-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E4dYCIxHQfN/VwKyGNcm6adeAUG3OVFGH9BeCdnCdceavVMCc/4MdwGkkfgSFdAq L9xGxULpw2SxBMOndeexuQ== 0000950134-03-011650.txt : 20030813 0000950134-03-011650.hdr.sgml : 20030813 20030813170552 ACCESSION NUMBER: 0000950134-03-011650 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILVERLEAF RESORTS INC CENTRAL INDEX KEY: 0001033032 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE AGENTS & MANAGERS (FOR OTHERS) [6531] IRS NUMBER: 752259890 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13003 FILM NUMBER: 03842250 BUSINESS ADDRESS: STREET 1: 1221 RIVERBEND DR STREET 2: SUITE 120 CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146311166 MAIL ADDRESS: STREET 1: 1221 RIVERBEND DR STREET 2: SUITE 120 CITY: DALLAS STATE: TX ZIP: 75247 10-Q 1 d07826e10vq.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 OR [ ] 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 of incorporation) (I.R.S. Employer Identification No.) 1221 RIVER BEND DRIVE, SUITE 120 DALLAS, TEXAS 75247 (Address of principal executive offices, including zip code) 214-631-1166 (Registrant's telephone number, including area code) 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 [ ] Number of shares of common stock outstanding of the issuer's Common Stock, par value $0.01 per share, as of August 13, 2003: 36,826,906 ================================================================================ EXPLANATORY NOTE CERTAIN STATEMENTS CONTAINED IN THIS FORM 10-Q UNDER ITEMS 1 AND 2, IN ADDITION TO CERTAIN STATEMENTS CONTAINED ELSEWHERE IN THIS 10-Q, INCLUDING STATEMENTS QUALIFIED BY THE WORDS "BELIEVE," "INTEND," "ANTICIPATE," "EXPECTS," AND WORDS OF SIMILAR IMPORT, ARE "FORWARD-LOOKING STATEMENTS" AND ARE THUS PROSPECTIVE. THESE STATEMENTS REFLECT THE CURRENT EXPECTATIONS OF THE COMPANY REGARDING THE COMPANY'S FUTURE PROFITABILITY, PROSPECTS, AND RESULTS OF OPERATIONS. ALL SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES, AND OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE RISKS, UNCERTAINTIES, AND OTHER FACTORS ARE DISCUSSED UNDER THE HEADING "CAUTIONARY STATEMENTS" BEGINNING ON PAGE 20 OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K/A FOR THE YEAR ENDED DECEMBER 31, 2002. ALL FORWARD-LOOKING STATEMENTS ARE MADE AS OF THE DATE OF THIS REPORT ON FORM 10-Q AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE THE FORWARD-LOOKING STATEMENTS OR TO UPDATE THE REASONS WHY ACTUAL RESULTS COULD DIFFER FROM THE PROJECTIONS IN THE FORWARD-LOOKING STATEMENTS. 1 SILVERLEAF RESORTS, INC. INDEX
Page ---- PART I. FINANCIAL INFORMATION (Unaudited) Item 1. Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2003 and 2002......................... 3 Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002................................................... 4 Condensed Consolidated Statement of Shareholders' Equity for the six months ended June 30, 2003...................................... 5 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002................................. 6 Notes to the Condensed Consolidated Financial Statements............ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 16 Item 3. Quantitative and Qualitative Disclosures about Market Risk.......... 24 Item 4. Controls and Procedures............................................. 25 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................... 25 Item 5. Other Information................................................... 26 Item 6. Exhibits and Reports on Form 8-K.................................... 27 Signatures.......................................................... 28
2 PART I: FINANCIAL INFORMATION (UNAUDITED) ITEM 1. FINANCIAL STATEMENTS SILVERLEAF RESORTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share and per share amounts) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------------------- --------------------------------- 2003 2002 2003 2002 -------------- -------------- -------------- -------------- REVENUES: Vacation Interval sales $ 32,480 $ 30,148 $ 61,037 $ 59,587 Sampler sales 401 875 886 2,198 -------------- -------------- -------------- -------------- Total sales 32,881 31,023 61,923 61,785 Interest income 8,650 9,182 17,418 19,567 Management fee income 476 783 947 948 Other income 1,463 1,280 2,670 2,051 -------------- -------------- -------------- -------------- Total revenues 43,470 42,268 82,958 84,351 COSTS AND OPERATING EXPENSES: Cost of Vacation Interval sales 5,618 5,485 10,661 11,005 Sales and marketing 17,104 16,793 33,402 32,548 Provision for uncollectible notes 6,495 6,028 41,161 11,916 Operating, general and administrative 7,018 8,819 13,909 17,602 Depreciation and amortization 1,163 1,281 2,345 2,549 Interest expense and lender fees 4,221 6,114 8,628 13,082 -------------- -------------- -------------- -------------- Total costs and operating expenses 41,619 44,520 110,106 88,702 OTHER INCOME: Gain on sale of notes receivable 898 4,484 2,832 4,484 Gain on early extinguishment of debt - 17,885 1,257 17,885 -------------- -------------- -------------- -------------- Total other income 898 22,369 4,089 22,369 Income (loss) before provision for income taxes 2,749 20,117 (23,059) 18,018 Provision for income taxes (59) (40) (72) (41) -------------- -------------- -------------- -------------- NET INCOME (LOSS) $ 2,690 $ 20,077 $ (23,131) $ 17,977 ============== ============== ============== ============== BASIC AND DILUTED EARNINGS (LOSS) PER SHARE: $ 0.07 $ 0.71 $ (0.63) $ 0.87 ============== ============== ============== ============== WEIGHTED AVERAGE BASIC SHARES OUTSTANDING: 36,826,906 28,409,327 36,826,906 20,692,245 ============== ============== ============== ============== WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING: 37,143,564 28,445,156 36,826,906 20,692,245 ============== ============== ============== ==============
See notes to condensed consolidated financial statements. 3 SILVERLEAF RESORTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (Unaudited)
June 30, December 31, 2003 2002 ------------ ------------ ASSETS Cash and cash equivalents $ 4,902 $ 1,153 Restricted cash 1,540 3,624 Notes receivable, net of allowance for uncollectible notes of $51,887 and $28,547, respectively 183,767 233,237 Accrued interest receivable 2,076 2,325 Investment in Special Purpose Entity 6,820 6,656 Amounts due from affiliates 776 750 Inventories 103,923 102,505 Land, equipment, buildings, and utilities, net 32,025 33,778 Land held for sale 1,956 4,545 Prepaid and other assets 10,517 9,672 ------------ ------------ TOTAL ASSETS $ 348,302 $ 398,245 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Accounts payable and accrued expenses $ 7,480 $ 7,394 Accrued interest payable 1,271 1,269 Amounts due to affiliates 1,954 2,221 Unearned revenues 3,899 3,410 Notes payable and capital lease obligations 210,145 236,413 Senior subordinated notes 45,065 45,919 ------------ ------------ Total Liabilities 269,814 296,626 ------------ ------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock, par value $0.01 per share, 100,000,000 shares authorized, 37,249,006 shares issued, and 36,826,906 shares outstanding 372 372 Additional paid-in capital 116,999 116,999 Retained deficit (33,884) (10,753) Treasury stock, at cost (422,100 shares) (4,999) (4,999) ------------ ------------ Total Shareholders' Equity 78,488 101,619 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 348,302 $ 398,245 ============ ============
See notes to condensed consolidated financial statements. 4 SILVERLEAF RESORTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (in thousands, except share and per share amounts) (Unaudited)
Common Stock --------------------------- Number of $0.01 Additional Treasury Stock Shares Par Paid-in Retained ------------------------ Issued Value Capital Deficit Shares Cost Total ------------ ------------ ------------ ------------ -------- ----------- ----------- January 1, 2003 37,249,006 $ 372 $ 116,999 $ (10,753) (422,100) $ (4,999) $ 101,619 Net loss - - - (23,131) - - (23,131) ------------ ------------ ------------ ------------ -------- ----------- ----------- June 30, 2003 37,249,006 $ 372 $ 116,999 $ (33,884) (422,100) $ (4,999) $ 78,488 ============ ============ ============ ============ ======== =========== ===========
See notes to condensed consolidated financial statements. 5 SILVERLEAF RESORTS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Six Months Ended June 30, ----------------------------- 2003 2002 ------------ ------------ OPERATING ACTIVITIES: Net income (loss) $ (23,131) $ 17,977 Adjustments to reconcile net income (loss) to net cash used in operating activities: Provision for uncollectible notes 41,161 11,916 Gain on sale of notes receivable (2,832) (4,484) Gain on early extinguishment of debt (1,257) (17,885) Gain on sale of land held for sale (273) - Depreciation and amortization 2,345 2,549 Increase (decrease) in cash from changes in assets and liabilities: Restricted cash 2,084 1,624 Notes receivable (15,726) (12,810) Accrued interest receivable 249 383 Investment in Special Purpose Entity (164) (4,482) Amounts due to/from affiliates, net (293) 1,259 Inventories (3,386) 1,703 Prepaid and other assets (845) (1,150) Accounts payable and accrued expenses 86 (2,769) Accrued interest payable 2 1,141 Unearned revenues 489 (1,108) ------------ ------------ Net cash used in operating activities (1,491) (6,136) ------------ ------------ INVESTING ACTIVITIES: Purchases of land, equipment, buildings, and utilities (592) (832) Proceeds from sale of land held for sale 2,862 - ------------ ------------ Net cash provided by (used in) investing activities 2,270 (832) ------------ ------------ FINANCING ACTIVITIES: Proceeds from borrowings from unaffiliated entities 45,415 45,374 Payments on borrowings to unaffiliated entities (71,280) (90,464) Proceeds from sales of notes receivable 28,835 48,389 ------------ ------------ Net cash provided by financing activities 2,970 3,299 ------------ ------------ Net change in cash and cash equivalents 3,749 (3,669) CASH AND CASH EQUIVALENTS: Beginning of period 1,153 6,204 ------------ ------------ End of period $ 4,902 $ 2,535 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid, net of amounts capitalized $ 8,006 $ 9,794 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of common stock $ - $ 7,899 Issuance of senior subordinated debt $ - $ 28,467 Retirement of senior subordinated debt $ - $ 56,934
See notes to condensed consolidated financial statements. 6 SILVERLEAF RESORTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BACKGROUND These condensed consolidated financial statements of Silverleaf Resorts, Inc. and subsidiaries (the "Company") presented herein do not include certain information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. However, in the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company's Form 10-K/A for the year ended December 31, 2002 as filed with the Securities and Exchange Commission. The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in such Form 10-K/A. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES SUMMARY Principles of Consolidation -- The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, excluding the Company's special purpose entity ("SPE"). All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. 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. The Company recognizes the sale of a Vacation Interval under the 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 construction is not substantially complete, revenues are recognized on the percentage-of-completion basis. Under this method, the portion of revenue applicable to costs incurred, as compared to total estimated construction and direct selling costs, is recognized in the period of sale. The remaining amount is deferred and recognized as the remaining costs are incurred. The deferral of sales and costs related to the percentage-of-completion method is not significant. Certain Vacation Interval sales transactions are deferred until the minimum down payment has been received. The Company accounts 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. In addition to sales of Vacation Intervals to new prospective owners, the Company sells upgraded Vacation Intervals to existing Silverleaf Owners. Revenues are recognized on these upgrade Vacation Interval sales when the criteria described above are satisfied. The revenue recognized is the net of the incremental increase in the upgrade sales price and cost of sales is the incremental increase in the cost of the Vacation Interval purchased. A provision for estimated customer returns is reported net against Vacation Interval sales. Customer returns represent cancellations of sales transactions in which the customer fails to make the first installment payment. The Company recognizes 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 additional interest income ceases until collection is deemed probable. Revenues related to one-time sampler contracts, which entitles the prospective owner to sample a resort during certain periods, are recognized when earned. Revenue recognition is deferred until the customer uses the stay, purchases a Vacation Interval, or allows the contract to expire. The Company receives fees for management services provided to the Clubs. These revenues are recognized on an 7 accrual basis in the period the services are provided if collection is deemed probable. Utilities, 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 related sales. 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 Entity -- The Company is party to a $100 million revolving credit agreement to finance Vacation Interval notes receivable through an off-balance-sheet SPE. Sales of notes receivable from the Company to its SPE that meet certain underwriting criteria occur on a periodic basis. The SPE funds these purchases through advances under a credit agreement arranged for this purpose. The gain or loss on the sale is determined based on the proceeds received, the fair value assigned to the investment in SPE, and the recorded value of notes receivable sold. The fair value of the investment in the SPE is estimated based on the present value of future expected cash flows back to the Company from the notes receivable sold. The Company utilized the following key assumptions to estimate the fair value of such cash flows: customer prepayment rate - 4.3%; expected accounts paid in full as a result of upgrades - 6.2%; expected credit losses - 8.1%; discount rate - 19%; base interest rate - 4.4%; agent fee - 2%; and loan servicing fees - 1%. The Company's assumptions are based on experience with its 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 SPE. The carrying value of the investment in SPE represents the Company's maximum exposure to loss regarding its involvement with the SPE. Provision for Uncollectible Notes -- Such provision 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. Such 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 the Company recovers the underlying inventory. The second form is a deemed cancellation, whereby the Company records 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, the Company projects future cancellations, net of recovery of the related inventory, 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. Actual cancellations and losses experienced represents all notes identified by management as being probable of cancellation. Recourse to the Company on sales of customer notes receivable is governed by the agreements between the purchasers and the Company. The Company classifies the components of the provision for uncollectible notes as either credit losses or customer returns (cancellations of sales whereby the customer fails to make the first installment payment). The provision for uncollectible notes pertaining to credit losses and customer returns are classified in provision for uncollectible notes and Vacation Interval sales, respectively. Inventories -- Inventories are stated at the lower of cost or market value. Cost includes amounts for land, construction materials, 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 Vacation Intervals based upon their relative sales values. Upon sale of a Vacation Interval, these costs are charged to cost of sales on a specific identification basis. Vacation Intervals reacquired are placed back into inventory at the lower of their original historical cost basis or market value. 8 The Company estimates the total cost to complete all amenities at each resort. This cost includes both costs incurred to date and expected costs to be incurred. The Company allocates the estimated total 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. Company management periodically reviews the carrying value of its inventory on an individual project basis to ensure that the carrying value does not exceed market value. Land, Equipment, Buildings, and Utilities -- Land, equipment (including equipment under capital lease), buildings, and utilities are stated at cost, which includes amounts for construction materials, direct labor and overhead, and capitalized interest. 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. Company management periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Prepaid and Other Assets -- Prepaid and other assets consists primarily of prepaid insurance, prepaid postage, intangibles, commitment fees, debt issuance costs, novelty inventories, deposits, and miscellaneous receivables. Commitment fees and debt issuance costs are amortized over the life of the related debt. Intangibles are amortized over their useful lives, which do not exceed ten years. Income Taxes -- Deferred income taxes are recorded for temporary differences between the bases 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. Earnings (Loss) Per Share -- Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding. Earnings per share assuming dilution is computed by dividing net income by the weighted average number of 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 shares resulting from the exercise of the stock options is reduced by the number of shares that could have been repurchased by the Company with the proceeds from the exercise of the stock options. 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, the 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 and the future sales plan used to allocate certain inventories to cost of sales. Recent Accounting Pronouncements-- SFAS No. 146 - In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force ("EITF") Issue No. 94-3. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a company's commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amount recognized. The adoption of SFAS No. 146 in the first quarter of 2003 did not have any immediate effect on the Company's results of operations, financial position, or cash flows. FIN No. 45 - In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN No. 45"). FIN No. 45 requires that a guarantor recognize a liability for certain guarantees and enhance disclosures for such guarantees. The recognition provisions of FIN No. 45 are applicable on 9 a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN No. 45 are effective for financial statements for periods ending after December 15, 2002. The adoption of FIN No. 45 did not have a material impact on the Company's results of operations, financial position, or cash flows. FIN No. 46 - In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"). FIN No. 46 requires existing unconsolidated variable interest entities, as defined, to be consolidated by their primary beneficiaries if the variable interest entities do not effectively disperse risks among parties involved. FIN No. 46 is effective immediately for variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. FIN No. 46 applies to financial statements beginning after June 15, 2003, related to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company does not expect the adoption of FIN No. 46 will have a material impact on its results of operations, financial position, or cash flows. SFAS No. 149 - In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 is not expected to have a material impact on the Company's results of operations, financial position, or cash flows. SFAS No. 150 - In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150"). SFAS No. 150 clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of these financial instruments were classified as equity. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period after June 15, 2003. The adoption of SFAS No. 150 is not expected to have a material impact on the Company's results of operations, financial position, or cash flows. NOTE 3 - DEBT RESTRUCTURING While the Company announced the completion of its restructuring and refinancing transactions on May 2, 2002, the Company's ability to continue as a going concern is dependent on other factors as well, including improving the Company's operations. Among other aspects of these revised arrangements, the Company will be required to operate within certain parameters of a revised business model and satisfy the financial covenants set forth in the Amended Senior Credit Facilities, including maintaining a minimum tangible net worth of $100 million or greater, as defined, sales and marketing expenses as a percentage of sales below 52.5%, notes receivable delinquency rate below 25%, a minimum interest coverage ratio of 1.25 to 1.0, and a minimum net income. However, such results cannot be assured. Due to the results of the quarter ended March 31, 2003, the Company is not in compliance with three of the financial covenants described above. First, sales and marketing expense for the quarter ended March 31, 2003 was 56.1% of sales, compared to a maximum threshold of 52.5%. Second, the interest coverage ratio for the twelve months ended March 31, 2003 was 1.02 to 1.0, compared to a minimum requirement of 1.25 to 1.0. And third, net loss for the two consecutive quarters ended March 31, 2003 was $24.9 million, compared to a minimum requirement of $1.00 net income. Also, due to the results for the six months ended June 30, 2003, the Company is in default of two of the financial covenants described above. First, the interest coverage ratio for the twelve months ended June 30, 2003 was 0.13 to 1.0, compared to a minimum requirement of 1.25 to 1.0. Second, net loss for the two consecutive quarters ended June 30, 2003 was $23.1 million, compared to a minimum requirement of $1.00 net income. Management notified its secured lenders that it was not in compliance with the financial covenants, and has begun discussions regarding waivers of the defaults and/or modifications to loan agreements, which would bring the Company back into compliance. As of August 13, 2003, the secured lenders have not waived the covenant defaults but have continued to fund and have not declared a default. Management is attempting to negotiate waivers and or modifications of its loan agreements, however, it cannot give any assurances that it will be successful in these negotiations. Although the Company believes that it will receive relief from its lenders and that its lenders will continue to fund the Company's operations until negotiations can be completed, there can be no assurance that the Company's lenders will continue to fund its operations. A refusal by its lenders to continue funding will have a material and adverse effect on the Company's operations. 10 Due to uncertainties similar to those mentioned above, including a history of losses and negative operating cash flows in 2000, 2001, and 2002, the independent auditors report on the Company's financial statements for the period ended December 31, 2002 contains an explanatory paragraph concerning the Company's ability to continue as a going concern. As a result of the loss for the quarter ended March 31, 2003, the Company's SPE was in default of financial covenants with its lender. The lender has subsequently waived the defaults as of March 31, 2003 and modified its agreement with the SPE whereby there were no defaults for the quarter ended June 30, 2003. If the Company is able to resolve the existing covenant compliance issues, future compliance with these covenants will require that improvements be made in two significant aspects of the Company's operations. They are to reduce sales and marketing expense as a percentage of sales and to improve customer credit quality, which the Company believes will result in reduced credit losses. The Company has already implemented changes in its sales and marketing operations, which resulted in compliance with the sales and marketing ratio covenant for the quarter ended June 30, 2003. However, there is no assurance that the Company will remain in compliance with the sales and marketing expense ratio covenant in future periods. The Company has also implemented changes in its sales policies, which resulted in improved customer credit quality for customers purchasing Vacation Intervals in 2003, as compared to customers who purchased in 2002 and before. Management believes that soliciting customers with this level of credit quality will result in compliance with the interest coverage and minimum net income covenants. However, there is no assurance that the Company will remain in compliance with these two covenants as well. Management believes that if the improvements to its operations are successful, the Company will be able to improve its operating results to achieve compliance with the financial covenants during the term of the Amended Senior Credit Facilities. However, the Company's plan to utilize certain of its assets, predominantly inventory, extends for periods of up to fifteen years. Accordingly, the Company will need to either extend the Amended Senior Credit Facilities or obtain new sources of financing through the issuance of other debt, equity, or collateralized mortgage-backed securities, the proceeds of which would be used to refinance the debt under the Amended Senior Credit Facilities, finance mortgages receivable, or for other purposes. The Company may not have these additional sources of financing available to it at the times when such financings are necessary. NOTE 4 - EARNINGS PER SHARE The following table illustrates the reconciliation between basic and diluted weighted average shares outstanding for the three and six months ended June 30, 2003 and 2002:
