-----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, JqznFjuK5O5mdCEyZ4GFdIm8Czo7AW0Q901/02KKX+F7ZlerBLS/U3rxJu4tE0Md SfAFwZA/fJ+sWjaKVO6IIg== 0000950134-04-006476.txt : 20040504 0000950134-04-006476.hdr.sgml : 20040504 20040503194856 ACCESSION NUMBER: 0000950134-04-006476 CONFORMED SUBMISSION TYPE: T-3 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20040504 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: T-3 SEC ACT: 1939 Act SEC FILE NUMBER: 022-28741 FILM NUMBER: 04775012 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 T-3 1 d14692tv3.txt FORM T-3 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM T-3 APPLICATION FOR QUALIFICATION OF INDENTURE UNDER THE TRUST INDENTURE ACT OF 1939 SILVERLEAF RESORTS, INC. ------------------------------------------ (Name of Applicant) 1221 River Bend Drive Suite 120 Dallas, Texas 75247 ------------------------------------------ (Address of Principal Executive Offices) SECURITIES TO BE ISSUED UNDER INDENTURE TO BE QUALIFIED: Title of Class Amount ------------------------------------- ----------- 8% Senior Subordinated Notes due 2010 $28,467,000 Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this application. NAME AND ADDRESS OF AGENT WITH A COPY TO: FOR SERVICE: Robert E. Mead David N. Reed Chairman & Chief Executive Officer Meadows, Owens, Collier, Reed, Silverleaf Resorts, Inc. Cousins & Blau, LLP 1221 River Bend Drive 901 Main Street Suite 120 Suite 3700 Dallas, Texas 75247 Dallas, Texas 75202 ================================================================================ GENERAL ITEM 1. GENERAL INFORMATION (a) Form of Organization: Corporation (b) State or Other Sovereign Power under the Laws of Which Organized: Texas ITEM 2. SECURITIES ACT EXEMPTION APPLICABLE The Applicant (hereinafter referred to as the "Company") is relying upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), provided by Section 3(a)(9) thereunder, in connection with the Company's exchange offer as described herein (the "Exchange Offer"). The Exchange Offer is being made by the Company pursuant to its Offer to Exchange dated May 4, 2004 and the related Letter of Transmittal, and consists of an offer to exchange for all $28.467 million of the Company's outstanding 6% Senior Subordinated Notes due 2007 (the "Old Notes"). As consideration, the Company is offering (i) up to $28.467 million of the Company's 8% Senior Subordinated Notes due 2010 (the "Exchange Notes"), (ii) an additional interest payment (the "Additional Interest Payment") in an amount equal to the amount of interest accrued on each Old Note held by an exchanging noteholder from April 1, 2004 through the date before the Exchange Date, which shall be payment in full of the accrued, unpaid interest on each Old Note exchanged. The Exchange Offer is contingent on, among other things, a tender of at least 80% in principal amount of the Old Notes. The Company has not paid or given, and will not pay or give, directly or indirectly, any commission or other remuneration to any broker, dealer, salesman, or other person for soliciting tenders of Old Notes. There have not been and there will not be any sales of securities of the same classes as the Exchange Securities by the Company or through any underwriter at or about the same time as the Exchange Offer. Officers, directors and employees of the Company may engage in the solicitation of holders of Old Notes in connection with the Exchange Offer, but such employees will receive no additional compensation for such activities. AFFILIATIONS ITEM 3. AFFILIATES Each of the following corporations is a wholly-owned subsidiary of the Company: Silverleaf Berkshires, Inc., a Texas corporation Silverleaf Travel, Inc., a Texas corporation Silverleaf Resort Acquisitions, Inc., a Texas corporation Database Research Inc., a Texas corporation Bull's Eye Marketing, Inc., a Delaware corporation eStarCommunications, Inc., a Texas corporation People Really Win Sweepstakes, Inc., a Texas corporation SLR Research, Inc., a Texas Corporation Silverleaf Finance I, Inc., a Delaware corporation Silverleaf Finance II, Inc., a Delaware corporation Additionally, the following persons may be deemed to be affiliates of the company as of May 4, 2004 based upon ownership of 5% or more of the Company's voting securities and/or positions held with the Company: Grace Brothers, Ltd. and Grace Investments, Ltd., beneficial owners of 33.32% of the Company's outstanding common stock. Robert E. Mead, Chairman of the Board and beneficial owner of 30.80% of the Company's outstanding common stock. 1 The Company anticipates no change in affiliates prior to the effective date of the Exchange Offer. MANAGEMENT AND CONTROL ITEM 4. DIRECTORS AND EXECUTIVE OFFICERS. The following persons serve as directors and executive officers of the Company as of the date hereof:
NAME AND ADDRESS OFFICE ---------------- ------ Robert E. Mead (a) Chairman, Chief Executive Officer and Director Sharon K. Brayfield (a) President David T. O'Connor (a) Executive Vice President--Sales Joe W. Conner (a) Chief Operating Officer Harry J. White, Jr. (a) Chief Financial Officer and Treasurer Edward L. Lahart a) Executive Vice President--Operations Michael L. Jones (a) Vice President--Information Systems Robert Levy (a) Vice President--Resort Operations Darla Cordova (a) Vice President--Employee and Marketing Services Herman Jay Hankamer (a) Vice President--Resort Development Anthony C. Luis (a) Vice President--Owner Based Marketing and Sales Sandra G. Cearley (a) Secretary James B. Francis, Jr. (b) Director J. Richard Budd, III (c) Director Herbert B. Hirsch (d) Director Rebecca Janet Whitmore (e) Director
- ---------- (a) The mailing address for such person is 1221 River Bend Drive, Suite 120, Dallas, Texas 75247. (b) The mailing address for such person is 2911 Turtle Creek Boulevard, Suite 925, Dallas, Texas 75219. (c) The mailing address for such person is 360 Lexington Avenue, Third Floor, New York, New York 10017 (d) The mailing address for such person is 64 Hurdle Fence Drive, Avon, Connecticut 06011 (e) The mailing address for such person is 10305 Oaklyn Drive, Potomac, Maryland 20854. 2 ITEM 5. PRINCIPAL OWNERS OF VOTING SECURITIES Presented below is certain information regarding each person known or believed by the Company to own 10% or more of the Company's voting securities as of the date hereof and as of the Effective Date:
NAME AND COMPLETE TITLE OF CLASS AMOUNT PERCENTAGE OF VOTING MAILING ADDRESS OWNED OWNED SECURITIES OWNED ----------------- -------------- ------ -------------------- Grace Brothers, Ltd. Common Stock 12,271,425(1) 33.32% Grace Investments, Ltd. 290 South Country Farm Rd, 3rd Floor Wheaton, Illinois 60187-4526 Robert E. Mead Common Stock 11,349,417(2) 30.80% 1221 River Bend Drive Suite 120 Dallas, TX 75247
- ---------- (1) This information is based upon information provided by Grace Brothers, Ltd. ("Grace") and Grace Investments, Ltd. ("Grace Investments") on Form 4 dated January 8, 2004 and filed with the Securities and Exchange Commission. Bradford T. Whitmore ("Whitmore") and Spurgeon Corporation ("Spurgeon") are the general partners of Grace and Grace Investments. Grace beneficially owns 8,277,219 shares, and Grace Investments beneficially owns 3,994,206 shares. As general partners of Grace and Grace Investments, Whitmore and Spurgeon may be deemed beneficial owners of 12, 271,425 shares, although they disclaim beneficial ownership. Mr. Whitmore is the brother of Rebecca Janet Whitmore, a current director of the Company. Ms. Whitmore disclaims any beneficial interest in the shares owned by Grace and Grace Investments. (2) All 11,349,417 shares are held in the name of "Robert E. Mead, Trustee" under the terms and conditions of that certain Voting Trust Agreement dated November 11, 1999 between Mr. Mead and his wife, Judith F. Mead. Mr. Mead holds sole voting and dispositive power over all 11,349,417 shares held under the Voting Trust Agreement. 3 UNDERWRITERS ITEM 6. UNDERWRITERS. (a) Persons Acting As Underwriters Within Last Three Years: None (b) Proposed Principal Underwriter Of Securities Proposed To Be Offered: None CAPITAL SECURITIES ITEM 7. CAPITAL SECURITIES. (a) The Company has the following authorized class of securities: (i) Equity Securities as of March 31, 2004:
TITLE OF CLASS AMOUNT AUTHORIZED AMOUNT OUTSTANDING -------------- ----------------- ------------------ Common Stock, 100,000,000 shares 36,843,572 shares $.01 par value Preferred Stock, 10,000,000 shares None $.01 par value
(ii) Debt Securities as of March 31, 2004:
TITLE OF CLASS AMOUNT AUTHORIZED AMOUNT OUTSTANDING -------------- ----------------- ------------------ 6% Senior $ 28,467,000 $28,467,000 Subordinated Notes due 2007 10 1/2% Senior $125,000,000 $ 2,146,000 Subordinated Notes due 2008
