Component Ratio. Borrower shall maintain, at all times during the term of the Loan, a ratio between the outstanding principal balance of the Receivable Loan Component and the aggregate outstanding principal balances of the Acquisition Loan Component and the Inventory Loan Component of 1 to 1 for the trailing 6 month period computed monthly. If the 1 to 1 ratio is not maintained for any such six month period, and during that same period, the outstanding principal balance of the Receivable Loan Component is less than $40,000,000, Borrower shall pay Lender a fee equal to ¼% of the difference between the outstanding principal balance of the Receivable Loan Component and $40,000,000. Furthermore, if either: (i) the ratio between the outstanding principal balance of the Receivable Loan Component and the aggregate outstanding principal balances of the Acquisition Loan Component and the Inventory Loan Component shall be less than .5 to 1 or (ii) the ratio between the outstanding principal balance of the Receivable Loan Component and the outstanding principal balance of the Acquisition Loan Component shall be less than 1 to 1 (each an “Event of Non Funding”), then Lender shall not be obligated to loan nor shall Borrower be entitled to borrow any Advance of the Inventory Loan Component or the Acquisition Loan Component.

2.7Maximum Obligation of Textron Financial Corporation Under the Loan. Borrower acknowledges, agrees and confirms as follows: (i) notwithstanding anything to the contrary in Section 2.2(c) hereof Lender shall not be obligated to make an Advance of the Acquisition Loan Component in excess of $15,000,000.00 with respect to any single Real Property; (ii) notwithstanding anything to the contrary in Section 2.2(b) and 2.2(c) hereof, the aggregate principal balance of the Acquisition Loan Component and the Inventory Loan Component shall not exceed $40,000,000.00; and (iii) notwithstanding anything to the contrary herein, in any other Loan Document or in any document evidencing or securing the Receivable Loan Component, the Inventory Loan Component and/or the Acquisition Loan Component, Lender shall not be obligated to fund any Advance hereunder, which when taken together with the loans or advances made by Lender to Borrower under this Agreement, the Receivable Loan Agreement and/or the Restated Inventory Loan Agreement would cause the aggregate amount of such loans and advances by Lender to Borrower to exceed a maximum aggregate amount of $100,000,000.00.

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2.8Suspension of Advances.

(a)Suspension of Sales. If any stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction shall be issued limiting or otherwise materially adversely affecting any Interval sales activities, other business operations in respect of the Resorts, or the enforcement of the remedies of Lender hereunder, then, in such event, Lender shall have no obligation to make any Advances hereunder: (i) in respect of Pledged Notes Receivable from the sale of Intervals which are the subject of any stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction has been issued until the stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction has been lifted or released to the satisfaction of Lender and (ii) in respect of Pledged Notes Receivable from the sale of Intervals at any Resort if: (x) the stay, order, cease and desist order, injunction, temporary restraining order or similar judicial or nonjudicial sanction in question has not been lifted or released to the satisfaction of Lender within sixty (60) days of its issuance and (y) there is a reduction in the total number of sales of Intervals by Borrower in any Loan Year of more than twenty percent (20%) from the total number of sales of Intervals in the immediately preceding Loan Year.

(b)Change in Control. If there shall occur a change, singly or in the aggregate, of more than fifty percent (50%) of the executive management of Borrower as described in Schedule 2.8(b) hereto, Lender shall have no obligation to make any Advances hereunder, unless within thirty (30) days prior thereto Borrower provides Lender with written information setting forth the replacement executive management personnel of Borrower together with a description of those Persons’ experience, ability and reputation, and Lender, acting in good faith, determines that the replacement management personnel’s experience, ability and reputation is equal to or greater than that of Borrower as set forth on Schedule 2.8(b). Lender shall have no obligation to make any Advances hereunder if more than two (2) of the five (5) Board of Directors’ positions are controlled by the Borrower’s bond holders.

2.9Release of Intervals from Inventory. Upon written request of the Borrower, and provided that no Event of Default shall have occurred and be continuing hereunder, Lender shall release from the Collateral, one or more Intervals subject to the following conditions: (i) payment by Borrower to Lender at the time of such release of the Release Price for each such Interval and (ii) the remaining Inventory Loan Component Collateral satisfies the Required Retail Value.

2.10Intentionally Omitted

2.11Partial Release of Real Property Mortgages. From time to time, Lender agrees to consider, at its sole discretion, requests from Borrower for a partial release of the lien of any Real Property Mortgage. Such release shall be subject to such terms and conditions as Lender may impose in its sole discretion.

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Section 3-Collateral

3.1Grant of Security Interest.

(a)To secure the payment and performance of the Obligations with respect to each Loan Component, for value received, Borrower unconditionally and irrevocably assigns, mortgages, conveys, transfers, pledges and grants to Lender:

(i)with respect to the Receivable Loan Component, the Receivable Loan Component Collateral;

(ii)with respect to the Acquisition Loan Component, the Acquisition Loan Component Collateral; and

(iii)with respect to the Inventory Loan Component, the Inventory Loan Component Collateral.

3.2Financing Statements. Borrower agrees, at its own expense, to execute the financing statements, continuation statements and amendments provided for by the Code together with any and all other instruments or documents and take such other action as may be required to perfect and to continue the perfection of Lender’s security interests in the Collateral. Borrower hereby authorizes Lender to execute and/or file on Borrower’s behalf any such financing statements, continuation statements and amendments.

3.3Insurance. Insurance coverage with respect to the Resort(s) is provided by the Silverleaf Club. Borrower shall furnish Lender, upon request, with satisfactory evidence that the Units, Buildings and Resorts are adequately insured. Such insurance coverage shall insure against such risks, be in such amounts, with such companies and on such other terms as Lender may reasonably require. Each such policy shall name Lender as an additional insured and loss payee, as its interests may appear. Borrower shall also maintain insurance in accordance with Section 7.1(d) hereof.

3.4Protection of Collateral; Reimbursement. The portion of the Collateral consisting of: (i) the original Pledged Notes Receivable, (ii) the original Mortgages, (iii) the original purchase contracts (including addendum) related to such Pledged Notes Receivable and Mortgages, and (iv) originals or true copies of the related truth-in-lending disclosure, loan application, warranty deed, and if required by Lender, the related Purchaser’s acknowledgement receipt and the Exchange Company application and disclosures, shall be delivered at Borrower’s expense to the Custodian, and held in Custodian’s possession and control pursuant to the Custodial Agreement. All fees and costs arising under the Custodial Agreement shall be borne and paid by Borrower; and if Borrower fails to promptly pay any portion thereof when due, Lender may, at its option, but shall not be required to, pay the same and charge Borrower’s account therefor, and Borrower agrees promptly to reimburse Lender therefor with interest accruing thereon daily at the Default Rate. All sums so paid or incurred by Lender for any of the foregoing and any and all other sums for which Borrower may become liable hereunder and all costs and expenses (including attorneys’ and paralegals’ fees, legal expenses and court costs) which Lender may incur in enforcing or protecting its Lien on, or rights and interest in, the Collateral or any of its rights or remedies under this Agreement or any other Loan Document or with respect to any of the transactions hereunder or thereunder, until paid by Borrower to Lender with interest at the Default Rate, shall be included among the Obligations, and, as such, shall be secured by all of the Collateral. Lender shall not be liable or responsible in any way for the safekeeping of any of the Collateral or for any loss or damage thereto or for any diminution in the value thereof, or for any act or default of the Custodian, Lockbox Agent, or Servicing Agent or any warehouseman, carrier, forwarding agency, or other Person whomsoever.

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3.5Additional Eligible Resorts. From time to time during the Term, Borrower may propose to Lender that one or more additional time-share plans and projects owned and operated by Borrower be included among the Eligible Resorts in respect of which Advances may be made. Any such proposal will be in writing, and will be accompanied or supported by the due diligence and supporting Borrower, Affiliate, project, financial and related information identified in Section 4.4 hereto, and such other information as Lender may require. Borrower will reasonably cooperate with Lender’s underwriting and due diligence, and Borrower will be responsible for payment upon billing for Lender’s out-of-pocket expenses in connection therewith. Subject to Lender’s underwriting and due diligence review, including satisfaction of the conditions in Section 4 and Section 5 hereof as they relate to such additional time-share resorts, Lender may, but shall not be required to, approve one or more such additional time-share resorts, including future phases or condominiums in an Existing Eligible Resort, as an Eligible Resort qualifying for Advances under and subject to the terms of this Agreement and the other Loan Documents.

Subject in each instance to Lender’s underwriting and due diligence review, and Lender’s prior written approval, any project as may be approved by Lender after the Closing Date, if any, is hereinafter referred to as an “Additional Eligible Resort”. Any Advances hereunder with respect to any Additional Eligible Resort will be subject to all terms and conditions of this Agreement and the other Loan Documents.

3.6Modification of Eligible Notes Receivable. Notwithstanding anything herein to the contrary, Borrower shall have the right to modify the interest rate and term only of the Eligible Notes Receivable without Lender’s prior consent, provided that: (i) any such change in the rate of interest on any one or more Eligible Notes Receivable shall not reduce the average interest rate on all Eligible Notes Receivable to less than twelve and one half percent (12 ½%) per annum at any time; (ii) the term of no Eligible Notes Receivable shall be increased to a term longer than one hundred twenty (120) months from the date of the first required monthly payment of such Eligible Note Receivable, except that with respect to any Eligible Note Receivable in respect of which one or more monthly payments have been deferred, the term of such Eligible Note Receivable may be extended one month for each such deferred payment provided, however, that in no event shall the term of such Eligible Note Receivable be increased to a term longer than one hundred twenty eight (128) months from the date of the first required monthly payment of such Eligible Note Receivable; (iii) at no time may Borrower so modify the terms of Eligible Notes Receivable constituting more than fifteen percent (15%) of the outstanding principal balance of all Eligible Notes Receivable at any time. Solely for purposes of calculating the foregoing fifteen percent (15%) limit, an Eligible Note Receivable shall not be considered “to have been modified” if the Purchaser in respect of such note: (y) has made at least a ten percent (10%) down payment on the Interval and (z) has made at least six (6) monthly payments, with at least four (4) payments being made after the date the note was modified; (iv) Borrower immediately provides Lender with notice of any such modification together with any original documentation evidencing such modification and (v) no Eligible Note Receivable is modified more than once in any twelve (12) month period or more than twice during the term of such Eligible Note Receivable.

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3.7Assumption of Obligations under Eligible Notes Receivable. Notwithstanding anything herein to the contrary, upon the sale by a Purchaser of an Interval, the new Purchaser of the Interval may be substituted as obligor under the Eligible Note Receivable in question, provided that: (i) said new Purchaser assumes in writing all of the obligations of the original obligor under the Eligible Note Receivable in question; (ii) the Eligible Note Receivable continues to meet all of the criteria for an Eligible Note Receivable as set forth herein and (iii) the new Purchaser has made a cash down payment equal to at least 10% of the original sales price of the Interval in question, which down payment shall be in addition to the cash down payment made by the original obligor.

3.8Purchaser/Criteria. All Eligible Notes Receivable pledged as Collateral will be underwritten in a manner consistent with the Borrower’s general underwriting criteria, as approved in writing by Lender, including, without limitation, the requirement for a cash down payment of at least 15% of the sales price of the Interval for any Purchaser with a FICO indicator less than 600. Borrower shall not materially alter its general underwriting criteria without the prior written approval of Lender, which approval, Lender may withhold in its sole discretion. On a semi-annual basis, Borrower shall provide Lender with written certification that the underwriting criteria as approved by Lender remain in full force and effect and have not been revised or altered without Lender’s consent.

3.9Substitution of Inventory. Lender agrees that Borrower may, from time to time during the Term hereof, replace any Interval or Intervals by granting to Lender a first mortgage Lien on a new Interval or Intervals owned by the Borrower at an Eligible Resort. In granting to Lender a first mortgage Lien on any such new Interval or Intervals, Borrower shall comply with the document delivery and recordation requirements set forth in Section 4 of this Agreement and Borrower shall deliver to Lender its written certification that the Retail Value of the Inventory after any such substitution, is equal to or greater than the Required Retail Value and satisfies the Loan to Value Ratio. In connection with any such replacement of Inventory under this Section 3.9 or Section 2.5(c)(i) hereof, Borrower may propose to Lender that one or more additional time-share plans and projects owned and operated by Borrower be included among the Eligible Resorts . Any such proposal will be in writing, and will be accompanied or supported by the due diligence and supporting Borrower, Affiliate, project, financial and related information identified in Section 4 hereto, and such other information as Lender may require. Borrower will reasonably cooperate with Lender’s underwriting and due diligence, and Borrower will be responsible for payment upon billing for Lender’s out-of-pocket expenses in connection therewith. Subject to Lender’s satisfactory underwriting and due diligence review, including satisfaction of the conditions in Section 4 and Section 5 hereof as they relate to such additional time-share resorts, Lender may, but shall not be required to, approve one or more such additional time-share resorts, including future phases or condominiums in an Existing Eligible Resort, as an Eligible Resort. Subject in each instance to Lender’s acceptable underwriting and due diligence review, and Lender’s prior written approval, any project as may be approved by Lender after the Closing Date, if any, is hereinafter referred to singly as an “Additional Eligible Resort” and collectively as the “Additional Eligible Resorts.”

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3.10Cross Collateralization. The Collateral secures all of the Obligations of Borrower under this Agreement. Upon repayment of any Loan Component and the satisfaction by Borrower of all of the Obligations with respect to any Loan Component, the Collateral shall continue to secure the remaining Loan Components to the extent outstanding as provided herein.

3.11Security Interest in All Pledged Notes Receivable. Lender shall have a continuing security interest in all of the Pledged Notes Receivable, and Lender may collect all payments made under or in respect of all such Notes Receivable, including, without limitation, Eligible Notes Receivable that are or may become ineligible, until any of the same may be released by Lender, if at all, pursuant to Section 12.10 hereof or Section 7.2(a) hereof. Notwithstanding anything heretofore to the contrary, unless and until an Event of Default shall occur, Borrower, as agent for and on behalf of Lender, shall retain possession of and collect all payments under or in respect of all Notes Receivable. By executing this Agreement, Borrower acknowledges and agrees that it is holding such Notes Receivable as bailee and agent for Lender. Borrower shall hold and designate such Notes Receivable in a manner that clearly indicates that they are being held by Borrower as bailee on behalf of Lender.

3.12The Modification to Inventory Mortgages. If requested by Lender in order to fully secure the Obligations arising under this Agreement, including, without limitation, the Obligations arising with respect to the Acquisition Loan Component, Borrower shall execute and deliver to Lender, in form and substance reasonably acceptable to Lender, the Modifications to Inventory Mortgages.

Section 4-Conditions Precedent To The Closing

4.1Conditions Precedent. The obligation of Lender under this Agreement and the obligation to fund any Advance, including the initial Advance, hereunder shall be subject to the satisfaction of each of the following conditions precedent, in addition to all of the conditions precedent set forth elsewhere in the Loan Documents:

(a)Representations, Warranties, Covenants and Agreements. The representations and warranties contained in the Loan Documents are and shall be true and correct in all respects, and all covenants and agreements have been complied with and are correct in all respects, and all covenants and agreements to have been complied with and performed by Borrower shall have been fully complied with and performed to the satisfaction of Lender.

(b)No Prohibited Acts. Borrower shall not have taken any action or permitted any condition to exist which would have been prohibited by any provision of this Agreement or the Loan Documents.

(c)No Changes. That all information and documents heretofore delivered by Borrower to Lender with respect to Borrower or the Existing Resorts, including information and documents delivered in connection with the Original Loan and the Inventory Loan, remain true and correct in all respects.

(d)Approval of Documents Prior to Effective Date. Borrower has delivered to Lender (with copies to Lender’s counsel), and Lender has reviewed and approved the form and content of all of the items specified in Subsection 4.1(d)(i) through 4.1(d)(v) below (the “Submissions”). Lender shall have the right to review and approve any changes to the form of any of the Submissions. If Lender disapproves of any changes to any of the Submissions, Lender shall have the right to require Borrower either to cure or correct the defect objected to by Lender or to elect not to fund the Loan or any Advance. Under no circumstances shall Lender’s failure to approve or disapprove a change to any of the Submissions be deemed to be an approval of such Submissions. All of the Submissions were and shall be prepared at Borrower’s sole cost and expense, unless expressly stated to be an obligation and expense of Lender. Lender shall have the right of prior approval of any Person responsible for preparing a Submission (“Preparer”) and may disapprove any Preparer in its sole discretion, for any reason, including without limitation, that Lender believes that the experience, skill, reputation or other aspect of the Preparer is unsatisfactory in any respect. All Submissions required pursuant to this Agreement shall be addressed to Lender and include the following language: “THE UNDERSIGNED ACKNOWLEDGES THAT TEXTRON FINANCIAL CORPORATION IS RELYING ON THE WITHIN INFORMATION IN CONNECTION WITH ITS DETERMINATION TO MAKE A LOAN TO SILVERLEAF RESORTS, INC. IN CONNECTION WITH THE SUBJECT COLLATERAL.”

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(i)a certificate to be dated as of the Effective Date and signed by the president, vice president, or secretary of Borrower, certifying that the conditions specified in Sections 4.1(a), 4.1(b) and 4.1(c) above are true;

(ii)copies of any amendments to the articles of incorporation of Borrower not previously delivered to Lender, certified to be true and complete by Borrower and the Secretary of State of the State of Texas and a current certificate of good standing for Borrower, and copies of any amendments to the by-laws of Borrower not previously delivered to Lender, certified to be true, correct and complete by the secretary or assistant secretary of Borrower;

(iii)a certificate of the Secretary of Borrower certifying the adoption by the Board of Directors of Borrower of a resolution authorizing Borrower to enter into and execute this Agreement, the Notes, and the other Loan Documents, to borrow the Loan from Lender, and to grant to Lender a first priority security interest in and to the Collateral;

(iv)a certificate of the secretary or assistant secretary of Borrower certifying the incumbency, and verifying the authenticity of the signatures, of the specified officers of Borrower authorized to sign this Agreement, the Notes and the other Loan Documents; and

(v)copies or other evidence of all loans to Borrower from any officers, shareholders, or Affiliates of Borrower not previously delivered to Lender.

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(e)Execution and Delivery of Loan Documents. Borrower shall have delivered to Lender, on or before the Closing Date, the following Loan Documents, each of which when required, shall be in recordable form:

(i)This Agreement;

(ii)Closing Opinions for Borrower;

(iii)Receivable Note;

(iv)Acquisition Note;

(v)Inventory Note;

(vi)Environmental Indemnification Agreement;

(vii)Other Items. Such other agreements, documents, instruments, certificates and materials as Lender may request to evidence the Obligations; to evidence and perfect the rights and Liens and security interests of Lender contemplated by the Loan Documents, and to effectuate the transactions contemplated herein.

(f)Effective Date Conditions. On or before the Effective Date, the following conditions shall be satisfied:

(i)Outstanding Balance. The Lender’s maximum aggregate Commitment shall be greater than the then aggregate outstanding balance under the Receivable Loan Agreement and the Restated Inventory Loan Agreement.

(ii)UCC Search. Lender shall have obtained, at Borrower’s cost, such searches of the applicable public records as it deems necessary under Texas, and other applicable law to verify that it has a first and prior perfected Lien and security interest covering all of the Collateral. Lender shall not be obligated to fund any Advance if Lender determines that Lender does not have a first and prior perfected lien and security interest covering any portion of the Collateral, except as expressly provided herein.

(iii)Litigation Search. Lender shall have obtained, at Borrower’s cost, an independent search to verify that there are no bankruptcy, foreclosure actions or other material litigation or judgments pending or outstanding against the Resorts, any portion of the Collateral, Borrower, or any Affiliates of Borrower (each a “Material Party”). The term “other material litigation” as used herein shall not include matters in which (i) a Material Party is plaintiff and no counterclaim is pending or (ii) which Lender determines in its sole discretion exercised in good faith, are immaterial due to settlement, insurance coverage, frivolity, or amount or nature of claim. Lender shall not be obligated to fund any Advance if Lender determines that any such litigation is pending.

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(iv)Counsel Opinion Regarding Title Insurance Policies. Borrower shall deliver to Lender, an opinion or opinions of counsel in a form acceptable to Lender in Lender’s sole discretion, confirming that: (1) each Lien on the Encumbered Intervals from the Resorts in Texas, including: (i) Holly Lake Ranch, Hawkins, Texas; (ii) Piney Shores Resort, Conroe, Texas; (iii) Lake O’ The Woods, Flint, Texas; (iv) Hill Country Resort, Canyon Lake, Texas; (v) The Villages, Flint, Texas; and (vi) Silverleaf’s Seaside Resort, Galveston County, that is perfected by an Inventory Mortgage, will retain the priority interest afforded by the original recording of the Inventory Mortgages notwithstanding the recording of the modification to the Inventory Mortgage required under Section 3.12 hereof; and (2) the modification of the Inventory Mortgages as provided herein will not impair the coverage afforded by the mortgagee’s title insurance policies previously issued in connection with the execution and recordation of the Inventory Mortgages, and those policies remain in full force and effect.