Three Months Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Weighted average shares outstanding - basic 36,826,906 28,409,327 36,826,906 20,692,245 Issuance of shares from stock options exercisable 2,540,863 230,000 - - Repurchase of shares from stock options proceeds (2,224,205) (194,171) - - ---------- ---------- ---------- ---------- Weighted average shares outstanding - diluted 37,143,564 28,445,156 36,826,906 20,692,245 ---------- ---------- ---------- ----------
For the six months ended June 30, 2003 and 2002, the weighted average shares outstanding assuming dilution was non-dilutive. Outstanding stock options totaling 3,745,479 and 1,403,000 at June 30, 2003 and 2002, respectively, were excluded from the computation of diluted earnings per share for these periods because including such stock options would have been non-dilutive. NOTE 5 - NOTES RECEIVABLE The Company provides 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 June 30, 2003 was approximately 14.7%. In connection with the sampler program, the Company routinely enters into notes receivable with terms of 10 months. Notes receivable from sampler sales were $1.3 million and $1.4 million at June 30, 2003 and 2002, respectively, and are non-interest bearing. 11 The activity in gross notes receivable is as follows for the three and six-month periods ended June 30, 2003 and 2002 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Balance, beginning of period..................... $240,002 $325,275 $261,784 $333,336 Sales............................................ 26,738 27,973 49,998 52,886 Collections...................................... (15,493) (14,767) (28,730) (34,171) Receivables charged off.......................... (4,107) (3,722) (12,298) (17,292) Sold notes receivable............................ (11,486) (58,618) (35,100) (58,618) -------- -------- -------- -------- Balance, end of period........................... $235,654 $276,141 $235,654 $276,141 ======== ======== ======== ========
The Company considers accounts over 60 days past due to be delinquent. As of June 30, 2003, $1.6 million of notes receivable, net of accounts charged off, were considered delinquent. An additional $51.0 million of notes, approximately 22% of total gross notes receivable, would have been considered to be delinquent had the Company not granted payment concessions to the customers at some point since the inception of these notes. The activity in the allowance for uncollectible notes is as follows for the three and six months ended June 30, 2003 and 2002 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Balance, beginning of period..................... $ 51,303 $ 47,062 $ 28,547 $ 54,744 Provision for credit losses...................... 6,495 6,028 41,161 11,916 Receivables charged off.......................... (4,107) (3,722) (12,298) (17,292) Allowance related to notes sold.................. (1,804) (9,864) (5,523) (9,864) -------- -------- -------- -------- Balance, end of period........................... $ 51,887 $ 39,504 $ 51,887 $ 39,504 ======== ======== ======== ========
During the six months ended June 30, 2003, the Company sold $35.1 million of notes receivable and recognized pre-tax gains of $2.8 million. The SPE funded these purchases through advances under a credit agreement arranged for this purpose. In connection with these sales, the Company received cash consideration of $28.8 million, which was used to pay down borrowings under its revolving loan facilities. NOTE 6 - DEBT Notes payable, capital lease obligations, and senior subordinated notes as of June 30, 2003 and December 31, 2002 (in thousands):
JUNE 30, DECEMBER 31, 2003 2002 ------------ ------------ $60 million loan agreement, which contains certain financial covenants, due August 2003, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of LIBOR plus 3.55% (additional draws are no longer available under this facility)................................................................. $ -- $ 9,836 $70 million loan agreement, capacity reduced by amounts outstanding under the $10 million inventory loan agreement, which contains certain financial covenants, due August 2004, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of LIBOR plus 2.65% (additional draws are no longer available under this facility)................................................. 21,188 25,549 $10 million supplemental revolving loan agreement, which contains certain financial covenants, due March 2007, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of LIBOR plus 2.67% (advances under this facility are limited to $9 million)..................................................... 7,300 8,536 $56.9 million revolving loan agreement, which contains certain financial covenants, due March 2007, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of LIBOR plus 3% with a 6% floor (maximum advances under this facility are limited to the difference between $63.9 million and the outstanding balance under the $15.1 million term loan described below)......... 43,144 46,078 $15.1 million term loan, which contains certain financial covenants, due March 2007, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of 8%............................................................................. 14,287 14,665 $56.1 million revolving loan agreement, which contains certain financial covenants, due March 2007, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of LIBOR plus 3% with a 6% floor (maximum advances under this facility are limited to the difference between $63.0 million and the outstanding balance under the $14.9 million term loan described below)......... 42,157 44,288
12 $14.9 million term loan, which contains certain financial covenants, due March 2007, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of 8%............................................................................. 14,089 14,461 $8.1 million revolving loan agreement, which contains certain financial covenants, due March 2007, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of Prime plus 3% with a 6% floor (maximum advances under this facility are limited to the difference between $9.1 million and the outstanding balance under the $2.1 million term loan described below).......... 5,914 6,493 $2.1 million term loan, which contains certain financial covenants, due March 2007, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of 8%............................................................................. 2,024 2,078 $38 million revolving loan agreement, which contains certain financial covenants, due March 2007, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of Federal Funds plus 2.75% with a 6% floor................... 28,964 31,128 $10 million term loan, which contains certain financial covenants, due March 2007, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of 8%............................................................................. 8,225 9,465 $10 million inventory loan agreement, which contains certain financial covenants, due March 2007, interest payable monthly, at an interest rate of LIBOR plus 3.50%............................................................... 9,696 9,936 $10 million inventory loan agreement, which contains certain financial covenants, due March 2007, interest payable monthly, at an interest rate of LIBOR plus 3.25%............................................................... 9,375 9,375 Various notes, due from January 2003 through February 2009, collateralized by various assets with interest rates ranging from 0.9% to 12.0%.................. 1,826 2,035 ------------ ------------ Total notes payable..................................................... 208,189 233,923 Capital lease obligations......................................................... 1,956 2,490 ------------ ------------ Total notes payable and capital lease obligations....................... 210,145 236,413 6.0% senior subordinated notes, due 2007, interest payable semiannually on April 1 and October 1, guaranteed by all of the Company's present and future domestic restricted subsidiaries............................................... 28,467 28,467 10 1/2% senior subordinated notes, subordinate to the 6.0% senior subordinated notes above, due 2008, interest payable semiannually on April 1 and October 1, guaranteed by all of the Company's present and future domestic restricted subsidiaries................................................................... 9,766 9,766 Interest on the 6.0% senior subordinated notes, due 2007, interest payable semiannually on April 1 and October 1, guaranteed by all of the Company's present and future domestic restricted subsidiaries............................ 6,832 7,686 ------------ ------------ Total senior subordinated notes......................................... 45,065 45,919 ------------ ------------ Total................................................................... $ 255,210 $ 282,332 ============ ============
At June 30, 2003, LIBOR rates were from 1.28% to 1.34%, and the Prime rate was 4.25%. At December 31, 2002, LIBOR rates were from 1.76% to 1.82%, and the Prime rate was 4.25%. In March 2003, the Company paid off the remaining $8.8 million balance of its $60 million loan agreement, due August 2003, and recognized a $1.3 million gain on early extinguishment of debt. The Company is not in compliance with certain financial covenants due to the results of the quarter ended March 31, 2003. See Note 3 for a description of these covenant issues. NOTE 7 - SUBSIDIARY GUARANTEES As of June 30, 2003, all subsidiaries of the Company, except the SPE, have guaranteed the $45.1 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 direct and indirect subsidiaries of the Company. The Guarantor Subsidiaries had no operations for the six months ended June 30, 2003 and 2002. Combined summarized balance sheet information as of June 30, 2003 for the Guarantor Subsidiaries is as follows (in thousands):
June 30, 2003 -------- Other assets $ 1 -------- Total assets $ 1 ======== Investment by parent (include equity and amounts due to parent) $ 1 -------- Total liabilities and equity $ 1
13 NOTE 8 - COMMITMENTS AND CONTINGENCIES Holiday Hills Condominium Association, Inc. et al v. Silverleaf Resorts, Inc. et al, Circuit Court of Christian County, Missouri. The homeowners' associations of three condominium projects that a former subsidiary of the Company constructed in Missouri filed separate actions of unspecified amounts against the Company alleging construction defects and breach of management agreements. This litigation has been ongoing for several years. Discovery continued in the lawsuit during the period ended June 30, 2003, but is still far from complete. Among other things, the plaintiffs have not yet turned over the reports of their expert witnesses and the Company is unclear as to exactly what damages are being claimed by the Plaintiffs. At this time, a majority of the Company's legal fees and costs of litigation are being paid by two insurance carriers, subject to a reservation of rights by these insurers. Since the Company does not know what damages are being claimed, and cannot predict the final outcome of these claims, it cannot estimate the additional costs it could incur, or whether its insurance carriers will continue to cover its costs in connection with these claims. Bennett et. al. v. Silverleaf Resorts, Inc., District Court, 22nd Judicial District, Comal County, Texas. A purported class action was filed against the Company on October 19, 2001, by Plaintiffs who each purchased Vacation Intervals from the Company. The Plaintiffs alleged that the Company violated the Texas Deceptive Trade Practices Act and the Texas Timeshare Act by failing to deliver to them complete copies of the contracts for the purchase of the Vacation Intervals as they did not receive a complete legal description of the Hill Country Resort as attached to the Declaration of Restrictions, Covenants, and Conditions of the Resort. The Plaintiffs also claimed that the Company violated various provisions of the Texas Deceptive Trade Practices Act with respect to the maintenance fees charged by the Company to its Vacation Interval owners. In November 2002, the Court denied the Plaintiffs' request for class certification. In March 2003, additional Plaintiffs joined the case, and a Fourth Amended Petition was filed against the Company and Silverleaf Club alleging additional violations of the Texas Deceptive Trade Practices Act, breach of fiduciary duty, negligent misrepresentation, and fraud. The class allegations were also deleted from the amended Petition. In their Fourth Amended Petition, the Plaintiffs sought damages in the amount of $1.5 million, plus reasonable attorneys fees and court costs. The Plaintiffs also sought rescission of their original purchase contracts with the Company. The Company, Silverleaf Club, and the Plaintiffs have agreed to a mediated settlement of Plaintiffs' claims and have executed a definitive settlement agreement. Under the terms of the settlement, the Company and Silverleaf Club paid the Plaintiffs an aggregate sum of $130,000, and the Plaintiffs conveyed their Vacation Intervals back to the Company and dismissed the action against the Company and Silverleaf Club with prejudice. Huizar et al v. Silverleaf Resorts, Inc., District Court, 73rd Judicial District, Bexar County, Texas. A further purported class action was filed against the Company on February 26, 2002, by a couple who purchased a Vacation Interval from the Company. The Plaintiffs alleged that the Company violated the Texas Government Code by charging a document preparation fee in regard to instruments affecting title to real estate. Alternatively, the Plaintiffs alleged that the $275 document preparation fee constituted a partial prepayment that should have been credited against their note and sought a declaratory judgment. The petition asserted Texas class action allegations and sought recovery of the document preparation fee and treble damages on behalf of both the Plaintiffs and the alleged class they purported to represent, and an injunctive relief preventing the Company from engaging in the unauthorized practice of law in connection with the sale of its Vacation Intervals in Texas. The Company and the Plaintiffs have executed a Stipulation and Agreement of Compromise ("Settlement"), which has been preliminarily approved by the court. The court has also certified the class for settlement purposes. The court will hold a fairness hearing in September 2003 to determine if the Settlement is a fair, reasonable, and adequate settlement of the class claims. In accordance with the Settlement, the Company will refund all amounts paid by the named Plaintiffs who will convey their Vacation Interval back to the Company. Additionally, the Company will issue to each timeshare owner who is a member of the class a $275 certificate, which can be used for an upgrade, as a credit on the purchase of an additional Vacation Interval, or for a limited stay at one of the Company's resorts. The Company estimates that there are approximately 16,400 members of the class. The Settlement also provides for payment of the named Plaintiffs' attorney fees in the amount of $400,000, plus expenses. Upon the entry of the final order by the court that the Settlement is fair, the Company will be released from all liability with respect to the settled claims, and the action will be dismissed by the named Plaintiffs and the class with prejudice. In January 2003, a group of eight related individuals and entities who were then holders of certain of the Company's 10 1/2% senior subordinated notes due 2008 (the "10 1/2% Notes") made oral claims against the Company and a number of its present and former officers and directors concerning the claimants' open market purchases of 10 1/2% Notes during 2000 and 2001. The 10 1/2% Notes were allegedly purchased by the eight claimants for an aggregate purchase price of 14 $3.7 million. One of the eight claimants previously owned common stock in the Company acquired between 1998 and 2000 and also made claims against the Company with regard to approximately $598,000 in losses allegedly suffered in connection with open market purchases and sales of the Company's common stock. In February 2003, these eight claimants, the Company, and certain of its former officers and directors entered into a tolling agreement for the purposes of preserving the claimants' rights during the term of the agreement by tolling applicable statutes of limitations while negotiations between the claimants and the Company take place. The 10 1/2% Notes were not in default and the Company denied all liability with regard to the alleged claims of these eight claimants. No litigation was filed against the Company or any of its affiliates by these eight claimants; however, on February 27, 2003, these eight claimants did file suit in state district court in Dallas, Texas, against the Company's former auditors, Deloitte & Touche, LLP, alleging violation by Deloitte & Touche of the Texas Securities Act, common law fraud, negligent misrepresentation, fraud in a stock transaction, and accounting malpractice. The claims against Deloitte & Touche arise from the same purchases of the Company's 10 1/2% Notes and common stock that formed the basis for the tolling agreement. In order to resolve this issue with these eight claimants, the Company agreed on June 16, 2003 to rescind the purchases of the 10 1/2% Notes held by the claimants. Under the terms of the settlement, which was closed on July 10, 2003, the Company acquired all the 10 1/2% Notes held by the eight claimants. Additionally, the Company received a full and complete release of any claims which the eight claimants alleged to hold against the Company, or any of its present or former officers, directors, or affiliates, regarding purchases of the 10 1/2% Notes or common stock of the Company. Additionally, the eight claimants agreed to release their alleged claims against Deloitte & Touche and to dismiss with prejudice the above-described lawsuit which the eight claimants filed against Deloitte & Touche in February 2003. On July 23, 2003, the Company cancelled all the 10 1/2% Notes acquired from these eight claimants. The face amount of the cancelled 10 1/2% Notes was $7,620,000. The Company paid a cash settlement to the claimants of $2,393,383, which resulted in a one-time gain to the Company of approximately $5.1 million for early extinguishment of debt. This gain will be recognized by the Company in its quarter ending September 30, 2003. As a part of the settlement, the Company also agreed to pay $75,000 towards the eight claimants' legal fees. The Company is currently subject to other litigation arising in the normal course of its 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 the judgment of the Company, none of these lawsuits or claims against the Company, either individually or in the aggregate, is likely to have a material adverse effect on the Company, its business, results of operations, or financial condition. During 2001, Silverleaf Club entered into a loan agreement for $1.8 million, whereby the Company guaranteed such debt with certain of its aircraft or related sales proceeds. As of June 30, 2003, Silverleaf Club's related note payable balance was $1.2 million. NOTE 9 - STOCK-BASED COMPENSATION The Company accounts for stock options using the intrinsic value method. Had compensation cost for the Company's stock option grants been determined based on the fair value at the date of said grants, the Company's net income (loss) and net income (loss) per share would have been the following pro-forma amounts for the six months ended June 30, 2003 and 2002:
JUNE 30, JUNE 30, 2003 2002 ------------ ------------ Net income (loss), as reported $ (23,131) $ 17,977 Stock-based compensation expense recorded under the intrinsic value method -- -- Pro forma stock-based compensation expense computed under the fair value method (248) (580) ------------ ------------ Pro forma net income (loss) $ (23,379) $ 17,397 ============ ============ Net income (loss) per share, basic and diluted As reported $ (0.63) $ 0.87 Pro forma $ (0.63) $ 0.84
The fair value of the stock options granted during the six months ended June 30, 2003 and 2002 were $0.32 and $0.29, respectively. 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 145.3% to 211.1% for all grants, risk-free interest rates which vary for each grant and range from 4.2% to 6.2%, 15 expected life of 7 years for all grants, and no distribution yield for all grants. NOTE 10 - SUBSEQUENT EVENTS In July 2003, the Company recognized a gain on early extinguishment of debt of $5.1 million, related to the early extinguishment of $7.6 million of 10 1/2% senior subordinated notes due 2008. In July 2003, the Company recognized a pre-tax loss of approximately $44,000 related to the sale of its management rights and unsold timeshare inventory in seven timeshare resorts the Company had managed since 1998. In conjunction with this sale, the Company received approximately $1.3 million in cash, notes, and other consideration, $1 million of which will be received over the next twenty-four months. Due to liquidity concerns announced by the Company in the first quarter of 2001, the Company discontinued its efforts to sell timeshare intervals in these seven resorts in 2001. The Company pursued a sale of its rights in these seven managed resorts so that it could concentrate its development, sales, and marketing efforts at the resorts it owns in Texas, Missouri, Illinois, Massachusetts, and Georgia. The proceeds of this sale will be used by the Company to pay down borrowings under its revolving loan facilities. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain matters discussed throughout this Form 10-Q filing are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, but are not limited to, those discussed in the Company's Form 10-K/A for the year ended December 31, 2002. As of June 30, 2003, the Company owned and/or operated 19 resorts in various stages of development. These resorts offer a wide array of country club-like amenities, such as golf, swimming, horseback riding, boating, and many organized activities for children and adults. The Company represents an owner base of over 131,000. The condensed consolidated financial statements of the Company include the accounts of Silverleaf Resorts, Inc. and its subsidiaries, all of which are wholly-owned. 16 RESULTS OF OPERATIONS The following table sets forth certain operating information for the Company.
Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 2003 2002 2003 2002 ---- ---- ---- ---- As a percentage of total revenues: Vacation Interval sales 74.7% 71.3% 73.6% 70.7% Sampler sales 0.9% 2.1% 1.1% 2.6% ----- ----- ----- ----- Total sales 75.6% 73.4% 74.7% 73.3% Interest income 19.9% 21.7% 21.0% 23.2% Management fee income 1.1% 1.9% 1.1% 1.1% Other income 3.4% 3.0% 3.2% 2.4% ----- ----- ----- ----- Total revenues 100.0% 100.0% 100.0% 100.0% As a percentage of Vacation Interval sales: Cost of Vacation Interval sales 17.3% 18.2% 17.5% 18.5% Provision for uncollectible notes 20.0% 20.0% 67.4% 20.0% As a percentage of total sales: Sales and marketing 52.0% 54.1% 53.9% 52.7% As a percentage of total revenues: Operating, general and administrative 16.1% 20.9% 16.8% 20.9% Depreciation and amortization 2.7% 3.0% 2.8% 3.0% As a percentage of interest income: Interest expense and lender fees 48.8% 66.6% 49.5% 66.9% As a percentage of total revenues: Gain on sale of notes receivable 2.1% 10.6% 3.4% 5.3% Gain on early extinguishment of debt 0.0% 42.3% 1.5% 21.2%
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002 Revenues Revenues for the quarter ended June 30, 2003 were $43.5 million, representing a $1.2 million or 2.8% increase from revenues of $42.3 million for the quarter ended June 30, 2002. The increase is primarily due to increased Vacation Interval sales. Vacation Interval sales increased $2.3 million to $32.5 million during the second quarter of 2003, up from $30.1 million in the same period of 2002. For the quarter ended June 30, 2003, the number of Vacation Intervals sold, exclusive of in-house Vacation Intervals, increased 2.2% to 1,832 from 1,792 in the second quarter of 2002. The average price per interval, excluding upgrades, decreased to $9,838 in the second quarter of 2003 versus $11,062 for the second quarter of 2002 due to a shift in sales mix to less expensive intervals in 2003. Total Vacation Interval sales for the second quarter of 2003 included 188 biennial intervals (counted as 94 Vacation Intervals) compared to 250 (125 Vacation Intervals) in the second quarter of 2002. During the second quarter of 2003, 1,153 upgrade in-house Vacation Intervals were sold at an average price of $6,663, compared to 2,045 upgrade in-house Vacation Intervals sold at an average price of $4,898 during the comparable 2002 period. In 2003, the Company's in-house sales force also sold 889 second Vacation Intervals to existing owners at an average sales price of $7,620, which when combined with upgrade sales generated an increase of $4.1 million in in-house sales. 17 Sampler sales decreased $474,000 to $401,000 for the quarter ended June 30, 2003, compared to $875,000 for the same period in 2002. Sampler sales are not recognized as revenue until the Company's obligation has elapsed, which often does not occur until the sampler contract expires eighteen months after the sale is consummated. Hence, a significant portion of sampler sales recognized in the second quarter of 2002 relate to 2000 sales, when the Company had significantly higher sales volume. Interest income decreased 5.8% to $8.7 million for the quarter ended June 30, 2003, from $9.2 million for the same period of 2002. This decrease primarily resulted from a decrease in notes receivable, net of allowance for doubtful notes, in 2003 compared to 2002, primarily due to sales of notes receivable to the SPE. Management fee income, which consists of management fees collected from the resorts' management clubs, can not exceed the management clubs' net income. Management fee income decreased $307,000 to $476,000 for the second quarter of 2003, versus $783,000 for the second quarter of 2002, due to cash reserves left at the management clubs at June 30, 2003 to fund future refurbishments. Other income consists of water and utilities income, marina income, golf course and pro shop income, and other miscellaneous items. Other income increased $183,000 to $1.5 million for the second quarter of 2003 compared to $1.3 million for the same period of 2002. The increase primarily relates to increased water and utilities income. Cost of Sales Cost of sales as a percentage of Vacation Interval sales decreased to 17.3% during the second quarter of 2003 versus 18.2% for the same period of 2002 primarily due to increased sales prices of upgrades in 2003 compared to 2002. Overall, the $133,000 increase in cost of sales in the second quarter of 2003 compared to the second quarter of 2002 was primarily due to the increase in Vacation Interval sales. Sales and Marketing Sales and marketing costs as a percentage of total sales decreased to 52.0% for the quarter ended June 30, 2003, from 54.1% for the same period of 2002. The percentage decrease resulted from an increase in upgrade sales prices in 2003 without a proportionate increase in sales and marketing expense. The $311,000 overall increase in sales and marketing expense is primarily attributable to the development of new upgrade and second-week ownership marketing programs in 2003 that did not exist in 2002. Provision for Uncollectible Notes The provision for uncollectible notes as a percentage of Vacation Interval sales remained unchanged at 20.0% for the second quarters of both 2003 and 2002. Operating, General and Administrative Operating, general and administrative expenses as a percentage of total revenues decreased to 16.1% for the second quarter of 2003, from 20.9% for the same period of 2002. Overall, operating, general and administrative expense decreased by $1.8 million for the second quarter of 2003, as compared to the same period of 2002. This was partially due to $1.3 million of professional fees that were incurred in the second quarter of 2002 associated with the restructuring of the Company. No such fees were incurred in the second quarter of 2003. Depreciation and Amortization Depreciation and amortization expense as a percentage of total revenues decreased to 2.7% for the quarter ended June 30, 2003 versus 3.0% for the same quarter of 2002. Overall, depreciation and amortization expense decreased $118,000 for the second quarter of 2003, as compared to 2002, primarily due to a general reduction in capital expenditures since 2000. Interest Expense and Lender Fees Interest expense and lender fees as a percentage of interest income decreased to 48.8% for the second quarter of 2003, from 66.6% for the same period of 2002. This decrease is primarily the result of decreased borrowings against pledged notes receivable and decreased senior subordinated notes due to the debt restructuring completed in May 18 2002, offset by decreased interest income as described above. Also, the Company's weighted average cost of borrowing decreased to 6.1% in the second quarter of 2003 compared to 6.4% in the second quarter of 2002. Gain on Sale of Notes Receivable Gain on sale of notes receivable was $898,000 for the second quarter of 2003, compared to $4.5 million in the same period of 2002. The gain in the quarter ended June 30, 2003 resulted from the sale of $11.5 million of notes receivable to the SPE. The gain in the same quarter of 2002 resulted from the sale of $58.7 million of notes receivable to the SPE. Gain on Early Extinguishment of Debt Gain on early extinguishment of debt was $0 for the quarter ended June 30, 2003, compared to $17.9 million in the same period of 2002. The gain in 2002 resulted from the early extinguishment of $56.9 million of 10 1/2% senior subordinated notes in connection with the restructuring of the Company's debt, completed in May 2002. Income before Provision for Income Taxes Income before provision for income taxes decreased to $2.7 million for the quarter ended June 30, 2003, as compared to $20.1 million for the quarter ended June 30, 2002, 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 was 2.1% in the second quarter of 2003, as compared to 0.2% for the second quarter of 2002. The effective income tax rate is the result of the 2002 and 2003 projected income tax benefits being reduced by the effect of a valuation allowance, which reduces the projected net deferred tax assets to zero due to the unpredictability of recovery. Net Income Net income decreased to $2.7 million for the quarter ended June 30, 2003, as compared to $20.1 million for the quarter ended June 30, 2002, as a result of the above mentioned operating results. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 Revenues Revenues for the six months ended June 30, 2003 were $83.0 million, representing a $1.4 million or 1.7% decrease from revenues of $84.4 million for the six months ended June 30, 2002. The decrease is primarily due to reduced sampler sales and interest income, partially offset by increased Vacation Interval sales and other income. Vacation Interval sales increased $1.5 million to $61.0 million during the first six months of 2003, up from $59.6 million in the same period of 2002. For the six months ended June 30, 2003, the number of Vacation Intervals sold, exclusive of in-house Vacation Intervals, decreased 11.8% to 3,261 from 3,696 in the first six months of 2002. The average price per interval decreased to $10,355 in the first six months of 2003 versus $10,553 for the first six months of 2002. Total Vacation Interval sales for the first six months of 2003 included 435 biennial intervals (counted as 218 Vacation Intervals) compared to 762 (381 Vacation Intervals) in the first six months of 2002. During the first two quarters of 2003, 2,201 upgrade in-house Vacation Intervals were sold at an average price of $6,386, compared to 4,231 upgrade in-house Vacation Intervals sold at an average price of $4,792 during the comparable 2002 period. In the first half of 2003, the Company's in-house sales force also sold 1,652 second Vacation Intervals to existing owners at an average sales price of $7,999, which when combined with upgrade sales generated an increase of $6.7 million in in-house sales. Sampler sales decreased $1.3 million to $886,000 for the six months ended June 30, 2003, compared to $2.2 million for the same period in 2002. Sampler sales are not recognized as revenue until the Company's obligation has elapsed, which often does not occur until the sampler contract expires eighteen months after the sale is consummated. Hence, a significant portion of sampler sales recognized in the first half of 2002 relate to 2000 sales, when the Company had significantly higher sales volume. 19 Interest income decreased 11.0% to $17.4 million for the six months ended June 30, 2003, from $19.6 million for the same period of 2002. This decrease primarily resulted from a decrease in notes receivable, net of allowance for doubtful notes, in 2003 compared to 2002, primarily due to sales of notes receivable to the SPE. Management fee income, which consists of management fees collected from the resorts' management clubs, can not exceed the management clubs' net income. Management fee income remained constant at $947,000 for the six months ended June 30, 3003 compared to $948,000 for the same period of 2002. Other income consists of water and utilities income, marina income, golf course and pro shop income, and other miscellaneous items. Other income increased $619,000 to $2.7 million for the first six months of 2003 compared to $2.1 million for the same period of 2002. The increase primarily relates to a $273,000 gain associated with the sale of land located in Las Vegas, Nevada, as well as increased water and utilities income. Cost of Sales Cost of sales as a percentage of Vacation Interval sales decreased to 17.5% during the first half of 2003 versus 18.5% for the same period of 2002 primarily due to increased sales prices of upgrades in 2003 compared to 2002. The overall decrease of $344,000 in cost of sales in the first six months of 2003 compared to the same period of 2002 was due to a decline in Vacation Intervals sold in those comparative periods. Sales and Marketing Sales and marketing costs as a percentage of total sales increased to 53.9% for the six months ended June 30, 2003, from 52.7% for the same period of 2002. The percentage increase resulted from a $854,000 increase of sales and marketing expense from 2002 to 2003, which generated only a $1.5 million increase in Vacation Interval sales from 2002 to 2003. The $854,000 increase in sales and marketing expense is primarily attributable to the development of new upgrade and second-week ownership marketing programs in 2003 that did not exist in 2002. In addition, it appears that job uncertainty and the global unrest that existed throughout the first half of 2003 had a negative impact on touring families willingness to purchase Vacation Intervals, as the number of sales presentations made in the first half of 2003 was approximately 1.5% lower than in 2002, but 11.8% fewer Vacation Intervals were purchased. Provision for Uncollectible Notes The provision for uncollectible notes as a percentage of Vacation Interval sales increased substantially in the first half of 2003 to 67.4% compared to 20.0% for the first half of 2002. Management observed that cancellations in the first quarter of 2003 significantly exceeded the level expected under its estimate for the December 31, 2002 allowance for uncollectible notes. Accordingly, the estimate was revised in the quarter ended March 31, 2003 as follows: - - the basis of the estimate of future cancellations was changed from Vacation Interval sales to incremental amounts financed, resulting in an increase of $1.6 million, - - certain historical cancellations from 2000 and 2001 that were previously excluded from predictive cancellations, as such cancellations were assumed to be uncharacteristically large as a result of the Company's class action notices to all customers and announcements about its liquidity and possible bankruptcy issues in the first half of 2001, were included in predictive cancellations, resulting in an increase of $5.6 million, - - the estimate of cancellations in years 7, 8, and 9 after a sale were increased, resulting in an increase of $1.6 million, - - the estimate of inventory recoveries resulting from cancellations was revised, resulting in an increase of $300,000, - - the ratio of the excess of cancellations in the first quarter over the estimated cancellations for the same period based on the weighted average rate of cancellations divided by the incremental amounts financed for the period 1997 through 2002, was applied to all future estimated cancellations, resulting in an increase of $15.0 million, and - - an estimate was added for current notes with customers who received payment or term concessions that would have been deemed cancellations were it not for the concessions, resulting in an increase of $4.7 million. The result of these revisions to the estimate was a $28.7 million increase from the original estimate for the provision for uncollectible notes in the first quarter of 2003. A further result of the revision to the estimate is that the allowance for doubtful accounts was 22.0% of gross notes receivable as of June 30, 2003 compared to 10.9% at 20 December 31, 2002. Management will continue its current collection programs and seek new programs to reduce note defaults and improve the credit quality of its 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 16.8% for the first half of 2003, from 20.9% for the same period of 2002. Overall, operating, general and administrative expense decreased by $3.7 million for the first half of 2003, as compared to the same period of 2002. This was partially due to $2.0 million of professional fees that were incurred in the first six months of 2002 associated with the restructuring of the Company. In addition, the Company incurred $1.0 million of audit fees in the first half of 2002 related to the completion of the 2000 audit. No such fees were incurred in the first six months of 2003. Depreciation and Amortization Depreciation and amortization expense as a percentage of total revenues decreased to 2.8% in the first half of 2003 compared to 3.0% in the first half of 2002. Overall, depreciation and amortization expense decreased $204,000 for the first six months of 2003, as compared to 2002, primarily due to a general reduction in capital expenditures since 2000. Interest Expense and Lender Fees Interest expense and lender fees as a percentage of interest income decreased to 49.5% for the first half of 2003, from 66.9% for the same period of 2002. This decrease is primarily the result of decreased borrowings against pledged notes receivable and decreased senior subordinated notes due to the debt restructuring completed in May 2002, offset by decreased interest income as described above. Also, the Company's weighted average cost of borrowing decreased to 6.1% in the first half of 2003 compared to 6.5% in the same period of 2002. Gain on Sale of Notes Receivable Gain on sale of notes receivable was $2.8 million for the first six months of 2003, compared to $4.5 million in the same period of 2002. The gain in the first half of 2003 resulted from the sale of $35.1 million of notes receivable to the SPE in the first six months of 2003. The gain in the same period of 2002 resulted from the sale of $58.7 million of notes receivable to the SPE. Gain on Early Extinguishment of Debt Gain on early extinguishment of debt was $1.3 million for the six months ended March 31, 2003, compared to $17.9 million in the same period of 2002. The gain in 2003 resulted from the early extinguishment of the $8.8 million remaining balance of the Company's $60 million loan agreement, which would have been due August 2003. The gain in 2002 resulted from the early extinguishment of $56.9 million of 10 1/2% senior subordinated notes in connection with the restructuring of the Company's debt, completed in May 2002. Income (Loss) before Provision for Income Taxes Income (loss) before provision for income taxes decreased to a loss of $23.1 million for the six months ended June 30, 2003, as compared to income of $18.0 million for the six months ended June 30, 2002, as a result of the above mentioned operating results. Provision for Income Taxes Provision for income taxes as a percentage of income (loss) before provision for income taxes was 0.3% in the first half of 2003, as compared to 0.2% for the same period of 2002. The effective income tax rate is the result of the 2002 and 2003 projected income tax benefits being reduced by the effect of a valuation allowance, which reduces the projected net deferred tax assets to zero due to the unpredictability of recovery. 21 Net Income (Loss) Net income (loss) decreased to a loss of $23.1 million for the six months ended June 30, 2003, as compared to income of $18.0 million for the six months ended June 30, 2002, as a result of the above mentioned operating results. LIQUIDITY AND CAPITAL RESOURCES FINANCIAL COVENANTS. Due to the results of the quarter ended March 31, 2003, the Company is not in compliance with three of the financial covenants described above. First, sales and marketing expense for the quarter ended March 31, 2003 was 56.1% of sales, compared to a maximum threshold of 52.5%. Second, the interest coverage ratio for twelve months ended March 31, 2003 was 1.02 to 1.0, compared to a minimum requirement of 1.25 to 1.0. And third, net loss for the two consecutive quarters ended March 31, 2003 was $24.9 million, compared to a minimum requirement of $1.00 net income. Also, due to the results for the six months ended June 30, 2003, the Company is in default of two of the financial covenants described above. First, the interest coverage ratio for the twelve months ended June 30, 2003 was 0.13 to 1.0, compared to a minimum requirement of 1.25 to 1.0. Second, net loss for the two consecutive quarters ended June 30, 2003 was $23.1 million, compared to a minimum requirement of $1.00 net income. Management notified its secured lenders that it was not in compliance with the financial covenants, and has begun discussions regarding waivers of the defaults and/or modifications to loan agreements which would bring the Company back into compliance. As of August 13, 2003, the secured lenders have not waived the covenant defaults but have continued to fund and have not declared a default. Management is attempting to negotiate waivers and or modifications of its loan agreements, however, it cannot give any assurances that it will be successful in these negotiations. Although the Company believes that it will receive relief from its lenders and that its lenders will continue to fund the Company's operations until negotiations can be completed, there can be no assurance that the Company's lenders will continue to fund its operations. A refusal by its lenders to continue funding will have a material and adverse effect on the Company's operations. SOURCES OF CASH. The Company generates cash primarily from the cash received from the sale of Vacation Intervals, the financing of customer notes receivable from Silverleaf Owners, the sale of notes receivable to the SPE, management fees, sampler sales, and resort and utility operations. The Company typically receives a 10% down payment on sales of Vacation Intervals and finances the remainder by receipt of a seven-year to ten-year customer promissory note. The Company generates cash from customer notes receivable by (i) borrowing at an advance rate of up to 75% 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 the Company uses significant amounts of cash in the development and marketing of Vacation Intervals, but collects 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 six months ended June 30, 2003, the Company's operating activities reflected cash used in operating activities of $1.5 million. During the same period of 2002, the Company's operating activities reflected cash used in operating activities of $6.1 million. In 2003, the decrease in cash used in operating activities was primarily the result of an increase in waterfall payments from the SPE and a decrease in operational payments due to timing. During the six months ended June 30, 2003, net cash provided by financing activities was $3.0 million compared to $3.3 million in the comparable 2002 period. The decrease in cash provided by financing activities was the result of decreased proceeds from sales of notes receivable of $19.6 million in 2003 versus 2002, partially offset by a $19.2 million reduction in payments on borrowings against pledged notes receivable. At June 30, 2003, the Company's revolving credit facilities provided for loans of up to $232.4 million of which approximately $207.4 million of principal and interest related to advances under the credit facilities was outstanding. For the six months ended June 30, 2003, the weighted average cost of funds for all borrowings, including the senior subordinated debt, was 6.1%. Customer defaults have a significant impact on cash available to the Company from financing customer notes receivable in that notes more than 60 days past due are not eligible as collateral. As a result, the Company must repay borrowings against such delinquent notes. Effective October 30, 2000, the Company entered into a $100 million revolving credit agreement to finance Vacation Interval notes receivable through an off-balance-sheet SPE, formed on October 16, 2000. The agreement presently has a term of 5 years. However, on April 30, 2004, the second anniversary date of the amended facility, the SPE's lender under the credit agreement has the right to put, transfer, and assign to the SPE all of its rights, title, and interest in and to all of the assets securing the facility at a price equal to the then outstanding principal balance under the facility. At June 30, 2003, the SPE held notes receivable totaling $120.2 million, with related borrowings of 22 $97.8 million. The Company is not obligated to repurchase defaulted or any other contracts sold to the SPE. It is anticipated, however, that the Company will place bids in accordance with the terms of the conduit agreement to repurchase some defaulted contracts in public auctions to facilitate the re-marketing of the underlying collateral. During the six months ended June 30, 2003, the Company sold $35.1 million of notes receivable and recognized pre-tax gains of $2.8 million. The SPE funded these purchases through advances under a credit agreement arranged for this purpose. In connection with these sales, the Company received cash consideration of $28.8 million, which was used to pay down borrowings under its revolving loan facilities. For regular federal income tax purposes, the Company reports substantially all of the Vacation Interval sales it finances 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 the Company is 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 as the interest expense is not estimable. In addition, the Company is subject to current alternative minimum tax ("AMT") as a result of the deferred income that results from the installment sales treatment, although due to existing AMT loss carryforwards, it is anticipated that no such current AMT liability exists. 