(b) Voting Rights Each share of the common stock of the Company issued and outstanding has one vote with respect to all matters submitted to a vote of stockholders. There are no other outstanding securities with voting rights. INDENTURE SECURITIES ITEM 8. ANALYSIS OF INDENTURE PROVISIONS. The following analysis of Indenture provisions required under Section 305(a)(2) of the Trust Indenture Act of 1939, as amended ("TIA"), is a summary and is qualified in its entirety by reference to the Indenture, a copy of which is filed as an exhibit to this application. Capitalized terms used herein and not otherwise defined shall have the meanings given them in the Indenture. 4 A. EVENT OF DEFAULT The Indenture will provide that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest on the Exchange Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) default in payment when due of the principal of or premium, if any, on the Exchange Notes (whether or not prohibited by the subordination provisions of the Indenture); (iii) failure by the Company to comply for 30 days after notice from the Trustee or the Holders of at least 25% in principal amount of their outstanding Exchange Notes with the provisions described under the Sections of the Indenture entitled "Restricted Payments," "Incurrence and Issuance of Preferred Stock," "Asset Sales," "Offer to Repurchase Upon Change of Control," and "Merger Consolidation or Sale of Assets"; (iv) failure by the Company to comply with any of its other agreements in the Indenture or the Exchange Notes for 60 days after notice from the Trustee or the Holders of at least 25% in principal amount of the then outstanding Exchange Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; provided, that in the case of any such Payment Default under clause (a) such default continues beyond the lesser of 30 days or the longest period for cure provided in any such Indebtedness as to which a Payment Default exists, or in the case of any acceleration of Indebtedness described in clause (b), such Indebtedness is not discharged or such acceleration cured, waived, rescinded or annulled within the lesser of 30 days after acceleration or the longest period for cure provided in any such Indebtedness which has been accelerated; (vi) a final judgment or judgments aggregating in excess of $5.0 million are entered against the Company or any of its Restricted Subsidiaries, which judgments are not paid, discharged or stayed for a period of 60 days; (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (ix) certain events of bankruptcy or insolvency with respect to the Company, any of its Significant Restricted Subsidiaries, or any group of Restricted Subsidiaries, that taken as a whole, would constitute a Significant Restricted Subsidiary. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Exchange Notes may declare all the Exchange Notes to be due and payable immediately; provided, however, that so long as any Designated Senior Debt is outstanding, no such acceleration shall be effective until five business days after the giving of written notice to the Company and the representatives under the Designated Senior Debt of such acceleration. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Significant Restricted Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Restricted Subsidiary, all outstanding Exchange Notes will become due and payable without further action or notice. Holders of the Exchange Notes may not enforce the Indenture or the Exchange Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Exchange Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Exchange Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company or any Guarantor with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Exchange Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Exchange Notes. If an Event of Default occurs prior to April 1, 2005 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company or any Guarantor with the intention of avoiding the prohibition on redemption of the Exchange Notes prior to such date, then the Make-Whole Price shall become immediately due and payable to the extent permitted by law upon the acceleration of the Exchange Notes. The Holders of a majority in aggregate principal amount of the 5 Exchange Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Exchange Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Exchange Notes. B. AUTHENTICATION AND DELIVERY Two Officers of the Company shall sign the Exchange Notes by manual or facsimile signature. The Company's seal shall be reproduced on the Exchange Notes and may be in facsimile form. An Exchange Note shall not be valid until authenticated by the manual signature of the Trustee, or its designated authenticating agent. The signature shall be conclusive evidence that the Exchange Note has been authenticated under the Indenture. The Trustee shall, upon a written order of the Company signed by two Officers (an "Authentication Order"), authenticate Exchange Notes for original issue up to the aggregate principal amount of $28,467,000. The aggregate principal amount of Exchange Notes outstanding at any time may not exceed such amount. C. RELEASE OR SUBSTITUTION OF PROPERTY SUBJECT TO LIEN The Company's obligations under the Exchange Notes are not secured by any liens or security interests on any assets of the Company. Accordingly, the Indenture does not contain any provisions with respect to the release or the release and substitution of any property subject to such a lien. D. SATISFACTION AND DISCHARGE OF THE INDENTURE The Company may, at its option and at any time, elect to have all of its and the Guarantors' obligations discharged with respect to the outstanding Exchange Notes ("Legal Defeasance") except for (i) the rights of Holders of outstanding Exchange Notes to receive payments in respect of the principal of, interest and premium, if any, on such Exchange Notes when such payments are due from the trust referred to below, (ii) the Company's obligations with respect to the Exchange Notes concerning issuing temporary Exchange Notes, mutilated, destroyed, lost or stolen Exchange Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company and its Subsidiaries released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Exchange Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Exchange Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Exchange Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, interest and premium, if any, on the outstanding Exchange Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Exchange Notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of the outstanding Exchange Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Exchange Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events 6 of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Exchange Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. E. EVIDENCE OF COMPLIANCE WITH CONDITIONS AND COVENANTS The Company shall, within 90 days after the close of each fiscal year following the issuance of the Exchange Notes, file with the Trustee an Officers' Certificate, with one of the Officers executing the same being the principal executive officer, the principal financial officer or the principal accounting officer of the Company, covering the period from the date of issuance of the Exchange Notes to the end of the fiscal year in which the Exchange Notes were issued, in the case of the first such certificate, and covering the preceding fiscal year in the case of each subsequent certificate, and stating whether or not, to the knowledge of each such executing officer, the Company and each Subsidiary Guarantor has complied with and performed and fulfilled all conditions and covenants on its part contained in the Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions contained in the Indenture. The Company is also required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. ITEM 9. OTHER OBLIGORS. The Company's obligations under the Indenture will be guaranteed by the following wholly-owned subsidiaries of the Company: Silverleaf Berkshires, Inc. Silverleaf Travel, Inc. Silverleaf Resort Acquisition, Inc. Database Research, Inc. Bull's Eye Marketing, Inc. eStarCommunications, Inc. People Really Win Sweepstakes, Inc. SLR Research, Inc. CONTENTS OF APPLICATION FOR QUALIFICATION This Application for Qualification comprises: (a) Pages numbered 1 to 9, consecutively. (b) The statement of eligibility and qualification on Form T-1 of the trustee under the indenture to be qualified. (c) The following exhibits in addition to those filed as part of the statement of eligibility and qualification of the trustee: EXHIBIT NO. DESCRIPTION OF EXHIBIT Exhibit T3A.1 Third Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed December 29, 2003). 7 Exhibit T3A.2 Articles of Correction to the Company's Third Amended and Restated Articles of Incorporation dated February 9, 2004 (incorporated by reference to Exhibit 3.2 of the Company's Form 10-K for the year ended December 31, 2003). Exhibit T3B.1 Bylaws of Company (incorporated by reference to Exhibit 3.2 to Company's Form 10-K for year ended December 31, 1997). Exhibit T3B.2 Amendment to Bylaws of Company dated February 12, 2004 (incorporated by reference to Exhibit 3.4 to the Company's Form 10-K for the year ended December 31, 2003). Exhibit T3C Indenture, dated as of the Exchange Date, between the Company and the Guarantors and Wells Fargo Bank, National Association, in the form to be qualified, including an itemized table of contents showing the articles, sections and subsections of the Indenture together with the subject matter thereof and the pages on which they appear* Exhibit T3E.1 Form of Offer to Exchange, dated May 4, 2004* Exhibit T3E.2 Form of Letter of Transmittal* Exhibit T3E.3 Form of Notice of Guaranteed Delivery* Exhibit T3E.4 Form of letter to Brokers, Dealers, Commercial Banks, and other Nominees* Exhibit T3E.5 Form of letter to clients (beneficial owners) for use by Brokers, Dealers, Commercial Banks and other Nominees* Exhibit T3E.6 Form of transmittal letter to holders from the Company* Exhibit T3F Cross reference sheet showing the location in the Indenture of the provisions inserted therein pursuant to Sections 310 through 318(a), inclusive, of the TIA* Exhibit T3G Statement of eligibility and qualifications of the Trustee on Form T-1* - ---------- *filed herewith 8 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the Company, Silverleaf Resorts, Inc., a Texas corporation, has duly caused this Application on Form T-3 to be signed on its behalf by the undersigned, thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of Dallas, and State of Texas, on the 4th day of May, 2004. SILVERLEAF RESORTS, INC. [SEAL] By: /s/ Robert E. Mead ---------------------------- Name: Robert E. Mead Title: Chairman and Chief Executive Officer Attest: By: /s/ Sandra G. Cearley ------------------------ Name: Sandra G. Cearley Title: Secretary 9 EXHIBIT INDEX