(v)Insurance. Evidence that Borrower is maintaining all policies of insurance required by and in accordance with Section 7.1(d) hereof, including copies of the most current paid insurance premium invoices;

(vi)Governmental Permits. To the extent not previously delivered to Lender, copies of all applicable government permits, approvals, consents, licenses and certificates with respect to the use and operation of the Resorts;

(vii)Taxes. Evidence satisfactory to Lender that all taxes and assessments owed by or for which Borrower is responsible for collection had been paid with respect to the Resorts and the Collateral, including but not limited to sales taxes, room occupancy taxes, payroll taxes, personal property taxes, excise taxes, intangible taxes, real property taxes and any assessments related to the resorts or the Collateral. Copies of the most current tax bills for the Resorts shall be provided to Lender;

(viii)Title Insurance Policies. Within 90 days after the Closing Date the Borrower shall deliver to Lender, with respect to each parcel of real property comprising the Inventory from the Resorts in Missouri, Florida, Illinois and Georgia, including: (i) Ozark Mountain Resort, Kimberling City, Missouri; (ii) Holiday Hills Resort, Branson, Missouri; (iii) Timber Creek Resort, Jefferson County, Missouri; (iv) Fox River Resort, LaSalle County, Illinois; (v) Orlando Breeze and (vi) Apple Mountain Resort, Habersham County, Georgia; a new mortgagee’s title insurance policy (the “Inventory Title Policy” or an endorsement to the existing mortgagee’s title insurance policy updating each applicable policy previously issued with respect to the Inventory through the date that the modifications required under Section 4.1(f)(ix) hereof are duly recorded in the applicable land records for each state in which the Inventory is located (the “Inventory Title Endorsement”). If an Inventory Title Policy is obtained, each such Inventory Title Policy shall: (i) be in an amount equal to the full amount required for such title insurance under the Inventory Loan; (ii) insure the Inventory Mortgages as modified in accordance with Section 3.12 hereof; and (iii) be issued by companies and in form and substance satisfactory to Lender in its sole discretion. If an Inventory Title Endorsement is obtained, each such Inventory Title Endorsement shall: (i) insure that the modification of the Inventory Mortgages as provided herein will not impair the coverage afforded by endorsed title insurance policies, and that those policies remain in full force and effect; (ii) insure that the modification of the Inventory Mortgages as provided herein will not impair the lien of the insured mortgage; and (iii) be issued by companies and in form and substance satisfactory to Lender in its sole discretion. Borrower shall be responsible for the payment of all costs and expenses of the foregoing Inventory Title Policy and/or Endorsement.

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(ix)Recording of Modifications to Inventory Mortgages. The Modifications to Inventory Mortgages, in the form and substance attached here as Exhibit D, shall be duly recorded in the applicable land records for each state in which the Inventory is located.

4.2Expenses. Borrower shall have paid all fees and expenses required to be paid pursuant to this Agreement. Lender shall have no obligation to fund any Loan or make any Advance unless the amount of the Advance, together with any moneys paid by Borrower, is sufficient to satisfy all fees and expenses required to be paid pursuant to this Agreement.

4.3Proceedings Satisfactory. Except as expressly provided herein, Borrower shall execute all of the Loan Documents approved by Lender on the Closing Date, and all actions taken in connection with the execution or delivery of the Loan Documents, and all documents and papers relating thereto, shall be satisfactory to Lender and its counsel. Lender and its counsel shall have received copies of such documents and papers as Lender or such counsel may reasonably request in connection therewith, all in form and substance satisfactory to Lender and its counsel.

4.4Conditions Precedent to Funding of Advances with Respect to Additional Eligible Resorts. As provided in Section 3.5 hereof, Borrower may propose to Lender that Lender approve one or more additional timeshare plans for inclusion hereunder as an Additional Eligible Resort in respect of which Advances may be made. The obligation of Lender to fund any Advances with respect to an Additional Eligible Resort shall be subject to the satisfaction of each of the following conditions precedent, in addition to all of the conditions precedent set forth elsewhere in the Loan Documents:

(a)Representations, Warranties, Covenants and Agreements. The representations and warranties contained in the Loan Documents are and shall be true and correct in all respects, and all covenants and agreements have been complied with and shall be correct in all respects, and all covenants and agreements to have been complied with and performed by Borrower shall have been fully complied with and performed to the satisfaction of Lender.

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(b)No Prohibited Acts. Borrower shall not have taken any action or permitted any condition to exist which would have been prohibited by any provision of the Loan Documents.

(c)Approval of Documents Prior to Advance. Borrower has delivered or caused to be delivered to Lender (with copies to Lender’s counsel), at least fifteen (15) Business Days prior to the date of each Advance, and Lender has reviewed and approved, at least five (5) Business Days prior to the date of each Advance, the form and content of all of the items specified in each of the Submissions required pursuant to this Section 4.4. Lender shall have the right to review and approve any changes to the form of any of the Submissions. If Lender disapproves of any changes to any of the Submissions, Lender shall have the right to require Borrower either to cure or correct the defect objected to by Lender and to not fund the Loan or any Advance. Under no circumstances shall Lender’s failure to approve or disapprove a change to any of the Submissions be deemed to be an approval of such Submissions. All of the Submissions were and shall be prepared at Borrower’s sole cost and expense, unless expressly stated to be an obligation and expense of Lender. Lender shall have the right of prior approval of any Preparer and may disapprove any Preparer in its sole discretion, for any reason, including without limitation, that Lender believes that the experience, skill, reputation or other aspect of the Preparer is unsatisfactory in any respect. All Submissions required pursuant to this Agreement shall be addressed to Lender and include the following language: “THE UNDERSIGNED ACKNOWLEDGES THAT TEXTRON FINANCIAL CORPORATION IS RELYING ON THE WITHIN INFORMATION IN CONNECTION WITH ITS DETERMINATION TO MAKE A LOAN TO SILVERLEAF RESORTS, INC. IN CONNECTION WITH THE SUBJECT COLLATERAL.”

(i)a certificate in the form attached as Exhibit G, to be dated as of the date of each such Advance and signed by the president, chief financial officer, chief operating officer, vice president, or secretary of Borrower, certifying that the conditions specified in Sections 4.4(a) and 4.4(b) above are true;

(ii)copies of the articles of incorporation of Borrower, together with any amendments thereto certified to be true and complete by Borrower and the Secretary of State of the State of Texas, a current certificate of good standing for Borrower issued by the Secretary of State of the State of Texas, a current certificate of authority to conduct business issued by the secretary of state in each state in which Borrower conducts business, and copies of the by-laws of Borrower certified to be true, correct and complete by the secretary or assistant secretary of Borrower;

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(iii)a Survey for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Lender in connection with the Advance in question;

(iv)a certificate of the secretary or assistant secretary of Borrower certifying the adoption by the board of directors thereof, respectively, of a resolution authorizing the addition of the Resort in question as an Additional Eligible Resort and to authorize Borrower to enter into, execute and deliver any Documents in connection therewith;

(v)a certificate of the secretary or assistant secretary of Borrower certifying the incumbency, and verifying the authenticity of the signatures, of the specified officers of Borrower authorized to sign all documents required in connection with such Additional Eligible Resort as required pursuant to this Section 4.4;

(vi)an inspection report or reports covering each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Lender in connection with the Advance in question, including without limitation all real property and personal property subject to the Declaration and all adjacent property, confirming:

(1)the absence of Hazardous Materials on the personal property and real property comprising each such Additional Eligible Resort;

(2)that the inspection firm has obtained, reviewed and included within its report a CERCLIS printout from the Environmental Protection Agency (the “EPA”), statements from the EPA and other applicable state and local authorities and a Phase I Environmental Audit, all of which information shall confirm that there are no known or suspected Hazardous Materials located at, used or stored on, or transported to or from each such Additional Eligible Resort or in such proximity thereto as to create a material risk of contamination of each such Additional Eligible Resort;

(vii)evidence that Borrower is maintaining all policies of insurance required by and in accordance with Section 7.1(d) hereof, including copies of the most current paid insurance premium invoices;

(viii)evidence that Borrower and the Timeshare Documents for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Lender in connection with the Advance in question are in compliance with all applicable laws in connection with its sales of Intervals, including without limitation, the Timeshare Acts;

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(ix)a current preliminary title report or certificate of title for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Lender in connection with the Advance in question, with copies of all title exceptions;

(x)copies of all applicable governmental permits, approvals, consents, licenses, and certificates for the establishment of each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Lender in connection with the Advance in question as timeshare projects in accordance with the applicable Timeshare Act, and for the occupancy and intended use and operation of each such Additional Eligible Resort, including the Units, including a letter certification from Borrower regarding zoning classification and compliance, letters or other satisfactory evidence from utility companies, governmental entities or other persons confirming that water, sewer (sanitary and storm), electricity, solid waste disposal, telephone, police, fire and rescue services are being provided to each Resort, and any business licenses necessary for operation of each such Additional Eligible Resort;

(xi)certified true, correct and complete copies of all of the Timeshare Documents for each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Lender in connection with the Advance in question;

(xii)evidence satisfactory to Lender that all taxes and assessments owed by or for which Borrower is responsible for collection have been paid, including but not limited to sales taxes, room occupancy taxes, payroll taxes, personal property taxes, excise taxes, intangibles taxes, real property taxes, and income taxes, and any assessments related to each Additional Eligible Resort for which Eligible Notes Receivable are being pledged to Lender in connection with the Advance in question and copies of the most current paid tax bills for each such Additional Eligible Resort evidencing that each such Additional Eligible Resort have been segregated from all other property on the applicable municipal taxrolls;

(xiii)written confirmation from an architect covering each Additional Eligible Resort, for which Eligible Notes Receivable are being pledged to Lender in connection with the Advance in question as to the physical condition of the improvements at each such Additional Eligible Resort, including that soil conditions are sufficient to support all existing and any contemplated improvements to the real property; which written confirmation shall be in form and substance reasonably acceptable to Lender;

(xiv)such credit references on Borrower as Lender deems necessary in its sole discretion;

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(xv)copies or other evidence of all loans to Borrower from any officers, shareholders, or Affiliates of Borrower, if any;

(xvi)a commitment to issue Mortgagee Title Policies from Title Company for each such Additional Eligible Resort. Notwithstanding anything heretofore to the contrary, Lender agrees that Borrower shall not be required to provide such a commitment or a Mortgagee Title Insurance Policy with respect to Oak N’ Spruce Resort and any Additional Eligible Resort that is structured in a manner similar to Oak N’ Spruce Resort. Notwithstanding anything heretofore to the contrary, if any claim, lien, encumbrance, charge or other matter arises with respect to any Interval or Intervals for which an Eligible Note Receivable has been pledged to Lender pursuant to this Agreement, then, in such event:

(a) the Note Receivable with respect to the Interval in question shall cease to be an Eligible Note Receivable and Borrower immediately shall either replace the Note Receivable in question or make a Mandatory Prepayment as provided in Section 2.5(a)(ii) hereof; and

(b) the Resort at which the Interval in question is located shall cease to be an Additional Eligible Resort, unless and until Borrower shall cure any such claim, lien, encumbrance, charge or other matter to the satisfaction of Lender. Furthermore, any and all further requests for Advances in respect of such Resort must be accompanied by satisfactory Mortgagee Title Policies for all Intervals with respect to which such Advances are requested.

(xvii)the Financial Statements;

(xviii)to the extent not previously delivered hereunder, Borrower will execute, or cause to be executed with respect to each Additional Eligible Resort, an Assignment of Notes Receivable and Mortgages, Borrower’s Affidavit with Respect to the Additional Eligible Resorts and an Environmental Indemnification Agreement;

(xix)with respect to any improvements, including any Units, constructed at a Resort within the twenty-four month period prior to any Advance with respect to an Additional Eligible Resort, Borrower shall also deliver to Lender, for its approval, such documents and instruments as Lender may reasonably request in connection with such newly constructed improvements, including, without limitation, copies of building permits, plans and specifications, construction and architectural contracts, title insurance insuring over, among other things, mechanics liens, certificates of occupancy and satisfactory evidence of the completion of such improvements;

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(xx)such other documents, instruments, agreements, tests, reports and inspections as Lender may require with respect to Borrower or any applicable Affiliate, the Loan or any Resort, including any Additional Eligible Resort; and

(xxi)upon request of Lender, Borrower shall deliver to Lender evidence, satisfactory to Lender, that there is no material litigation, written complaint, suit, action, written claim or written charge pending against Borrower or any Affiliate with any court or with any governmental authority with respect to the Resorts, the Timeshare Documents, any Eligible Notes Receivable, any Interval, or any marketing, offer or sale of any Interval.

(d)Physical Inspection. Lender shall be satisfied with its physical inspection of the Additional Eligible Resorts.

(e)UCC Search. Lender shall have obtained, at Borrower’s cost, such searches of the applicable public records as it deems necessary under all applicable law to verify that it has a first and prior perfected Lien and security interest covering all of the Collateral. Lender shall not be obligated to fund any Advance if Lender determines that Lender does not have a first and prior perfected lien and security interest covering any portion of the Collateral, except as expressly provided herein.

(f)Litigation Search. Lender shall have obtained, at Borrower’s cost, an independent search to verify that there are no bankruptcy, foreclosure actions or other material litigation or judgments pending or outstanding against the Additional Eligible Resorts, any portion of the Collateral, Borrower, or any Affiliate, (each a “Material Party”). The term “other material litigation” as used herein shall not include matters in which (i) a Material Party is plaintiff and no counterclaim is pending or (ii) which Lender determines, in its sole discretion, exercised in good faith, are immaterial due to settlement, insurance coverage, frivolity, or amount or nature of claim. Lender shall not be obligated to fund any Advance if it determines that any such litigation is pending.

(g)Opinions of Borrower’s Counsel. Borrower shall deliver to Lender, for the benefit of Lender, at Borrower’s sole cost and expense, such opinions of counsel, including counsel admitted in each state in which each Additional Eligible Resort is located, as to such matters with respect to Borrower and each Additional Eligible Resort as Lender may request, and in form and substance acceptable to Lender in its sole discretion.

(h)Funding Procedure. Borrower shall have complied to Lender’s satisfaction with each of the conditions precedent to funding of an Advance set forth in Section 5 hereof.

(i)Management of Resort. Borrower shall provide evidence satisfactory to Lender that Borrower, or an Affiliate, is the manager or operator of each Resort, pursuant to a written management or operating agreement, in form and substance satisfactory to Lender, which with respect to all Resorts shall have a term that shall expire no earlier than January 31, 2014. Borrower agrees to provide to Lender an estoppel letter, in form and substance acceptable to Lender, from the applicable Timeshare Owner’s Association.

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(j)Other Items. Such other agreements, documents, instruments, certificates and materials as Lender may request to determine the acceptability of any such Additional Eligible Resort, to evidence the Obligations, to evidence and perfect the rights and Liens and security interests of Lender contemplated by the Loan Documents, and to effectuate the transactions contemplated herein, including, without limitation, true copies of all Resort Documents for each such Additional Eligible Resort, all Timeshare Documents and operating and management contracts and agreements, evidence of compliance with the applicable Timeshare Act and other applicable laws, evidence of all required governmental licenses and permits; title searches; title commitments or policies, including complete and legible copies of each title exception, engineering, environmental and soil reports and evidence of compliance with all applicable zoning and building codes; each of which shall be satisfactory to Lender in its sole and absolute discretion.

Section 5-Funding Procedure

5.1The obligation of Lender to make any loan shall be subject to the satisfaction of all of the following conditions precedent:

(a)Receivable Loan Component.

(i)Requests for Advances. Each request for an Advance shall:

(1)be in writing in form attached hereto as Exhibit E-1 and shall certify the amount of the then-current Borrowing Base and specify the principal amount of the Advance requested and designate the account to which the proceeds of such Advance are to be transferred;

(2)state that the representations and warranties of Borrower contained in the Agreement and any closing or funding related certifications are true and correct as of the date of the request and, after giving effect to the making of such requested Advance, will be true and correct as of the date on which the requested Advance is to be made;

(3)state that a majority of the Eligible Notes Receivable pledged as Collateral for the Advance in question have been made by Purchasers with a minimum annual income as follows: $35,000.00 for Purchasers residing in the State of Texas, $40,000.00 for Purchasers residing in the State of Illinois and $45,000.00 for Purchasers residing in the State of Massachusetts; further state that the weighted average of the FICO indicators of all Purchasers for the Advance in question with respect to which a FICO indicator can be obtained is not less than 640, provided that the aggregate outstanding principal of Eligible Notes Receivable pledged to Lender with respect to which a FICO indicator can not be obtained does not exceed 10% of the aggregate outstanding principal balance of all Eligible Notes Receivable pledged to Lender;

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(4)state that no Default or Event of Default exists as of the date of the request and, after giving effect to the making of such requested Advance, no Default or Event of Default would exist as of the date on which the requested Advance is to be made;

(5)be delivered to the office of Lender at least five (5) Business Days prior to the date of the requested Advance;

(6)be signed by a principal financial officer of Borrower;

(7)certify that Borrower has no knowledge of any asserted or threatened defense, offset, counterclaim, discount or allowance in respect of each Note Receivable to be pledged in connection with such requested Advance, or in respect of any of the Pledged Notes Receivable;

(8)contain an aging report of the Pledged Notes Receivable; identifying, among other things, which among them are Eligible Notes Receivable; and

(9)contain a delinquency report which shall be in form and substance satisfactory to Lender and shall show which of such Notes Receivable is delinquent and the duration of such delinquency, and which of such Pledged Notes Receivable is not an Eligible Note Receivable.

(ii)Loan Documents/Collateral. Not less than five (5) Business Days prior to the date of any Advance, Borrower shall have:

(1)delivered to Lender a list of all Eligible Notes Receivable and related Mortgages which are to be the subject of such requested Advance, indicating the unpaid principal balance owing on each of the Pledged Notes Receivable deemed to be an Eligible Note Receivable, together with such additional information as Lender may require;

(2)delivered to Lender (or, if Lender shall so instruct, a designee appointed by Lender in writing) (A) the original of each Pledged Note Receivable (duly endorsed with the words “Pay to the order of Textron Financial Corporation with recourse”), (B) the original of each Mortgage securing such Pledged Notes Receivable, (C) the original of each purchase contract (including addenda) relating to the Pledged Notes Receivable and Mortgages, (D) originals or true copies of the related truth-in-lending disclosures, loan application, warranty deed, Payment Authorization Agreement and, if required by Lender, the related Purchaser’s acknowledgement, receipt and exchange company application, disclosures and materials, and (E) with respect to each Eligible Note Receivable from the sale of Intervals at Oak N’ Spruce: (i) the original UCC-1 Financing Statement, naming the Purchaser of the Interval giving rise to the Eligible Note Receivable as debtor and Borrower as secured party (the “Purchaser Financing Statement”), perfecting Borrower’s security interest in the applicable Interval to secure the Purchaser’s obligations under the Eligible Note Receivable and (ii) a UCC-3 Assignment, naming Borrower as assignor and Lender as assignee, assigning to Lender, all of Borrower’s right, title and interest under each Purchaser Financing Statement;

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(3)delivered to Lender a duly executed Assignment of Notes Receivable and Mortgages assigning to Lender all of Borrower’s right, title and interest in and to each such Pledged Note Receivable and the related Mortgage; and

(4)subject to Section 4.4(c)(xvi) and Section 5.1(a)(vi) hereof, delivered to Lender, with respect to each Encumbered Interval, a commitment for a Mortgagee’s Title Policy showing that the Mortgage in respect of such Interval has been assigned to Lender and insuring in favor of Borrower the first priority Lien of such Mortgage in the amount of the Advance to be made in respect of such Pledged Note Receivable, with a satisfactory title insurance policy to be issued within sixty (60) days from the date of the Advance.

The Mortgages and the assignments thereof to Lender shall each have been duly recorded in the applicable land records. The Mortgagee’s Title Policies shall be in form and substance satisfactory to Lender and shall be issued by a title insurance company satisfactory to Lender (the “Title Company”), and name Borrower as the insured party therein. The funding of the requested Advance, delivery of the Receivable Loan Component Collateral and issuance of the title insurance policy, and recording of the assignments or any releases may, in Lender’s discretion, be effected by way of an escrow arrangement with the Title Company or other fiduciary, the form and substance of which shall be satisfactory to Lender.