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. In 1998, the Internal Revenue Service approved a change in the method of accounting for installment sales effective as of January 1, 1997. As a result, the Company's alternative minimum taxable income for 1997 through 1999 was increased each year by approximately $9.0 million for the pre-1997 adjustment, which resulted in the Company paying substantial additional federal and state taxes in those years. Subsequent to December 31, 2000, the Company applied for and received refunds of $8.3 million and $1.6 million during 2001 and 2002, respectively, as the result of the carryback of its 2000 AMT loss to 1999, 1998, and 1997. Accordingly, no minimum tax credit exists currently. The net operating losses ("NOLs") expire between 2012 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. Management currently does not believe that it will be able to utilize its NOL from normal operations. At present, future NOL utilization is expected to be limited to the temporary differences creating deferred tax liabilities. If necessary, management could implement a strategy to accelerate income recognition for federal income tax purposes to utilize the existing NOL. The amount of the deferred tax asset considered realizable could be decreased if estimates of future taxable income during the carryforward period are reduced. Due to the restructuring completed in May 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 the Company's 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 which includes the change date. The annual limitation will be equal to the value of the stock of the Company immediately before the ownership change, multiplied by the long-term tax-exempt rate (i.e., the highest of the adjusted Federal long-term rates in effect for any month in the three-calendar-month period ending with the calendar month in which the change date occurs). This annual limitation may be increased for any recognized built-in gain to the extent allowed in Section 382(h) of the Code. The ownership change may also limit, as described above, the use of the Company's minimum tax credit, if any, as provided in Section 383 of the Code. Given its current economic condition, the Company's access to capital and other financial markets is anticipated to be limited. However, to finance the Company's growth, development, and any future expansion plans, the Company may at some time be required to consider the issuance of other debt, equity, or collateralized mortgage-backed securities, the proceeds of which would be used to finance future acquisitions, refinance debt, finance mortgage receivables, or for other purposes. Any debt incurred or issued by the Company may be secured or unsecured, have fixed or variable rate interest, and may be subject to such terms as management deems prudent. Due to the uncertainties mentioned above, the independent auditors report on the Company's financial statements for the period ended December 31, 2002 contains an explanatory paragraph concerning the Company's ability to continue as a going concern. USES OF CASH. Investing activities typically reflect a net use of cash due to capital additions. However, net cash 23 provided by investing activities for the six months ended June 30, 2003 was $2.3 million compared to net cash used in investing activities of $832,000 during the same period of 2002. The increase in net cash provided by investing activities relates to proceeds from the sale of land held for sale of $2.9 million in 2003 and a reduction in equipment purchases in 2003. The Company evaluates sites for additional new resorts or acquisitions on an ongoing basis. Certain debt agreements include restrictions on the Company's ability to pay dividends based on minimum levels of net income and cash flow. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of and for the six months ended June 30, 2003, the Company had no significant derivative financial instruments or foreign operations. Interest on the Company's notes receivable portfolio, senior subordinated debt, capital leases, and miscellaneous notes is fixed, whereas interest on the Company's primary loan agreements, which totaled $206.4 million at June 30, 2003, is variable. The impact of a one-point interest rate change on the outstanding balance of variable-rate financial instruments at June 30, 2003, on the Company's results of operations for the first six months of 2003 would be approximately $1.0 million, or approximately $0.03 per share. At June 30, 2003, the carrying value of the Company's 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 the Company's notes receivable are increased or perceived to be above market rates, the fair market value of the Company's fixed-rate notes will decline, which may negatively impact the Company's ability to sell new notes. The impact of a one-point interest rate change on the portfolio could result in a fair value impact of $5.5 million or approximately $0.15 per share. Credit Risk -- The Company is exposed to on-balance sheet credit risk related to its notes receivable. The Company is exposed to off-balance sheet credit risk related to notes sold. The Company offers financing to the buyers of Vacation Intervals at the Company's resorts. These buyers generally make a down payment of at least 10% of the purchase price and deliver a promissory note to the Company 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. The Company bears the risk of defaults on these promissory notes, and this risk is heightened inasmuch as the Company generally does not verify the credit history of its customers and will provide financing if the customer is presently employed and meets certain household income criteria. If a buyer of a Vacation Interval defaults, the Company 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 the Company in many cases may have recourse against a Vacation Interval buyer for the unpaid price, certain states have laws that limit the Company's ability to recover personal judgments against customers who have defaulted on their loans. Accordingly, the Company has generally not pursued this remedy. Interest Rate Risk -- The Company has historically derived net interest income from its financing activities because the interest rates it charges its customers who finance the purchase of their Vacation Intervals exceed the interest rates the Company pays to its lenders. Because the Company's indebtedness bears interest at variable rates and the Company's customer receivables bear interest at fixed rates, increases in interest rates will erode the spread in interest rates that the Company has historically obtained and could cause the rate on the Company's borrowings to exceed the rate at which the Company provides financing to its customers. The Company has not engaged in interest rate hedging transactions. Therefore, any increase in interest rates, particularly if sustained, could have a material adverse effect on the Company's results of operations, cash flows, and financial position. Availability of Funding Sources -- The Company funds substantially all of the notes receivable, timeshare inventories, and land inventories which it originates or purchases with borrowings through its 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 received by the Company from repayments of such notes receivable. To the extent that the Company is not successful in maintaining or replacing existing financings, it would have to curtail its operations or sell assets, thereby having a material adverse effect on the Company's results of operations, cash flows, and financial condition. Geographic Concentration -- The Company's notes receivable are primarily originated in Texas, Missouri, Illinois, 24 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. The Company's 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 the Company's products and the collection of notes receivable. ITEM 4. CONTROLS AND PROCEDURES As of the period covered by this report, management, including the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures. Based on, and as of the date of, that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized, and reported as and when required. There were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls during the period covered by this report. PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Holiday Hills Condominium Association, Inc. et al v. Silverleaf Resorts, Inc. et al, Circuit Court of Christian County, Missouri. The homeowners' associations of three condominium projects that a former subsidiary of the Company constructed in Missouri filed separate actions of unspecified amounts against the Company alleging construction defects and breach of management agreements. This litigation has been ongoing for several years. Discovery continued in the lawsuit during the period ended June 30, 2003, but is still far from complete. Among other things, the plaintiffs have not yet turned over the reports of their expert witnesses and the Company is unclear as to exactly what damages are being claimed by the Plaintiffs. At this time, a majority of the Company's legal fees and costs of litigation are being paid by two insurance carriers, subject to a reservation of rights by these insurers. Since the Company does not know what damages are being claimed, and cannot predict the final outcome of these claims, it cannot estimate the additional costs it could incur, or whether its insurance carriers will continue to cover its costs in connection with these claims. Bennett et. al. v. Silverleaf Resorts, Inc., District Court, 22nd Judicial District, Comal County, Texas. A purported class action was filed against the Company on October 19, 2001, by Plaintiffs who each purchased Vacation Intervals from the Company. The Plaintiffs alleged that the Company violated the Texas Deceptive Trade Practices Act and the Texas Timeshare Act by failing to deliver to them complete copies of the contracts for the purchase of the Vacation Intervals as they did not receive a complete legal description of the Hill Country Resort as attached to the Declaration of Restrictions, Covenants, and Conditions of the Resort. The Plaintiffs also claimed that the Company violated various provisions of the Texas Deceptive Trade Practices Act with respect to the maintenance fees charged by the Company to its Vacation Interval owners. In November 2002, the Court denied the Plaintiffs' request for class certification. In March 2003, additional Plaintiffs joined the case, and a Fourth Amended Petition was filed against the Company and Silverleaf Club alleging additional violations of the Texas Deceptive Trade Practices Act, breach of fiduciary duty, negligent misrepresentation, and fraud. The class allegations were also deleted from the amended Petition. In their Fourth Amended Petition, the Plaintiffs sought damages in the amount of $1.5 million, plus reasonable attorneys fees and court costs. The Plaintiffs also sought rescission of their original purchase contracts with the Company. The Company, Silverleaf Club, and the Plaintiffs have agreed to a mediated settlement of Plaintiffs' claims and have executed a definitive settlement agreement. Under the terms of the settlement, the Company and Silverleaf Club paid the Plaintiffs an aggregate sum of $130,000, and the Plaintiffs conveyed their Vacation Intervals back to the Company and dismissed the action against the Company and Silverleaf Club with prejudice. Huizar et al v. Silverleaf Resorts, Inc., District Court, 73rd Judicial District, Bexar County, Texas. A further purported class action was filed against the Company on February 26, 2002, by a couple who purchased a Vacation Interval from the Company. The Plaintiffs alleged that the Company violated the Texas Government Code by charging a document preparation fee in regard to instruments affecting title to real estate. Alternatively, the Plaintiffs alleged that the $275 document preparation fee constituted a partial prepayment that should have been credited against their note and sought a declaratory judgment. The petition asserted Texas class action allegations 25 and sought recovery of the document preparation fee and treble damages on behalf of both the Plaintiffs and the alleged class they purported to represent, and an injunctive relief preventing the Company from engaging in the unauthorized practice of law in connection with the sale of its Vacation Intervals in Texas. The Company and the Plaintiffs have executed a Stipulation and Agreement of Compromise ("Settlement"), which has been preliminarily approved by the court. The court has also certified the class for settlement purposes. The court will hold a fairness hearing in September 2003 to determine if the Settlement is a fair, reasonable, and adequate settlement of the class claims. In accordance with the Settlement, the Company will refund all amounts paid by the named Plaintiffs who will convey their Vacation Interval back to the Company. Additionally, the Company will issue to each timeshare owner who is a member of the class a $275 certificate, which can be used for an upgrade, as a credit on the purchase of an additional Vacation Interval, or for a limited stay at one of the Company's resorts. The Company estimates that there are approximately 16,400 members of the class. The Settlement also provides for payment of the named Plaintiffs' attorney fees in the amount of $400,000, plus expenses. Upon the entry of the final order by the court that the Settlement is fair, the Company will be released from all liability with respect to the settled claims, and the action will be dismissed by the named Plaintiffs and the class with prejudice. In January 2003, a group of eight related individuals and entities who were then holders of certain of the Company's 10 1/2% senior subordinated notes due 2008 (the "10 1/2% Notes") made oral claims against the Company and a number of its present and former officers and directors concerning the claimants' open market purchases of 10 1/2% Notes during 2000 and 2001. The 10 1/2% Notes were allegedly purchased by the eight claimants for an aggregate purchase price of $3.7 million. One of the eight claimants previously owned common stock in the Company acquired between 1998 and 2000 and also made claims against the Company with regard to approximately $598,000 in losses allegedly suffered in connection with open market purchases and sales of the Company's common stock. In February 2003, these eight claimants, the Company, and certain of its former officers and directors entered into a tolling agreement for the purposes of preserving the claimants' rights during the term of the agreement by tolling applicable statutes of limitations while negotiations between the claimants and the Company take place. The 10 1/2% Notes were not in default and the Company denied all liability with regard to the alleged claims of these eight claimants. No litigation was filed against the Company or any of its affiliates by these eight claimants; however, on February 27, 2003, these eight claimants did file suit in state district court in Dallas, Texas, against the Company's former auditors, Deloitte & Touche, LLP, alleging violation by Deloitte & Touche of the Texas Securities Act, common law fraud, negligent misrepresentation, fraud in a stock transaction, and accounting malpractice. The claims against Deloitte & Touche arise from the same purchases of the Company's 10 1/2% Notes and common stock that formed the basis for the tolling agreement. In order to resolve this issue with these eight claimants, the Company agreed on June 16, 2003 to rescind the purchases of the 10 1/2% Notes held by the claimants. Under the terms of the settlement, which was closed on July 10, 2003, the Company acquired all the 10 1/2% Notes held by the eight claimants. Additionally, the Company received a full and complete release of any claims which the eight claimants alleged to hold against the Company, or any of its present or former officers, directors, or affiliates, regarding purchases of the 10 1/2% Notes or common stock of the Company. Additionally, the eight claimants agreed to release their alleged claims against Deloitte & Touche and to dismiss with prejudice the above-described lawsuit which the eight claimants filed against Deloitte & Touche in February 2003. On July 23, 2003, the Company cancelled all the 10 1/2% Notes acquired from these eight claimants. The face amount of the cancelled 10 1/2% Notes was $7,620,000. The Company paid a cash settlement to the claimants of $2,393,383, which resulted in a one-time gain to the Company of approximately $5.1 million for early extinguishment of debt. This gain will be recognized by the Company in its quarter ending September 30, 2003. As a part of the settlement, the Company also agreed to pay $75,000 towards the eight claimants' legal fees. The Company is currently subject to other litigation arising in the normal course of its 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 the judgment of the Company, none of these lawsuits or claims against the Company, either individually or in the aggregate, is likely to have a material adverse effect on the Company, its business, results of operations, or financial condition. ITEM 5. OTHER INFORMATION National Do-Not-Call Rules -- The Company relies heavily on telemarketing activities to arrange tours of its 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 the Company's telemarketing activities. The FCC will implement, in conjunction with the Federal Trade 26 Commission ("FTC"), a national do-not-call list, which will apply to both interstate and intrastate commercial telemarketing calls. The FTC expects that approximately 60 million telephone numbers will be registered on the national do-not-call list by mid-2004, which could sharply limit the number of contacts the Company will be able to make through its telemarketing activities. The Company will continue to telemarket to individuals who do not place their telephone numbers on a do-not-call list and those with whom the Company has an established business relationship. The Company's use of autodialers to call potential customers in its database could also be restricted by new call abandonment standards specified in the FCC rules and regulations. The Company cannot currently determine the impact that these new regulations could have on the Company's sales; however, wide-spread registration of telephone numbers on the national do-not-call list and the restrictions on the use of autodialers by the Company could negatively affect the Company's sales and marketing efforts and require the Company to use less effective, more expensive alternative marketing methods. Various telemarketing industry trade groups have filed lawsuits against the FCC seeking relief from the implementation of these rules and regulations by the FCC. The Company cannot predict what success these lawsuits may have. Disposition of Managed Resort Assets -- In July 2003, the Company sold its management rights and unsold timeshare inventory in seven timeshare resorts the Company has managed since 1998. In connection with this sale, the Company will receive consideration of approximately $1.3 million in cash, notes, and other consideration over the next twenty-four months. The seven timeshare resorts included in this sale of management rights and timeshare inventory are (i) Alpine Bay located in Alpine, Alabama, (ii) Beach Mountain Lakes located in Drums, Pennsylvania, (iii) Treasure Lake located in Dubois, Pennsylvania, (iv) Foxwood Hills located in Westminister, South Carolina, (v) Hickory Hills located in Gautier, Mississippi, (vi) Lake Tansi Village located in Crossville, Tennessee, and (vii) Westwood Manor located in Bridgeport, Texas. The Company originally acquired the management rights and unsold inventory of timeshare intervals in these seven resorts from Crown Resorts Co., LLC in May 1998. Due to liquidity concerns announced by the Company in the first quarter of 2001, the Company discontinued its efforts to sell timeshare intervals in these seven resorts in 2001. The Company pursued a sale of its rights in these seven managed resorts so that it could concentrate its development, sales, and marketing activities at the resorts it owns in Texas, Missouri, Illinois, Massachusetts, and Georgia. The proceeds of this sale related to these seven managed resorts will be used by the Company to repay debt to senior lenders. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed herewith. 10.1 Contract of Sales dated August 17, 2002 between the Registrant and Fairfield Resorts, Inc. 10.2 First Amendment To Contract Of Sale dated November 27, 2002 between the Registrant and Fairfield Resorts, Inc. 10.3 First Amendment to Contract of Sale dated December 23, 2002 between the Registrant and Fairfield Resorts, Inc. 10.4 Second Amendment and Waiver Agreement dated as of June 19, 2003 to the Amended and Restated Receivables Loan and Security Agreement dated as of April 30, 2002, among Silverleaf Finance I, Inc.; the Registrant; Autobahn Funding Company LLC; DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main; U.S. Bank Trust National Association; and Wells Fargo Bank Minnesota, National Association 10.5 Contract of Sale dated June 17, 2003 between the Registrant, Richard W. Dickson and Robert G. Garner 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. - ------- (b) Reports on Form 8-K The Company filed the following Current Reports on Form 8-K with the SEC during the quarter ended June 30, 2003: None. 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 13, 2003 By: /s/ ROBERT E. MEAD ----------------------- Robert E. Mead Chairman of the Board and Chief Executive Officer Dated: August 13, 2003 By: /s/ HARRY J. WHITE, JR. ----------------------- Harry J. White, Jr. Chief Financial Officer 28 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------- 10.1 Contract of Sales dated August 17, 2002 between the Registrant and Fairfield Resorts, Inc. 10.2 First Amendment To Contract Of Sale dated November 27, 2002 between the Registrant and Fairfield Resorts, Inc. 10.3 First Amendment to Contract of Sale dated December 23, 2002 between the Registrant and Fairfield Resorts, Inc. 10.4 Second Amendment and Waiver Agreement dated as of June 19, 2003 to the Amended and Restated Receivables Loan and Security Agreement dated as of April 30, 2002, among Silverleaf Finance I, Inc.; the Registrant; Autobahn Funding Company LLC; DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main; U.S. Bank Trust National Association; and Wells Fargo Bank Minnesota, National Association 10.5 Contract of Sale dated June 17, 2003 between the Registrant, Richard W. Dickson and Robert G. Garner 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.