EXHIBIT NO. EXHIBIT - ----------- ------- Exhibit T3A.1 Third Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed December 29, 20003). Exhibit T3A.2 Articles of Correction to the Company's Third Amended and Restated Articles of Incorporation dated February 9, 2004 (incorporated by reference to Exhibit 3.2 of the Company's Form 10-K for the year ended December 31, 2003). Exhibit T3B.1 Bylaws of Company (incorporated by reference to Exhibit 3.2 to Company's Form 10-K for year ended December 31, 1997). Exhibit T3B.2 Amendment to Bylaws of Company dated February 19, 2004 (incorporated by reference to Exhibit 3.4 of the Company's form 10-K for the year ended December 31, 2003). Exhibit T3C Indenture, dated as of the Exchange Date, between the Company and the Guarantors and Wells Fargo Bank, National Association, in the form to be qualified, including an itemized table of contents showing the articles, sections and subsections of the Indenture together with the subject matter thereof and the pages on which they appear* Exhibit T3E.1 Form of Offer to Exchange, dated May 4, 2004* Exhibit T3E.2 Form of Letter of Transmittal* Exhibit T3E.3 Form of Notice of Guaranteed Delivery* Exhibit T3E.4 Form of letter to Brokers, Dealers, Commercial Banks, and other Nominees* Exhibit T3E.5 Form of letter to clients (beneficial owners) for use by Brokers, Dealers, Commercial Banks and other Nominees* Exhibit T3E.6 Form of transmittal letter to holders from the Company* Exhibit T3F Cross reference sheet showing the location in the Indenture of the provisions inserted therein pursuant to Sections 310 through 318(a), inclusive, of the TIA* Exhibit T3G Statement of eligibility and qualifications of the Trustee on Form T-1*
- ---------- *filed herewith 10 EX-99.T3C 2 d14692exv99wt3c.txt INDENTURE EXHIBIT T3C ------------------------ SILVERLEAF RESORTS, INC. 8% SENIOR SUBORDINATED NOTES DUE 2010 INDENTURE Dated as of_____, 2004 ------------------------- WELLS FARGO BANK, NATIONAL ASSOCIATION Trustee -------------------------- TABLE OF CONTENTS
Page ---- ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE...................................................................... 1 Section 1.01. Definitions............................................................................. 1 Section 1.02. Other Definitions....................................................................... 12 Section 1.03. Incorporation by Reference of Trust Indenture Act....................................... 13 Section 1.04. Rules of Construction................................................................... 13 ARTICLE 2. THE NOTES....................................................................................................... 13 Section 2.01. Form and Dating......................................................................... 13 Section 2.02. Execution and Authentication............................................................ 14 Section 2.03. Registrar and Paying Agent.............................................................. 14 Section 2.04. Paying Agent to Hold Money in Trust..................................................... 15 Section 2.05. Holder Lists............................................................................ 15 Section 2.06. Transfer and Exchange................................................................... 15 Section 2.07. Replacement Notes....................................................................... 17 Section 2.08. Outstanding Notes....................................................................... 17 Section 2.09. Treasury Notes.......................................................................... 17 Section 2.10. Temporary Notes......................................................................... 17 Section 2.11. Cancellation............................................................................ 17 Section 2.12. Defaulted Interest...................................................................... 18 ARTICLE 3. REDEMPTION AND PREPAYMENT....................................................................................... 18 Section 3.01. Notices to Trustee...................................................................... 18 Section 3.02. Selection of Notes to Be Redeemed....................................................... 18 Section 3.03. Notice of Redemption.................................................................... 18 Section 3.04. Effect of Notice of Redemption.......................................................... 19 Section 3.05. Deposit of Redemption Price............................................................. 19 Section 3.06. Notes Redeemed in Part.................................................................. 20 Section 3.07. Optional Redemption..................................................................... 20 Section 3.08. Mandatory Redemption.................................................................... 20 Section 3.09. Offer to Purchase by Application of Excess Proceeds..................................... 20 ARTICLE 4. COVENANTS....................................................................................................... 22 Section 4.01. Payment of Notes........................................................................ 22 Section 4.02. Maintenance of Office or Agency......................................................... 22 Section 4.03. Reports................................................................................. 22 Section 4.04. Compliance Certificate.................................................................. 23 Section 4.05. Taxes................................................................................... 23 Section 4.06. Stay, Extension and Usury Laws.......................................................... 23 Section 4.07. Restricted Payments..................................................................... 24 Section 4.08. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries............... 25 Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.............................. 26 Section 4.10. Asset Sales............................................................................. 28 Section 4.11. Transactions with Affiliates............................................................ 28 Section 4.12. Liens................................................................................... 29 Section 4.13. Business Activities..................................................................... 29 Section 4.14. Corporate Existence..................................................................... 29 Section 4.15. Offer to Repurchase Upon Change of Control.............................................. 30 Section 4.16. Sale and Leaseback Transactions......................................................... 31
Section 4.17. Limitation on Issuances and Sales of Capital Stock of Wholly Owned Restricted Subsidiaries............................................................................ 31 Section 4.18. Designation of a Subsidiary as an Unrestricted Subsidiary............................... 31 Section 4.19. Limitation on Status as Investment Company.............................................. 32 Section 4.20. No Senior Subordinated Debt............................................................. 32 Section 4.21. No Amendment of Subordination Provisions................................................ 32 Section 4.22. Payments for Consent.................................................................... 32 Section 4.23. Listings of Company Common Stock on Exchanges........................................... 32 Section 4.24 Directors and Officers Insurance........................................................ 33 Section 4.25 Management Equity Based Compensation.................................................... 33 ARTICLE 5. SUCCESSORS...................................................................................................... 33 Section 5.01. Merger, Consolidation, or Sale of Assets................................................ 33 Section 5.02. Successor Corporation Substituted....................................................... 33 ARTICLE 6. DEFAULTS AND REMEDIES........................................................................................... 34 Section 6.01. Events of Default....................................................................... 34 Section 6.02. Acceleration............................................................................ 35 Section 6.03. Other Remedies.......................................................................... 