(iii)Other Conditions. In addition to the other conditions set forth in this Agreement, the making of the initial or any requested Advance shall be subject to the satisfaction of the following conditions:

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(1)no Default or Event of Default shall exist immediately prior to the making of such requested Advance or, after giving effect thereto, immediately after the making of such requested Advance;

(2)each agreement required to have been executed and delivered in connection with any prior Advance shall be consistent with the terms of this Agreement and shall be in full force and effect;

(3)the date on which such requested Advance is to be made shall be a Business Day;

(4)Borrower shall have delivered to Lender a certification showing the dollar amount of the requested Advance based on the Eligible Notes Receivable pledged to Lender, and the Notes Receivable being pledged contemporaneously with each requested Advance in the form attached hereto as Exhibit D;

(5)not more than one Advance shall have previously been made in the same calendar month in which such requested Advance is to be made, unless Lender, in its sole discretion, agrees to make an additional Advance during such calendar month;

(6)such requested Advance shall be in a principal amount of not less than $50,000, unless Lender, in its sole discretion, agrees to make an Advance in an amount less than $50,000;

(7)Lender shall have determined that the requested Advance, when added to the aggregate outstanding principal amount of all previous Advances, if any, does not, based on the Eligible Notes Receivable that have been duly pledged in favor of Lender exceed the lesser of: (i) total amount of the Borrowing Base, or (ii) $100,000,000, subject to Section 2.7; and

(8)if Lender shall so require, Lender shall have received an executed closing protection letter issued by the Title Company, which shall be reasonably acceptable to Lender.

(iv)Expenses. Borrower shall have paid all fees and expenses required to be paid by Borrower pursuant to this Agreement in connection with such requested Advance or any conditions related thereto.

(v)Proceedings Satisfactory. All actions taken in connection with such requested Advance and all documents and papers relating thereto shall be satisfactory to Lender and its counsel. Lender and its counsel shall have received copies of such documents and papers as Lender or such counsel may reasonably request in connection with such requested Advance, all in form and substance reasonably satisfactory to Lender and its counsel.

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(vi)Partial Waiver of Requirement for Title Insurance Policies Upon Satisfactory Maintenance of Inventory Control Procedures. Anything in Section 5.1(a)(ii)(4) hereof to the contrary notwithstanding, the delivery of a Mortgagee Title Policy shall be required only with respect to twenty-five percent (25%) of the Eligible Notes Receivable delivered to Lender in respect of each advance, subject to the following requirements and limitations:

(1)Borrower shall be in full compliance with the Receivable Inventory Control Procedures (as defined in Section 6.23 herein); and

(2)Lender shall have the right in its sole discretion to determine those Eligible Notes Receivable in respect of which the Mortgagee Title Policies shall be required.

In the event that Borrower fails to satisfy the requirements of Subparagraph 5.1(a)(vi)(1), then, immediately upon such failure, the partial waiver provided under this subparagraph shall no longer be effective.

(b)Inventory Loan Component.

(i)Requests for Advances. Each request for an Advance shall:

(1)be in writing in form attached hereto as Exhibit E-2 and shall certify the amount of the then-current Loan to Retail Value Ratio, specify the principal amount of the Advance requested and designate the account to which the proceeds of such Advance are to be disbursed;

(2)state that the representations and warranties of the Borrower contained in the Agreement and any closing or funding related certifications are true and correct as of the date of the request and, after giving effect to the making of such requested Advance, will be true and correct as of the date on which the requested Advance is to be made;

(3)state that no Default or Event of Default exists as of the date of the request and, after giving effect to the making of the requested Advance, no Default or Event of Default would exist as of the date on which the requested Advance is to be made;

(4)be delivered to the office of Lender at least five (5) Business Days prior to the date of the requested Advance; and

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(5)be signed by a principal financial officer of the Borrower.

(ii)Loan Documents/Collateral. Not less than five (5) Business Days prior to the date of any Advance, the Borrower shall have:

(1)delivered to Lender a list of all Intervals which are to be the subject of such requested Advance, together with such additional information as Lender may require;

(2)delivered to Lender (or, if Lender shall so instruct, a designee appointed by Lender in writing), to the extent available, (a) the original or certified copies of any deed or beneficial interest certificate, or other documents evidencing conveyance of the Interval in question to the Borrower, (b) a copy of any title policy received by the Borrower in connection with its acquisition of the Interval in question, and (c) original or true copies of any purchase contract (including addenda) or other agreements entered into by the Borrower with any person with respect to the sale by the Borrower to any Purchaser of the Interval in question;

(3)delivered to Lender a duly executed Inventory Mortgage Inventory Mortgages, in the form and substance attached here as Exhibit F, or in the case of an existing Inventory Mortgage, a modification thereof in the form and substance attached here as Exhibit F-1 (each containing such changes and modifications as are necessary to reflect the law of the state in which the Resort in question is located) granting to Lender a first mortgage lien on the Inventory;

(4)original UCC financing statements covering the Inventory Loan Component Collateral, filed with the Secretary of State of Texas and the Secretary of State of each state in which the Inventory Loan Component Collateral is located; and

(5)with respect to each Interval constituting a part of the Inventory, a commitment for a mortgagee’s title insurance policy showing that the Mortgage in respect of such Interval insuring in favor of Lender the first priority Lien of such Inventory Mortgage in the amount of the Advance to be made in respect of such Interval (or in case of any Modification(s) to Inventory Mortgage, an endorsement to the existing mortgagee’s title insurance policy endorsing said policy to reflect such Modification(s) of Inventory Mortgage), with a satisfactory title insurance policy to be issued within a reasonable time following the requested Advance.

The Inventory Mortgages shall each have been duly recorded in the applicable land records which are described in Schedule A hereof. The mortgagee’s title insurance policies shall be in form and substance satisfactory to Lender and shall be issued by Title Company, and name Lender as the insured party therein. The funding of the Advance, delivery of the Inventory Loan Component Collateral and issuance of the title insurance policy, and recording of the mortgages or any releases may, in Lender’s discretion, be effected by way of an escrow arrangement with the Title Company or other fiduciary, the form and substance of which shall be satisfactory to Lender.

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(iii)Other Conditions. In addition to the other conditions set forth in this Agreement, the making of the initial or any subsequent Advance shall be subject to the satisfaction of the following conditions:

(1)no Default or Event of Default shall exist immediately prior to the making of such requested Advance or, after giving effect thereto, immediately after the making of such requested Advance;

(2)each agreement required to have been executed and delivered in connection with any prior Advance shall be consistent with the terms of this Agreement and shall be in full force and effect;

(3)the date on which such requested Advance is to be made shall be a Business Day;

(4)Borrower shall have delivered to Lender a certification showing the Retail Value of each Interval and Lender shall be satisfied with the Retail Value of each Interval in its sole discretion. The dollar amount of the requested Advance shall be based on the Retail Value of the Intervals on which the Lender is being granted a Mortgage;

(5)not more than one Advance shall have previously been made in the same calendar month in which such requested Advance is to be made, unless Lender, in its sole discretion, agrees to make an additional Advance during such calendar month;

(6)such requested Advance shall be in a principal amount of not less than $50,000.00, unless Lender, in its sole discretion, agrees to make an Advance in an amount less than $50,000.00;

(7)Lender shall have determined that the requested Advance will not result in the Loan to Retail Value Ratio exceeding 15%, based on the Retail Value of the Inventory on which Lender has been granted a first mortgage lien; and

(8)if Lender shall so require, Lender shall have received an executed Closing Protection Letter issued by the Title Company, which shall be reasonably acceptable to Lender.

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(iv)Expenses. The Borrower shall have paid all fees and expenses required to be paid by Borrower pursuant to this Agreement in connection with such requested Advance or any conditions related thereto.

(v)Proceedings Satisfactory. All actions taken in connection with such requested Advance and all documents and papers relating thereto shall be satisfactory to Lender and its counsel. Lender and its counsel shall have received copies of such documents and papers as the Lender or such counsel may reasonably request in connection with such requested Advance, all in form and substance reasonably satisfactory to the Lender and its counsel.

(c)Acquisition Loan Component.

(i)Request for Advances. Each request for an Advance shall:

(1)be in writing in the form attached hereto as Exhibit E-3, shall certify the fair market value of the Real Property for which such Advance is being requested and designate the account to which such proceeds are to be disbursed;

(2)state that the representations and warranties of the Borrower contained in this Agreement and any closing or funding related certifications are true and correct as of the date of the request and, after taking into effect the making of such requested Advance, will be true and correct as of the date on which such requested Advance is to be made;

(3)state that no Default or Event of Default exists as of the date of the requested Advance and, after taking into effect the making of the requested Advance, no Default or Event of Default would exist as of the date on which the requested Advance is to be made;

(4)be delivered to the office of Lender at least 30 business days prior to the date of the requested Advance; and

(5)be signed by a principal officer of the Borrower.

(ii)Loan Documents/Collateral. Not less than 30 days prior to the date of any Advance, Borrower shall have delivered to the Lender the following items with respect to the Real Property in question each of which shall be in form and substance acceptable to Lender in its sole discretion:

(1)a copy of the purchase agreement, including all exhibits and amendments thereto;

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(2)a copy of a Phase I environmental report;

(3)a copy of a zoning report prepared by a zoning firm reasonably acceptable to the Lender;

(4)a survey;

(5)a title commitment, including legible copies of all exceptions noted in the Title Commitment;

(6)MAI appraisal;

(7)copies of all contracts, agreements, permits and licenses;

(8)a UCC, bankruptcy, litigation, judgment, tax and environmental search with respect to the seller of the Real Property;

(9)true, correct and complete copies of all documents, including closing statements, executed and or delivered in connection with the Borrower’s acquisition of title to the Real Property;

(10)if applicable, a copy of all ground leases;

(11)copies of all permits and consents, including building permits in connection with the renovation and or construction of any improvements on the Real Property;

(12)an inventory of all personal property, including copies of all equipment leases;

(13)if applicable, copies of final certificates of occupancy;

(14)copies of all business licenses for operation of any resort to be operated on the Real Property;

(15)confirmation that any and all parking facilities with respect to the Real Property are on site and part of the Common Elements for such Real Property;

(16)letters confirming the availability of all utility services through Real Property, including, without limitation, water, sewer, (sanitary and storm), electric, gas, telephone, cable television and internet;

(17)if applicable, a wetlands letter from the U.S. Army Corp of Engineers;

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(18)a detail site plan showing the location of all existing improvements and proposed improvements to the Real Property, including floor plans for all units;

(19)engineers report consistent with Lender provided checklist as to soil conditions, mechanical integrity of improvements, structural integrity of improvements and absence of toxic substances and hazardous materials, including lead based paint and asbestos;

(20)evidence of insurance with respect to the Real Property in accordance with Section 7.1(h) hereof;

(21)if applicable, a non disturbance agreement with respect to all amenities, parking and access;

(22)a duly executed Real Property Mortgage granting to Lender a first mortgage lien on the Real Property in question;

(23)an original UCC financing statement covering the Acquisition Loan Component Collateral filed with the Secretary of State of the State of Texas and the Secretary of State in which the Real Property in question is located;

(24)with respect to each Real Property, a Mortgage Title Insurance Policy, in form and substance satisfactory to Lender and issued by a Title Insurance Company satisfactory to Lender. The funding of each Advance, and delivery of the Acquisition Loan Component Collateral, issuance of the Title Insurance Policy, and recording of the Real Estate Mortgage, may in Lender’s sole discretion, be effected by way of an escrow agent with the Title Company or other fiduciary, in the form and substance of which shall be satisfactory to Lender;

(25)an opinion of counsel in form and substance acceptable to Lender, and issued by an attorney admitted to practice in the state in which the Real Property in question is located and otherwise acceptable to Lender; and

(26)such other documents and instruments as Lender, in its sole discretion, may request in connection with the Real Property in question.

(iii)Other Conditions. In addition to the other conditions set forth in this Agreement, the making of the initial or any subsequent Advance shall be subject to the satisfaction of the following conditions:

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(1)no Default or Event of Default shall exist immediately prior to the making of such requested Advance or, after giving effect thereto, immediately after the making of such requested Advance;

(2)each agreement required to have been executed and delivered in connection with any prior Advance shall be consistent with the terms of this Agreement and shall be in full force and effect;

(3)the date on which such requested Advance is to be made shall be a Business Day;

(4)not more than one Advance shall have previously been made in the same calendar month in which such requested Advance is to be made, unless Lender, in its sole discretion, agrees to make an additional Advance during such calendar month;

(5)such requested Advance shall be in a principal amount of not less than $50,000.00, unless Lender, in its sole discretion, agrees to make an Advance in an amount less than $50,000.00, nor more than $15,000,000.00 for any one Real Property; and

(6)if Lender shall so require, Lender shall have received an executed closing protection letter issued by the Title Company, which shall be reasonably acceptable to Lender.

(iv)Expenses. The Borrower shall have paid all fees and expenses required to be paid by Borrower pursuant to this Agreement in connection with such requested Advance or any conditions related thereto.

(v)Proceedings Satisfactory. All actions taken in connection with such requested Advance and all documents and papers relating thereto shall be satisfactory to Lender and its counsel. Lender and its counsel shall have received copies of such documents and papers as the Lender or such counsel may reasonably request in connection with such requested Advance, all in form and substance reasonably satisfactory to the Lender and its counsel.

(vi)Lender’s Discretion. All Advances of the Acquisition Loan Component shall be made at the sole and exclusive discretion of Lender without any explanation to Borrower being required.

Section 6-General Representations And Warranties

Borrower hereby represents and warrants to Lender as follows:

6.1Organization, Standing, Qualification. Borrower: (a) is a duly organized and validly existing Texas corporation duly organized, validly existing and in good standing under the laws of the State of Texas, and (b) has all requisite power, corporate or otherwise, to conduct its business and to execute and deliver, and to perform its obligations under, the Loan Documents.

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6.2Authorization, Enforceability, Etc.

(a)The execution, delivery and performance by Borrower of the Loan Documents has been duly authorized by all necessary corporate action by Borrower and does not and will not: (i) violate any provision of the certificate or articles of incorporation of Borrower, bylaws of Borrower, or any agreement, law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect to which Borrower is a party or is subject; (ii) result in, or require the creation or imposition of, any Lien upon or with respect to any asset of Borrower other than Liens in favor of Lender; or (iii) result in a breach of, or constitute a default by Borrower under, any indenture, loan or credit agreement or any other agreement, document, instrument or certificate to which Borrower is a party or by which it or any of its assets are bound or affected.

(b)No approval, authorization, order, license, permit, franchise or consent of, or registration, declaration, qualification or filing with, any governmental authority or other Person, including without limitation, the Division or the Timeshare Owners’ Association is required in connection with the execution, delivery and performance by Borrower of any of the Loan Documents.

(c)The Loan Documents constitute legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms.

(d)Borrower has, or will have, good and marketable title to the Collateral, free and clear of any lien, security interest, charge or encumbrance except for the security interests created by this Agreement or any Loan Document or otherwise created in favor of Lender or those specifically consented to in writing by Lender or permitted hereunder. No financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of Lender hereunder or Lender as permitted hereunder.

(e)The execution and delivery of the Loan Documents, the delivery and endorsement to Lender of the Pledged Notes Receivable, the filing of the UCC-1’s with the office of the secretary of state of the state in which Borrower is organized and the Assignment of Notes Receivable and Mortgages in the official records of the county in which the applicable Resort is located, create in favor of Lender a valid and perfected continuing first or second, as applicable, priority security interest in the Collateral. The Collateral shall secure the full payment and performance of the Obligations.

(f)None of the Pledged Notes Receivable is forged or has affixed thereto any unauthorized signatures or has been entered into by any Person without the required legal capacity; and during the term of the Agreement, none will be forged, or will have affixed thereto, any unauthorized signatures.

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(g)Except as permitted in Sections 3.6 and 3.7 hereof, there have been no modifications or amendments to the Pledged Notes Receivable or Mortgages.

(h)The makers of the Eligible Notes Receivable have no defenses, offsets, counterclaims or claims relating to the Eligible Notes Receivable or the Mortgages.

(i)The Pledged Notes Receivable and the Mortgages were executed and delivered by Purchasers in favor of Borrower in connection with the purchase of the related Encumbered Intervals.

(j)The Mortgages constitute and will constitute valid and enforceable first and prior liens and security interests on the Encumbered Intervals.

(k)The Pledged Notes Receivable and the Mortgages are and shall remain in full force and effect, are and will be valid and binding obligations of the respective makers in favor of Lender; and Borrower further warrants and guarantees the value, quantity, sound condition, grade and quality of the Encumbered Intervals and rights, properties, easements and interests appurtenant or related thereto.

(l)The grant of the security interests described herein has not affected and will not affect the validity or enforceability of the obligations of the respective makers of the Pledged Notes Receivable under such Notes Receivable or the respective Mortgages.

(m)Lender shall not be required to take, and Borrower has taken any and all required steps to protect Lender’s security interest in the Collateral (other than maintaining possession of the portion of the Collateral constituting instruments); and Lender is or shall not be required to collect or realize upon the Collateral or any distribution of interest or principal, nor shall loss of, or damage to, the Collateral release Borrower from any of the Obligations.

6.3Financial Statements and Business Condition. The Financial Reports for the first 9 months of the calendar year 2006 are, to the best of Borrower’s knowledge, accurate and fairly represent the financial condition of the Borrower for the periods in question, subject to the written qualifications set forth therein. To the best of Borrower’s knowledge, there are no material liabilities, direct or indirect, fixed or contingent, of Borrower, except as disclosed to Lender in writing.

6.4Taxes. In accordance with the requirements set forth in the Declaration, Borrower represents and warrants that Borrower, Silverleaf Club, or the applicable Timeshare Owners’ Association, as required, has paid or will have paid in full, prior to delinquency, all ad valorem taxes and other taxes and assessments against the Resorts, the Real Property and the other Collateral; and Borrower knows of no basis for any additional taxes or assessments against the Resorts, the Real Property or the other Collateral. Borrower, Silverleaf Club, or the applicable Timeshare Owners’ Association, as the case may be, has filed all tax returns required to have been filed by it and has paid or will pay prior to delinquency, all taxes shown to be due and payable on such returns, including interest and penalties thereon, and all other taxes which are payable by it to the extent the same have become due and payable.

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6.5Title to Properties: Prior Liens. Borrower has good and marketable title to all of the Collateral and to all unsold Units and Intervals at each Resort, and all rights, properties and benefits appurtenant to or benefiting them. Borrower is not in default under any of the documents evidencing or securing any indebtedness which is secured, wholly or in part, by any portion of any Resort or any portion or all the Collateral and no event has occurred which with the giving of notice, the passage of time or both, would constitute a default under any of the documents evidencing or securing any such indebtedness. Other than the Liens granted in favor of Lender and the liens described in Schedule 6.5 attached hereto, there are no liens or encumbrances against the Collateral, including to all unsold Units, Intervals and Inventory, or against any Resort.

6.6Subsidiaries, Affiliates and Capital Structure. Borrower has no subsidiaries or Affiliates which have any involvement or interest in any Resort in any way. None of the Affiliates of Borrower are parties to any proxies, voting trusts, shareholders agreements or similar arrangements pursuant to which voting authority, rights or discretion with respect to Borrower is vested in any other Person.

6.7Litigation, Proceedings, Etc. Except for those matters identified in Schedule 6.7 hereto, there are no actions, suits, proceedings, orders or injunctions pending or threatened against or affecting Borrower, the Real Property, the Resorts or the Timeshare Owners’ Association at law or in equity, or before or by any governmental authority or other tribunal, which (a) could have a material adverse effect on Borrower or (b) relate to the Loan or which could have a material effect on the Collateral or the Resorts. Borrower has received no notice from any court, governmental authority or other tribunal alleging that Borrower or the Resorts have violated the Timeshare Act, any of the rules or regulations thereunder, the Declaration or any other applicable laws, agreements or arrangements that could have any material effect on the Loan, the Collateral or the Resorts.

6.8Licenses, Permits, Etc. Borrower, the Resorts, the Timeshare Owners’ Associations or Borrower’s Affiliates involved in the operations of the Resorts, and, to the best of Borrower’s knowledge after diligent inquiry, other Persons involved in the operations of the Resorts, possess all requisite franchises, certificates of convenience and necessity, operating rights, approvals, licenses, permits, consents, authorizations, exemptions and orders as are necessary to carry on its or their business as now being conducted, without any known conflict with the rights of others and, with respect to Borrower, the Resorts and the Timeshare Owners’ Associations, in each case subject to no mortgage, pledge, Lien, lease, encumbrance, charge, security interest, title retention agreement or option other than as provided for by this Agreement.

6.9Environmental Matters. Except as otherwise noted on Schedule 6.9: (a) no Resort or Real Property contains any Hazardous Materials, (b) no Hazardous Materials are used or stored at or transported to or from the Resorts or the Real Property, (c) neither Borrower, the Real Property, nor the Resorts nor any manager thereof nor to Borrower’s knowledge, the Timeshare Owners’ Associations, have received notice from any governmental agency, entity or other Person with regard to Hazardous Materials on, under or affecting any Resort, and (d) neither Borrower, the Real Property, the Resorts, nor any portion thereof, nor to Borrower’s knowledge after diligent inquiry, the Timeshare Owners’ Associations, are in violation of any Environmental Laws.