29 EX-10.1 3 d07826exv10w1.txt CONTRACT OF SALES - 8/17/02 Exhibit 10.1 CONTRACT OF SALE This Agreement is entered into by and between SILVERLEAF RESORTS, INC., a Texas corporation ("Seller"), and FAIRFIELD RESORTS, INC. ("Purchaser"). W I T N E S S E T H : FOR AND IN CONSIDERATION of the promises, undertakings, and mutual covenants of the parties herein set forth, Seller hereby agrees to sell and Purchaser hereby agrees to purchase and pay for all that certain property hereinafter described in accordance with the following terms and conditions: ARTICLE I PROPERTY The conveyance by Seller to Purchaser shall include the following described tracts or parcels of land, together with all and singular the rights and appurtenances pertaining to such land including any right, title and interest of Seller in and to adjacent strips or gores, streets, alleys, or rights-of-way and all rights of ingress and egress thereto: That certain tract of land located at the southeast corner of Koval Lane and Harmon Avenue in Las Vegas, Clark County, Nevada, commonly known as 4570 Koval Lane, and being more particularly described on Exhibit "A" attached hereto and made a part hereof for all purposes. Hereafter the aforesaid real property is referred to as the "Land." The conveyance by Seller to Purchaser shall also include all buildings, fixtures and other improvements on the Land (the "Improvements"). Hereinafter all property being conveyed to Purchaser by Seller pursuant to this Contract including the Land and the Improvements are sometimes referred to collectively as the "Subject Property." ARTICLE II PURCHASE PRICE The purchase price to be paid by Purchaser to Seller for the Subject Property shall be the sum of Three Million One Hundred Fifty Thousand and No/100 Dollars ($3,150,000.00). The purchase price shall be payable all in cash at the closing. - 2 - ARTICLE III EARNEST MONEY Within two (2) business days after final execution of this Contract by all parties hereto, Purchaser shall deliver Purchaser's check in the amount of One Hundred Thousand and No/100 Dollars ($100,000.00) to First American Title Company of Nevada, 3760 Pecos-McLeod Interconnect, Suite 7, Las Vegas, Nevada 89121, Attn: Julie Skinner (the "Title Company"). The Title Company shall immediately cash the earnest money check and deposit the proceeds thereof in an interest bearing account, the earnings from which shall accrue to the benefit of Purchaser (hereinafter the proceeds of the earnest money check shall be referred to as the "Earnest Money"). Notwithstanding anything to the contrary contained herein, in the event the earnest money check is not deposited by Purchaser with the Title Company within two (2) business days from the date of execution of this Contract, then, at Seller's option, this Contract shall automatically terminate and be rendered null and void, without notice to Purchaser, upon the expiration of such time, and the parties shall have no further obligations or liabilities one unto the other. In the event that this Contract is closed, then all Earnest Money shall be applied in partial satisfaction of the purchase price. In the event that this Contract is not closed, then the Earnest Money shall be disbursed in the manner provided for elsewhere herein. Notwithstanding the foregoing or anything to the contrary contained elsewhere in this Contract, it is understood and agreed that Five Hundred Dollars ($500.00) of the Earnest Money shall in all events be delivered to Seller as valuable consideration for the Inspection Period described in Article VI hereinbelow and the execution of this Contract by Seller. - 3 - ARTICLE IV PRE-CLOSING OBLIGATIONS OF SELLER AND PURCHASER Within fifteen (15) days from the date of execution of this Contract, Seller shall furnish to Purchaser, the following information (collectively, the "Due Diligence Items"): (a) The most recent survey of the Subject Property in possession of Seller; Purchaser shall be entitled to have this survey updated and recertified as of a date subsequent to the date of execution of this Contract and, if Purchaser does so, shall provide copies thereof to Seller; unless otherwise agreed by Seller and Purchaser, the metes and bounds description contained in the survey, as updated, shall be the legal description employed in the documents of conveyance of the Subject Property; and b. A current commitment (the "Title Commitment") for the issuance of an owner's policy of title insurance to the Purchaser from the Title Company, together with good and legible copies of all documents constituting exceptions to Seller's title as reflected `in the Title Commitment. Seller shall simultaneously deliver, and the same shall be deemed to be Due Diligence Items, all records and documents within the control or custody of the Seller concerning the Subject Property, if any (it being specifically understood that the listing of the following items shall in no manner be deemed to imply the existence of any such item, and the Seller shall only be required to deliver such of the following items as exist), including, without limitation, copies of: a. all developer agreements, zoning or subdivision approvals or ordinances, agreements, resolutions of any governmental authority, body, agency or entity, site plans and development orders, approvals, consents, permits, certificates and other governmental licenses, along with notices issued by the applicable governmental entity concerning same, which burden, benefit or otherwise affect the ownership or development of the Subject Property or relate to the payment of any reservation fee, deposit or impact fee benefiting or burdening the Subject Property; b. all drawings, surveys, topographical maps, site development and other plans, specifications and engineering reports and all reports, documents, analyses, memoranda, letters, summaries and work papers relating to environmental matters concerning the Subject Property, including without imitation, all environmental studies and reports; and c. any and all pre-construction soil tests. - 4 - EXCEPT FOR THE REPRESENTATIONS OF SELLER SET FORTH IN ARTICLE VII, SELLER MAKES NO REPRESENTATION OR WARRANTY AS TO THE TRUTH, ACCURACY OR COMPLETENESS OF ANY MATERIALS, DATA OR INFORMATION DELIVERED BY SELLER TO PURCHASER IN CONNECTION WITH THE TRANSACTION CONTEMPLATED HEREBY. EXCEPT FOR THE REPRESENTATIONS OF SELLER SET FORTH IN ARTICLE VII, PURCHASER ACKNOWLEDGES AND AGREES THAT ALL MATERIALS, DATA AND INFORMATION DELIVERED BY SELLER TO PURCHASER IN CONNECTION WITH THE TRANSACTION CONTEMPLATED HEREBY ARE PROVIDED TO PURCHASER AS A CONVENIENCE ONLY AND THAT ANY RELIANCE ON OR USE OF SUCH MATERIALS, DATA OR INFORMATION BY PURCHASER SHALL BE AT THE SOLE RISK OF PURCHASER. ARTICLE V TITLE INSPECTION PERIOD Purchaser shall have a period of time commencing on the date of execution of this Contract and expiring forty-five (45) days thereafter within which to review and approve the status of Seller's title to the Subject Property (the "Title Review Period"). If the information to be provided to or obtained by Purchaser pursuant to the provisions of Article IV hereinabove reflects or discloses any defect, exception or other matter affecting the Subject Property ("Title Defects") that is unacceptable to Purchaser, then prior to the expiration of the Inspection Period Purchaser shall provide Seller with written notice of Purchaser's objections. Seller may, at its sole option, elect to cure or remove the objections raised by Purchaser; provided, however, that Seller shall have no obligation to do so. Should Seller elect to attempt to cure or remove the objections, Seller shall have ten (10) days from the date of Purchaser's written notice of objections (the "Cure Period") in - 5 - which to accomplish the cure. In the event Seller either elects not to cure or remove the objections or is unable to accomplish the cure prior to the expiration of the Cure Period, then Seller shall so notify Purchaser in writing specifying which objections Seller does not intend to cure, and then Purchaser shall be entitled, as Purchaser's sole and exclusive remedies, either to terminate this Agreement by providing written notice of termination to Seller within ten (10) days from the date on which Purchaser receives Seller's no-cure notice or waive the objections and close this transaction as otherwise contemplated herein. If Purchaser shall fail to notify Seller in writing of any objections to the state of Seller's title to the Subject Property as shown by the Survey and Title Commitment, then Purchaser shall be deemed to have no objections to the state of Seller's title to the Subject Property as shown by the Survey and Title Commitment, and any exceptions to Seller's title which have not been objected to by Purchaser and which are shown on the Survey or described in the Title Commitment shall be considered to be "Permitted Exceptions." It is further understood and agreed that any Title Defects which have been objected to by Purchaser and which are subsequently waived by Purchaser shall be Permitted Exceptions. Purchaser, at its sole cost and expense, may obtain on or before forty-five (45) days after the execution of this Contract a phase one or more extensive environmental assessment of the Subject Property (the "Environmental Assessment"), and if during such forty-five (45) day period Purchaser finds any matter that in its opinion is an environmental problem, then it shall notify Seller of the same prior to the expiration of the Inspection Period and such problems shall be handled in the same manner and in the same time periods as Title Defects. - 6 - ARTICLE VI INSPECTION PERIOD Purchaser, at Purchaser's sole expense, shall have the right to conduct a feasibility, environmental, engineering and physical study of the Subject Property for a period of time commencing on the date of execution of this Contract and expiring on December 15, 2002 (the "Inspection Period"). During the Inspection Period, Purchaser shall also attempt to obtain all approvals and entitlements that Purchaser deems necessary in order to allow Purchaser to develop the Subject Property as a timeshare resort consisting of at least one hundred twenty-five (125) timeshare units within at least fifteen (15) floors (the "Intended Use"). Purchaser and Purchaser's duly authorized agents or representatives shall be permitted to enter upon the Subject Property at all reasonable times during the Inspection Period in order to conduct engineering studies, soil tests and any other inspections and/or tests that Purchaser may deem necessary or advisable. Purchaser further agrees to indemnify and hold Seller harmless from any claims or damages, including reasonable attorneys' fees, resulting from Purchaser's inspection of the Subject Property. In the event that the review and/or inspection conducted pursuant to this paragraph shows any fact, matter or condition to exist with respect to the Subject Property that is unacceptable to Purchaser, in Purchaser's sole discretion, or in the event that Purchaser is unable to obtain all necessary approvals that Purchaser deems necessary to allow Purchaser to develop the Subject Property for the Intended Use, or if for any reason Purchaser determines that purchase of the Subject Property is not feasible, then Purchaser shall be entitled, as Purchaser's sole remedy, to cancel this Contract by providing written notice of cancellation to Seller prior to the expiration of the Inspection Period. If Purchaser shall provide written notice of cancellation prior to the expiration of the Inspection Period, then this Contract shall be cancelled, all Earnest Money (less $500.00) shall be immediately returned to Purchaser by the Title Company, and thereafter neither Seller nor Purchaser shall have any continuing obligations one unto the other. If no notice of cancellation is provided by Purchaser - 7 - prior to the expiration of the Inspection Period, then this Contract shall remain in full force and effect and the Title Company shall immediately disburse the entire Earnest Money deposit to Seller; upon such disbursement the entire Earnest Money deposit shall be non-refundable to the Purchaser except in the event of default by Seller hereunder, but, if this Contract closes, then the entire Earnest Money deposit shall be applied in partial satisfaction of the purchase price. ARTICLE VII REPRESENTATIONS, WARRANTIES, AND COVENANTS OF SELLER Seller represents and warrants to Purchaser that as of the effective date and at closing Seller will have good and marketable fee simple title to the Subject Property free and clear of all liens, encumbrances, covenants, restrictions, rights-of-way, easements, and any other matters affecting title to the Subject Property except for the Permitted Exceptions, and at closing, Seller will be in a position to convey the Subject Property to Purchaser free and clear of all liens, encumbrances, covenants, restrictions, rights-of-way, easements and other such matters affecting title except for the Permitted Exceptions. Seller further covenants and agrees with Purchaser that, from the date hereof until the closing, neither Seller nor its subsidiaries shall sell, assign, or convey any right, title, or interest whatsoever in or to the Subject Property, or create or permit to exist any lien, security interest, easement, encumbrance, charge, or condition affecting the Subject Property (other than the Permitted Exceptions) without promptly discharging the same prior to closing. Seller hereby further represents and warrants to Purchaser as follows: a. There are no actions, suits, or proceedings pending or, to the best of Seller's knowledge, threatened against Seller or otherwise affecting any portion of the Subject Property, at law or in equity, or before or by any federal, state, municipal, or other governmental court, department, commission, board, bureau, agency, or instrumentality, domestic or foreign; - 8 - b. The execution by Seller of this Contract and the consummation by Seller of the sale contemplated hereby have been duly authorized, and do not, and, at the closing date, will not, result in a breach of any of the terms or provisions of, or constitute a default under any indenture, agreement, instrument, or obligation to which Seller is a party or by which the Subject Property or any portion thereof is bound, and do not, and at the closing date will not, constitute a violation of any regulation affecting the Subject Property; c. Seller has not received any notice of any violation of any ordinance, regulation, law, or statute of any governmental agency pertaining to the Subject Property or any portion thereof; and d. To Seller's knowledge, no work has been performed on the Subject Property that could give rise to any mechanics', laborers' or materialmen's liens being placed on the Subject Property. The Seller has fully paid all laborers and materialmen for prior improvements to, and work performed on, the Subject Property and has obtained releases of such lien rights. All of the foregoing representations and warranties of Seller are made by Seller both as of the date hereof and as of the date of the closing hereunder. Notwithstanding the foregoing or anything to the contrary contained herein, it is understood and agreed that the representations and warranties set forth hereinabove shall survive the closing of this Contract only for a period of one (1) year following the closing date, but not thereafter, and Seller shall have no liability of any kind whatsoever for any breach thereof except to the extent a claim is asserted against Seller within such one (1) year period. ARTICLE VIII CLOSING The closing shall take place at the offices of the Title Company. The closing shall occur on or before December 27, 2002. Purchaser shall notify Seller at least five (5) days in advance of the exact time and date of closing. - 9 - ARTICLE IX SELLER'S OBLIGATIONS AT CLOSING At the closing, Seller shall do the following: a. Deliver to Purchaser a grant, bargain and sale deed covering the Subject Property, duly signed and acknowledged by Seller, which deed shall be in form reasonably acceptable to Purchaser for recording and shall convey to Purchaser good and marketable title to the Subject Property, free and clear of all liens, rights-of-way, easements, and other matters affecting title to the Subject Property, except for the Permitted Exceptions. b. Deliver or cause to be delivered to Purchaser an ALTA owner's form of title insurance policy (the "Title Policy") insuring Purchaser in the amount of the purchase price that Purchaser has acquired good and marketable title to the Subject Property, subject only to the Permitted Exceptions. Purchaser shall be entitled to request the Title Company to provide, at Purchaser's sole cost and expense, such endorsements (or amendments) to the Title Policy as Purchaser may reasonably require so long as such endorsements or amendments impose no additional liability on Seller or delay the closing. Purchaser acknowledges and agrees that the Title Policy may be actually delivered within a reasonable time following the closing so long as Purchaser has received at closing a current binding title commitment obligating the Title Company to deliver the Title Policy. Purchaser shall pay the premium for a standard owner's form of title insurance policy in the amount of the purchase price; the cost of any title endorsements required by Purchaser, and the cost of reinsurance reasonably required by Purchaser, shall also be paid by Purchaser. c. Deliver a non-withholding statement that will satisfy the requirements of Section 1445 of the Internal Revenue Code so that Purchaser is not required to withhold any portion of the purchase price for payment to the Internal Revenue Service. d. Provide such evidence or other documents that may be reasonably required by the Title Company evidencing the status and capacity of Seller and the authority of the person or persons who are executing the various documents on behalf of Seller in connection with the sale of the Subject Property. e. Deliver such documents as reasonably requested by Purchaser to consummate this Contract. - 10 - ARTICLE X PURCHASER'S OBLIGATIONS AT CLOSING At the closing, Purchaser shall deliver to Seller the purchase price in cash and such documents as requested by the Title Company or as reasonably requested by Seller to consummate this Contract. ARTICLE XI COSTS AND ADJUSTMENTS At closing, the following items shall be adjusted or prorated between Seller and Purchaser: a. Any real estate transfer taxes or sales taxes payable in connection with the sale of the Subject Property shall be paid in full by Purchaser. b. Ad valorem taxes for the Subject Property for the current calendar year shall be prorated as of the date of closing, and Seller shall pay to Purchaser in cash at closing Seller's pro rata portion of such taxes. Seller's pro rata portion of such taxes shall be based upon taxes actually assessed for the current calendar year or, if for any reason such taxes for the Subject Property have not been actually assessed, such proration shall be based upon the amount of such taxes for the immediately preceding calendar year, and adjusted by cash settlement when exact amounts are available. However, anything herein to the contrary notwithstanding, any tax abatement or refund for a period of time prior to closing shall belong to Seller. c. All other closing costs, including but not limited to, recording and escrow fees shall be divided equally between Seller and Purchaser; provided, however, that Seller and Purchaser shall each be responsible for the fees and expenses of their respective attorneys. Seller agrees to indemnify and hold Purchaser harmless of and from any and all liabilities, claims, demands, suits, and judgments, of any kind or nature (except those items which under the terms of this Contract specifically become the obligation of Purchaser), brought by third parties and based on events occurring on or before the date of closing and which are in any way related to the ownership, maintenance, or operation of the Subject Property, and all expenses related thereto, including, but not limited to, court costs and attorneys' fees. - 11 - Purchaser agrees to indemnify and hold Seller harmless of and from any and all liabilities, claims, demands, suits, and judgments, of any kind or nature, brought by third parties and based on events occurring subsequent to the date of closing and which are in any way related to the ownership, maintenance or operation of the Subject Property, and all expenses related thereto, including, but not limited to, court costs and attorneys' fees. Notwithstanding anything to the contrary contained herein, the indemnities set forth in this Article XI shall survive the closing hereunder. ARTICLE XII ENTRY ON PROPERTY Purchaser, Purchaser's agents, employees, servants, or nominees, are hereby granted the right to enter upon the Subject Property at any time prior to closing for the purpose of inspecting the Subject Property and conducting such engineering and mechanical tests as Purchaser may deem necessary or advisable, any such inspections and tests to be made at Purchaser's sole expense. Purchaser agrees to indemnify and hold Seller harmless from and against any and all losses, damages, costs, or expenses incurred by Seller as a result of any inspections or tests made by Purchaser. ARTICLE XIII POSSESSION OF PROPERTY Possession of the Property free and clear of all uses and encroachments, except the Permitted Exceptions, shall be delivered to Purchaser at closing. - 12 - ARTICLE XIV NOTICES All notices, demands, or other communications of any type given by the Seller to the Purchaser, or by the Purchaser to the Seller, whether required by this Contract or in any way related to the transaction contracted for herein, shall be void and of no effect unless given in accordance with the provisions of this paragraph. All notices shall be in writing and delivered to the person to whom the notice is directed, either in person, by facsimile