36 Section 6.04. Waiver of Past Defaults................................................................. 36 Section 6.05. Control by Majority..................................................................... 36 Section 6.06. Limitation on Suits..................................................................... 36 Section 6.07. Rights of Holders of Notes to Receive Payment........................................... 37 Section 6.08. Collection Suit by Trustee.............................................................. 37 Section 6.09. Trustee May File Proofs of Claim........................................................ 37 Section 6.10. Priorities.............................................................................. 37 Section 6.11. Undertaking for Costs................................................................... 38 Section 6.12 Acknowledgments and Agreements of Holders With Respect to DZ Bank Facility.............. 38 ARTICLE 7. TRUSTEE......................................................................................................... 39 Section 7.01. Duties of Trustee....................................................................... 39 Section 7.02. Rights of Trustee....................................................................... 40 Section 7.03. Individual Rights of Trustee............................................................ 40 Section 7.04. Trustee's Disclaimer.................................................................... 40 Section 7.05. Notice of Defaults...................................................................... 41 Section 7.06. Reports by Trustee to Holders of the Notes.............................................. 41 Section 7.07. Compensation and Indemnity.............................................................. 41 Section 7.08. Replacement of Trustee.................................................................. 42 Section 7.09. Successor Trustee by Merger, etc........................................................ 42 Section 7.10. Eligibility; Disqualification........................................................... 43 Section 7.11. Preferential Collection of Claims Against Company....................................... 43 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE........................................................................ 43 Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance................................ 43 Section 8.02. Legal Defeasance and Discharge.......................................................... 43 Section 8.03. Covenant Defeasance..................................................................... 43 Section 8.04. Conditions to Legal or Covenant Defeasance.............................................. 44 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions................................................................ 45 Section 8.06. Repayment to Company.................................................................... 45 Section 8.07. Reinstatement........................................................................... 46
ii ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER................................................................................ 46 Section 9.01. Without Consent of Holders of Notes..................................................... 46 Section 9.02. With Consent of Holders of Notes........................................................ 47 Section 9.03. Compliance with Trust Indenture Act..................................................... 48 Section 9.04. Revocation and Effect of Consents....................................................... 48 Section 9.05. Notation on or Exchange of Notes........................................................ 48 Section 9.06. Trustee to Sign Amendments, etc......................................................... 48 ARTICLE 10. SUBORDINATION.................................................................................................. 49 Section 10.01. Agreement to Subordinate................................................................ 49 Section 10.02. Certain Definitions..................................................................... 49 Section 10.03. Liquidation; Dissolution; Bankruptcy.................................................... 49 Section 10.04. Default on Designated Senior Debt....................................................... 49 Section 10.05. Acceleration of Notes................................................................... 50 Section 10.06. When Distribution Must Be Paid Over..................................................... 50 Section 10.07. Notice by Company....................................................................... 50 Section 10.08. Subrogation............................................................................. 50 Section 10.09. Relative Rights......................................................................... 51 Section 10.10. Subordination May Not Be Impaired by Company............................................ 51 Section 10.11. Distribution or Notice to Representative................................................ 51 Section 10.12. Rights of Trustee and Paying Agent...................................................... 51 Section 10.13. Authorization to Effect Subordination................................................... 52 ARTICLE 11. GUARANTEES..................................................................................................... 52 Section 11.01. Unconditional Guarantee................................................................. 52 Section 11.02. Subordination of Note Guarantee......................................................... 53 Section 11.03. Severability............................................................................ 53 Section 11.04. Release of a Guarantor.................................................................. 53 Section 11.05. Limitation of Guarantor's Liability..................................................... 53 Section 11.06. Guarantors May Consolidate, etc., on Certain Terms...................................... 53 Section 11.07. Waiver of Subrogation................................................................... 54 Section 11.08. Execution of Guarantee.................................................................. 54 Section 11.09. Additional Subsidiary Guarantees........................................................ 55 ARTICLE 12. MISCELLANEOUS.................................................................................................. 55 Section 12.01. Trust Indenture Act Controls............................................................ 55 Section 12.02. Notices................................................................................. 55 Section 12.03. Communication by Holders of Notes with Other Holders of Notes........................... 56 Section 12.04. Certificate and Opinion as to Conditions Precedent...................................... 56 Section 12.05. Statements Required in Certificate or Opinion........................................... 57 Section 12.06. Rules by Trustee and Agents............................................................. 57 Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders................ 57 Section 12.08. Governing Law........................................................................... 57 Section 12.09. No Adverse Interpretation of Other Agreements........................................... 57 Section 12.10. Successors.............................................................................. 57 Section 12.11. Severability............................................................................ 58 Section 12.12. Counterpart Originals................................................................... 58 Section 12.13. Table of Contents, Headings, etc........................................................ 58
iii EXHIBITS Exhibit A FORM OF NOTE Exhibit A-1 FORM OF SUBSIDIARY GUARANTEE Exhibit B FORM OF SUPPLEMENTAL INDENTURE iv INDENTURE dated as of _________, 2004 among Silverleaf Resorts, Inc., a Texas corporation (the "Company"), and, as guarantors, Silverleaf Travel, Inc., a Texas corporation, Silverleaf Berkshires, Inc., a Texas corporation, Silverleaf Resort Acquisitions, Inc., a Texas corporation, Awards Verification Center, Inc., a Texas corporation, Bull's Eye Marketing, Inc., a Delaware corporation, eStarCommunications, Inc., a Texas corporation, People Really Win Sweepstakes, Inc., a Texas corporation, and SLR Research, Inc., a Texas corporation (each a "Guarantor" and collectively, the "Guarantors"), and Wells Fargo Bank, National Association, as trustee (the "Trustee"). The Company, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 8% Senior Subordinated Notes due 2010 (the "Notes"): ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "6% Notes" means the Company's 6% Senior Subordinated Notes due 2007 issued by the Company pursuant to an indenture dated as of May 2, 2002, by and among the Company, certain of the Guarantors, and Wells Fargo Bank, National Association (as successor by merger to Wells Fargo Bank Minnesota, National Association), as trustee. "10 1/2% Notes" means the Company's 10-1/2% Senior Subordinated Notes due 2008 issued by the Company pursuant to an indenture dated as of April 1, 1998 as amended and restated as of May 2, 2002, by and among the Company, certain of the Guarantors, and Wells Fargo Bank, National Association (as successor by merger to Wells Fargo Bank Minnesota, National Association), as trustee. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of Section 4.15 hereof and/or the provisions of Section 5.01 hereof and not by the provisions of Section 4.10 hereof), and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Wholly Owned Restricted Subsidiary that is a Guarantor or by a Restricted Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary that is a Guarantor, (ii) an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary that is a Guarantor, (iii) a Restricted Payment that is permitted by Section 4.07 hereof (iv) sales of Mortgages Receivable to a Receivables Subsidiary, and (v) sales, leases or contracts for deed in the ordinary course of business of Vacation Intervals or Mortgages Receivable, will not be deemed to be Asset Sales. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company, or any authorized committee of the Board of Directors. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the full faith and credit of the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act), (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 50% of the Voting Stock of the Company (measured by voting power rather than number of shares), or (iv) the Company consolidates with, or merges with or into, any Person, or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges 2 with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance). "Club" means the owners' associations for any of the Company's resorts or developments, or of nearby residential or condominium tracts developed by the Company or its predecessors, and the Silverleaf Club. "Company" means Silverleaf Resorts, Inc., a Texas corporation, and any and all successors thereto. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, minus (v) non-cash items increasing such Consolidated Net Income for such period (excluding any such non-cash items to the extent they represent a reversal of amounts that were accrued in prior periods and were then excluded from Consolidated Cash Flow as a result of the second parenthetical in clause (iv)), plus, (vi) non-cash items increasing Consolidated Net Income for a prior period which were excluded from Consolidated Cash Flow in such period due to the application of clause (v), to the extent such non-cash item is collected in cash in a subsequent period, in each case, on a consolidated basis and determined in accordance with GAAP. The recognition of revenue on the accrual basis in accordance with GAAP upon the sale, lease, or sale by contract for deed of Vacation Intervals shall not be deemed a non-cash item increasing Consolidated Net Income. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Restricted Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in the same proportion) that the Net Income of such Person was included in calculating Consolidated Net Income. "Consolidated Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, issues Guarantees, repays, redeems, retires, repurchases or defeases any Indebtedness or Disqualified Stock (other than revolving credit borrowings) subsequent to the commencement of the period for which the Consolidated Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Consolidated Coverage Ratio is made (the "Calculation Date"), then the Consolidated Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, issuance, Guarantee, repayment, redemption, retirement, repurchase, or defeasance of Indebtedness or Disqualified Stock (and in the case of incurrence or issuance, the pro forma application of the net proceeds thereof) as if the same had occurred at the beginning of the applicable reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers 3 or consolidations and including any related financing transactions, during the applicable reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Consolidated Interest Expense attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Consolidated Interest Expense will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. For purposes of this definition, whenever pro forma effect is given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness incurred in connection therewith shall be determined in good faith by a responsible financial or accounting officer of the Company. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon), and (iv) the product of (a) all dividend payments, whether or not in cash, on any series of Disqualified Stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case on a consolidated basis and in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash by the referent Person to the Company or a Wholly Owned Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Restricted Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date hereof in the book value of any asset owned by such Person or a consolidated Restricted Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Restricted Subsidiaries 4 (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Facilities" means those certain credit facilities at the date hereof between the Company and certain lenders providing for revolving credit on the security of Mortgages Receivable in an aggregate amount up to $286.9 million, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, in each case as amended, modified, restated, renewed, increased, supplemented, refunded, replaced or refinanced from time to time, whether with the same or different lenders and in the same or different amounts. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Definitive Notes" means certificated Notes registered in the name of the Holder thereof and issued in the form of Exhibit A hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "Designated Senior Debt" means (i) any Indebtedness outstanding under the Credit Facilities and (ii) any other Senior Debt permitted under this Indenture, the principal amount of which is $25 million or more and that has been designated by the Company as "Designated Senior Debt." "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date that is 360 days after the date on which the Notes mature. "Domestic Restricted Subsidiary" means a Restricted Subsidiary that is not formed, incorporated or organized in a jurisdiction outside the United States. "DZ Bank Facility" means that certain Receivables Loan and Security Agreement dated as of October 30, 2000, together with all amendments, restatements and/or extensions thereto, by and among the Company, Silverleaf Finance I, Inc., a Delaware corporation, Autobahn Funding Company LLC, DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main (formerly known as DG Bank Deutsche Genossenschaftsbank AG), U.S. Bank Trust National Association, and Wells Fargo Bank Minnesota, National Association, and related documents thereto. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Indebtedness" means up to $[TO BE DETERMINED AT CLOSING] in aggregate principal amount of Indebtedness of the Company and its Restricted Subsidiaries (other than Indebtedness under the Credit Facilities) in existence on the date hereof, until such amounts are repaid. 5 "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date hereof. "Global Note" means a Note in the form of Exhibit A bearing the Global Note Legend and with the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Global Note Legend" means the legend contained in footnote 1 of Exhibit A which is to be placed on Global Notes. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America and the payment for which the United States pledges its full faith and credit. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantors" means each of (i) Silverleaf Travel, Inc., a Texas corporation, Silverleaf Berkshires, Inc., a Texas corporation, Silverleaf Resort Acquisitions, Inc., a Texas corporation, Awards Verification Center, Inc., a Texas corporation, eStarCommunications, Inc., a Texas corporation, Bull's Eye Marketing, Inc., a Delaware corporation, People Really Win Sweepstakes, Inc., a Texas corporation, and SLR Research, Inc., a Texas corporation and (ii) any other Subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of this Indenture, and their respective successors and assigns. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Holder" means a Person in whose name a Note is registered. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means this Indenture, as amended or supplemented from time to time. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including Guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP, in each case excluding (i) Mortgages Receivable (ii) receivables from "Sampler" contracts or lot or condominium sales, and (iii) management fees owed to the Company by a Club or 6 Clubs pursuant to the terms of a Management Agreement, the payment of which is deferred pursuant to any net income limitations imposed by such agreement. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of Section 4.07 hereof. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Make-Whole Amount" means, with respect to any Note, an amount equal to the excess, if any, of (a) the present value of the remaining principal, premium, and interest payments that would be payable with respect to such Note if such Note were redeemed on April 1, 2005, computed using a discount rate equal to the Treasury Rate plus 75 basis points, over (b) the outstanding principal amount of such Note. "Make-Whole Average Life" means, with respect to any date of acceleration of Notes, the number of years (calculated to the nearest one-twelfth) from such date to April 1, 2005. "Make-Whole Price" means, with respect to any Note, the greater of (a) the sum of the principal amount of and Make-Whole Amount with respect to such Note, and (b) the redemption price of such Note on April 1, 2005. "Management Agreement" means any agreement between the Company and a Club or Clubs for the management of a Company resort or resorts. "Mortgages Receivable" means (i) the gross principal amount of notes receivable of the Company and its Restricted Subsidiaries secured by Liens on Vacation Intervals (including notes receivable secured by Vacation Intervals or other comparable timeshare interests acquired by the Company and its Restricted Subsidiaries), determined in accordance with the books and records of the Company, and (ii) all related customer files, instruments or other assets. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain or loss, together with any related provision for taxes on (or tax benefit from) such gain or loss, realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain or loss, together with any related provision for taxes on (or tax benefit from) such extraordinary or nonrecurring gain or loss. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account 7 any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than the Credit Facilities or other revolving Indebtedness if there is no corresponding permanent reduction in commitments with respect thereto) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Note Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Notes" means the 8% Senior Subordinated Notes due 2010 issued under this Indenture. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering" means the offering and sale of the Notes by the Company pursuant to the Exchange Offer. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 12.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Permitted Investments" means (a) any Investment in the Company or in a Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Wholly Owned Restricted Subsidiary of the Company and a Guarantor that is engaged in the same business as the Company and its Restricted Subsidiaries were engaged in on the date hereof or a Related Business, or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the Company that is a Guarantor and that is engaged in the same line of business as the Company and its Restricted Subsidiaries were engaged in on the date hereof or a Related Business; (d) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (f) payroll, travel, and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (g) loans or advances to employees made in the ordinary course of business consistent with past practices in an aggregate amount outstanding at any one time not to exceed $500,000; (h) stock, obligations, or securities received in settlement of debts created in the ordinary course of 8 business and owing to the Company or a Restricted Subsidiary; (i) any Investment acquired by the Company or any of its Restricted Subsidiaries (1) in exchange for any other Investment or receivable held by the Company of any such Restricted Subsidiary in connection with or as a result of any bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or receivable or (2) as a result of a foreclosure (or deed in lieu of) by the Company or any of its Restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default; (j) Hedging Obligations permitted under Section 4.09 hereof; (k) all Investments existing on the date hereof; (l) Investments by the Company or a Restricted Subsidiary in a Club or Clubs in an aggregate amount outstanding at any one time not to exceed $2.0 million; (m) investments in a Receivables Subsidiary, and (n) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause that are at the time outstanding, not to exceed $5.0 million. "Permitted Liens" means (i) Liens existing on the date hereof to the extent and in the manner such Liens are in effect on such date; (ii) Liens securing Senior Debt and Liens on assets securing Guarantees of Senior Debt, in each case permitted to be incurred pursuant to this Indenture, (iii) Liens (if any) securing the Notes and the Subsidiary Guarantees; (iv) Liens securing Permitted Refinancing Indebtedness which is incurred to refinance any Indebtedness which has been secured by a Lien permitted under this Indenture and which has been incurred in accordance with the provisions of this Indenture, provided, however, that such Liens are not materially less favorable to the Holders and are not materially more favorable to the Lien Holder with respect to such Liens than the Liens in respect of the Indebtedness being refinanced; (v) Liens in favor of the Company or any Wholly Owned Restricted Subsidiary; (vi) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (vii) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (viii) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (ix) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (x) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; (xi) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $1.0 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the affected property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary; and (xii) Liens on assets of Receivables Subsidiaries. "Permitted Refinancing Indebtedness" means any Indebtedness or Disqualified Stock of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries; provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date the same as or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes or the Subsidiary Guarantees, as applicable, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes and the Subsidiary Guarantees, as applicable, on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and 9 (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "Receivables Subsidiary" of any Person means a Subsidiary which (i) is established and continues to operate for the limited purpose of acquiring, selling and financing Mortgages Receivable and related assets in connection with receivables securitization or financing transactions and (ii) all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. "Related Business" means, at any time, any business related, ancillary or complementary (as determined in good faith by the Board of Directors) to the business conducted by the Company and its Restricted Subsidiaries on the date hereof. "Responsible Officer," when used with respect to the Trustee, means any Officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other Officer of the Trustee customarily performing functions similar to those performed by any of the above designated Officers and also means, with respect to a particular corporate trust matter, any other Officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Debt" means (i) all Indebtedness outstanding under Credit Facilities, (ii) any other Indebtedness permitted to be incurred by the Company or a Restricted Subsidiary under the terms of this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes or Subsidiary Guarantees, as applicable, and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (u) the 6% Notes (v) the 10-1/2% Notes, (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) any Indebtedness of the Company or any Guarantor to the Company or any of their respective Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in violation of this Indenture. "Significant Restricted Subsidiary" of a Person means any Significant Subsidiary that is a Restricted Subsidiary. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of this Indenture. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. 10 "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantees" means, individually and collectively, the Guarantees given by the Guarantors pursuant to Article 11 hereof, including a notation in the Notes substantially in the form attached hereto as Exhibit A-1. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Treasury Rate" means, at any time of computation, the yield to maturity at such time (as compiled by and published in the most recent Federal Reserve Statistical Release H.15(519), which has become publicly available at least two business days prior to the date of acceleration of the Notes, or if such Statistical Release is no longer published, any publicly available source of similar market data) of United States Treasury securities with a constant maturity most nearly equal to the Make-Whole Average Life; provided, however, that if the Make-Whole Average Life is not equal to the constant maturity of the United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the Make-Whole Average Life is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has at least one director on its Board of Directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries; or (ii) any Receivables Subsidiary. "Vacation Interval" means an interest entitling the holder to use, for a limited period on an annual or other recurrent basis, a lodging unit, together with associated privileges and rights, at a Company resort, including, without limitation, a fee interest, a leasehold, a vendee's interest under a contract of deed, or other interest based on a floating period or points based system. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining 11 installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. SECTION 1.02. OTHER DEFINITIONS.