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6.10Full Disclosure. No information, exhibit or written report or the content of any schedule furnished by or on behalf of Borrower to Lender in connection with the Loan, the Real Property or the Resorts contains any material misstatement of fact or omits the statement of a material fact necessary to make the statement contained herein or therein not misleading. Borrower knows of no fact or condition which will prevent the sale of Intervals to Purchasers or prevent the operation of the Resorts in accordance with the Declarations and related public offering statements, and in accordance with applicable law, or prevent Borrower from performing its Obligations pursuant to the Loan Documents.

6.11Use of Proceeds/Margin Stock. None of the proceeds of the Loan will be used to purchase or carry any margin stock (as defined under Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time), and no portion of the proceeds of the Loan will be extended to others for the purpose of purchasing or carrying margin stock. None of the transactions contemplated in the Agreement (including, without limitation, the use of the proceeds from the Loan) will violate or result in the violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter 11.

6.12Defaults. Borrower has no knowledge of any Default or Event of Default not disclosed to Lender in writing. Borrower has no knowledge of any default or event of default under any loan facility or with any lender. Borrower has no knowledge of any condition or event, which, with the passage of time, notice or both, would constitute an Event of Default or an event of default under any loan facility or with any lender

6.13Compliance with Law. Borrower:

(a)is not in violation, nor is the Real Property or are any of the Resorts, or the business operations in respect of any of the Resorts, or to Borrower’s knowledge after diligent inquiry, the Timeshare Owners’ Association, in violation, of the Timeshare Act, or any laws, ordinances, governmental rules or regulations of any state in which a Resort is located, any political subdivision of said states or any other jurisdiction to which Borrower or the Resorts, or the business operations conducted in respect of the Resorts, or the Timeshare Owners’ Association, are subject;

(b)has not failed, nor have the Resorts or, to Borrower’s knowledge, the Timeshare Owners’ Associations failed, to obtain any consents or joinders, or any approvals, licenses, permits, franchises or other governmental authorizations, or to make or cause to be made any filings, submissions, registrations or declarations with any government or agency or department thereof, necessary to the establishment, ownership or operation of the Resorts or any of Borrower’s Properties, or to the conduct of Borrower’s business, including, without limitation, the operation of the Resorts and the sale, or offering for sale, of Intervals therein; which violation or failure to obtain or register materially adversely affects Borrower, the Resorts or the business, prospects, profits, properties or condition (financial or otherwise) of Borrower or the Resorts. Borrower has, to the extent required by its activities and businesses, and the operations of the Resorts, fully complied with: (1) all of the applicable provisions of (a) the Consumer Credit Protection Act; (b) Regulation Z of the Federal Reserve Board; (c) the Equal Credit Opportunity Act; (d) Regulation B of the Federal Reserve Board; (e) the Federal Trade Commission’s 3-day cooling-off Rule for Door-to-Door Sales; (f) Section 5 of the Federal Trade Commission Act; (g) the Interstate Land Sales Full Disclosure Act (“ILSA”); (h) federal postal laws; (i) applicable state and federal securities laws; (j) applicable usury laws; (k) applicable trade practices, home and telephone solicitation, sweepstakes, anti-lottery and consumer credit and protection laws; (l) applicable real estate sales licensing, disclosure, reporting and escrow laws; (m) the Americans With Disabilities Act and related accessibility guidelines (“ADA”); (n) the Real Estate Settlement Procedures Act (“RESPA”); (o) all amendments to and rules and regulations promulgated under the foregoing acts or laws; (p) the Federal Trade Commission’s Privacy of Consumer Financial Information Rule and (q) other applicable federal statutes and the rules and regulations promulgated thereunder; and (2) all of the applicable provisions of the Timeshare Acts, any law or laws of any state (and the rules and regulations promulgated thereunder) relating to ownership, establishment or operation of the Resorts, or the sale, offering for sale, or financing of Intervals;

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(c)has made diligent inquiry, and to the best of Borrower’s knowledge, all persons or entities owning an interest in Borrower: (i) are not currently identified on United States Office of Foreign Assets Control (“OFAC”) List; and (ii) are not persons or entities with whom a citizen of the United States is prohibited to engage in transactions by any trade embargo, economic sanction, or other prohibition of Untied States law, regulation, or Executive Order of the President of the United States. The OFAC List currently is accessible through the internet website www.treas.gov/ofac/t11sdn.pdf; and

(d)represents and warrants that at all times throughout the term of the Loan, (i) none of the funds or other assets of Borrower shall constitute property of, or shall be beneficially owned, directly or indirectly, by, any Person subject to trade restrictions under the Prescribed Laws (each such Person, an “Embargoed Person”), with the result that the investment in Borrower (whether directly or indirectly), is or would be prohibited by law or the Loan made by Lender is or would be in violation of law; (ii) no Embargoed Person shall have any interest of any nature whatsoever in Borrower with the result that the investment in Borrower (whether directly or indirectly), is or would be prohibited by law or the Loan is or would be in violation of law; and (iii) none of the funds of Borrower shall be derived from any unlawful activity with the result that the investment in Borrower (whether directly or indirectly), is or would be prohibited by law or the Loan is or would be in violation of law.

6.14Restrictions of Borrower. Borrower will not be, on or after the date hereof, a party to any contract or agreement which prohibits Borrower’s execution of or compliance with the terms of this Agreement or the other Loan Documents. Borrower has not agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of the Collateral, whether now owned or hereafter acquired, to be subject to a Lien except in favor of Lender as provided herein.

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6.15Broker’s Fees. Borrower and Lender represent to each other that none of them has made any commitment or taken any action which will result in a claim for any brokers’, finders’ or other similar fees or commitments with respect to the transactions described in the Agreement. Borrower agrees to indemnify Lender and save and hold Lender harmless from all claims of any Person for any broker’s or finder’s fee or commission, and this indemnity shall include reasonable attorneys’ fees and legal expenses.

6.16Deferred Compensation Plans. Borrower has no pension, profit sharing or other compensatory or similar plan (herein called a “Plan”) providing for a program of deferred compensation for any employee or officer. No fact or situation, including but not limited to, any “Reportable Event,” as that term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974 as the same may be amended from time to time (“Pension Reform Act”), exists or will exist in connection with any Plan of Borrower which might constitute grounds for termination of any Plan by the Pension Benefit Guaranty Corporation or cause the appointment by the appropriate United States District Court of a Trustee to administer any such Plan. No “Prohibited Transaction” within the meaning of Section 406 of the Pension Reform Act exists or will exist upon the execution and delivery of the Agreement or the performance by the parties hereto of their respective duties and obligations hereunder. Borrower will (1) at all times make prompt payment of contributions required to meet the minimum funding standards set forth in Sections 302 through 305 of the Pension Reform Act with respect to each of its Plans; (2) promptly, after the filing thereof, furnish to Lender copies of each annual report required to be filed pursuant to Section 103 of the Pension Reform Act in connection with each Plan for each Plan Year, including any certified financial statements or actuarial statements required pursuant to said Section 103; (3) notify Lender immediately of any fact, including, but not limited to, any Reportable Event arising in connection with any Plan which might constitute grounds for termination thereof by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a Trustee to administer the Plan; and (4) notify Lender of any “Prohibited Transaction” as that term is defined in Section 406 of the Pension Reform Act. Borrower will not (a) engage in any Prohibited Transaction or (b) terminate any such Plan in a manner which could result in the imposition of a Lien on the Property of Borrower pursuant to Section 4068 of the Pension Reform Act.

6.17Labor Relations. The employees of Borrower are not a party to any collective bargaining agreement with Borrower, and, to the best knowledge of Borrower and its officers, there are no material grievances, disputes or controversies with any union or any other organization of Borrower’s employees, or threats of strikes, work stoppages or any asserted pending demands for collective bargaining by any union or organization.

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6.18Resorts.

(a)Timeshare Plan. Each Resort has been established and dedicated, and is and will remain, a time-share plan and project in full compliance with all applicable laws and regulations, including without limitation, the Timeshare Act.

(b)Access. Each Resort has direct access to a publicly dedicated road and all roadways inside each Resort are subject to an access and use easement or other dedication or provision that benefits and will continue to benefit all Purchasers.

(c)Utilities. Electric, sanitary and stormwater sewer, telephone, water facilities and other necessary utilities are available in sufficient capacity to service each Resort and any easements necessary to the furnishing of such utility services have been obtained and duly recorded, and inure to the benefit of each Resort and each Timeshare Owners’ Association.

(d)Amenities. Each Purchaser of an Interval has and will have access to and the full use and enjoyment of all of the Common Elements and public utilities of the Resort in which such interval is located, all in accordance with the Declaration and Timeshare Documents.

(e)Construction. All costs arising from the construction or acquisition of any Units and any other improvements and the purchase of any fixtures or equipment, inventory, furnishings or other personalty located in, at, or on the Resorts have been paid or will be paid when due.

(f)Sale of Intervals. The marketing, sale, offering of sale, rental, solicitation of Purchasers or, if applicable, lessees, and financing of Intervals in the Resort: (1) do not constitute the sale, or the offering of sale, of Securities subject to the registration requirements of the Securities Act of 1933, as amended, or any state securities law; (2) do not violate the Timeshare Act or any land sales or consumer protection law, statute or regulation of the state where the Resort is located or any other state or jurisdiction in which a Purchaser resides or in which sales or solicitation activities occur; and (3) do not violate any consumer credit or usury statute of state where the Resort is located or any other state or jurisdiction in which a Purchaser resides or in which sales or solicitation activities occur. All marketing and sales activities are performed by employees of Borrower, all of whom are and shall be properly licensed in accordance with applicable laws.

(g)Tangible Property. Except for specific items which may be owned by independent contractors, the machinery, equipment, fixtures, tools and supplies used in connection with the Resort, including without limitation, with respect to the operations and maintenance of the Common Elements, are owned either by Borrower, Silverleaf Club, or the applicable Timeshare Owners’ Association.

(h)Operating Contracts. Borrower, Silverleaf Club, or the applicable Timeshare Owners’ Association has entered into the contracts, agreements, and arrangements necessary for the operation of the Resorts, including but not limited to those with respect to utilities, maintenance, management, services, marketing and sales (hereinbelow defined as “Operating Contracts”).

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6.19Timeshare Regimen Reports. Borrower has furnished to Lender true and correct copies of the Timeshare Documents listed on Schedule 6.19, which consist of all those placed on file by Borrower with the Divisions or any federal, state or local regulatory or recording agencies, offices or departments. All such filings and/or recordations, and all joinders and consents, necessary in order to establish the plan in respect of the Resorts, including without limitation, the Units, Intervals, and all appurtenant Common Elements, and all related use and access rights, have been done or obtained and all laws, regulations and statutes, and all agreements or arrangements, in connection therewith have been complied with.

6.20Operating Contracts. The contracts, agreements and arrangements comprising those agreements or arrangements relating to the operation of the Resorts, including without limitation, with respect to utilities, maintenance, management, services, marketing and sales under which the fees to be paid equal or exceed $50,000.00 (collectively, all such agreements and arrangements are referred to herein as the “Operating Contracts”) are unmodified and in full force and effect and shall remain free and clear of any lien.

6.21Architectural and Environmental Control. All Units, Common Elements and other improvements at, upon or appurtenant to the Resorts are and will be in compliance with the design, use, architectural and environmental control provisions, if any, set forth in the Declaration.

6.22Tax Identification/Social Security Numbers. Borrower’s federal taxpayer’s identification number is: 75-2259890.

6.23Inventory Control Procedures.

(a)Receivables. Borrower has provided to Lender a true and complete copy of Borrower's Inventory, Sales and Assignments procedures (the "Receivable Inventory Control Procedures"), a copy of which is attached hereto as Schedule 6.23(a). Borrower is and shall at all times be in full compliance with the Receivable Inventory Control Procedures from the date hereof until the Receivable Loan Component is repaid in full. Borrower shall permit Lender, its officers, employees, auditors, and other agents or designees to review the books and records of Borrower and make such other examinations and inspections as Lender in its sole discretion deems necessary to determine that Borrower is in full compliance with such Inventory Control Procedures.

(b)Interval Inventory Control Procedures. Borrower has provided to Lender a true and complete copy of the Borrower’s Inventory, Sales and Assignments procedures (the “Interval Inventory Control Procedures”), a copy of which is attached hereto as Schedule 6.23(b). Borrower is and shall at all times be in full compliance with the Interval Inventory Control Procedures from the date hereof until the Initial Inventory Loan Component is repaid in full. Borrower shall permit Lender, its officers, employees, auditors and other agents or designees to review the books and records of Borrower and to make such other examinations and inspections as Lender in its sole discretion deems necessary to determine that Borrower is in full compliance with such Interval Inventory Control Procedures.

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6.24Real Property. With respect to each parcel of Real Property:

(a)First Lien. Upon execution and recording of the Real Property Mortgage, Lender will have a valid first lien on the Real Property.

(b)Access. The Real Property has adequate legal rights of access to a public way.

(c)Single Tax Lot. The Real Property consists of a single tax lot. No portion of said lot covers property other than the Real Property in question and no portion of the Real Property in question lies in any other tax lot.

(d)Flood Zone. Except as is disclosed in the surveys of the Real Property that have been or will be provided to Lender, no portion of the Real Property is located in a flood hazard area as defined by the Federal Insurance Administration.

(e)Seismic Exposure. No portion of the Real Property is located in a zone 3 or zone 4 of the “Seismic Zone Map of the U.S.”

(f)Improvements. No improvements, buildings or other structures are located on the Real Property, except as disclosed to Lender in writing.

(g)Condemnation. No part of the Real Property has been taken in condemnation or other like proceedings nor is any preceding pending, threatened or known to be contemplated for the partial or the total condemnation or taking of any portion of the Real Property.

(h)No Purchase Options. No person or entity has an option to purchase the Real Property, or any portion thereof, or any interest therein.

6.25Inventory.

(a)First Lien. Upon execution, delivery and recording of the Inventory Mortgage(s) and/or the Modification(s) of Inventory Mortgages, Lender will have a valid, first priority mortgage lien on the Inventory, and the Inventory will be subject to no other Lien.

(b)No Purchase Options. No person or entity has an option to purchase any portion of the Inventory, or any portion thereof, or any interest therein.

6.26Additional Representations and Warranties. This Agreement, the Note and the other Loan Documents constitute the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with their respective terms.

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Section 7-Covenants

7.1Affirmative Covenants. So long as any portion of the Obligations remains unsatisfied, Borrower hereby covenants and agrees with Lender as follows:

(a)Payment and Performance of Obligations. Borrower shall pay all of the Loan and related expenses when and as the same become due and payable, and Borrower shall strictly observe and perform all of the Obligations, including without limitation, all covenants, agreements, terms, conditions and limitations contained in the Loan Documents, and will do all things necessary which are not prohibited by law to prevent the occurrence of any Event of Default hereunder; and Borrower will maintain an office or agency in the State of Texas where notices, presentations and demands in respect of the Loan Documents may be made upon Borrower. Such office or agency and the books and records of Borrower shall be maintained at 1221 Riverbend Drive, Suite 120, Dallas, Texas 75221 until such time as Borrower shall so notify Lender, in writing, of any change of location of such office or agency.

(b)Maintenance of Existence, Qualification and Assets. Borrower shall at all times (i) maintain its legal existence, (ii) maintain its qualification to transact business and good standing in any state and in any jurisdiction where it conducts business in connection with the Resorts, and (iii) comply or cause compliance with all governmental laws, rules, regulations and ordinances applicable to the Resorts, Borrower or its business, including, without limitation, the Timeshare Act.

(c)Consolidation and Merger. Borrower will not consolidate with or merge into any other Person or permit any other Person to consolidate with or merge into it, unless: (i) Borrower is the continuing or surviving corporation in any such consolidation or merger and (ii) prior to and immediately after such consolidation or merger, Borrower shall not be in default hereunder.

(d)Maintenance of Insurance. Borrower, or if required pursuant to the Declarations, the Timeshare Owners’ Associations, shall maintain (or Borrower shall cause to be maintained) at all times during the term of this Agreement, policies of insurance with premiums being paid when due, and shall deliver to Lender originals of insurance policies issued by insurance companies, in amounts, in form and in substance, and with expiration dates, all acceptable to Lender and containing a waiver of subrogation rights by the insuring company, a non-contributory standard mortgagee benefit clause, or their equivalents, and a mortgagee loss payable endorsement in favor of and satisfactory to Lender, and breach of warranty coverage, providing the following types of insurance on and with respect to Borrower (or, as appropriate, the respective Associations), the Collateral, including the Real Property, and the Resorts:

(i)fire and extended coverage insurance (including lightning, hurricane, tornado, wind and water damage, vandalism and malicious mischief coverage) covering the improvements and any personal property located in or on the Resorts and the Real Property in an amount not less than the full replacement value of such improvements and personal property, and said policy of insurance shall provide for a deductible acceptable to Lender, breach of warranty coverage, replacement cost endorsements satisfactory to Lender, and shall not permit co-insurance;

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(ii)public liability and property damage insurance covering the Resorts and the Real Property in amounts and on terms satisfactory to Lender; and

(iii)such other insurance on the Resorts and the Real Property or any replacements or substitutions therefor including, without limitation, flood insurance (if the Property or the Real Property is or becomes located in an area which is considered a flood risk by the U.S. Emergency Management Agency or pursuant to the National Flood Insurance program), in such amounts and upon terms as may from time to time be reasonably required by Lender.

To the extent any other timeshare receivable lender has any rights to approve the form of insurance policies with respect to the Resorts, the amounts of coverage thereunder, the insurers under such policies, or the designation of an attorney-in-fact for purposes of dealing with damage to any part of the Resorts or insurance claims or matters related thereto, or any successor to such attorney-in-fact, or any changes with respect to any of the foregoing, Borrower shall take all steps as may be necessary (and, after turnover, if any, of control of the Resort to the Timeshare Owners’ Association, Borrower shall use its best efforts) to ensure that Lender shall at all times have a co-equal right, with such other lender (including, without limitation, Borrower or any third-party lender), to approve all such matters and any proposed changes in respect thereof; and Borrower shall not cause or permit any changes with respect to any insurance policies, insurers, coverage, attorney-in-fact, or insurance trustee, if any, without Lender’s prior written approval.

In the event of any insured loss or claim in respect of the Resorts, or the Real Property, Borrower shall apply (or cause to be applied), and Borrower covenants that the Timeshare Owners’ Association shall apply (or cause to be applied), all proceeds of such insurance policies in a manner consistent with the Timeshare Documents and the Timeshare Act.

All insurance policies required pursuant to this Agreement (or the Timeshare Documents or Timeshare Act) shall provide that the coverage afforded thereby shall not expire or be amended, canceled, modified or terminated without at least thirty (30) days prior written notice to Lender. At least thirty (30) days prior to the expiration date of each policy maintained pursuant to this Section 7.1(d), a renewal or replacement thereof satisfactory to Lender shall be delivered to Lender. Borrower shall deliver or cause to be delivered to Lender receipts evidencing the payment for all such insurance policies and renewals or replacements.

In the event of any fire or other casualty to or with respect to the improvements on or at the Resorts, Borrower covenants that Borrower or the Timeshare Owners’ Association, as the case may be, will promptly restore or repair (or cause to be restored, repaired or replaced) the damaged improvements and repair or replace any other personal property to the same condition as immediately prior to such fire or other casualty and, with respect to the improvements and personal property on the Resorts, in accordance with the terms of the Timeshare Documents or Timeshare Act. The insufficiency of any net insurance proceeds shall in no way relieve Borrower or, as applicable, Borrower and Timeshare Owners’ Association, of its obligation to restore, repair or replace such improvements and other personal property in accordance with the terms hereof, of the Declaration or other Timeshare Documents or of the Timeshare Act, and Borrower covenants that Borrower or, as the case may be, the Timeshare Owners’ Association, shall promptly comply and cause compliance with the provisions of the Declaration and other Timeshare Documents, or of the Timeshare Act relating to such restoration, repair or replacement. Borrower shall, unless an Event of Default has occurred, apply all insurance proceeds payable to or received by it, in accordance with the applicable Declaration. If an Event of Default has occurred, Lender may, in its sole discretion, apply all insurance proceeds in accordance with the applicable Declaration or to the repayment of the Loan in accordance with Section 2.4 and 2.5 hereof.

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(e)Maintenance of Security. Borrower shall execute and deliver (or cause to be executed and delivered) to Lender all security agreements, financing statements, assignments and such other agreements, documents, instruments and certificates, and supplements and amendments thereto, and take such other actions, as Lender deems necessary or appropriate in order to maintain as valid, enforceable and perfected first or second priority liens and security interests, as applicable, all Liens and security interests in the Collateral granted Lender to secure the Obligations. Borrower shall not grant extensions of time for the payment of, compromise for less than the full face value or release in whole or in part, any Purchaser or other Person liable for the payment of, or allow any credit whatsoever except for the amount of cash to be paid upon, any Collateral or any instrument, chattel paper or document representing the Collateral.