transmission, or by United States Mail, as a registered or certified item, return receipt requested. Notices delivered by mail shall be deemed given when deposited in a post office or other depository under the care or custody of the United States Postal Service, enclosed in a wrapper with proper postage affixed, addressed as follows: SELLER: Silverleaf Resorts, Inc. 1221 Riverbend Drive Suite 120 Dallas, Texas 75247 Attn: Robert E. Mead Telephone No.: (214) 631-1166 Facsimile No.: (214) 905-0514 With Required Copy to: Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P. 3700 NationsBank Plaza 901 Main Street Dallas, Texas 75202 Attn: George R. Bedell, Esq. Telephone No.: (214) 749-2448 Facsimile No.: (214) 747-3732 PURCHASER: Fairfield Resorts, Inc. 8427 South Park Circle, Suite 500 Orlando, Florida 32819 Attn: Douglas O. Kinsey, Senior Vice President, Real Estate Acquisitions Telephone No.: (407) 370-5200 Facsimile No.: (407) 370-5222 - 13 - With Required Copy to: John C. Alvarez 8427 South Park Circle, Suite 500 Orlando, Florida 32819 Telephone No.: (407) 370-5200 Facsimile No.: (407) 370-5222 ARTICLE XV REMEDIES In the event all conditions of this Contract are satisfied and in the event all covenants and agreements to be performed prior to closing are fully performed, and in the event that performance of this Contract is tendered by the Purchaser and the sale is not consummated through a default on the part of Seller on the closing date, then Purchaser shall have the option (i) to terminate this Contract by providing written notice thereof to Seller, in which event the Earnest Money (less $500.00) shall be returned immediately to Purchaser and the parties hereto shall have no further liabilities or obligations one unto the other; (ii) to waive any defect or requirement and close this Contract; or (iii) to sue Seller for specific performance. In no event shall Purchaser have the right to sue Seller for damages, bring any action against the Subject Property, or file a notice of lis pendens regarding any claim of Purchaser other than a claim for specific performance. In the event that Purchaser fails to timely comply with all conditions, covenants, and obligations Purchaser has hereunder, such failure shall be an event of default, and Seller's sole remedy shall be to receive and retain the Earnest Money. The Earnest Money is agreed upon by and between the Seller and Purchaser as liquidated damages due to the difficulty and inconvenience of ascertaining and measuring actual damages, and the uncertainty thereof, and no other damages, rights, or remedies shall in any case be collectible, enforceable, or available to the Seller other than in this paragraph defined, and Seller shall accept the Earnest Money as Seller's total damages and relief. - 14 - ARTICLE XVI ASSIGNMENT Purchaser shall have the right to nominate who shall take title and who shall succeed to Purchaser's duties and obligations hereunder, or assign this Contract to any person, firm, corporation, or other entity which Purchaser may, at Purchaser's sole option, choose, and from and after such nomination or assignment, wherever in this Contract reference is made to Purchaser such reference shall mean the nominee or assignee who shall succeed to all the rights of Purchaser hereunder. Any such assignment shall not be effective until Seller has received written notice thereof; further, such assignment shall not relieve Purchaser of any of its obligations or liabilities hereunder. ARTICLE XVII INTERPRETATION AND APPLICABLE LAW This Agreement shall be construed and interpreted in accordance with the laws of the State of Nevada. Where required for proper interpretation, words in the singular shall include the plural; the masculine gender shall include the neuter and the feminine, and vice versa. The terms "successors and assigns" shall include the heirs, administrators, executors, successors, and assigns, as applicable, of any party hereto. - 15 - ARTICLE XVIII AMENDMENT This Contract may not be modified or amended, except by an agreement in writing signed by the Seller and the Purchaser. The parties may waive any of the conditions contained herein or any of the obligations of the other party hereunder, but any such waiver shall be effective only if in writing and signed by the party waiving such conditions and obligations. ARTICLE XIX AUTHORITY Each person executing this Contract warrants and represents that he is fully authorized to do so. ARTICLE XX ATTORNEYS' FEES In the event it becomes necessary for either party to file a suit to enforce this Contract or any provisions contained herein, the prevailing party shall be entitled to recover, in addition to all other remedies or damages, reasonable attorneys' fees and costs of court incurred in such suit. ARTICLE XXI DESCRIPTIVE HEADINGS The descriptive headings of the several paragraphs contained in this Contract are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. - 16 - ARTICLE XXII ENTIRE AGREEMENT This Contract (and the items to be furnished in accordance herewith) constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings of the parties in connection therewith. No representation, warranty, covenant, agreement, or condition not expressed in this Contract shall be binding upon the parties hereto or shall affect or be effective to interpret, change, or restrict the provisions of this Contract. ARTICLE XXIII MULTIPLE ORIGINALS ONLY Numerous copies of this Contract may be executed by the parties hereto. Each such executed copy shall have the full force and effect of an original executed instrument. ARTICLE XXIV ACCEPTANCE Purchaser shall have until 5:00 o'clock p.m., August 12, 2002, to execute and return a fully executed original of this Contract to Seller, otherwise this Contract shall become null and void. Time is of the essence of this Contract. The date of execution of this Contract by Seller shall be the date of execution of this Contract. If the final date of any period falls upon a Saturday, Sunday, or legal holiday under the laws of the State of Nevada, then in such event the expiration date of such period shall be extended to the next day which is not a Saturday, Sunday, or legal holiday under the laws of the State of Nevada. - 17 - ARTICLE XXV REAL ESTATE COMMISSION In the event that this Contract closes, but not otherwise, Seller agrees to pay a real estate commission to Award Realty, such commission to be in the amount of six percent (6%) of the purchase price payable hereunder. Seller represents and warrants to Purchaser that Seller has not contacted or entered into any agreement with any other real estate broker, agent, finder, or any other party in connection with this transaction, and that Seller has not taken any action which would result in any other real estate broker's, finder's, or other fees or commissions being due and payable to any other party with respect to the transaction contemplated hereby. Purchaser hereby represents and warrants to Seller that Purchaser has not contracted or entered into any agreement with any real estate broker, agent, finder, or any other party in connection with this transaction, and that Purchaser has not taken any action which would result in any real estate broker's, finder's, or other fees or commissions being due or payable to any other party with respect to the transaction contemplated hereby. Each party hereby indemnifies and agrees to hold the other party harmless from any loss, liability, damage, cost, or expense (including reasonable attorneys' fees) resulting to the other party by reason of a breach of the representation and warranty made by such party herein. Notwithstanding anything to the contrary contained herein, the indemnities set forth in this Article XXV shall survive the closing. - 18 - ARTICLE XXVI NON-RECORDATION Purchaser agrees and warrants that it will not place of record with the Clark County Recorder of Deeds Office this Contract or any part of this agreement or any instrument, memorandum or notice making reference to this Contract and in the event of any recordation in violation of this Article then Purchaser shall forfeit any and all rights Purchaser has in the Earnest Money and further this Contract shall, at Seller's option, be void. EXECUTED on this the 17th day of August, 2002. SELLER: SILVERLEAF RESORTS, INC., a Texas corporation By: /S/ ROBERT E. MEAD ------------------------------------------ Name: Robert E. Mead Its: CEO EXECUTED on this the 16th day of August, 2002. PURCHASER: FAIRFIELD RESORTS, INC. By: [signature illegible] ------------------------------------------ Name:________________________________________ Its:_________________________________________ - 19 - RECEIPT OF EARNEST MONEY AND ONE (1) EXECUTED COUNTERPART OF THIS CONTRACT IS HEREBY ACKNOWLEDGED: TITLE COMPANY: FIRST AMERICAN TITLE COMPANY OF NEVADA By: /S/ TAMMY LOWE --------------------------------- Name: Tammy Lowe Its: Escrow Officer List of Exhibits: Exhibit A: Legal Description - 20 - EX-10.2 4 d07826exv10w2.txt FIRST AMENDMENT TO CONTRACT OF SALE - 11/27/02 Exhibit 10.2 FIRST AMENDMENT TO CONTRACT OF SALE THIS FIRST AMENDMENT TO CONTRACT OF SALE (the "Amendment") is made and entered into as of the 27th day of November, 2002, by and between SILVERLEAF RESORTS, INC., a Texas corporation ("Seller") and FAIRFIELD RESORTS, INC., a Delaware corporation ("Purchaser"). WITNESSETH: WHEREAS, Seller and Purchaser entered into that certain Contract of Sale (the "Contract") effective as of August 17, 2002, whereby Seller agreed to sell, and Purchaser agreed to purchase, certain land located in Las Vegas, Nevada (the "Land"). WHEREAS, Seller and Purchaser now wish to amend the Contract to add certain conditions precedent to Purchaser's obligations to close the sale and purchase of the Land. NOW, THEREFORE, for and in consideration of the mutual covenants, conditions and agreements set forth herein and under the Contract, the parties hereto do agree as follows: 1. Amendment of Article VIII. Article VIII of the Contract is hereby amended to add the following language at the end of the existing paragraph: Notwithstanding the foregoing, the following shall be a condition precedents to Purchaser's obligations to close the purchase of the Land: At Closing, Seller shall execute a document causing the timeshare declaration (as amended) encumbering the Land to be removed so that the Title Policy can be issued without exception for the current timeshare declaration (as amended). If the foregoing condition is not satisfied on or at Closing, then Purchaser will be entitled, as Purchaser's sole and exclusive remedies, either (i) to terminate the Contract, in which event the earnest money (less $500.00) shall be returned to Purchaser by the Title Company, or (ii) to waive the foregoing conditions and proceed with the closing of the Contract. 2. Full Force and Effect. Except as specifically amended herein, the Contract shall remain in full force and effect. NOW, THEREFORE, the parties have executed this Amendment as of the date above first written. SILVERLEAF RESORTS, INC., a Texas corporation By: /S/ ROBERT E. MEAD -------------------------------------- Print Name: Robert E. Mead Title: Chief Executive Officer FAIRFIELD RESORTS, INC., a Delaware corporation By: /S/ LAURENCE E. KINSOLVING -------------------------------------- Print Name: Laurence E. Kinsolving Title: Executive Vice President 2 EX-10.3 5 d07826exv10w3.txt FIRST AMENDMENT TO CONTRACT OF SALE - 12/23/02 Exhibit 10.3 SECOND AMENDMENT TO CONTRACT OF SALE This Second Amendment to Contract of Sale is made and entered into as of the 23rd day of December, 2002, by and between SILVERLEAF RESORTS, INC., a Texas corporation ("Seller"), and FAIRFIELD RESORTS, INC. ("Purchaser"). W I T N E S S E T H WHEREAS, on August 17, 2002, Seller and Purchaser entered into that certain Contract of Sale (the "Contract") pursuant to which Seller agreed to sell and Purchaser agreed to purchase that certain tract of land located at the southeast corner of Koval Lane and Harmon Avenue in Las Vegas, Clark County, Nevada, commonly known as 4570 Koval Lane (the "Property"); and WHEREAS, Seller and Purchaser amended the Contract effective as of November 27, 2002 (the "First Amendment"), in order to add a condition precedent to Purchaser's obligation to close under the Contract; WHEREAS, on December 14, 2002, Purchaser exercised Purchaser's right to cancel the Contract; and WHEREAS, Seller and Purchaser desire to reinstate the Contract, as amended by the First Amendment, and to modify the terms and conditions thereof in certain respects; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and other good and valuable consideration, the receipt, accuracy and sufficiency of which is hereby acknowledged, Seller and Purchaser hereby agree as follows: 1. Seller and Purchaser hereby agree that the Contract, as amended by the First Amendment, is reinstated and, except as modified in this Second Amendment, the terms and conditions of the Contract shall be and remain in full force and effect. 2. Notwithstanding anything to the contrary contained in the Contract, Seller and Purchaser hereby agree that the closing of the Contract shall occur on or before January 6, 2003. 3. Within three (3) business days after execution of this Second Amendment, Purchaser shall deliver an additional $100,000.00 in earnest money to the Title Company (as defined and described in Article III of the Contract). The Title Company shall thereupon immediately disburse Purchaser's entire earnest money deposit in the amount of $200,000.00 to Seller. Upon such disbursement, the entire earnest money deposit shall be non-refundable to the Purchaser except in the event of a default by Seller under the Contract, but, if the Contract closes, then the entire earnest money deposit shall be applied in partial satisfaction of the purchase price. Except as specifically set forth above, all terms and conditions of the Contract shall remain in full force and effect. All capitalized terms not otherwise defined herein shall have the meaning given to such terms in the Contract. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date and year first above written. SELLER: SILVERLEAF RESORTS, INC., a Texas corporation By: /S/ ROBERT E. MEAD -------------------------------------- Name: Robert E. Mead Its: Chief Executive Officer PURCHASER: FAIRFIELD RESORTS, INC. By: /S/ ROBERT S. GLINKA -------------------------------------- Name: Robert S. Glinka Its: Executive Vice President 2 EX-10.4 6 d07826exv10w4.txt SECOND AMENDMENT AND WAIVER AGREEMENT Exhibit 10.4 SECOND AMENDMENT AND WAIVER AGREEMENT SECOND AMENDMENT AND WAIVER AGREEMENT, dated as of June 19, 2003 (this "Second Amendment"), to the Amended and Restated Receivables Loan and Security Agreement, dated as of April 30, 2002, among Silverleaf Finance I, Inc. (the "Borrower"), Silverleaf Resorts, Inc. ("SRI"), as Servicer, Autobahn Funding Company LLC, as lender (the "Lender"), DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt Am Main, as agent (the "Agent"), U.S. Bank Trust National Association, as Agent's Bank, and Wells Fargo Bank Minnesota, National Association, as Backup Servicer (as the same may have been amended, supplemented, modified or restated prior to the effectiveness hereof in accordance with its terms, including by that certain First Amendment to Amended and Restated Receivables Loan and Security Agreement, the "Existing RLSA"). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed thereto in the Existing RLSA, as amended hereby (as so amended, and as otherwise amended, supplemented, modified or restated from time to time in accordance with its terms, the "Amended RLSA"). WHEREAS, the Borrower and SRI have requested that the Agent and the Lender waive certain provisions of the Existing RLSA; and WHEREAS, in connection with the aforementioned requested waiver, the parties hereto have agreed to amend the Existing RLSA on the terms and subject to the conditions herein set forth; NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and subject to the fulfillment of the conditions set forth below, the parties hereto agree as follows: SECTION 1. AMENDMENT TO THE EXISTING RLSA 1.1 The definition of "Borrowing Limit" in Section 1.01 of the Existing RLSA is hereby amended and restated to read in its entirety as follows: "Borrowing Limit" means (i) $100,000,000 prior to the occurrence of the closing or closings with respect to one or more Securitizations providing for financing in an aggregate amount of at least $50,000,000 and (ii) $50,000,000 immediately upon and after the occurrence of the closing or closings with respect to one or more Securitizations providing for financing in an aggregate amount of at least $50,000,000; provided, that at all times, on or after the Early Amortization Commencement Date, the Borrowing Limit shall mean the aggregate outstanding amount of the Loans. 1 2 The definition of "Applicable Margin" in Section 1.01 of the Existing RLSA is hereby amended and restated to read in its entirety as follows: "Applicable Margin" shall have the meaning set forth in the Fee Letter. 1.3 The definition of "EBITDA" in Section 1.01 of the Existing RLSA is hereby amended by inserting the following language immediately after the words "for the corresponding period" at the end of such definition: provided that, with respect to SRI, EBITDA for any period shall be determined without giving effect to the increase in the allowance for uncollectible notes in the amount of $28,711,000 recognized during the fiscal quarter of SRI ending March 31, 2003. 1.4 Clause (yy) of the definition of "Eligible Receivable" in Section 1.01 of the Existing RLSA is hereby amended and restated to read in its entirety as follows: (yy) If such Pledged Receivable was initially Pledged hereunder at (1) any time on or after the Amendment Date, but prior to June 19, 2003, the Obligor related to such Pledged Receivable shall have had a FICO Score of at least 500 at the time such Obligor purchased the Interval related to such Pledged Receivable or (2) any time on or after June 19, 2003, the Obligor related to such Pledged Receivable shall have had a FICO Score of at least 600 at the time such Obligor purchased the Interval related to such Pledged Receivable. 1.5 The definition of "Overconcentration Amount" in Section 1.01 of the Existing RLSA is hereby amended by deleting clause (e) of such definition and substituting in lieu thereof the following: (e) the amount by which the sum of the Outstanding Principal Balances of each Eligible Receivable initially Pledged hereunder at any time on or after the Amendment Date but prior to June 19, 2003, the Obligor of which shall have had a FICO Score of at least 500 but not greater than 539 at the time such Obligor purchased the Interval related to such Eligible Receivable exceeds 10% of the Eligible Receivables Balance at such time. 1.6 Section 1.01 of the Existing RLSA is hereby amended by adding the following additional defined term in appropriate alphabetical order: "Securitization" means a financing transaction undertaken by the Borrower and/or SRI and/or any Affiliate thereof, which (a) is intended to be structured in a manner so that the indebtedness incurred need not be recognized on the balance sheet of SRI and (b) involves the direct or indirect sale or other conveyance of Receivables and/or similar promissory notes or receivables to a Person that shall privately or publicly sell securities, notes or certificates backed by such Receivables and/or similar promissory notes or receivables; provided, however, that the term Securitization shall not include a financing provided by one or more commercial paper conduits. (a) The Borrower shall pay the Lender (either directly or through the Agent) certain fees (the "Fees") in the amounts and on the dates set forth in an amended and restated fee letter, dated as of June 19, 2003, among SRI, the Borrower, the Agent, and the Lender, as such fee letter, may be amended, restated, supplemented or otherwise modified from time to time in accordance with its terms (as so amended, restated, supplemented or modified, the "Fee Letter"). 1.8 Section 2.12 of the Existing RLSA is hereby amended by adding at the end thereof the following: 2 If, as a result of the decrease of the Borrowing Limit pursuant to the definition thereof, or for any other reason, the Facility Amount exceeds the Borrowing Limit at any time, the Borrower shall immediately prepay to the Agent, for the account of the Lender, a principal amount of Loans in an amount equal to such excess (together with all accrued Yield with respect to such principal amount of Loans). The Borrower shall promptly reimburse the Agent and the Lender for any reasonable out-of-pocket expenses incurred by the Agent and the Lender, respectively, in respect of any such prepayment including, without limitation, Liquidation Fees. 1.9 Clause (a) of Section 6.13 of the Existing RLSA is hereby amended and restated to read in its entirety as follows: (a) The Lender or the Agent (and their respective agents or professional advisors) shall at the expense of the Borrower, have the right under this Agreement, up to five times during each calendar year, upon reasonable prior notice to the Servicer and the Borrower, to examine and audit, during business hours or at such other times as might be reasonable under applicable circumstances, any and all of the books, records, or other information of the Servicer and/or the Borrower, or held by another for the Servicer and/or the Borrower or on its behalf, concerning this Agreement and compliance therewith. The Lender or the Agent agree that the liability of the Borrower for the expenses incurred by the Lender and/or the Agent in connection with the examinations and audits described in the previous sentence shall be limited to $20,000 during any calendar year. The Lender and the Agent (and their respective agents and professional advisors) shall treat as confidential any information obtained during such examination which is not already publicly known or available; provided, however, the Lender or the Agent may disclose such information if required to do so by law or by any regulatory authority. 