Defined in Term Section "Affiliate Transaction"................................................ 4.11 "Asset Sale Offer"..................................................... 3.09 "Authentication Order"................................................. 2.02 "Change of Control Offer".............................................. 4.15 "Change of Control Payment"............................................ 4.15 "Change of Control Payment Date"....................................... 4.15 "Covenant Defeasance".................................................. 8.03 "Event of Default"..................................................... 6.01 "Excess Proceeds"...................................................... 4.10 "incur"................................................................ 4.09 "Legal Defeasance"..................................................... 8.02 "Offer Amount"......................................................... 3.09 "Offer Period"......................................................... 3.09 "Paying Agent"......................................................... 2.03 "Permitted Debt"....................................................... 4.09 "Purchase Date"........................................................ 3.09 "Registrar"............................................................ 2.03 "Restricted Payments".................................................. 4.07
12 SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes and the Subsidiary Guarantees; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Notes and the Subsidiary Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Subsidiary Guarantees, respectively. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2. THE NOTES SECTION 2.01. FORM AND DATING. (a) General. The Notes and the Trustee's certificate of authentication in respect thereof shall be substantially in the form of Exhibit A hereto, the terms of which are incorporated in and made part of this Indenture. The Subsidiary Guarantees shall be substantially in the form of Exhibit A-1, the terms of which are incorporated in and made part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $500 and integral multiples thereof. 13 The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note or Subsidiary Guarantee conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes shall be issued initially in the form of one or more Global Notes in definitive, fully registered form without interest coupons, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at the Corporate Trust Office of the Trustee, as custodian for the Depositary (or with such other custodian as the Depositary may direct), and registered in the name of Cede & Co., as nominee of the Depositary, duly executed by the Company and authenticated and delivered by the Trustee as hereinafter provided. Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of the outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee. (c) Certificated Securities. Except as provided in Section 2.06(a), owners of beneficial interests in Global Notes will not be entitled to receive physical delivery of Definitive Notes. SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by two Officers (an "Authentication Order"), authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company or any of their respective Subsidiaries. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency where Notes may be presented or surrendered for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain 14 another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent in connection with the Notes and to act as Note Custodian with respect to the Global Notes. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, and premium, if any, or interest on the Notes, and will notify the Trustee of any default by the Company or any Guarantor in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee and to account for any assets distributed. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company, a Guarantor or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders or the Trustee all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company or any Guarantor, the Trustee shall serve as Paying Agent for the Notes. SECTION 2.05. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company and/or the Guarantors shall cause the Registrar to furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company and the Guarantors shall otherwise comply with TIA Section 312(a). SECTION 2.06. TRANSFER AND EXCHANGE. (a) Transfer and Exchange of Global Notes. Global Notes may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. Global Notes may be exchanged for Definitive Notes only if (i) the Depositary (x) notifies the Company that it is unwilling or unable to continue as depositary for the Global Notes and the Company thereupon fails to appoint a successor depositary within 90 days or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Company, in its sole discretion, determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee or (iii) there shall have occurred and be continuing a Default or an Event of Default with respect to the Notes. Upon the occurrence of any of the preceding events in (i), (ii) or (iii) above, (x) the Company shall execute and, upon receipt of an Authentication Order, the Trustee shall authenticate and deliver, Definitive Notes in an aggregate principal amount equal to the principal amount of the Global Notes in exchange for such Global Notes, and (y) Definitive Notes shall be issued in such names and issued in any approved denominations as the Depositary shall instruct the Trustee. At such time as all beneficial interests in Global Notes have been exchanged for Definitive Notes pursuant to this Section 2.06(a), redeemed, repurchased or cancelled, all Global Notes shall be returned to or retained and cancelled by the Trustee in accordance with Section 2.11 hereof. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 15 and 2.10 hereof. A Global Note may not be exchanged for another Note except as provided in this Section 2.06(a). (b) Transfer and Exchange of Beneficial Interests in the Global Notes. Nothing in this Indenture precludes the transfer and exchange of beneficial interests in the Global Notes by lawful means and in accordance with any applicable provisions of this Indenture and any applicable procedures of the Depositary. (c) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, subject to this Section 2.06, the Company shall execute and, upon receipt of an Authentication Order, the Trustee shall authenticate Global Notes and Definitive Notes upon the Company or the Registrar's request. (ii) No service charge shall be made to a Holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof). (iii) The Registrar shall register the transfer or make the exchange if its requirements for such transactions are met; provided, however, that any Note presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar and the Trustee duly executed by the Holder thereof or by his attorney duly authorized in writing. (iv) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid Obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection or (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. 16 SECTION 2.07. REPLACEMENT NOTES If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. SECTION 2.08. OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note; however, Notes held by the Company or a Subsidiary of the Company shall not be deemed to be outstanding for purposes of Section 3.07(b) hereof. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. SECTION 2.09. TREASURY NOTES. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. SECTION 2.10. TEMPORARY NOTES Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. SECTION 2.11. CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, 17 replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all cancelled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3. REDEMPTION AND PREPAYMENT SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45 days but not more than 60 days before a redemption date (unless a shorter notice shall be satisfactory to the Trustee), an Officers' Certificate setting forth (a) the clause of this Indenture pursuant to which the redemption shall occur, (b) the redemption date, (c) the principal amount of Notes to be redeemed and (d) the redemption price. SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED. If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee shall select the Notes to be redeemed or purchased among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $500 or whole multiples of $500. SECTION 3.03. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed and shall state: 18 (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. One Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. 19 SECTION 3.06. NOTES REDEEMED IN PART. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. SECTION 3.07. OPTIONAL REDEMPTION. (a) The Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below:
Year Percentage - ---- ---------- 2005............................................... 105.250% 2006............................................... 103.500% 2007............................................... 101.750% 2008 and thereafter................................ 100.000%
(b) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. SECTION 3.08. MANDATORY REDEMPTION. Except as set forth under Sections 4.10 and 4.15 hereof, the Company shall not be required to make mandatory redemption payments with respect to the Notes. SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; 20 (c) that any Note not tendered or accepted for payment shall continue to accrete or accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have Notes purchased in integral multiples of $500 only; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $500, or integral multiples thereof, shall be purchased); and (i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered. On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. 21 ARTICLE 4. COVENANTS SECTION 4.01. PAYMENT OF NOTES. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York (or at such other location where the Trustee maintains an office), an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York (or at such other location where the Trustee maintains an office) for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof. SECTION 4.03. REPORTS. Whether or not required by the rules and regulations of the Securities and Exchange Commission (the "Commission"), so long as any Notes are outstanding, the Company and the Guarantors shall furnish to the Holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K on behalf of the Company and the Guarantors were such Forms required to be filed in consequence of the Notes, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries (showing in reasonable detail, either on the face of the financial statements or in the footnotes thereto and in Management's Discussion and Analysis of Financial Condition and Results of Operations, the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company), and, with respect to the annual information only, a report thereon by the Company's independent certified public accountants, and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports, in each case, within the time periods specified in the SEC's rules and regulations. In addition, whether or not required by the rules and regulations of the SEC, the Company shall file a copy of all such 22 information with the Commission for public availability within the time periods specified in the SEC's rules and regulations. The Company and the Guarantors shall at all times comply with TIA Section 314(a). SECTION 4.04. COMPLIANCE CERTIFICATE. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03 above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. SECTION 4.05. TAXES. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. SECTION 4.06. STAY, EXTENSION AND USURY LAWS. The Company and each of the Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. 