(f)Payment of Taxes and Claims. Borrower will pay, and, as applicable pursuant to the Declaration, Borrower covenants that the Timeshare Owners’ Association will pay, when due, all taxes imposed upon the Resorts, the Collateral, Borrower, the Timeshare Owners’ Association, or any of its or their property, or with respect to any of its or their franchises, businesses, income or profits, or with respect to the Loan or any of the Loan Documents; and Borrower and the Timeshare Owners’ Association, as the case may be, shall pay all other charges and assessments against Borrower, the Collateral and the Resorts before any claim (including, without limitation, claims for labor, services, materials and supplies) arises for sums which have become due and payable. Except for the Liens granted pursuant to the Loan Documents, and except as otherwise specifically provided for herein, Borrower covenants that no statutory or other Liens whatsoever (including, without limitation, mechanics’, materialmens’, judgment or tax liens) shall attach to any of the Collateral or the Resorts except for such Liens as are expressly provided for pursuant to the Declaration, which shall, in any event, be subordinate to the Lien of Lender. In the event any such Lien attaches to any of the Collateral or the Resorts, Borrower shall, within thirty (30) days after any such Lien attaches, either (i) cause such Lien to be released of record or (ii) provide Lender with a bond in accordance with the applicable laws of the State, issued by a corporate surety acceptable to Lender, in an amount and form acceptable to Lender.

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(g)Inspections. Borrower shall, at any time and from time to time and at the expense of Borrower, permit Lender or its agents or representatives to inspect the Resorts, the Collateral and if necessary, in Lender’s opinion, to ascertain or assure Borrower’s compliance with the terms of this Agreement, any of Borrower’s other assets or Property, and to examine and make copies of and abstracts from its and, to the extent it has access thereto or possession thereof, the Timeshare Owners’ Association’s, books, accounts, records, original correspondence, computer tapes, disks, software, and other papers as it may desire; and to discuss its affairs, finances and accounts with any of its officers, employees, Affiliates, contractors or independent public accountants (and by this provision Borrower authorizes said accountants to discuss with Lender, its agents or representatives, the affairs, finances and accounts of Borrower). Lender agrees to use reasonable efforts not to unreasonably interfere with Borrower’s business operations in connection with any such inspections. Without limiting the foregoing, Lender shall have the right to make such credit investigations as Lender may deem appropriate in connection with its review of Notes Receivable, and Borrower shall make available to Lender all credit information in Borrower’s possession or under its control or to which it may have access, with respect to Purchasers or other obligors under Notes Receivable as Lender may request.

(h)Reporting Requirements. So long as any portion of the Obligations remain unsatisfied, Borrower shall furnish (or cause to be furnished, as the case may be) to Lender the following:

(i)Monthly Financial Reports. As soon as available and in any event within ten (10) business days after the end of each calendar month the following reports: (i) the trial balance of the Pledged Notes Receivable; (ii) an aging report on the Pledged Notes Receivable; (iii) a report detailing the collections on each of the Pledged Notes Receivable; (iv) a Borrowing Base Report; (v) a deposit summary and other monthly reports from the Lockbox Agent required pursuant to the Lockbox Agreement; (vi) reports relating to Eligibility Criteria for Notes Receivable including: (a) modified accounts; (b) upgrades; (c) employees of Borrower; (d) non-U.S. or non-Canadian accounts; (e) pending cancellations; (f) residents in Canada; (g) terms greater than 120 months; (h) less than 10% down payments; (i) principal balances over $60,000; and (j) principal balances over $35,000; and (vii) other reports including: (a) paid-in-full; (b) delinquency; (c) accounts added; (d) accounts subtracted; (e) summary of accounts added; (f) summary of accounts subtracted; (g) summary of delinquencies; (h) Borrower's monthly summary; (i) maintenance fee letter; (j) maintenance fee back-up for prior month(s); (k) copies of checks deposited to clear up auto debit delay; (l) compact disc of trial balances broken down by old and new accounts; and (m) reports relating to Purchaser criteria including individual and weighted average FICO indicators for all new Purchasers for the second preceding month. Each such report, other than the reports provided under subparagraph (v) above, shall be certified by the Borrower in accordance with Exhibit G attached hereto.

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(ii)Quarterly Financial Reports. As soon as available and in any event within forty-five (45) days after the end of each fiscal quarter, copies of income statements and balance sheets for the operations of each Resort and for Borrower, certified by the Chief Financial Officer of Borrower;

(iii)Annual Financial Reports. As soon as available and in any event within ninety (90) days after the end of each calendar year or other fiscal year as may be applicable with respect to Borrower (a “Fiscal Year”), a statement of income and expense of Borrower for the annual period ended as of the end of such Fiscal Year, and a balance sheet of Borrower as of the end of such Fiscal Year, all in such detail and scope as may be reasonably required by Lender and prepared in accordance with GAAP and on a basis consistent with prior accounting periods. Each annual financial statement of Borrower shall be prepared by an independent certified public accountant and certified by Borrower to be true, correct and complete, and shall otherwise be in form acceptable to Lender. In the event that Lender, acting in good faith, is not satisfied with any such Financial Statement, and if Borrower fails to provide Lender with new Financial Statements acceptable to Lender within fifteen (15) days after Lender delivers written notice of such dissatisfaction to Borrower, then, at Lender’s request, Borrower shall furnish to Lender copies of audited income statements and balance sheets certified by an independent certified public accountant acceptable to Lender and prepared in accordance with GAAP and on a basis consistent with prior accounting periods. Such audited annual statements shall also be in form and content satisfactory to Lender. If the figures for net and total operating income (as such terms are defined in accordance with GAAP) in the audited annual statements do not vary by more than five percent (5%) from the figures in the unaudited annual statements, Lender shall bear the cost of the certified public accountant’s audit. If, however, such figures vary by more than five percent (5%), Borrower shall bear the cost of such certified public accountant’s audit;

(iv)Officer’s Certificate. Each set of annual Financial Statements or reports delivered to Lender pursuant to Sections 7.1(h)(i) and 7.1(h)(ii) of this Agreement will be accompanied by a certificate of the President or the Treasurer of Borrower in the form attached as Exhibit H setting forth that the signers have reviewed the relevant terms of the Agreement (and all other agreements and exhibits between the parties) and have made, or caused to be made, under their supervision, a review of the transactions and conditions of Borrower from the beginning of the period covered by the Financial Statements or reports being delivered therewith to the date of the certificate and that such review has not disclosed the existence during such period of any condition or event which constitutes a Default or Event of Default or, if any such condition or event existed or exists or will exist, specifying the nature and period of existence thereof and what action Borrower has taken or proposes to take with respect thereto;

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(v)Sales Reports. Concurrently with the financial statements required pursuant to Section 7.1(h)(i), Borrower shall deliver to Lender, a sales report, detailing the sales of all Intervals at the Resorts for the period covered thereby, certified by Borrower to be true, correct and complete and otherwise in a form approved by Lender;

(vi)Audit Reports. Promptly upon receipt thereof, one (1) copy of each other report submitted to Borrower by independent public accountants or other Persons in connection with any annual, interim or special audit made by them of the books of Borrower;

(vii)Notice of Default or Event of Default. Immediately upon becoming aware of the existence of any condition or event which constitutes a Default or an Event of Default, Borrower shall deliver to Lender a written notice specifying, as applicable, the nature and period of existence thereof and what action Borrower is taking or proposes to take with respect thereto;

(viii)Notice of Claimed Default. Immediately upon becoming aware of a claim of Default or Event of Default, a written notice specifying, as applicable, the nature and period of existence thereof and what action Borrower is taking or proposes to take with respect thereto;

(ix)Maintenance of Inventory Control. Borrower shall maintain and at all times fully comply with the Inventory Control Procedures from the date hereof until the Loan is repaid in full. Borrower shall permit Lender, its officers, employees, auditors, and other agents or designees to review the books and records of Borrower and make such other examinations and inspections as Lender in its sole discretion deems necessary to determine that Borrower is in full compliance with such Inventory Control Procedures;

(x)Material Adverse Developments. Immediately upon becoming aware of any claim, action, proceeding, development or other information which may materially and adversely affect Borrower, the Collateral, the Resorts, the business, prospects, profits or condition (financial or otherwise) of Borrower, or the ability of Borrower to perform its Obligations under the Agreement, Borrower shall provide Lender with telephonic or telegraphic notice, followed by telefaxed and mailed written confirmation, specifying the nature of such development or information and such anticipated effect; and

(xi)Other Information. Borrower shall deliver to Lender: (i) within five (5) days of the filing thereof with the United States Securities and Exchange Commission, copies of each Form 8-K, 10-Q and 10-K filed by Borrower; (ii) at least semi-annually during the Term (or more frequently upon request of Lender), current addresses and telephone numbers for each obligor under an Eligible Note Receivable pledged to Lender and (iii) any other information related to the Loan, the Collateral, the Resorts or Borrower as Lender may in good faith request including, without limitation, annually, federal call reports relating to Lockbox Agent.

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(i)Records. Borrower shall keep adequate records and books of account reflecting all financial transactions of Borrower and with respect to the Resorts in which complete entries will be made in accordance with GAAP. In addition, Borrower shall keep, and shall promptly deliver to Lender upon Lender’s request therefor, complete, timely and accurate records of all sales of Intervals and all payments in respect of Pledged Notes Receivable.

(j)Management. Borrower shall: (i) remain engaged in the active management of the Resorts, (ii) unless Borrower notifies Lender in writing at least thirty (30) days in advance of its new location, retain its executive offices at 1221 Riverbend Drive, Suite 120, Dallas, Texas 75221, and (iii) continue to perform duties substantially similar to those presently performed as provided in the management agreement relating to each Resort. No management agreement for any Resort shall be modified, assigned, extended, terminated or entered into nor shall the current method of operation and management of the Resorts be changed in any material manner, without the prior written approval of Lender.

(k)FICA. Borrower shall furnish to Lender within thirty (30) days after the expiration of each calendar quarter proof reasonably satisfactory to Lender that Borrower’s obligations to make deposits for F.I.C.A., social security and withholding taxes have been satisfied.

(l)Operating Contracts. Subject to the rights of the Timeshare Owners’ Association as set forth in the Timeshare Documents, no Operating Contract shall be modified, extended, terminated or entered into, without the prior written approval of Lender, if any such modification, extension, termination or new agreement could have a material adverse impact on the operation of the Resorts or the Collateral.

(m)Notices. Borrower shall notify Lender within five (5) Business Days of the occurrence of any event (i) as a result of which any representation or warranty of Borrower contained in any Loan Documents would be incorrect or materially misleading if made at that time, or (ii) as a result of which Borrower is not in full compliance with all of its covenants and agreements contained in this Agreement or any Loan Document, or (iii) which constitutes or, with the passage of time, notice or a determination by Lender would constitute, an Event of Default.

(n)Maintenance. Borrower shall maintain, or shall cause to be maintained, or to the extent provided for pursuant to the Declaration, shall use its best efforts to cause the Timeshare Owners’ Association to maintain, and the Resorts in good repair, working order and condition and shall make all necessary replacements and improvements to the Resorts consisting of real property so that the value and operating efficiency of the Resorts will be maintained at all times and so that the Resorts remain in compliance in all respects with the Timeshare Act, the Timeshare Documents and other applicable law.

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(o)Claims. Borrower shall promptly notify Lender of any claim, action or proceeding affecting the Resorts or Collateral, or any part thereof, or Lender, or any of the security interests or rights granted in favor of Lender hereunder or under any of the Loan Documents. At the request of Lender, Borrower shall appear in and defend in favor of Lender, at Borrower’s sole expense, any such claim, action or proceeding.

(p)Registration and Regulations.

(i)Local Legal Compliance. Borrower will comply, and will cause the Resorts to comply, with all applicable servitudes, restrictive covenants, applicable planning, zoning or land use ordinances and building codes, all applicable health and Environmental Laws and regulations, and all other applicable laws, rules, regulations, agreements or arrangements.

(ii)Registration Compliance. Borrower will maintain, or cause to be maintained, all necessary registrations, current filings, consents, franchises, approvals, and exemption certificates, and Borrower will make or pay, or cause to be made or paid, all registrations, declarations or fees with the Division and any other government or any agency or department thereof, whether in the state or another jurisdiction, required in connection with the Resorts and the occupancy, use and operation thereof, the incorporation of Units into the time-share plan established pursuant to the Declaration and the other Timeshare Documents, and the sale, advertising, marketing, and offering for sale of Intervals. All such registrations, filings and reports will be truthfully completed; and true and complete copies of such registrations, applications, consents, licenses, permits, franchises, approvals, exemption certificates, filings and reports will be delivered to Lender. Borrower shall advise Lender of any changes with respect to its marketing or sales programs in any jurisdiction, including jurisdictions other than the state, and at Lender’s request from time to time, Borrower shall deliver to Lender: (A) written statements by the applicable state authorities, in form acceptable to Lender, stating that no registration is necessary for the sale of Intervals in the particular state, (B) an opinion of counsel in form acceptable to Lender and rendered by counsel acceptable to Lender, stating that no such registration is necessary, or (C) such other evidence of compliance with applicable laws as Lender may require; and

(iii)Other Compliance. Borrower has, in all material respects, complied with and will comply with all laws and regulations of the United States, the State of Texas, each state in which an applicable Resort or Collateral is located, any political subdivision of either such state and any other governmental, quasi-governmental or administrative jurisdiction in which Intervals have been sold or offered for sale, or in which sales, offers of sale or solicitations with respect to the Resorts have been or will be conducted, including to the extent applicable, but not limited to: (1) the Timeshare Act; (2) the Consumer Credit Protection Act; (3) Regulation Z of the Federal Reserve Board; (4) the Equal Credit Opportunity Act; (5) Regulation B of the Federal Reserve Board; (6) the Federal Trade Commission’s 3-day cooling-off Rule for Door-to-Door Sales; (7) Section 5 of the Federal Trade Commission Act; (8) ILSA; (9) federal postal laws; (10) applicable state and federal securities laws; (11) applicable usury laws; (12) applicable trade practices, home and telephone solicitation, sweepstakes, anti-lottery and consumer credit and protection laws; (13) applicable real estate sales licensing, disclosure, reporting and escrow laws; (14) the ADA; (15) RESPA; (16) all amendments to and rules and regulations promulgated under the foregoing acts or laws; (17) the Federal Trade Commission’s Privacy of Consumer Financial Information Rule; (18) other applicable federal statutes and the rules and regulations promulgated thereunder; and (19) any state law or law of any state (and the rules and regulations promulgated thereunder) relating to ownership, establishment or operation of the Resort, or the sale, offering for sale, or financing of Intervals.

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(q)Other Documents. Borrower will maintain to the satisfaction of Lender and make available to Lender, accurate and complete files relating to the Resorts, the Pledged Notes Receivable and other Collateral, and such files will contain true copies of each Pledged Note Receivable, as amended from time to time, copies of all relevant credit memoranda relating to such Notes Receivable and all collection information and correspondence relating thereto. Without limiting the foregoing, Borrower shall maintain evidence of its compliance with the requirements of Section 3.8.

(r)Further Assurances. Borrower will execute and deliver, or cause to be executed and delivered, such other and further agreements, documents, instruments, certificates and assurances as, in the judgment of Lender exercised in good faith may be necessary or appropriate to more effectively evidence or secure, and to ensure the performance of, the Obligations. In addition, Borrower shall deliver to Lender from time to time upon each request by Lender such documents, instruments or other matters or items as Lender may require to evidence Borrower’s compliance with the covenants set forth in this Section 7.1 and Section 3.8.

(s)Utilities. Borrower will cause, or to the extent provided for pursuant to the Declaration, covenants to use its best efforts to ensure that the Timeshare Owners’ Association, or the manager of the Resorts, as applicable, will cause, electric, sanitary and stormwater sewer, water facilities, drainage facilities, solid waste disposal, telephone and other necessary utilities to be available to the Resorts in sufficient capacity to service the Resorts.

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(t)Amenities. Borrower will cause, or to the extent provided for pursuant to the Declarations, will use its best efforts to ensure that the Timeshare Owners’ Association, or the manager of the Resort, as applicable, will cause, the Resorts to be maintained in good condition and repair, and in accordance with the provisions of the applicable Timeshare Documents, and Borrower will cause each Purchaser of an Interval at the Resorts to have continuing access to, and the use of, to the extent of such Purchaser’s time-share periods, all of the Common Elements and related or appurtenant services, rights and benefits, all as provided in the Declaration and the Timeshare Documents.

(u)Expenses and Closing Fees. Whether or not the transactions contemplated hereunder are completed, Borrower shall pay all expenses of Lender and each of Lender’s participants relating to negotiating, preparing, documenting, closing and enforcing this Agreement, including, but not limited to:

(i)the cost of preparing, reproducing and binding this Agreement, the other Loan Documents and all Exhibits and Schedules thereto;

(ii)the reasonable fees and disbursements of Lender’s and each of Lender’s participants’ counsel;

(iii)Lender’s and each of Lender’s participants’ reasonable out-of-pocket expenses;

(iv)all reasonable fees and expenses (including fees and expenses of Lender’s and each of Lender’s participants’ counsel) relating to any amendments, waivers, consents or subsequent closings pursuant to the provisions hereof;

(v)all costs, outlays, legal fees and expenses of every kind and character had or incurred in (1) the interpretation or enforcement of any of the provisions of, or the creation, preservation or exercise of rights and remedies under, any of the Loan Documents including the costs of appeal (2) the preparation for, negotiations regarding, consultations concerning, or the defense or prosecution of legal proceedings involving any claim or claims made or threatened against Lender arising out of this transaction or the protection of the Collateral securing the Loan or Advances made hereunder, expressly including, without limitation, the defense by Lender, and each of Lender’s participants of any legal proceedings instituted or threatened by any Person to seek to recover or set aside any payment or setoff theretofore received or applied by Lender and each of Lender’s participants with respect to the Obligations, and any and all appeals thereof; and (3) the advancement of any expenses provided for under any of the Loan Documents;

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(vi)all expenses relating to the maintenance and administration of the Lockbox and Lockbox Account by the Lockbox Agent and Servicing and any escrow by the Title Company or any other escrow agent;

(vii)all costs and expenses incurred by Lender under the Note, and all late charges under the Note;

(viii)all real and personal property taxes and assessments, documentary stamp and intangible taxes, sales taxes, recording fees, title insurance premiums and other title charges, document copying, transmittal and binding costs, appraisal fees, lien and judgment search costs, fees of architects, engineers, environmental consultants, surveyors and any special consultants, construction inspection fees, brokers fees, escrow fees, wire transfer fees, and all travel and out-of-pocket expenses of Lender and each of Lender’s participants to conduct inspections or audits. Without limitation of the foregoing, Borrower shall pay the costs of UCC and other searches, UCC and other Loan Document recording fees and applicable taxes, and premiums on each Mortgagee Title Policy delivered to Lender pursuant to this Agreement; and

(ix)with respect to the fees payable by Borrower under clauses (ii), (iii), and (iv) above, provided that no Event of Default or condition, omission or act which, with the passage of time, notice or both, would constitute an Event of Default, has occurred, Lender and/or Lender’s participants shall provide Borrower in advance, as applicable, with good faith estimates of: (1) the reasonable fees and disbursements of participant’s counsel; (2) the participant’s reasonable out-of-pocket expenses; and (3) the reasonable fees and expenses of participants and each participant’s counsel relating to any amendments, waivers, consents or subsequent closings pursuant to the provisions hereof, respectively; and such fees, disbursements and expenses shall be in accordance with such good faith estimates.