1.10 Schedule VI to the Existing RLSA is hereby amended and restated to read in its entirety as set forth in Schedule VI to this Second Amendment. 1.11 Schedule VIII to the Existing RLSA is hereby deleted in its entirety. SECTION 2. WAIVER 2.1 Pursuant to the terms and subject to the conditions hereof, the Lender and the Agent hereby waive (A) the breach of the covenant under Clause (iv) of Section 5.01(x), (B) solely to the extent related to the increase in the allowance for uncollectible notes in the amount of $28,711,000 during the fiscal quarter of SRI ending March 31, 2003, the breach of the covenant under Section 5.01(z), (C) Clause (iv) of Section 7.01(p) and (D) solely to the extent related to the aforementioned breaches of the covenants of Clause (iv) of Section 5.01(x) and Section 5.01(z), Section 7.01(d) of the Existing RLSA. 2.2 The Borrower and SRI understand and agree that the aforementioned waivers of the Lender and the Agent are conditioned upon no other unwaived Event of Default or Early Amortization Event having occurred prior to the date hereof. 2.3 The parties hereto hereby acknowledge and agree that, except for the specific waivers and agreements set forth above, nothing in this Second Amendment shall be deemed to be a consent to or waiver or amendment of any covenant or agreement contained in the Existing RLSA, the Amended RLSA or any other document executed in connection therewith, and each such party hereby agrees that all of the covenants and agreements contained in the Amended RLSA or any other document executed in connection with the Existing RLSA or the Amendment RLSA, are hereby ratified and confirmed in all respects. 3 SECTION 3. CONDITIONS TO EFFECTIVENESS This Second Amendment shall be effective upon the delivery to the Agent of the following items (in each case, in form and substance, satisfactory to the Agent): (i) counterparts hereof executed by each of the parties hereto; (ii) a fully executed copy of an amended and restated fee letter (the "Fee Letter Amendment") in the form attached hereto as Exhibit A; and (iii) payment of all fees to be paid as of the date hereof pursuant to the Fee Letter Amendment, all of which fees are fully-earned as of the date hereof, are non-refundable for any reason whatsoever, constitute compensation for services and do not constitute interest or a charge for the use of money. SECTION 4. MISCELLANEOUS 4.1 The Borrower and SRI each hereby certifies that the representations and warranties set forth in Article P/ of the Amended RLSA (and any other representations and warranties made by the Borrower or SRI in the Amended RLSA) are true and correct on the date hereof with the same force and effect as if made on the date hereof, except to the extent that (i) such representations and warranties speak specifically to an earlier date in which case they shall have been true and correct on such date or (ii) with respect to Section 4.0 1(bb) of the Amended RLSA, any inaccuracy has arisen solely due to the increase in the allowance for uncollectible notes in the amount of $2 8,711,000 recognized during the fiscal quarter of SRI ending March 31, 2003. In addition, the Borrower and SRI each represents and warrants (which representations and warranties shall survive the execution and delivery hereof) that (a) after giving effect to this Second Amendment, no unwaived Early Amortization Event or Event of Default (nor any event that but for notice or lapse of time or both would constitute an unwaived Early Amortization Event or Event of Default) shall have occurred and be continuing as of the date hereof nor shall any unwaived Early Amortization Event or Event of Default (nor any event that but for notice or lapse of time or both would constitute an unwaived Early Amortization Event or Event of Default) occur due to this Second Amendment becoming effective, (b) the Borrower and SRI each has the corporate power and authority to execute and deliver this Second Amendment and the Fee Letter Amendment and has taken or caused to be taken all necessary corporate actions to authorize the execution and delivery of this Second Amendment and the Fee Letter Amendment, and (c) no consent of any other person (including, without limitation, shareholders or creditors of the Borrower or SRI), and no action of, or filing with any governmental or public body or authority is required to authorize, or is otherwise required in connection with the execution and performance of this Second Amendment or the Fee Letter Amendment other than such that have been obtained. 4.2 The Amended RLSA is hereby ratified and confirmed in all respects and remains in full force and effect in accordance with its terms. 4.3 All references in the Amended RLSA to "this Agreement" and "herein" and all references to the Existing RLSA in the documents executed in connection with the Existing RLSA shall mean the Amended RLSA. 4 4.4 This Second Amendment may be executed by the parties hereto individually or in combination, in one or more counterparts, each of which shall be an original and all of which shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Second Amendment by facsimile shall be effective as delivery of a manually executed counterpart of this Second Amendment. 4.5 The Borrower hereby agrees to pay all costs and expenses incurred by the Lender and the Agent in connection with this Second Amendment including, without limitation, the fees and expenses of Kaye Scholer LLP, counsel to the Lender and the Agent. 4.6 THIS SECOND AMENDMENT SHALL, IN ACCORDANCE WITH SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ANY CONFLICTS OF LAW PRINCIPLES THEREOF THAT WOULD CALL FOR THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION. IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the date first above written. SILVERLEAF FINANCE I, INC. By: /S/ HARRY J. WHITE, JR. ---------------------------------- Name: Harry J. White, Jr. Title: CFO SILVERLEAF RESORTS, INC. By: /S/ ROBERT E. MEAD ----------------------------------- Name: Robert E. Mead Title: CEO DZ BANK AG DEUTSCHE ZENTRAL- GENOSSENSCHAFTSBANK, FRANKFURT AM MAIN, as Agent By: /S/ PATRICK PREECE ----------------------------------- Name: Patrick Preece Title: Vice President By: /S/ DAN MARINO ----------------------------------- Name: Dan Marino Title: Vice President 5 AUTOBAHN FUNDING COMPANY LLC By: DZ Bank AG Deutsche Zentral- Genossenschaftsbank, Frankfurt Am Main, its Attorney-in-fact By: /S/ PATRICK PREECE ----------------------------------- Name: Patrick Preece Title: Vice President By: /S/ DAN MARINO ----------------------------------- Name: Dan Marino Title: Vice President U.S. BANK TRUST NATIONAL ASSOCIATION By: /S/ IGNAZIO TAMBURELLO ----------------------------------- Name: Ignazio Tamburello Title: Assistant Vice President WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION By: /S/ SUE DIGNAN ----------------------------------- Name: Sue Dignan Title: Assistant Vice President 6 SCHEDULE VI TO SECOND AMENDMENT AND WAIVER AGREEMENT SCHEDULE VI NET ELIGIBLE RECEIVABLES BALANCE "Net Eligible Receivables Balance" means, at any time, (X) without duplication, the sum of (a) a percentage of the aggregate Outstanding Principal Balance of each Eligible Receivable with respect to which the related Obligor has made at least but no more than 17 consecutive monthly payments in accordance with the terms of such Eligible Receivable (such consecutive monthly payments being deemed to include the final consecutive monthly payments made with respect to, and in accordance with the terms of, a prior Eligible Receivable payable by such Obligor which was repaid in fill or terminated concurrently with the execution of such Eligible Receivable) at such time, such percentage to be equal to the Tier III Advance Rate in effect at such time, plus, without duplication, (b) a percentage of the aggregate Outstanding Principal Balance of each Eligible Receivable with respect to which the related Obligor has made at least but no more than 18 consecutive monthly payments in accordance with the terms of such Eligible Receivable (such consecutive monthly payments being deemed to include the final consecutive monthly payments made with respect to, and in accordance with the terms of, a prior Eligible Receivable payable by such Obligor which was repaid in full or terminated concurrently with the execution of such Eligible Receivable) at such time, such percentage to be equal to the Tier II Advance Rate in effect at such time, plus, without duplication, (c) a percentage of the aggregate Outstanding Principal Balance of all Eligible Receivables with respect to which the related Obligor has made (i) 19 or more consecutive monthly payments in accordance with the terms of such Eligible Receivable (such consecutive monthly payments being deemed to include the final consecutive monthly payments made with respect to, and in accordance with the terms of, a prior Eligible Receivable payable by such Obligor which was repaid in full or terminated concurrently with the execution of such Eligible Receivable) at such time or (ii) if such Obligor shall have had a FICO Score of at least 610 at the time such Obligor purchased the Interval related to such Eligible Receivable, 6 or more consecutive monthly payments in accordance with the terms of such Eligible Receivable (without giving effect to any payments made with respect to any prior Eligible Receivable payable by such Obligor) at such time, such percentage to be equal to the Tier I Advance Rate in effect at such time, plus, without duplication, (d) 0% of the aggregate Outstanding Principal Balance of any Receivables which are not Eligible Receivables or are Eligible Receivables not described in clauses (a) through (c) above, minus (Y) the Overconcentration Amount at such time and minus (Z) without duplication, the FICO Score Adjustment Amount at such time; provided, however, that at any time that SRI shall have a Tangible Net Worth in an amount which shall be less than an amount equal to (A) the greater of (1) $100,000,000 or (2) an amount equal to 90% of the Tangible Net Worth of SRI as of September 30, 2001 plus (B) seventy-five percent (75%) of the aggregate amount of proceeds received by SRI after January 1, 2002 in connection with (1) each issuance by SRI of any class or classes of capital stock after January 1, 2002 and (2) the incurrence of Debt after January 1, 2002, other than Debt which shall be the most senior Debt of SRI plus (C) fifty percent (50%) of the aggregate amount of net income (calculated in accordance with GAAP) of SRI after January 1, 2002, each of the percentages referenced in subparts (a), (b) and (c) of this definition shall be reduced by 10%; and provided, further, however, that for purposes of determining the number of consecutive monthly payments made by an Obligor in respect of an Eligible Receivable in (a), (b) and (c) of this definition, the number of consecutive monthly payments made (in accordance with the terms of such Eligible A-1 Receivable) by such Obligor in respect of a prior Receivable, the terms of which were modified in accordance with the Credit and Collection Policy to permit the substitution of the Interval relating to such Eligible Receivable in replacement for the Interval relating to such prior Receivable and to require the Obligor to make different monthly payments in respect of such replacement Interval, shall be included in determining the number of consecutive monthly payments made by an Obligor in respect of such Eligible Receivable. For the purposes of this Schedule VI, monthly payments made with respect to an Eligible Receivable shall be deemed to be consecutive monthly payments even though there is a one to four month gap in such payments due to such Eligible Receivable having been Modified; provided, that such Eligible Receivable shall have been Modified only once since the date of its origination. For the purposes of this Schedule VI: "Tier I Advance Rate" means, with respect to each period set forth below, the percentage set forth below to the right of such period;
- ------------------------------------------------------------------------ FULLY-SEASONED PERIOD ADVANCE RATE - ------------------------------------------------------------------------ October 30, 2000 to and including April 29, 2002 85.0% - ------------------------------------------------------------------------ April 30, 2002 to and including June 18, 2003 82.5% - ------------------------------------------------------------------------ June 19, 2003 to and including September 14, 2003 81.0% - ------------------------------------------------------------------------ September 15, 2003 to and including December 14, 80.0% 2003 - ------------------------------------------------------------------------ December 15, 2003 to and including February 14, 79.0% 2004 - ------------------------------------------------------------------------ February 15, 2004 and thereafter 78.0% - ------------------------------------------------------------------------
"Tier II Advance Rate" means, with respect to each period set forth below, the percentage set forth below to the right of such period:
- ------------------------------------------------------------------------ FULLY-SEASONED PERIOD ADVANCE RATE - ------------------------------------------------------------------------ October 30, 2000 to and including April 29, 2002 82.5% - ------------------------------------------------------------------------ April 30, 2002 to and including June 18, 2003 80.0% - ------------------------------------------------------------------------ June 19, 2003 to and including September 14, 2003 78.5% - ------------------------------------------------------------------------ September 15, 2003 to and including December 14, 77.5% 2003 - ------------------------------------------------------------------------ December 15, 2003 to and including February 14, 76.5% 2004 - ------------------------------------------------------------------------ February 15, 2004 and thereafter 75.5% - ------------------------------------------------------------------------
A-1 "Tier III Advance Rate" means, with respect to each period set forth below, the percentage set forth below to the right of such period:
- ------------------------------------------------------------------------ FULLY-SEASONED PERIOD ADVANCE RATE - ------------------------------------------------------------------------ October 30, 2000 to and including April 29, 2002 80.0% - ------------------------------------------------------------------------ April 30, 2002 to and including June 18, 2003 77.5% - ------------------------------------------------------------------------ June 19, 2003 to and including September 14, 2003 76.0% - ------------------------------------------------------------------------ September 15, 2003 to and including December 14, 75.0% 2003 - ------------------------------------------------------------------------ December 15, 2003 to and including February 14, 74.0% 2004 - ------------------------------------------------------------------------ February 15, 2004 and thereafter 73.0% - ------------------------------------------------------------------------
List of Exhibits: Exhibit A: Form of Amended and Restated Fee Letter A-1 EX-10.5 7 d07826exv10w5.txt CONTRACT OF SALE - 6-/17/03 Exhibit 10.5 CONTRACT OF SALE This Agreement is entered into by and between SILVERLEAF RESORTS, INC., a Texas corporation ("Seller"), and RICHARD W. DICKSON and ROBERT G. GARNER (collectively referred to as "Purchaser") WITNESSETH: FOR AND IN CONSIDERATION of the promises, undertakings, and mutual covenants of the parties herein set forth, Seller hereby agrees to sell and Purchaser hereby agrees to purchase and pay for all that certain property hereinafter described in accordance with the following terms and conditions: ARTICLE I PROPERTY The conveyance by Seller to Purchaser shall include the following: a. All of Seller's right, title and interest, if any, in and to the unsold timeshare inventory described in Exhibit "A" attached hereto and made a part hereof for all purposes (the "Timeshare Inventory"); b. All of Seller's right, title and interest, if any, in and to the real property described in Exhibit "B" attached hereto and made a part hereof for all purposes (the "Real Property"); c. All of Seller's right, title and interest, if any, in and to the management agreements described in Exhibit "C" attached hereto and made a part hereof for all purposes (the "Management Agreements"); and d. All of Seller's right, title and interest in and to the personal property described in Exhibit "D" attached hereto and made a part hereof for all purposes (the "Personal Property"). The foregoing items are hereinafter collectively referred to as the "Subject Property." ARTICLE II PURCHASE PRICE The purchase price to be paid by Purchaser to Seller for the Subject Property shall be the sum of One Million Three Hundred Thousand and No/100 Dollars ($1,300,000.00) (the "Sale Price"). The Sale Price shall be paid as follows: (a) $300,000.00 of the Sale Price shall be payable in cash at closing as a down payment; (b) The balance of the Sale Price shall be paid by Purchaser's execution and delivery at the closing of a promissory note (the "Note") payable to Seller in the amount of $1,000,000.00. The Note shall include the following terms and be paid as follows: (i) $200,000.00 of the outstanding principal balance of the Note shall be due and payable sixty (60) days from the date of closing hereunder and shall bear no interest of any kind whatsoever; (ii) The remaining unpaid principal balance of the Note in the amount of $800,000.00 shall bear interest at the rate of eight percent (8%) per annum and shall be payable in the following manner: on June 30, 2004, a principal payment in the amount of $300,000.00, together with all then accrued but unpaid interest on the outstanding principal balance of the Note, shall be due and payable; on June 30, 2005, the remaining unpaid principal balance of the Note in the amount of $500,000.00, together with all then accrued but unpaid interest on the outstanding principal balance of the Note, shall be due and payable in full; (iii) Purchaser shall have the option to extend the date on which the last $250,000.00 of the principal balance of the Note shall be due to June 30, 2006; if Purchaser exercises this option, then on June 30, 2005, $250,000.00 of the then unpaid principal balance of the Note, plus all then accrued but unpaid interest on the entire unpaid principal balance of the Note, shall be due, and on June 30, 2006, the remaining $250,000.00 of the principal balance of the Note plus all then accrued but unpaid interest thereon shall be due and payable in full; (iv) The Note shall provide that it may be prepaid at any time, in whole or in part, without premium or penalty, and that interest shall immediately cease to accrue on any part of the Note so prepaid; any partial prepayment shall be applied to the next maturing installment of principal due on the Note; and (v) The Note shall be secured by a Mortgage to be executed in Seller's favor at the closing covering the Subject Property which shall in all respects be in form and substance satisfactory to counsel for both Seller and Purchaser. ARTICLE III PRE-CLOSING OBLIGATIONS OF SELLER Within ten (10) days from the date of execution of this Contract, Seller shall furnish to Purchaser each of the following (collectively, the "Due Diligence Items"): a. A list of all service contracts, warranties, management, maintenance, or other agreements affecting the Subject Property to which Seller is a party, if any, together with copies of same. Seller agrees not to enter into any additional contracts, warranties, or agreements prior to closing which would be binding on Purchaser and which cannot be cancelled by Purchaser upon thirty (30) days written notice without cost, penalty, or obligation unless such service contracts or other agreements are approved in writing by Purchaser; b. A schedule of all current or pending litigation with respect to the Subject Property or any part thereof, if any, together with a brief description of each such proceeding; and c. A list of any unwritten agreements affecting the Subject Property to which Seller is a party or of which Seller has knowledge, if any. Seller agrees to provide Purchaser with all additional documentation pertaining to the Subject Property reasonably requested by Purchaser within ten (10) days of Purchaser's request. ARTICLE IV REPRESENTATIONS, WARRANTIES, AND COVENANTS OF SELLER Seller makes the following warranties and representations to Purchaser: a. Seller will convey title to the Subject Property to Purchaser on the closing date subject to all matters of record and the interests of timeshare purchasers but excluding monetary encumbrances. All mechanic's liens, liens, mortgages or encumbrances of any nature presently affecting the Subject Property will be paid off and released on or before the date of closing so that at closing Seller will be in a position to convey the Subject Property to Purchaser free and clear of any such liens and mortgages. To enable Seller to convey the Subject Property to Purchaser as provided herein and to close this transaction, Seller may, at the time of closing, use the purchase money for the Subject Property or any portion thereof to clear Seller's title to the Subject Property of any or all liens, mortgages, or encumbrances, provided that releases of all such liens, mortgages, or encumbrances are recorded simultaneously with the closing or in accordance with accepted conveyancing practices. b. None of the Subject Property is held by Seller under a lease or installment sale contract except as has been disclosed to Purchaser in writing or will be disclosed to Purchaser in writing prior to closing. c. There is no action, suit, proceeding or claim presently pending in any court or before any