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(v)Indemnification of Lender. In addition to (and not in lieu of) any other provisions of any Loan Document providing for indemnification in favor of Lender, Borrower shall defend, indemnify and hold harmless Lender, its subsidiaries, affiliates, officers, directors, agents, employees, representatives, consultants, contractors, servants, and attorneys, as well as the respective heirs, personal representatives, successors or assigns of any or all of them (hereafter collectively the “Indemnified Lender Parties”), from and against, and promptly pay on demand or reimburse each of them with respect to, any and all liabilities, claims, demands, losses, damages, costs and expenses (including without limitation, reasonable attorneys’ and paralegals’ fees and costs), actions or causes of action of any and every kind or nature whatsoever asserted against or incurred by any of them by reason of or arising out of or in any way related or attributable to (i) this Agreement, the Loan Documents, or the Collateral; (ii) the transactions contemplated under any of the Loan Documents or any of the Timeshare Documents, including without limitation, those in any way relating to or arising out of the violation of any federal or state laws, including the Timeshare Act; (iii) any breach of any covenant or agreement or the incorrectness or inaccuracy of any representation and warranty of Borrower contained in this Agreement or any of the Loan Documents (including without limitation any certification of Borrower delivered to Lender); (iv) any and all taxes, including real estate, personal property, sales, mortgage, excise, intangible or transfer taxes, and any and all fees or charges, including, without limitation under the Timeshare Act, which may at any time arise or become due prior to the payment, performance and discharge in full of the Obligations; (v) the breach of any representation or warranty as set forth herein regarding any Environmental Laws; (vi) the failure of Borrower to perform any obligation or covenant herein required to be performed pursuant to any Environmental Laws; (vii) the use, generation, storage, release, threatened release, discharge, disposal or presence on, under or about the Resorts of any Hazardous Materials; (viii) the removal or remediation of any Hazardous Materials from the Resorts required to be performed pursuant to any Environmental Laws or as a result of recommendations of any environmental consultant or as required by Lender; (ix) claims asserted by any Person (including without limitation any governmental or quasi-governmental agency, commission, department, instrumentality or body, court, arbitrator or administrative board (collectively, a “Governmental Agency”), in connection with or any in any way arising out of the presence, use, storage, disposal, generation, transportation, release, or treatment of any Hazardous Materials on, in, under or affecting the Resorts; (x) the violation or claimed violation of any Environmental Laws in regard to the Resorts; or (xi) the preparation of an environmental audit or report on the Resorts, whether conducted by Lender, Borrower or a third-party, or the implementation of environmental audit recommendations. Such indemnification shall not give Borrower any right to participate in the selection of counsel for Lender or the conduct or settlement of any dispute or proceeding for which indemnification may be claimed. Lender agrees to give Borrower written notice of the assertion of any claim or the commencement of any action or lawsuit described in this Section. It is the express intention of the parties hereto that the indemnity provided for in this Section, as well as the disclaimers of liability referred to in this Agreement, are intended to and shall protect and indemnify Lender from the consequences of Lender’s own negligence, whether or not that negligence is the sole or concurring cause of any liability, obligation, loss, damage, penalty, action, judgment, suit, claim, cost, expense or disbursement provided, however, that Borrower shall not be required to protect and indemnify Lender or any Lender from the consequences of Lender’s or any such Lender’s gross negligence, where that gross negligence is the sole cause of the liability, obligation, loss, damage, penalty, action, judgment, suit, claim, cost, expense or disbursement for which indemnification or protection would otherwise be required. The provisions of this Section shall survive the full payment, performance and discharge of the Obligations and the termination of this Agreement, and shall continue thereafter in full force and effect.

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(w)Financial Covenants.

(i)Tangible Net Worth. Borrower shall at all times have and maintain Tangible Net Worth in an amount which shall not be less than an amount equal to the Tangible Net Worth as stated in the annual audited financial statements as of December 31, 2004 plus (A) fifty percent (50%) of the aggregate amount of proceeds received by Borrower after December 31, 2004 in connection with each issuance by Borrower of any class or classes of capital stock after December 31, 2004, except for stock issued to retire existing unsecured subordinated debt, plus (B) fifty percent (50%) of the aggregate amount of net income (calculated in accordance with GAAP) of Borrower after December 31, 2004.

(ii)Marketing and Sales Expenses. As of the last day of each fiscal quarter, Borrower will not permit the twelve (12) month cumulative ratio of Marketing and Sales Expenses to the Borrower’s net proceeds from the sale of Intervals as recorded on the Borrower’s financial statements for the immediately preceding twelve (12) consecutive months to equal or exceed a ratio of .570 to 1.

(iii)Maximum Loan Delinquency. Borrower will not permit as of the last day of each calendar quarter its over 30-day delinquency rate on its entire Notes Receivable portfolio to be greater than twenty-five percent (25%). If, as of the last day of each calendar quarter, Borrower’s over 30-day delinquency on its entire Notes Receivable portfolio is greater than twenty percent (20%), then Lender shall have the right to conduct an audit, at Borrower’s sole cost and expense, of all Borrower’s Notes Receivable pledged to the Lender hereunder.

(iv)Interest Coverage. The Interest Coverage Ratio for Borrower shall be at least 1.25:1. The term Interest Coverage Ratio means with respect to any Person for any calendar quarter, the ratio of (a) EBITDA for such period less capital expenditures as determined in accordance with GAAP, for such period to (b) the interest expense minus all non-cash items constituting interest expense for such period.

(v)Profitable Operations. Borrower will not permit Consolidated Net Income (a) for any fiscal year, commencing with the fiscal year ending December 31, 2004, to be less than $1.00 and (b) for any two consecutive fiscal quarters (reviewed on an individual rather than on an aggregate basis) to be less than $1.00.

(vi)Debt to Equity Ratio. The Debt to Equity Ratio for Borrower shall be less than 6:1. The term Debt to Equity Ratio means the ratio of (a) debt consisting of all notes payable, capital lease obligations and senior subordinated debt as reported on the Borrower’s most recent consolidated financial statements to (b) equity consisting of the balance sheet equity and senior subordinated debt less intangible assets, including, without limitation, goodwill, trademarks, tradenames, copyrights, patents, patent allocations, licenses and rights in any of the foregoing and other items treated as intangible in accordance with GAAP, as reported on the Borrower’s most recent consolidated financial statements. In computing Borrower’s Debt to Equity Ratio, non-recourse off balance sheet financing will not be included as part of Borrower’s debt.

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(x)Net Securitization Cash Flow. If a Default or Event of Default has occurred, then Borrower shall cause Silverleaf Finance II, Inc. to declare, at least quarterly, a cash dividend payable to Borrower and/or a payment in respect of the Silverleaf Finance II Subordinated Note in an aggregate amount equal to the Net Securitization Cash Flow in respect of Silverleaf Finance II, Inc. for such quarter, and all such dividends shall be paid directly to Lender, and applied by Lender in repayment of the Loan. Borrower shall provide Lender with notice of Silverleaf Finance II, Inc.’s declaration of a cash dividend or a payment on the Silverleaf Finance II Subordinated Note, together with a certification that: (i) states whether a Default or Event of Default exists, and (ii) contains a calculation of the Net Securitization Cash Flow.

(y)The maximum Loan to Retail Value Ratio shall at no time exceed 15%.

7.2Negative Covenants. So long as any portion of the Obligations remain unsatisfied, Borrower hereby covenants and agrees with Lender as follows:

(a)Limitation on Other Debt, Further Encumbrances. Borrower will not obtain financing and grant liens with respect to the Collateral. Notwithstanding anything herein to the contrary, Borrower may, without first obtaining the written consent of Lender obtain financing and grant liens with respect to any of its assets or other property except for the Collateral and those assets or property restricted by a negative pledge provided: (i) Borrower provides ten days prior written notice to Lender setting forth the terms and conditions of such financing; (ii) no Event of Default or condition, omission or act which, with the passage of time, notice or both, would constitute an Event of Default, has occurred; (iii) such financing does not result in an Event of Default hereunder or under any documents evidencing any other indebtedness of Borrower; and (iv) Lender is promptly provided a copy of the fully executed loan documents relating thereto.

(b)Restrictions on Transfers. Except as hereinafter specifically provided, Borrower shall not, whether voluntarily or involuntarily, by operation of law or otherwise, (i) without obtaining the prior written consent of Lender (which consent may be given, withheld or conditioned by Lender in Lender’s sole discretion), transfer, sell, pledge, convey, hypothecate, factor or assign all or any portion of the Collateral, the Encumbered Intervals, the Common Elements relating to the Encumbered Intervals or any Resort facilities or amenities, or contract to do any of the foregoing, including, without limitation, pursuant to options to purchase, and so-called installment sales contracts, land contracts, or contracts for deed, provided that the foregoing restriction on transfers shall not apply to the conveyance of SPV Assets to the SPV in accordance with the Silverleaf Finance II Documents, (ii) without obtaining the prior written consent of Lender (which consent may be given, withheld or conditioned by Lender in Lender’s sole discretion), lease or license all or any portion of the Collateral, the Encumbered Intervals, the Common Elements relating to the Encumbered Intervals or any Resort facilities or amenities (except for the license created in favor of SPV under any license agreement with Borrower, Silverleaf Club or any timeshare owners association, to use or access the reservation system or related computer hardware or software for any Resort), or change the legal or actual possession or use thereof, (iii) permit the assignment, transfer, delegation, change, modification or diminution of the duties or responsibilities of Borrower, of any manager of the Resorts approved by Lender as manager of the Resorts (except for an assignment of such duties to a professional management company or companies reasonably acceptable to Lender in advance) without obtaining the prior written consent of Lender (which consent shall not be unreasonably withheld), or (iv) without obtaining the prior written consent of Lender (which consent may be given, withheld or conditioned by Lender in Lender’s sole discretion), cause or permit the assignment, pledge or other encumbrance of any of the Operating Contracts or all or any portion of Borrower’s right, title or interest in the Declaration. Without limiting the generality of the preceding sentence, and subject to the terms of this Agreement, the prior written consent of Lender (as specified above) shall be required for (A) any transfer of the Encumbered Intervals, the Common Elements relating to the Encumbered Intervals or any Resort facilities or amenities or any part thereof made to a subsidiary or Affiliate or otherwise, (B) any transfer of all or any part of the Encumbered Intervals, the Common Elements relating to the Encumbered Intervals or any Resort facilities or amenities by Borrower to its stockholders or Affiliates or vice versa, and (C) any corporate merger or consolidation, disposition or other reorganization, except as permitted in Section 7.1(c). In the event that Lender is willing to consent to a transfer which would otherwise be prohibited by this Section 7.2(b) Lender may condition its consent on such terms as it desires, including, without limitation, an increase in the Interest Rate and the requirement that Borrower pay a transfer fee, together with any expenses incurred by Lender in connection with the granting of such consent (including, without limitation, attorneys’ fees and expenses). If Borrower violates the terms of this Section 7.2(b), in addition to any other rights or remedies which Lender may have herein, in any other Loan Document, or at law or in equity, Lender may by written notice to Borrower increase, effective immediately as of the date of such violation, the Interest Rate to the Default Rate.

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(c)Use of a Lender’s or Lender’s Name. Borrower will not, and will not permit any Affiliate to, without the prior written consent of Lender or such Lender’s participant, use the name of Lender or any Lender’s participant or the name of any affiliate of Lender, any Lender or any Lender’s participant in connection with any of their respective businesses or activities, except in connection with internal business matters and as required in dealings with governmental agencies.

(d)Transactions with Affiliates. Except as provided in the Silverleaf Finance II Documents, without the prior written consent of Lender, which shall not unreasonably be withheld, Borrower will not enter into any transaction with any Affiliate in connection with the Resorts, including, without limitation, relating to the purchase, sale or exchange of any assets or properties or the rendering of any service, except in the ordinary course of, and pursuant to the reasonable requirements of, the operations of the Resorts and upon fair and reasonable terms.

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(e)Restrictive Covenants. Borrower will not without Lender’s prior written consent seek, consent to, or otherwise acquiesce in, any change in any private restrictive covenant, planning or zoning law or other public or private restriction, which would limit or alter the use of the Resorts.

(f)Subordinated Obligations. Borrower will not, directly or indirectly, (i) permit any payment to be made in respect of any indebtedness, liabilities or obligations, direct or contingent, (the “Subordinated Debt”) to any of its shareholders or their affiliates or which are subordinated by the terms thereof or by separate instrument to the payment of principal of, and interest on, the Note; (ii) permit the amendment, rescission or other modification of any such subordination provisions of any of Borrower’s subordinated obligations in such a manner as to affect adversely the Lien in and to the Collateral or Lender’s senior priority position and entitlement as to payment and rights with respect to the Note and the Obligations, or (iii) permit the prepayment or redemption, except for mandatory prepayments, of all or any part of Borrower’s obligations to its shareholders, or of any subordinated obligations of Borrower except in accordance with the terms of such subordination. Notwithstanding anything to the contrary in this Section 7.2(f), so long as Borrower’s Tangible Net Worth remains in compliance with Section 7.1(w)(i) Borrower may: (i) retire unsecured subordinated debt, and/or (ii) declare dividends, buy back stock, and perform other equity transactions.

(g)Timeshare Regime. Without Lender’s prior written consent, Borrower shall not amend, modify or terminate the Declarations or other Timeshare Documents, or any other restrictive covenants, agreements or easements regarding the Resorts (except for routine non-substantive modifications which have no impact on the Collateral). Except as otherwise provided herein, Borrower shall not assign its rights as developer under the Declarations without Lender’s prior written consent, or file or permit to be filed any additional covenants, conditions, easements or restrictions against or affecting the Resorts (or any portion thereof) without Lender’s prior written consent, which consent shall not be unreasonably withheld.

(h)Name Change. Borrower will not change its name or state of organization.

(i)Collateral. Borrower shall not take any action (nor permit or consent to the taking of any action) which might impair the value of the Collateral or any of the rights of Lender in the Collateral, except with respect to the Silverleaf Finance II Stock and the Silverleaf Finance II Subordinated Note as provided in the Silverleaf Finance II Documents, nor shall Borrower cause or permit any amendment to or modification of the form or terms of any of the Pledged Notes Receivable, Mortgages or, except as specifically provided herein above, the other Timeshare Documents.

(j)Marketing/Sales. Borrower shall not market, attempt to sell or sell or permit or justify any sales or attempted sales of any Intervals except in compliance with the Timeshare Act and applicable laws in state and other jurisdictions where marketing, sales or solicitation activities occur.

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(k)Declarant’s Rights and Management Agreements. Borrower covenants, pledges and agrees that until the Loan and all other amounts due and owing under this Agreement and the other Loan Documents are paid in full Borrower will not, voluntarily or involuntarily, directly or indirectly, mortgage, pledge, assign, sell, transfer, hypothecate, encumber, convey or grant a security interest in any: (i) contract or agreement, whether written, oral or otherwise, whether now or hereafter existing, including any management or operating contract and agreement, between Borrower or any Affiliate of the Borrower and the governing body of any Resort, with respect to the management and operation of the Resort; or (ii) any rights of the Declarant arising under the Declaration creating any Resort, or under the Bylaws for the Resort, whether now or hereafter existing.

Section 8-Events Of Default

8.1Nature of Events. An “Event of Default” shall exist if any of the following shall occur:

(a)Payments. If Borrower shall fail to make, as and when due, any payment or mandatory prepayment of principal, interest, fees or other amounts with respect to the Loan and such failure shall continue for five (5) days after notice of such failure is provided by Lender.

(b)Covenant Defaults. If Borrower shall fail to perform or observe any covenant, agreement or warranty contained in this Agreement or in any of the Loan Documents, (other than with respect to: (i) the failure to make timely payments in respect of the Loan as provided in Section 8.1(a); (ii) the failure to deliver payments made under the Pledged Notes Receivable directly to Lender as required pursuant to Section 2.4 as provided in Section 8.1(h); or (iii) violation of: (y) the financial covenants in Section 7.1(w); any negative covenants in Section 7.2) and, such failure shall continue for fifteen (15) days after notice of such failure is provided by Lender, provided however, that if Borrower commences to cure such failure within such 15 day period, but, because of the nature of such failure, cure cannot be completed within 15 days notwithstanding diligent effort to do so, then, provided Borrower diligently seeks to complete such cure, an Event of Default shall not result unless such failure continues for a total of thirty (30) days.

(c)Warranties or Representations. If any representation or other statement made by or on behalf of Borrower in this Agreement, in any of the Loan Documents or in any instrument furnished in compliance with or in reference to the Loan Documents, is false, misleading or incorrect in any material respect as of the date made or reaffirmed.

(d)Enforceability of Liens. If any lien or security interest granted by Borrower to Lender in connection with the Loan is or becomes invalid or unenforceable or is not, or ceases to be, a perfected first or second priority lien or security interest, as applicable, in favor of Lender, encumbering the asset which it is intended to encumber, and Borrower fails to cause such lien or security interest to become a valid, enforceable, first or second, as applicable, and prior lien or security interest in a manner satisfactory to Lender within ten (10) days after Lender delivers written notice thereof to Borrower.

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(e)Involuntary Proceedings. If a case is commenced or a petition is filed against Borrower under any Debtor Relief Law; a receiver, liquidator or trustee of Borrower or of any material asset of Borrower is appointed by court order and such order remains in effect for more than forty-five (45) days; or if any material asset of Borrower is sequestered by court order and such order remains in effect for more than forty-five (45) days.

(f)Proceedings. If Borrower voluntarily seeks, consents to or acquiesces in the benefit of any provision of any Debtor Relief Law, whether now or hereafter in effect; consents to the filing of any petition against it under such law; makes an assignment for the benefit of its creditors; admits in writing its inability to pay its debts generally as they become due; or consents or suffers to the appointment of a receiver, trustee, liquidator or conservator for it, or any part of its, assets.

(g)Attachment, Judgment, Tax Liens. The issuance, filing, levy or seizure against the Collateral, or, with respect to the Resorts or the Obligations, against Borrower of one or more attachments, injunctions, executions, tax liens or judgments for the payment of money cumulatively in excess of $100,000.00, which is not discharged in full or stayed within thirty (30) days after issuance or filing.

(h)Failure to Deposit Proceeds. If Borrower shall fail to deliver payments made under the Pledged Notes Receivable directly to Lender as required pursuant to Section 2.4 above, or if Borrower shall take any other act which Lender shall deem to be a conversion of the Collateral or fraudulent with respect to Lender.

(i)Timeshare Documents. If the Declaration, any of the other documents creating or governing the Resorts, its timeshare regime, or the Timeshare Owners’ Association, or the restrictive covenants with respect to the Resorts, shall be terminated, amended or modified without Lender’s prior written consent (except for routine non-substantive modifications which have no impact on the Collateral).

(j)Removal of Collateral. If Borrower conceals, removes, transfers, conveys, assigns or permits to be concealed, removed, transferred, conveyed or assigned, any of the Collateral in violation of the terms of the Loan Documents or with the intent to hinder, delay or defraud its creditors or any of them including, without limitation, Lender.

(k)Other Defaults. If a material default shall occur in any of the covenants or Obligations set forth in any of the Loan Documents.

(l)Material Adverse Change. Any material adverse change in the financial condition of Borrower or in the condition of the Collateral. For purposes of this provision, a decline in the net worth of Borrower of $100,000.00 or less shall not be considered a material adverse change.

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(m)Default by Borrower in Other Agreements. Any: (1) default, as defined in the applicable loan agreement, by Borrower: (i) in the payment of any indebtedness to any lender; (ii) in the payment or performance of other indebtedness for borrowed money or obligations secured by any part of the Resorts; or (iii) in the payment or performance of other material indebtedness or obligations (material indebtedness or obligations being defined for purposes of this provision as any indebtedness or obligation in excess of $200,000) where such default accelerates or permits the acceleration (after the giving of notice or passage of time or both) of the maturity of such indebtedness, or permits the holders of such indebtedness to elect a majority of the board of directors of Borrower (whether or not such default[s] have been waived by such holder); (2) acceleration by any lender of its respective credit facilities; or (3) default under, or acceleration of the TFC Conduit Loan.

(n)Use of Resorts. Any act or failure to act by Borrower which materially and adversely limits the rights of Purchasers to use Common Elements, and related or appurtenant easement, access and use rights and benefits of any of the Resorts, including but not limited to a default by Borrower or any Affiliate under any loan document or Declaration to which Borrower or any Affiliate is a party.

(o)Violation of Negative Covenants. Borrower violates any negative covenants set forth in Section 7.2.

(p)Violation of Financial Covenants. Borrower violates any financial covenants set forth in Section 7.1(w).

(q)Use of Loan Proceeds. If the proceeds of any Advance are used in contravention of Section 6.11.

Section 9-Remedies

9.1Remedies Upon Default. Should an Event of Default occur, Lender may take any one or more of the actions described in this Section 9, all without notice to Borrower:

(a)Acceleration. Without demand or notice of any nature whatsoever, declare the unpaid balance of the Loans, or any part thereof, immediately due and payable, whereupon the same shall be due and payable.

(b)Termination of Obligation to Advance. Terminate any obligation of Lender to lend under this Agreement in its entirety, or any portion of any such commitment, to the extent Lender shall deem appropriate, all without notice to Borrower.

(c)Judgment. Reduce Lender’s claim to judgment, foreclose or otherwise enforce Lender’s security interest in all or any part of the Collateral by any available judicial or other procedure under law.

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(d)Sale of Collateral and Foreclosure of Mortgages. Inventory Mortgages and Real Property Mortgages. After notification, if any, provided for in Section 9.2 below, Lender may sell or otherwise dispose of, at the office of Lender, or elsewhere, as chosen by Lender, all or any part of the Collateral, and any such sale or other disposition may be as a unit or in parcels, by public or private proceedings, and by way of one or more contracts (it being agreed that the sale of any part of the Collateral shall not exhaust Lender’s power of sale, but sales may be made from time to time until all of the Collateral has been sold or until the Obligations have been paid in full and fully performed), and at any such sale it shall not be necessary to exhibit the Collateral, including, without limitation, foreclosure of the Inventory Mortgages and the Real Property Mortgages. Borrower hereby acknowledges and agrees that a private sale or sales of the Collateral, after notification as provided for in Section 9.2, shall constitute a commercially reasonable disposition of the Collateral sold at any such sale or sales, and otherwise, commercially reasonable action on the part of Lender.

(e)Retention of Collateral. At Lender’s discretion, retain such portion of the Collateral as shall aggregate in value to an amount equal to the aggregate amount of the Loans, in satisfaction of the Obligations, whenever the circumstances are such that Lender elects to do so under applicable law.

(f)Receiver. Apply by appropriate judicial proceedings for appointment of a receiver for the Collateral, or any part thereof, and Borrower hereby consents to any such appointment.

(g)Purchase of Collateral. Buy the Collateral at any public or private sale.

(h)Exercise of Other Rights. Lender shall have all the rights and remedies of a secured party under the Code and other legal and equitable rights to which it may be entitled, including, without limitation, and without notice to Borrower, the right to continue to collect all payments made on the Pledged Notes Receivable, and to apply such payments to the Obligations, and to sue in its own name the maker of any defaulted Pledged Notes Receivable. Lender may also exercise any and all other rights or remedies afforded by any other applicable laws or by the Loan Documents as Lender shall deem appropriate, at law, in equity or otherwise, including, but not limited to, the right to bring suit or other proceeding, either for specific performance of any covenant or condition contained in the Loan Documents or in aid of the exercise of any right or remedy granted to Lender in the Loan Documents. Lender shall also have the right to require Borrower to assemble any of the Collateral not in Lender’s possession, at Borrower’s expense, and make it available to Lender at a place to be determined by Lender which is reasonably convenient to both parties, and shall have the right to take immediate possession of all of the Collateral, and may enter the Resorts or any of the premises of Borrower or wherever the Collateral shall be located, with or without process of law wherever the Collateral may be, and, to the extent such premises are not the property of Lender, to keep and store the same on said premises until sold (and if said premises be the property of Borrower, Borrower agrees not to charge Lender for use and occupancy, rent, or storage of the Collateral, for a period of at least ninety (90) days after sale or disposition of the Collateral).

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9.2Notice of Sale. Reasonable notification of time and place of any public sale of the Collateral or reasonable notification of the time after which any private sale or other intended disposition of the Collateral is to be made shall be sent to Borrower and to any other person entitled under the Code to notice; provided, however, that if the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender may sell or otherwise dispose of the Collateral without notification, advertisement or other notice of any kind. It is agreed that notice sent not less than five (5) calendar days prior to the taking of the action to which such notice relates is reasonable notification and notice for the purposes of this Section 9.2. Lender shall have the right to bid at any public or private sale on its own behalf. Out of money arising from any such sale, Lender shall retain an amount equal to all of its costs and charges, including attorneys’ fees for advice, counsel or other legal services or for pursuing, reclaiming, seeking to reclaim, taking, keeping, removing, storing and advertising such Collateral for sale, selling same and any and all other charges and expenses in connection therewith and in satisfying any prior Liens thereon. Any balance shall be applied upon the Obligations, and in the event of deficiency, Borrower shall remain liable to Lender. In the event of any surplus, such surplus shall be paid to Borrower or to such other Persons as may be legally entitled to such surplus. If, by reason of any suit or proceeding of any kind, nature or description against Borrower, or by Borrower or any other party against Lender or any Lender, which in such Lender’s sole discretion makes it advisable for Lender to seek counsel for the protection and preservation of Lenders’ security interest, or to defend the interest of Lender, such expenses and counsel fees shall be allowed to Lender and the same shall be made a further charge and Lien upon the Collateral.

In view of the fact that federal and state securities laws may impose certain restrictions on the methods by which a sale of Collateral comprised of Securities may be effected after an Event of Default, Borrower agrees that upon the occurrence or existence of an Event of Default, Lender may from time to time, attempt to sell all or any part of such Collateral by means of a private placement restricting the bidding and prospective purchasers to whose who will represent and agree that they are purchasing for investment only and not for, or with a view to, distribution. In so doing, Lender may solicit offers to buy such Collateral, or any part of it for cash, from a limited number of investors deemed by Lender, in its reasonable judgment, to be responsible parties who might be interested in purchasing the Collateral, and if Lender solicits such offers from not less than two (2) such investors, then the acceptance by Lender of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposition of such Collateral.

9.3Application of Collateral; Termination of Agreements. Upon the occurrence of any Event of Default: (i) Lender may, with or without proceeding with such sale or foreclosure or demanding payment or performance of the Obligations, without notice, terminate Lender’s further performance under this Agreement or any other agreement or agreements between Lender and Borrower, without further liability or obligation by Lender; (ii) Lender may, at any time, appropriate and apply on any Obligations any and all Collateral in its, the Custodian’s, or the Lockbox Agent’s possession and (iii) Lender may apply any and all balances, credits, deposits, accounts, reserves, indebtedness or other moneys due or owing to Borrower held by Lender hereunder or under any other financing agreement or otherwise, whether accrued or not. Neither such termination, nor the termination of this Agreement by lapse of time, the giving of notice or otherwise, shall absolve, release or otherwise affect the liability of Borrower in respect of transactions prior to such termination, or affect any of the Liens, security interests, rights, powers and remedies of Lender, but they shall, in all events, continue until all of the Obligations are satisfied.

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9.4Rights of Lender Regarding Collateral. In addition to all other rights possessed by Lender, Lender, at its option, may on its own behalf from time to time after there shall have occurred an Event of Default, and so long as such Event of Default remains uncured, at its sole discretion, take the following actions:

(a)transfer all or any part of the Collateral into the name of Lender or its nominee;

(b)take control of any proceeds of any of the Collateral;

(c)extend or renew the Loan and grant releases, compromises or indulgences with respect to the Obligations, any portion thereof, any extension or renewal thereof, or any security therefor, to any obligor hereunder or thereunder; and

(d)exchange certificates or instruments representing or evidencing the Collateral for certificates or instruments of smaller or larger denominations for any purpose consistent with the terms of this Agreement.

9.5Delegation of Duties and Rights. Lender may execute any of its duties and/or exercise any of its rights or remedies under the Loan Documents by or through its officers, directors, employees, attorneys, agents or other representatives.

9.6Lender not in Control. Except as expressly provided herein or in any Loan Document, none of the covenants or other provisions contained in this Agreement or in any Loan Document shall give Lender the right or power to exercise control over the affairs and/or management of Borrower.

9.7Waivers. The acceptance by Lender at any time and from time to time of partial payments of the Loan or performance of the Obligations shall not be deemed to be a waiver of any Event of Default then existing. No waiver by Lender of any Event of Default shall be deemed to be a waiver of any other or subsequent Event of Default. No delay or omission by Lender in exercising any right or remedy under the Loan Documents shall impair such right or remedy or be construed as a waiver thereof or an acquiescence therein, nor shall any single or partial exercise of any such right or remedy preclude other or further exercise thereof, or the exercise of any other right or remedy under the Loan Documents or otherwise. Further, except as otherwise expressly provided in this Agreement or by applicable law, Borrower and each and every surety, endorser, guarantor and other party liable for the payment or performance of all or any portion of the Obligations, severally waive notice of the occurrence of any Event of Default, presentment and demand for payment, protest, and notice of protest, notice of intention to accelerate, acceleration and nonpayment, and agree that their liability shall not be affected by any renewal or extension in the time of payment of the Loan, or by any release or change in any security for the payment or performance of the Loan, regardless of the number of such renewals, extensions, releases or changes.

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9.8Cumulative Rights. All rights and remedies available to Lender under the Loan Documents shall be cumulative of and in addition to all other rights and remedies granted under any of the Loan Document, at law or in equity, whether or not the Loan is due and payable and whether or not Lender shall have instituted any suit for collection or other action in connection with the Loan Documents.

9.9Expenditures by Lender. Any sums expended by or on behalf of Lender pursuant to the exercise of any right or remedy provided herein shall become part of the Obligations and shall bear interest at the Default Rate, from the date of such expenditure until the date repaid.

9.10Diminution in Value of Collateral. Lender shall not have any liability or responsibility whatsoever for any diminution or loss in value of any of the Collateral, specifically including that which may arise from Lender’s negligence or inadvertence, whether such negligence or inadvertence is the sole or concurring cause of any damage.

9.11Lender’s Knowledge. Lender shall not be deemed to have knowledge or notice of the occurrence of any Event of Default unless Lender has actual knowledge of the Event of Default or has received a notice from Borrower referring to this Agreement and describing such Event of Default.

Section 10-Certain Rights Of Lenders

10.1Protection of Collateral. Lender may at any time and from time to time take such actions as it deems necessary or appropriate to protect Lender’s Liens and security interests in and to preserve the Collateral, and to establish, maintain and protect the enforceability of Lender’s rights with respect thereto, all at the expense of Borrower. Borrower agrees to cooperate fully with all of Lender’s efforts to preserve the Collateral and Lender’s Liens, security interests and rights and will take such actions to preserve the Collateral and Lender’s Liens, security interests and rights as Lender may direct, including, without limitation, by promptly paying upon Lender’s demand therefor, all documentary stamp taxes or other taxes that may be or may become due in respect of any of the Collateral. All of Lender’s expenses of preserving the Collateral and Lender’s liens and security interests and rights therein shall be added to the Loan.

10.2Performance by Lender. If Borrower fails to perform any agreement contained herein, Lender may itself perform, or cause the performance of, such agreement on behalf of Lenders, and the expenses of Lender incurred in connection therewith shall be payable by Borrower under Section 10.5 below. In no event, however, shall Lender have any obligation or duties whatsoever to perform any covenant or agreement of Borrower contained herein or in any of the Loan Documents, Timeshare Documents or Operating Contracts, and any such performance by Lender shall be wholly discretionary with Lender. The performance by Lender, of any agreement or covenant of Borrower on any occasion shall not give rise to any duty on the part of Lender to perform any such agreements or covenants on any other occasion or at any time. In addition, Borrower acknowledges that Lender shall not at any time or under any circumstances whatsoever have any duty to Borrower or to any third party to exercise any of Lender’s rights or remedies hereunder.

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10.3No Liability of Lender. Neither the acceptance of this Agreement by Lender, nor the exercise of any rights hereunder by Lender on its behalf, shall be construed in any way as an assumption by Lender of any obligations, responsibilities or duties of Borrower arising in connection with any Resort or under the Timeshare Documents or Timeshare Acts, or any of the Operating Contracts, or in connection with any other business of Borrower, or the Collateral, or otherwise bind Lender to the performance of any obligations with respect to any Resort or the Collateral; it being expressly understood that Lender shall not be obligated to perform, observe or discharge any obligation, responsibility, duty, or liability of Borrower with respect to any Resort or any of the Collateral, or under any of the Timeshare Documents, the Timeshare Acts or under any of the Operating Contracts, including, but not limited to, appearing in or defending any action, expending any money or incurring any expense in connection therewith. Without limitation of the foregoing, neither this Agreement, any action or actions on the part of Lender taken hereunder, nor the acquisition of the Pledged Notes Receivable and the Mortgages by Lender prior to or following the occurrence of an Event of Default shall constitute an assumption by Lender of any obligations of Borrower with respect to any Resort or the Pledged Notes Receivable, the Real Property, the Inventory, the Inventory Mortgages, the Real Property Mortgages, the Mortgages or any documents or instruments executed in connection therewith, and Borrower shall continue to be liable for all of its obligations thereunder or with respect thereto. Borrower agrees to indemnify, protect, defend and hold Lender harmless from and against any and all claims, demands, causes of action, losses, damages, liabilities, suits, costs and expenses, including, without limitation, attorneys’ fees and court costs, asserted against or incurred by Lender by reason of, arising out of, or connected in any way with (i) any failure or alleged failure of Borrower to perform any of its covenants or obligations with respect to each Resort or the Purchasers of any of the Intervals, (ii) a breach of any certification, representation, warranty or covenant of Borrower set forth in any of the Loan Documents, (iii) the ownership of the Pledged Notes Receivable, the Mortgages and the rights, titles and interests assigned hereby, or intended so to be, (iv) the debtor-creditor relationships between Borrower on the one hand, and the Purchasers or Lender, as the case may be, on the other, or (v) the Pledged Notes Receivable, the Mortgages or the operation of the Resorts or sale of Intervals. The obligations of Borrower to indemnify, protect, defend and hold Lender harmless as provided in this Agreement are absolute, unconditional, present and continuing, and shall not be dependent upon or affected by the genuineness, validity, regularity or enforceability of any claim, demand or suit from which Lender is indemnified. The indemnity provisions in this Section 10.3 shall survive the satisfaction of the Obligations and termination of this Agreement, and remain binding and enforceable against Borrower, or its successors or assigns. Borrower hereby waives all notices with respect to any losses, damages, liabilities, suits, costs and expenses, and all other demands whatsoever hereby indemnified, and agrees that its obligations under this Agreement shall not be affected by any circumstances, whether or not referred to above, which might otherwise constitute legal or equitable discharges of its obligations hereunder.

10.4Right to Defend Action Affecting Security. Lender may, at Borrower’s expense, appear in and defend any action or proceeding at law or in equity which Lender in good faith believes may affect the security interests granted under this Agreement, including without limitation, with respect to Pledged Notes Receivable, the Real Property, the Inventory, the Real Property Mortgages, the Inventory Mortgages or Mortgages, the value of the Collateral or Lender’s rights under any of the Loan Documents.

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10.5Expenses. All expenses payable by Borrower, under any provision of this Agreement shall be an Obligation of Borrower and shall be paid by Borrower to Lender, upon demand, and shall bear interest at the Default Rate from the date of expense until repaid by Borrower.

10.6Lender’s Right of Set-Off. Lender shall have the right to set-off against any Collateral any Obligations then due and unpaid by Borrower, provided Borrower is in Default.

10.7No Waiver. No failure or delay on the part of Lender in exercising any right, remedy or power under this Agreement or in giving or insisting upon strict performance by Borrower hereunder or in giving notice hereunder shall operate as a waiver of the same or any other power or right, and no single or partial exercise of any such power or right shall preclude any other or further exercise thereof or the exercise of any other such power or right. Lender, notwithstanding any such failure, shall have the right thereafter to insist upon the strict performance by Borrower of any and all of the terms and provisions of this Agreement to be performed by Borrower. The collection and application of proceeds, the entering and taking possession of the Collateral, and the exercise by Lender of the rights of Lender contained in the Loan Documents and this Agreement shall not cure or waive any default, or affect any notice of default, or invalidate any acts done pursuant to such notice. No waiver by Lender of any breach or default of or by any party hereunder shall be deemed to alter or affect Lender’s rights hereunder with respect to any prior or subsequent default.

10.8Right of Lender to Extend Time of Payment, Substitute, Release Security, Etc. Without affecting the liability of any Person or entity including without limitation, any Purchasers, for the payment of any of the Obligations or without affecting or impairing Lender’s Lien on the Collateral, or the remainder thereof, as security for the full amount of the Loan unpaid and the Obligations, Lender may from time to time, without notice: (a) release any Person liable for the payment of the Loan, (b) extend the time or otherwise alter the terms of payment of the Loan, (c) accept additional security for the Obligations of any kind, including deeds of trust or mortgages and security agreements, (d) alter, substitute or release any property securing the Obligations, (e) realize upon any collateral for the payment of all or any portion of the Loan in such order and manner as it may deem fit, or (f) join in any subordination or other agreement affecting this Agreement or the lien or charge thereof.

10.9Assignment of Lender’s Interest. Lender shall have the right to assign all or any part of the Loans and all or any portion of its rights in or pursuant to this Agreement or any of the Loan Documents to any subsequent holder or holders of its Note or the Obligations evidenced thereby.

10.10Notice to Purchaser. Borrower authorizes any of Lender, Lockbox Agent or Servicing Agent (but none of Lender, Lockbox Agent nor Servicing Agent shall be obligated) to communicate at any time and from time to time with any Purchaser or any other Person primarily or secondarily liable under a Pledged Note Receivable with regard to the Lien of Lender thereon and any other matter relating thereto, and by no later than the Effective Date, Borrower shall deliver to Lender a notification to the Purchasers executed in blank by Borrower and in form acceptable to Lender, pursuant to which the Purchasers (or other obligors) may be directed to remit all payments in respect of the Collateral as Lender may require.

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10.11Collection of the Notes. Borrower hereby directs and authorizes each party liable for the payment of the Pledged Notes Receivable, and by no later than the Effective Date shall direct in writing each such party, to pay each installment thereon to Lockbox Agent pursuant to the Lockbox Agreement, unless and until directed otherwise by written notice from Lender or, at Lender’s direction, from Borrower, after which such parties are and shall be directed to make all further payments on the Pledged Notes Receivable in accordance with the directions of Lender.

Following the occurrence of an Event of Default, Lender shall have the right to require that all payments becoming due under the Pledged Notes Receivable be paid directly to Lender, and Lender is hereby authorized to receive, collect, hold and apply the same in accordance with the provisions of this Agreement. In the event that following the occurrence of an Event of Default, Lender or Lockbox Agent does not receive any installment of principal or interest due and payable under any of the Pledged Notes Receivable on or prior to the date upon which such installment becomes due, Lender may, at its election (but without any obligation to do so), give or cause Lockbox Agent to give notice of such default to the defaulting party or parties, and Lender shall have the right (but not the obligation), subject to the terms of such Notes, to accelerate payment of the unpaid balance of any of the Pledged Notes Receivable in default and to foreclose each of the Mortgages securing the payment thereof, and to enforce any other remedies available to the holder of such Pledged Notes Receivable with respect to such default. Borrower hereby further authorizes, directs and empowers Lender (and Lockbox Agent or any other Person as may be designated by Lender in writing) to collect and receive all checks and drafts evidencing such payments and to endorse such checks or drafts in the name of Borrower and upon such endorsements, to collect and receive the money therefor. The right to endorse checks and drafts granted pursuant to the preceding sentence is irrevocable by Borrower, and the banks or banks paying such checks or drafts upon such endorsements, as well as the signers of the same, shall be as fully protected as though the checks or drafts have been endorsed by Borrower.

10.12Power of Attorney. Borrower does hereby irrevocably constitute and appoint Lender as Borrower’s true and lawful agent and attorney-in-fact, with full power of substitution, for Borrower and in Borrower’s name, place and stead, or otherwise, to (a) endorse any checks or drafts payable to Borrower in the name of Borrower and in favor of Lender on behalf of each Lender as provided in Section 10.11 above, (b) to demand and receive from time to time any and all property, rights, titles, interests and liens hereby sold, assigned and transferred, or intended so to be, and to give receipts for same, (c) from time to time to institute and prosecute in Lender’s own name any and all proceedings at law, in equity, or otherwise, that Lender may deem proper in order to collect, assert or enforce any claim, right or title, of any kind, in and to the property, rights, titles, interests and liens hereby sold, assigned or transferred, or intended so to be, and to defend and compromise any and all actions, suits or proceedings in respect of any of the said property, rights, titles, interests and liens, (d) upon an Event of Default to change Borrower’s post office mailing address, and (e) generally to do all and any such acts and things in relation to the Collateral as Lender shall in good faith deem advisable. Borrower hereby declares that the appointment made and the powers granted pursuant to this Section 10.12 are coupled with an interest and are and shall be irrevocable by Borrower in any manner, or for any reason, unless and until a release of the same is executed by Lender and duly recorded in the appropriate public records of Dallas County, Texas.

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10.13Relief from Automatic Stay, Etc. To the fullest extent permitted by law, in the event Borrower shall make application for or seek relief or protection under the federal bankruptcy code (“Bankruptcy Code”) or other Debtor Relief Laws, or in the event that any involuntary petition is filed against Borrower under such Code or other Debtor Relief Laws, and not dismissed with prejudice within 45 days, the automatic stay provisions of Section 362 of the Bankruptcy Code are hereby modified as to Lender to the extent necessary to implement the provisions hereof permitting set-off and the filing of financing statements or other instruments or documents; and Lender shall automatically and without demand or notice (each of which is hereby waived) be entitled to immediate relief from any automatic stay imposed by Section 362 of the Bankruptcy Code or otherwise, on or against the exercise of the rights and remedies otherwise available to Lender as provided in the Loan Documents.

Section 11-Term Of Agreement

This Agreement shall continue in full force and effect and the security interests granted hereby and the duties, covenants and liabilities of Borrower hereunder and all the terms, conditions and provisions hereof relating thereto shall continue to be fully operative until all of the Obligations have been satisfied in full. Borrower expressly agrees that if Borrower makes a payment to Lender, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, or otherwise required to be repaid to a trustee, receiver or any other party under any Debtor Relief Laws, state or federal law, common law or equitable cause, then to the extent of such repayment, the Obligations or any part thereof intended to be satisfied and the Liens provided for hereunder securing the same shall be revived and continued in full force and effect as if said payment had not been made.

Section 12-Miscellaneous

12.1Notices. All notices, requests and other communications to any party hereunder shall be in writing and shall be given to such party at its address set forth below or at such other address as such party may hereafter specify for the purpose of notice to Lender or Borrower. Each such notice, request or other communication shall be effective (a) if given by mail, when such notice is deposited in the United States Mail with first class postage prepaid, addressed as aforesaid, provided that such mailing is by registered or certified mail, return receipt requested, (b) if given by overnight delivery, when deposited with a nationally recognized overnight delivery service such as Federal Express or Airborne with all fees and charges prepaid, addressed as provided below, or (c) if given by any other means, when delivered at the address specified in this Section 12.1.