federal, state, county or municipal department, commission, board, bureau or agency or other governmental instrumentality or before any arbitration tribunal or panel, (i) affecting the Subject Property, or any portion thereof, or Seller's use, operation or ownership of the Subject Property, or (ii) affecting Seller's ability to perform its obligations under this Contract, nor, to the best knowledge and belief of Seller, is any such action, suit, proceeding or claim threatened. d. Seller is not aware of any attachments, executions, assignments for the benefit of creditors, or voluntary or involuntary bankruptcy proceedings, or proceedings under any debtor relief laws, contemplated by or pending or threatened against Seller or the Subject Property. e. Except for the list of service contracts, warranties, management, maintenance or other agreements to be delivered to Purchaser pursuant to Article III hereinabove, Seller is not a party to any contracts of construction, employment, management, service or supply which would affect the Subject Property or operation of the Subject Property after closing; f. From the date of execution of this Contract through the date of closing, Seller shall continue to maintain the Subject Property in its present condition, subject to ordinary wear and tear and shall continue to manage the Subject Property in the same manner as it is currently being managed; Seller shall not remove any fixtures, equipment, furnishings or other personal property from the Subject Property unless replaced with items of equal or greater quality and quantity, nor shall Seller in any manner neglect the Subject Property; g. Except for the sale of timeshare interests in the ordinary course of business, there are no contracts or other material obligations, other than those matters set forth in the Due Diligence Items, outstanding (i) for the sale, exchange or transfer of the Subject Property or any portion thereof or the business operated thereon by Seller, or (ii) creating or imposing any burdens, obligations or restrictions on the use or operation of the Subject Property and the business conducted thereon; h. No contract or agreement delivered by Seller to Purchaser has been amended, modified or supplemented in any way that will not be disclosed to Purchaser in writing at the time of delivery to Purchaser pursuant to Article III. Except for the sale of timeshare interests in the ordinary course of business, there are no written or oral agreements of any kind that constitute a lease or contract relating to the Subject Property that will not be disclosed to Purchaser in writing at the time of delivery pursuant to Article III; i. Seller is duly organized, validly existing and in good standing under the laws of the state of its organization and is qualified to transact business in the state in which the Subject Property is situated. This Contract has been duly and validly executed and delivered by Seller to Purchaser and constitutes a legal, valid and binding agreement of Seller, enforceable against Seller in accordance with its terms, except as such enforcement may be limited by bankruptcy, conservatorship, receivership, insolvency, moratorium or similar laws affecting creditors' rights generally or by general principles of equity; j. Seller has the capacity and complete authority to enter into and perform this Contract, and no consent, approval or other action by any other party or entity will be needed thereafter to authorize Seller's execution and performance of this Contract. None of the execution and delivery of this Contract by Seller, the consummation by Seller of the transaction contemplated hereby or compliance by Seller with any of the provisions hereof will (i) conflict with or result in any breach of any provisions of the formation documents of Seller; (ii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right to termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which Seller is a party or by which Seller or the Subject Property may be bound; or (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Seller or the Subject Property; except in the cases of clauses (ii) or (iii) above, for violations, breach or defaults (A) that would not in the aggregate have a material adverse effect on the business or financial condition of Seller and on the effectiveness of the transaction contemplated hereby or (B) for which waivers or consents have been or will be obtained prior to the closing date; k. Seller is not a "foreign person" or "foreign trust" within the meaning of the United States Foreign Investment and Real Property Tax Act of 1980 and the Internal Revenue Code of 1986, as subsequently amended; and l. In the event that either Seller or Purchaser discovers after closing that any asset or item which is currently owned by Seller and which is currently being used in the operation of the Subject Property has not been conveyed to Purchaser at closing, then Seller will immediately, upon written notification from Purchaser, convey such asset or other item to Purchaser for no additional consideration of any kind whatsoever. All of the representations and warranties contained in this Article IV are made by Seller both as of the date hereof and as of the date of the closing hereunder. Notwithstanding the foregoing or anything to the contrary contained herein, it is understood and agreed that the representations and warranties set forth hereinabove shall survive the closing of this Contract only for a period of ninety (90) days following the closing date, but not thereafter, and Seller shall have no liability of any kind whatsoever for any breach thereof except to the extent a claim is asserted against Seller within such ninety (90) day period. If any of the representations and warranties set forth hereinabove are determined at any time on or before the date of closing to be untrue or unfulfilled, then Purchaser, as Purchaser's sole and exclusive remedy, may terminate this Contract by providing written notice of such termination to Seller, in which event thereafter neither Seller nor Purchaser shall have any further liabilities or obligations one unto the other. ARTICLE V CONDITION PRECEDENT TO CLOSING Each of the Management Agreements which are being transferred to Purchaser pursuant to this Contract have been executed by a different timeshare owner's association (individually an "Association" and collectively the "Associations"). The obligation of Seller to close this Contract shall be subject to the delivery by Purchaser to Seller at closing of a release and debt waiver agreement from each such Association which agreement must contain the following provisions: (a) Seller will waive payment of up to, but not in excess of, $500,000.00 of indebtedness owed to Seller by certain of the Associations as set forth in Exhibit "E" attached hereto and made a part hereof for all purposes; (b) In return for Seller's waiver of payment of debt, each of the Associations listed on Exhibit "E" shall discharge and release Seller, its officers, directors, employees, successors, assigns, agents, and any subsidiary corporation of Seller from any and all claims and obligations any such Association may have against Seller whether same be known or unknown from the beginning of time and forever into the future; and (c) As identified in Exhibit "E", certain of the Associations must agree that after closing each such Association will honor any Bonus Time or Endless Escape privileges that have been granted to Seller's customers during the period of time while the Subject Property was owned by Seller. ARTICLE VI CLOSING The closing hereunder shall take place at the offices of Meadows, Owens, Collier, Reed, Cousins & Blau, LLP. The closing shall occur on or before thirty (30) days from the date of execution of this Contract. Purchaser shall notify Seller at least five (5) days in advance of the exact time and date of closing. ARTICLE VII SELLER'S OBLIGATIONS AT CLOSING At the closing, Seller shall do the following: a. Deliver to Purchaser a quit claim deed covering the Timeshare Inventory, duly signed and acknowledged by Seller, which deed shall be in form reasonably acceptable to Purchaser. b. Deliver to Purchaser a Special Warranty Deed covering the Real Property, duly signed and acknowledged by Seller, which deed shall be in form reasonably acceptable to Purchaser. c. Deliver a bill of sale and a blanket assignment in form reasonably acceptable to Purchaser, duly executed and acknowledged by Seller, conveying and/or assigning to Purchaser the remainder of the Subject Property. d. Deliver such evidence or other documents that may be reasonably required by Purchaser evidencing the status and capacity of Seller and the authority of the person or persons who are executing the various documents on behalf of Seller in connection with the sale of the Subject Property. e. Deliver a non-withholding statement that will satisfy the requirements of Section 1445 of the Internal Revenue Code so that Purchaser is not required to withhold any portion of the purchase price for payment to the Internal Revenue Service. f. Deliver to Purchaser any other documents or items necessary or convenient in the reasonable judgment of Seller and Purchaser to carry out the intent of the parties under this Contract. ARTICLE VIII PURCHASER'S OBLIGATIONS AT CLOSING At the closing, Purchaser shall deliver to Seller the purchase price in the manner described in Article II herein. ARTICLE IX COSTS AND ADJUSTMENTS At closing, the following items shall be adjusted or prorated between Seller and Purchaser: a. Any real estate transfer taxes or sales taxes payable in connection with the sale of the Subject Property shall be paid in full by Purchaser. b. Seller shall pay to Purchaser, in the form of a credit at closing, any prepaid but unearned management fees in Seller's possession. c. Purchaser shall not be responsible for the payment of any special assessments which have been levied by the Associations against Timeshare Inventory for the period of time prior to closing. d. All other income and ordinary operating expenses for or pertaining to the Subject Property including, but not limited to, public utility charges, maintenance, service charges, and all other normal operating charges of the Subject Property shall be prorated as of the closing date. Purchaser will pay for any title work. e. All other normal and reasonable closing costs, including but not limited to, recording and escrow fees shall be paid by Purchaser; provided, however, that Seller and Purchaser each will be responsible for the fees and expenses of their respective attorneys. As soon as practicable after closing, and in any event within 90 days thereafter, Seller and Purchaser shall cooperate in preparing and reaching a post-closing settlement, accounting for any additional credits or debits between the parties as necessary to carry out the intent of this Contract, including the general principle that from and after the closing date, the revenues accruing from the operation of the Subject Property and the expenses associated with those revenues shall be credited or charged to Purchaser, and before the closing date, such sums shall be credited or charged to Seller. Seller agrees to indemnify and hold Purchaser harmless of and from any and all liabilities, claims, demands, suits, and judgments, of any kind or nature (except those items which under the terms of this Contract specifically become the obligation of Purchaser), brought by third parties and based on events occurring on or before the date of closing and which are in any way related to the ownership, maintenance, or operation of the Subject Property, and all expenses related thereto, including, but not limited to, court costs and attorneys' fees. Purchaser agrees to indemnify and hold Seller harmless of and from any and all liabilities, claims, demands, suits, and judgments, of any kind or nature, brought by third parties and based on events occurring subsequent to the date of closing and which are in any way related to the ownership, maintenance or operation of the Subject Property, and all expenses related thereto, including, but not limited to, court costs and attorneys' fees. ARTICLE X POSSESSION OF PROPERTY Possession of the Subject Property shall be delivered to Purchaser at closing. ARTICLE XI NOTICES All notices, demands, or other communications of any type given by the Seller to the Purchaser, or by the Purchaser to the Seller, whether required by this Contract or in any way related to the transaction contracted for herein, shall be void and of no effect unless given in accordance with the provisions of this paragraph. All notices shall be in writing and delivered to the person to whom the notice is directed by facsimile transmission with a follow-up copy to be delivered by United States Mail, as a registered or certified item, return receipt requested. Notices shall be addressed as follows: Seller: Silverleaf Resorts, Inc. 1221 Riverbend Drive Suite 120 Dallas, Texas 75247 Attn: Robert E. Mead Telephone No.: (214) 631-1166 Facsimile No.: (214) 905-0514 With Copy to: Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P. 901 Main Street, Suite 3700 Dallas, Texas 75202 Attn: George R. Bedell, Esq. Telephone No.: (214) 749-2448 Facsimile No.: (214) 747-3732 Purchaser: Richard W. Dickson 412 Inverness Ct. Ocean Springs, MS 39564 Telephone No.: (228) 875-4392 Facsimile No.: (228) 875-4392 Robert G. Garner 1355 Treebrook Ct. Roswell, GA 30075 Telephone No.: (404) 434-4507 Facsimile No.: (678) 461-3784 With Copy to: Morris & Morris, LLP 600 Parker Square, Suite 250 Flower Mound, TX 75028 Attn: Roy Morris, Esq. Telephone No.: (972) 539-0090 Facsimile No.: (972) 539-1464 ARTICLE XII REMEDIES In the event that Seller fails to timely comply with all conditions, covenants and obligations of Seller hereunder, and such failure continues for a period of ten (10) days after written notice thereof is provided Seller by Purchaser, such failure shall be an event of default and Purchaser shall have the option (i) to terminate this Contract by providing written notice thereof to Seller and the parties hereto shall have no further liabilities or obligations one unto the other; (ii) to waive any defect or requirement and close this Contract; or (iii) to sue Seller for specific performance. In no event shall Purchaser have the right to sue Seller for damages, bring any action against the Subject Property, or file notice of lis pendens regarding any claim of Purchaser other than a claim for specific performance. In the event that Purchaser fails to timely comply with all conditions, covenants, and obligations Purchaser has hereunder, such failure shall be an event of default, and, in such event, Seller shall be entitled to exercise any legal or equitable remedies available to Seller including a suit for specific performance or for damages. ARTICLE XIII ASSIGNMENT Purchaser may not assign its rights and obligations under this Contract to anyone other than a Permitted Assignee without first obtaining Seller's prior written approval. Purchaser may assign its rights and obligations under this Agreement to a Permitted Assignee without prior written consent of Seller. For purposes of this Contract, a "Permitted Assignee" shall mean any partnership, corporation, limited liability company or other business entity controlled by Richard W. Dickson and Robert G. Garner which has the financial ability to perform Purchaser's obligations hereunder. For purposes of the preceding sentence an entity shall be deemed to be controlled by a person if such person owns 50% or more of the ownership interest in such entity, or has the right to control 50% or more of such ownership interest through a contract or otherwise. ARTICLE XIV INTERPRETATION AND APPLICABLE LAW Except as otherwise expressly provided herein, this Agreement shall be construed and interpreted in accordance with the laws of the State of Texas. Where required for proper interpretation, words in the singular shall include the plural; the masculine gender shall include the neuter and the feminine, and vice versa. The terms "successors and assigns" shall include the heirs, administrators, executors, successors, and assigns, as applicable, of any party hereto. ARTICLE XV AMENDMENT This Contract may not be modified or amended, except by an agreement in writing signed by the Seller and the Purchaser. The parties may waive any of the conditions contained herein or any of the obligations of the other party hereunder, but any such waiver shall be effective only if in writing and signed by the party waiving such conditions and obligations. ARTICLE XVI AUTHORITY Each person executing this Contract warrants and represents that he is fully authorized to do so. ARTICLE XVII ATTORNEYS' FEES In the event it becomes necessary for either party to file a suit to enforce this Contract or any provisions contained herein, the prevailing party shall be entitled to recover, in addition to all other remedies or damages, reasonable attorneys' fees and costs of court incurred in such suit. ARTICLE XIII DESCRIPTIVE HEADINGS The descriptive headings of the several paragraphs contained in this Contract are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. ARTICLE XIX ENTIRE AGREEMENT This Contract (and the items to be furnished in accordance herewith) constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings of the parties in connection therewith. No representation, warranty, covenant, agreement, or condition not expressed in this Contract shall be binding upon the parties hereto or shall affect or be effective to interpret, change, or restrict the provisions of this Contract. ARTICLE XX COUNTERPARTS This Contract may be executed in a number of identical counterparts. Each such counterpart is deemed an original for all purposes and all such counterparts shall, collectively, constitute one agreement, but, in making proof of this Contract, it shall not be necessary to produce or account for more than one counterpart. ARTICLE XXI ACCEPTANCE Buyer shall have until 5:00 o'clock p.m., June 20, 2003, to execute and return a fully executed original of this Contract to Seller, otherwise this Contract shall become null and void. Time is of the essence of this Contract. The date of execution of this Contract by Seller shall be the date of execution of this Contract. If the final date of any period falls upon a Saturday, Sunday, or legal holiday under the laws of the State of Texas, then in such event the expiration date of such period shall be extended to the next day which is not a Saturday, Sunday, or legal holiday under the laws of the State of Texas. ARTICLE XXII REAL ESTATE COMMISSION Seller represents and warrants to Purchaser that Seller has not contacted or entered into any agreement with any real estate broker, agent, finder, or any other party in connection with this transaction, and that Seller has not taken any action which would result in any real estate broker's, finder's, or other fees or commissions being due and payable to any other party with respect to the transaction contemplated hereby. Purchaser hereby represents and warrants to Seller that Purchaser has not contracted or entered into any agreement with any real estate broker, agent, finder, or any other party in connection with this transaction, and that Purchaser has not taken any action which would result in any real estate broker's, finder's, or other fees or commissions being due or payable to any other party with respect to the transaction contemplated hereby. Each party hereby indemnifies and agrees to hold the other party harmless from any loss, liability, damage, cost, or expense (including reasonable attorneys' fees) resulting to the other party by reason of a breach of the representation and warranty made by such party herein. Notwithstanding anything to the contrary contained herein, the indemnities set forth in this Article XXII shall survive the closing. EXECUTED on this the 19th day of June, 2003. SELLER: SILVERLEAF RESORTS, INC., a Texas corporation By: /s/ ROBERT E. MEAD ------------------------------------------ Robert E Mead, Chief Executive Officer EXECUTED on this the 17th day of June, 2003. PURCHASER: /s/ RICHARD W. DICKSON ------------------------------------------------ RICHARD W. DICKSON /s/ ROBERT G. GARNER ------------------------------------------------ ROBERT G. GARNER List of Exhibits: Exhibit A Timeshare Inventory Exhibit B Real Property Exhibit C Management Agreements Exhibit D Personal Property Listing Exhibit E Releases and Debt Waivers EX-31.1 8 d07826exv31w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 302 EXHIBIT 31.1 CERTIFICATION I, Robert E. Mead, certify that: 1. I have reviewed this quarterly 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: August 13, 2003. /s/ ROBERT E. MEAD ------------------------------------ Robert E. Mead Chief Executive Officer 30 EX-31.2 9 d07826exv31w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 302 EXHIBIT 31.2 CERTIFICATION I, Harry J. White, Jr., certify that: 1. I have reviewed this quarterly 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: August 13, 2003. /s/ HARRY J. WHITE, JR. _______________________________ Harry J. White, Jr. Chief Financial Officer 31 EX-32.1 10 d07826exv32w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 906 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 Quarterly Report of Silverleaf Resorts, Inc. (the "Company") on Form 10-Q for the quarter ended June 30, 2003 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: August 13, 2003 /s/ ROBERT E. MEAD ------------------------- Robert E. Mead 32 EX-32.2 11 d07826exv32w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 906 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 Quarterly Report of Silverleaf Resorts, Inc. (the "Company") on Form 10-Q for the quarter ended June 30, 2003 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: August 13, 2003 /s/ HARRY J. WHITE, JR. ------------------------------- Harry J. White, Jr. 33 -----END PRIVACY-ENHANCED MESSAGE-----