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If to Borrower:	Silverleaf Resorts, Inc. 1221 Riverbend Drive, Suite 120 Dallas, TX 75221 Attn: Mr. Robert Mead, CEO
With a Copy to:	Meadows, Owens, Collier, Reed, Cousins and Blau 3700 Nations Bank Plaza 901 Main St. Dallas, TX 75202 Attn: George R. Bedell, Esq.
If to Lender:	Textron Financial Corporation 40 Westminster Street Providence, Rhode Island 02903 Attention: Accounting Department/Collections
With a copy to:	Textron Financial Corporation P.O. Box 6687 Providence, Rhode Island 02940-6687 Attention: Division Counsel (RRD)
And to:	Textron Financial Corporation Resort Finance Division 45 Glastonbury Blvd. Glastonbury, CT 06033-4450 Attn: Division President

Notwithstanding the foregoing, copies of the requests or notices from Borrower to Lender which are specified in the Sections of this Agreement listed below shall not be delivered to Providence, Rhode Island as provided above, but rather shall be delivered in accordance with this Section 12.1 to Textron Financial Corporation, Resort Finance Division, 45 Glastonbury Blvd., Glastonbury, CT 06033-4450, Attention: Silverleaf Relationship Manager. The applicable Sections of this Agreement are Section 5.1(a) Request for Advances, and Section 12.10 Return of Notes Receivable. In addition, all documents, instruments and other items to be delivered to Lender from time to time pursuant to this Agreement shall be delivered to Lender’s office at Resort Finance Division, 45 Glastonbury Blvd., Glastonbury, CT 06033-4450.

12.2Survival. All representations, warranties, covenants and agreements made by Borrower herein, in the other Loan Documents or in any other agreement, document, instrument or certificate delivered by or on behalf of Borrower under or pursuant to the Loan Documents shall be considered to have been relied upon by Lender and shall survive the delivery to Lender of such Loan Documents (and each part thereof), regardless of any investigation made by or on behalf of Lender.

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12.3Governing Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (EXCEPT AS MAY BE EXPRESSLY PROVIDED THEREIN TO THE CONTRARY) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF RHODE ISLAND, EXCLUSIVE OF ITS CHOICE OF LAWS PRINCIPLES.

12.4Limitation on Interest. Lender and Borrower intend to comply at all times with applicable usury laws. All agreements between Lender and Borrower, whether now existing or hereafter arising and whether written or oral, are hereby limited so that in no contingency, whether by reason of demand or acceleration of the maturity of the Note or otherwise, shall the interest contracted for, charged, received, paid or agreed to be paid to Lender exceed the highest lawful rate permissible under applicable usury laws. If, from any circumstance whatsoever, fulfillment of any provision hereof, of the Note or of any other Loan Documents shall involve transcending the limit of such validity prescribed by any law which a Court of competent jurisdiction may deem applicable hereto, then ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity; and if from any circumstance Lender shall ever receive anything of value deemed interest by applicable law which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal of Loan and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal of the Loan, such excess shall be refunded to Borrower. All interest paid or agreed to be paid to Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full period until payment in full of the principal so that the interest on the Loan for such full period shall not exceed the highest lawful rate. Borrower agrees that in determining whether or not any interest payment under the Loan Documents exceeds the highest lawful rate, any non-principal payment (except payments specifically described in the Loan Documents as “interest”) including without limitation, prepayment fees and late charges, shall to the maximum extent not prohibited by law, be an expense, fee, premium or penalty rather than interest. Lender hereby expressly disclaims any intent to contract for, charge or receive interest in an amount which exceeds the highest lawful rate. The provisions of the Note, this Agreement, and all other Loan Documents are hereby modified to the extent necessary to conform with the limitations and provisions of this Section, and this Section shall govern over all other provisions in any document or agreement now or hereafter existing. This Section shall never be superseded or waived unless there is a written document executed by Lender and Borrower, expressly declaring the usury limitation of this Agreement to be null and void, and no other method or language shall be effective to supersede or waive this paragraph.

12.5Invalid Provisions. If any provision of this Agreement or any of the other Loan Documents is held to be illegal, invalid or unenforceable under present or future laws effective during the term thereof, such provision shall be fully severable, this Agreement and the other Loan Documents shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof or thereof, and the remaining provisions hereof or thereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of this Agreement and/or the Loan Documents (as the case may be) a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.

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12.6Successors and Assigns. This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns; provided that Borrower may not transfer or assign any of its rights or obligations under this Agreement, the Commitment or the other Loan Documents without the prior written consent of Lender. This Agreement and the transactions provided for or contemplated hereunder or under any of the Loan Documents are intended solely for the benefit of the parties hereto. No third party shall have any rights or derive any benefits under or with respect to this Agreement, the Commitment or the other Loan Documents except as provided in advance in a writing signed on behalf of Lender.

12.7Amendment. This Agreement may not be amended or modified, and no term or provision hereof may be waived, except by written instrument signed by Borrower and Lender.

12.8Counterparts; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signature thereto and hereto were on the same instrument. This Agreement shall become effective upon Lender’s receipt of one or more counterparts hereof signed by Borrower.

12.9Lender Not Fiduciary. The relationship between Borrower and Lender is solely that of debtor and creditor, and Lender has no fiduciary or other special relationship with Borrower, and no term or provision of any of the Loan Documents shall be construed so as to deem the relationship between Borrower and Lender to be other than that of debtor and creditor.

12.10Return of Notes Receivable.

(a)In the event Borrower complies with its Obligations under Section 2.5(a)(ii) of this Agreement with respect to Pledged Notes Receivable pursuant to which a default by the Purchaser thereof has occurred, and Borrower thereafter desires to enforce such Note Receivable against the Purchaser thereof, then provided that no Event of Default has occurred which has not been cured to Lender’s satisfaction (as evidenced by a written acceptance of such cure executed by Lender), and no event has occurred which with notice, the passage of time or both, would constitute an Event of Default, then within thirty (30) days after its receipt of a written request from Borrower, Lender shall deliver such ineligible Note Receivable to Borrower, provided that such delivery shall be for the sole purpose of enforcing Lender’s rights thereunder and Lender, notwithstanding such delivery, shall continue to have a first priority security interest in any such note.

(b)In the event that all Obligations hereunder are fully satisfied, then within a reasonable time thereafter, Lender shall endorse the Pledged Notes Receivable “Pay to the order of Silverleaf Resorts, Inc. without recourse”, and deliver such Pledged Notes Receivable, together with any other nonrecourse Collateral reassignment documents requested and prepared by Borrower, at Borrower’s sole cost and expense.

12.11Accounting Principles. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, the same shall be determined or made in accordance with GAAP consistently applied at the time in effect, to the extent applicable, except where such principles are inconsistent with the requirements of this Agreement.

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12.12Total Agreement. This Agreement and the other Loan Documents, including the Exhibits and Schedules to them, is the entire agreement between the parties relating to the subject matter hereof, incorporates or rescinds all prior agreements and understandings between the parties hereto relating to the subject matter hereof, cannot be changed or terminated orally or by course of conduct, and shall be deemed effective as of the date it is accepted by Lender at the offices set forth above.

12.13Litigation. TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND OR CLARIFY ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE, OR WITH RESPECT TO ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY; AND EACH AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY. EACH OF BORROWER AND LENDER FURTHER WAIVES ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. FURTHER, BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER, NOR LENDER’S COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. BORROWER ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO LENDER’S ACCEPTANCE OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

The waiver and stipulations of Borrower and Lender in this Section 12.13 shall survive the final payment or performance of all of the Obligations of Borrower and the resulting termination of this Agreement.

12.14Incorporation of Exhibits. This Agreement, together with all Exhibits and Schedules hereto, constitute one document and agreement which is referred to herein by the use of the defined term “Agreement.” Such Exhibits and Schedules are incorporated herein as to fully set out in this Agreement. The definitions contained in any part of this Agreement shall apply to all parts of this Agreement.

12.15Consent to Advertising and Publicity of Timeshare Documents. Borrower hereby consents that Lender may issue and disseminate to the public information describing the credit accommodation entered into pursuant to this Agreement, including the names and addresses of Borrower and any subsidiaries and Affiliates, the amount and a general description of Borrower’s business.

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12.16Directly or Indirectly. Where any provision in the Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provisions shall be applicable whether such action is taken directly or indirectly by such Person.

12.17Headings. Section headings have been inserted in the Agreement as a matter of convenience of reference only; such section headings are not a part of the Agreement and shall not be used in the interpretation of this Agreement.

12.18Gender and Number. Words of any gender in this Agreement shall include each other gender and the singular shall mean the plural and vice versa where appropriate.

Section 13-Special Conditions

13.1Effective Date.BORROWER ACKNOWLEDGES, AGREES AND CONFIRMS THAT THE TERMS AND CONDITIONS OF THIS AGREEMENT, INCLUDING ANY OBLIGATION OF LENDER TO MAKE ANY ADVANCE HEREUNDER, SHALL NOT BECOME EFFECTIVE UNTIL THE EFFECTIVE DATE, AS SUCH TERM IS HEREINAFTER DEFINED. FOR PURPOSES OF THIS AGREEMENT, THE TERM “EFFECTIVE DATE” SHALL MEAN THE DATE ON WHICH LENDER DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT EACH OF THE CONDITIONS SET FORTH IN Section 4 HEREOF, HAVE BEEN SATISFIED. IN SUCH EVENT, THE LOAN, AND THE RIGHTS AND OBLIGATIONS OF BORROWER WITH RESPECT THERETO, SHALL BE GOVERNED IN ALL RESPECTS BY THE TERMS AND CONDITIONS SET FORTH IN THE RECEIVABLE LOAN AGREEMENT AND THE RESTATED INVENTORY LOAN AGREEMENT, AS THE CASE MAY BE.

13.2Release. IN ORDER TO INDUCE AGENT, LENDERS AND PARTICIPANTS TO ENTER INTO THIS AGREEMENT, BORROWER ACKNOWLEDGES AND AGREES THAT: (i) BORROWER HAS NO CLAIM OR CAUSE OF ACTION AGAINST LENDER OR ANY PARTICIPANT (OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS); (ii) BORROWER HAS NO OFFSET RIGHT, COUNTERCLAIM OR DEFENSE OF ANY KIND AGAINST ANY OF ITS OBLIGATIONS, INDEBTEDNESS OR LIABILITIES TO LENDER OR ANY PARTICIPANT; AND (iii) EACH OF LENDER AND ITS PARTICIPANTS HAS HERETOFORE PROPERLY PERFORMED AND SATISFIED IN A TIMELY MANNER ALL OF ITS OBLIGATIONS TO BORROWER. BORROWER WISHES TO ELIMINATE ANY POSSIBILITY THAT ANY PAST CONDITIONS, ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS WOULD IMPAIR OR OTHERWISE ADVERSELY AFFECT LENDER’S OR ANY OF PARTICIPANTS’ RIGHTS, INTERESTS, CONTRACTS, COLLATERAL SECURITY OR REMEDIES. THEREFORE, BORROWER UNCONDITIONALLY RELEASES, WAIVES AND FOREVER DISCHARGES (A) ANY AND ALL LIABILITIES, OBLIGATIONS, DUTIES, PROMISES OR INDEBTEDNESS OF ANY KIND OF LENDER OR ANY PARTICIPANT TO BORROWER, EXCEPT THE OBLIGATIONS TO BE PERFORMED BY LENDER OR ANY PARTICIPANT ON OR AFTER THE DATE HEREOF AS EXPRESSLY STATED IN THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND (B) ALL CLAIMS, OFFSETS, CAUSES OF ACTION, SUITS OR DEFENSES OF ANY KIND WHATSOEVER (IF ANY), WHETHER ARISING AT LAW OR IN EQUITY, WHETHER KNOWN OR UNKNOWN, WHICH BORROWER MIGHT OTHERWISE HAVE AGAINST LENDER, ANY PARTICIPANT OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, IN EITHER CASE (A) OR (B), ON ACCOUNT OF ANY PAST OR PRESENTLY EXISTING CONDITION, ACT, OMISSION, EVENT, CONTRACT, LIABILITY, OBLIGATION, INDEBTEDNESS, CLAIM, CAUSE OF ACTION, DEFENSE, CIRCUMSTANCE OR MATTER OF ANY KIND.

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IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be duly executed and delivered effective as of the date first above written.

BORROWER: SILVERLEAF RESORTS, INC., a Texas corporation
By:	/S/ HARRY J. WHITE, JR.
	Name: Harry J. White, Jr. Title: Chief Financial Officer

STATE OF TEXAS	)
	)	ss:
COUNTY OF DALLAS	)

The foregoing instrument was acknowledged before me this 23rd day of February, 2007 by Harry J. White, Jr. , CFO of Silverleaf Resorts, Inc., a Texas corporation, on behalf of the Corporation.

/S/ MARGARETTE BYRD

Commissioner of the Superior Court

Notary Public

My Commission Expires: Nov. 22, 2007

	LENDER: TEXTRON FINANCIAL CORPORATION, a Delaware corporation
/S/ LISA TOOMER	By:	/S/ JOHN D’ANNIBALE
Lisa Toomer		Name: John D’Annibale Title: V.P.

STATE OF CONNECTICUT	)
	)	ss:
COUNTY OF HARTFORD	)

The foregoing instrument was acknowledged before me this 26th day of February, 2007 by John D’Annibale, Vice President of TEXTRON FINANCIAL CORPORATION, a Delaware corporation, on behalf of the corporation.

/S/ LAURA D’ANGELO

Commissioner of the Superior Court

Notary Public

My Commission Expires: Feb. 28, 2009

List of Schedules and Exhibits to Agreement not filed herewith:

EXHIBIT A: Form of Collateral Assignment of Notes Receivable and Mortgages

EXHIBIT B-1: Form of Acquisition Note

EXHIBIT B-2: Form of Inventory Note

EXHIBIT B-3: Form of Receivable Note

EXHIBIT C : Form of Real Estate Mortgage

EXHIBIT D: Form of Modification of Inventory Mortgage

EXHIBIT E-1: Form of Borrower’s Certificate and Request for Advance (Receivable)

EXHIBIT E-2: Form of Borrower’s Certificate and Request for Advance (Inventory)

EXHIBIT E-3: Form of Borrower’s Certificate and Request for Advance (Acquisition)

EXHIBIT F: Form of Inventory Mortgage

EXHIBIT F-1: Form of Modification of Inventory Mortgage (Advances)

EXHIBIT G: Form of Certification

EXHIBIT H: Form of Officer’s Certificate

SCHEDULE A: Land Records for Recording Inventory Mortgages

SCHEDULE 1.1(a): List of Resort Declarations

SCHEDULE 1.1(b): List of Timeshare Owner’s Associations

SCHEDULE 2.8(B): Borrower’s Executive Management

SCHEDULE 6.5: Liens

SCHEDULE 6.7: Litigation

SCHEDULE 6.9: Environmental Matters

SCHEDULE 6.19: Timeshare Documents

SCHEDULE 6.23(a): Receivable Inventory Control Procedures

SCHEDULE 6.23(b): Interval Inventory Control Procedures

EX-10.62

Ex. 10.62

Silverleaf Resorts, Inc.

1221 Riverbend Drive, Suite 120

Dallas, TX 75221

March 1, 2007

Wells Fargo Foothill, Inc., Individually and as Agent

13727 Noel Road, Suite 1020

Dallas, Texas 75240

Attention: Jake Welsh

Re: $35,000,000 Receivables Financial Accommodation by Wells Fargo Foothill, Inc., Individually and as Agent to Silverleaf Resorts, Inc., dated as of December 16, 2005 as amended by a First Amendment to Loan and Security Agreement Receivables dated as of October 6, 2006 (the "Loan Agreement")

Dear Mr. Welsh:

Pursuant to discussions between us, you have offered and the undersigned, SILVERLEAF RESORTS, INC., has agreed to:

A. Modify the Loan Agreement effective as of the date of execution of this communication by you in the following respects:

1. The definition of Applicable Interest Rate shall be deleted and the following definition shall be substituted in lieu therefore:

Applicable Interest Rate.A variable rate, adjusted as of each day of each calendar month, equal to the Lender Reference Rate, with interest being computed in arrears on the basis of actual days elapsed over a year of 360 days, but in no event shall the rate of interest at any time during the Term be less than six (6.00%) percent (a "Floating Rate Advance"). The Lender Reference Rate on the date of this communication is 8.25%; and

2. The introductory sentences to Section 2.3 of the Loan Agreement shall be deleted and the following shall be substituted in lieu therefore:

2.3Payments.From and after the Closing Date, Borrower agrees punctually to pay or cause to be paid to Agent, as Agent for each Lender, all principal and interest due under the Note in respect of the Loans and if applicable the Unused Line Fee. Interest, the Unused Line Fee and all other fees payable hereunder shall be due and payable, in arrears, on the fast day of each month at any time that Obligations are outstanding. Borrower shall make the following payments on the Loan:

3.Section 2.6 of the Loan Agreement shall be deleted and the following Section 2.6 shall be substituted in lieu therefore:

2.6 Fees.

a. Fee Letter Fees. As and when due and payable under the terms of the Fee Letter, Borrower shall pay to Agent the fees set forth in the Fee Letter; and

b. Unused Line Fee. Monthly with the payment of interest, the pro rata portion of a fee equal to one-quarter of one percent (0.25%) per annum of the difference between the Commitment ($35,000,000) and the average amount outstanding during the prior calendar month, provided however that the Unused Line Fee shall only be due and payable in the event that Borrower, between the ninetieth (90^th) and one hundred eightieth (180^th) day after the date of Wells Fargo Foothill's acknowledgement, agreement and consent to this modification, fails to maintain average outstanding Advances of Ten Million ($10,000,000) Dollars.

Our signature below and the delivery to you shall constitute our agreement to the above.

We further confirm in connection with our Agreement, that we, as Borrower, acknowledge that we do not have any offsets, defenses or claims against you, as Lender, Agent or Holder, or any of your officers, agents, directors or employees whether asserted or unasserted. To the extent that we may have any such offsets, defenses or claims, we and each of our respective successors, assigns, parents, subsidiaries, affiliates, predecessors, employees and agents as applicable, jointly and severally, release and forever discharge you, as Lender, Agent or Holder, your subsidiaries, affiliates, officers, directors, employees, agents, attorneys, successors and assigns, both present and former (collectively the "Lender Affiliates") of and from any and all manner of action and actions, cause and causes of action, suits, debts, controversies, damages, judgments, executions, claims and demands whatsoever, asserted or unasserted, in law or in equity which against you, as Lender, Agent or Holder and/or Lender Affiliates we or any of our respective successors, assigns, parents, subsidiaries, affiliates, predecessors, employees and agents ever had, now have, upon or by reason of any manner, cause, causes or thing whatsoever, including, without limitation, any presently existing claim or defense whether or not presently suspected, contemplated or anticipated.

SILVERLEAF RESORTS, INC., a Texas corporation

By:  /S/ HARRY J. WHITE, JR. 

Name:Harry J. White, Jr.

Title: Chief Financial Officer

Received, Agreed and Acknowledged:

Dated: March 2, 2007

WELLS FARGO FOOTHILL, INC.,

By:  /S/ JAMES P. WELSH

Name: James P. Welsh

Title:Vice President

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF SILVERLEAF RESORTS, INC.

Due to the provisions of Item 601(b)(21)(ii) of Regulation S-K, the Registrant has no subsidiaries that must be specifically described under Item 601(b)(21)(i), except for Silverleaf Finance II, Inc., Silverleaf Finance III, LLC, Silverleaf Finance IV, LLC, and Silverleaf Finance V, L.P., all Delaware entities, which are deemed “significant subsidiaries” pursuant to Rule 1-02(w) of Regulation S-X.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Silverleaf Resorts, Inc

Dallas, Texas

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-83771 and 333-118474) and in the Registration Statement on Form S-3 (No. 333-134888) of Silverleaf Resorts, Inc. of our report dated March 13, 2007, relating to the consolidated financial statements, which appears in this Annual Report on Form 10-K.

BDO Seidman, LLP

Dallas, Texas

March 13, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Robert E. Mead, certify that:

1. I have reviewed this annual report of Silverleaf Resorts, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 15, 2007	/s/ ROBERT E. MEAD
	Robert E. Mead Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Harry J. White, Jr., certify that:

1. I have reviewed this annual report of Silverleaf Resorts, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 15, 2007	/s/ HARRY J. WHITE, JR.
	Harry J. White, Jr. Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Silverleaf Resorts, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert E. Mead, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: March 15, 2007	/s/ ROBERT E. MEAD
	Robert E. Mead Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Silverleaf Resorts, Inc. and will be retained by Silverleaf Resorts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Silverleaf Resorts, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Harry J. White, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: March 15, 2007	/s/ HARRY J. WHITE, JR.
	Harry J. White, Jr. Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Silverleaf Resorts, Inc. and will be retained by Silverleaf Resorts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.