23 SECTION 4.07. RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company and dividends and distributions payable solely to the Company or to a Guarantor); (ii) purchase, redeem or otherwise acquire or retire for value (including without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinate to the Notes or the Subsidiary Guarantees, except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable reference period set forth in the first paragraph of Section 4.09 hereof, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Coverage Ratio test set forth in such Section 4.09; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date hereof (excluding Restricted Payments permitted by clause (ii) of the next succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the date hereof to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company from the issue or sale since the date of this Indenture of Equity Interests of the Company (other than Disqualified Stock) or of Disqualified Stock or debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Restricted Subsidiary of the Company and other than Disqualified Stock or debt securities that have been converted into or exchanged for Disqualified Stock), plus (iii) to the extent that any Unrestricted Subsidiary is redesignated as a Restricted Subsidiary after the date hereof, the fair market value of the Company's Investment in such Subsidiary as of the date of such redesignation; provided, however, that the foregoing amount shall not exceed the amount of Investments made (and treated as a Restricted Investment) by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, plus (iv) an amount equal to the net reduction in Investments (other than Permitted Investments) made by the Company or any Restricted Subsidiaries in any Person resulting from dividends or distributions on, or repurchases or redemptions of, such Investments by such Person, net cash proceeds realized upon the sale of such Investment to an unaffiliated purchaser, reductions in obligations of such Person guaranteed by, and repayments of loans or advances or other transfers of assets by such Person to, the Company or a Restricted Subsidiary, provided, however, that no amount shall be included under this clause (iv) to the extent it is already included in Consolidated Net Income. The foregoing provisions will not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, other Equity Interests of the Company 24 (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness with Excess Proceeds remaining after an Asset Sale Offer; (v) the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its respective Equity Interests on a pro rata basis; (vi) repurchases of Equity Interests of the Company deemed to occur upon exercise of employee options, warrants or rights if such Equity Interests represent a portion of the exercise price of or withholding tax due upon exercise of such options, warrants or rights; (vii) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary held by any employee or former employee pursuant to the terms of any of the Company's or such Restricted Subsidiaries' benefit plans or arrangements; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $1.0 million in any twelve-month period and $5.0 million in the aggregate and no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (viii) the purchase, defeasance or other acquisition or retirement of all or part of the 10-1/2% Notes at a cost no more than 10% of the face value of the 10-1/2% Notes so acquired but only if the Company is permitted under Article 10 hereof to make any payment or other distribution to the Trustee or any Holder in respect of the Obligations hereunder; and (ix) additional Restricted Payments in an amount not to exceed $5.0 million in the aggregate. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $1.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.07 were computed, which calculations may be based upon the Company's latest available financial statements, together with a copy of any fairness opinion or appraisal required by this Indenture. SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (a)(i) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits or (ii) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries, (b) make loans or advances to the Company or any of its Restricted Subsidiaries or (c) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) Existing Indebtedness as in effect on the date of this Indenture, (ii) this Indenture and the Notes, (iii) applicable law, (iv) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred, (v) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (vi) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (c) above on the property so acquired, (vii) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, (viii) restrictions contained in security agreements or mortgages to the extent such restrictions restrict the transfer of the property or assets subject to such security agreements or mortgages, (ix) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into 25 for the sale or disposition of all or substantially all of the capital stock or assets of such Restricted Subsidiary pending the closing of the sale of such sale or disposition, or (x) any restriction in any agreement that is not more restrictive than the restrictions in the Credit Facilities as in effect on the date of this Indenture and such restrictions contained in the Credit Facilities on the date of this Indenture. SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and the Company and the Guarantors shall not issue any Disqualified Stock and the Company shall not permit any of its Restricted Subsidiaries which are not Guarantors to issue any shares of preferred stock other than to the Company or to a Wholly Owned Restricted Subsidiary which is a Guarantor, provided that any subsequent issuance or transfer of Capital Stock that results in such Guarantor ceasing to be a Wholly Owned Restricted Subsidiary or any subsequent transfer of such preferred stock (other than to the Company or another Wholly Owned Restricted Subsidiary which is a Guarantor) will be deemed, in each case, to be the issuance of such preferred stock by the issuer thereof; provided, however, that the Company and any Guarantor may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if the Consolidated Coverage Ratio for the four most recently ended calendar quarters is at least 1.25:1. The Consolidated Coverage Ratio shall be determined on a pro forma basis (including a pro forma application of the net proceeds from such Indebtedness or Disqualified Stock), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of the four-quarter period. The most recently ended calendar quarters shall be determined on the basis of the Company's calendar quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued. The foregoing limitations shall not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company or its Restricted Subsidiaries of Indebtedness secured by Mortgages Receivable; (ii) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant, equipment, land or inventory used or held for sale in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount outstanding for the Company and its Restricted Subsidiaries not to exceed $5.0 million at any time outstanding; (iii) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in connection with the acquisition of assets or a new Restricted Subsidiary; provided that such Indebtedness was incurred by the prior owner of such assets or such Restricted Subsidiary prior to such acquisition by the Company or one of its Restricted Subsidiaries and was not incurred in connection with, or in contemplation of, such acquisition by the Company or one of its Restricted Subsidiaries; and provided further that the principal amount (or accreted value, as applicable) of such Indebtedness, together with any other outstanding Indebtedness incurred pursuant to this clause (iii), does not exceed $5.0 million; (iv) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Existing Indebtedness or Indebtedness that was permitted by this Indenture to be incurred; 26 (v) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that (A) if the Company or a Guarantor is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and the Subsidiary Guarantees and (B)(i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (vi) the incurrence by the Company of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding; (vii) the guarantee by the Company or any Restricted Subsidiary of Indebtedness of the Company or a Restricted Subsidiary that was permitted to be incurred by another provision of this covenant; (viii) the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed an incurrence of Indebtedness by a Restricted Subsidiary of the Company; (ix) the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes and the Subsidiary Guarantees thereof and this Indenture in an aggregate principal amount up to $[INSERT PRINCIPAL AMOUNT OF NOTES ISSUED] million; (x) the incurrence by the Company or any of its Restricted Subsidiaries of Existing Indebtedness of the Company or any such Restricted Subsidiary; (xi) the incurrence by the Company or any of its Restricted Subsidiaries in the ordinary course of business of Indebtedness (A) in respect of performance, completion, surety or similar bonds or guarantees (including pursuant to letters of credit) in connection with new construction, development, leasing of billboards, or compliance with federal, state or local law, or (B) in respect of bankers acceptances, letters of credit, appeal or similar bonds other than pursuant to clause (A) in an aggregate amount at any time outstanding for the Company and its Restricted Subsidiaries not to exceed $5.0 million; (xii) the incurrence of Indebtedness of the Company or any Restricted Subsidiary arising from agreements providing for indemnification, adjustment of purchase price or similar obligations in connection with the disposition of any assets of the Company or any such Restricted Subsidiary (other than Guarantees of Indebtedness incurred by any Person acquiring all or any portion of such assets for the purpose of financing such acquisition), in principal amount not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; (xiii) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time (including all indebtedness incurred to replace, refund or refinance any such indebtedness) outstanding for the Company and its Restricted Subsidiaries not to exceed $7.5 million; and (xiv) the incurrence by a Receivables Subsidiary of Indebtedness. 27 For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xiv) of this paragraph or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant and such item of Indebtedness will be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof. Accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes of this Section 4.09. SECTION 4.10. ASSET SALES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash; provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are promptly converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this Section 4.10. Any Restricted Payment that is permitted by Section 4.07 hereof or any Permitted Investment will not be deemed to be an Asset Sale. Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company (or such Restricted Subsidiary) may apply such Net Proceeds, at its option, either (a) to repay any Senior Debt of the Company or a Guarantor, or (b) to the acquisition of a controlling interest in another business, the making of a capital expenditure or the acquisition of other long-term assets, in each case, in the same line of business as the Company and its Restricted Subsidiaries were engaged on the date hereof or in a Related Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving Senior Debt or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." Within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5.0 million hereunder, the Company shall commence a pro rata Asset Sale Offer pursuant to Section 3.09 hereof to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of repurchase, in accordance with the procedures set forth in Section 3.09 hereof. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. SECTION 4.11. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series 28 of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing; provided that (x) any employment, compensation or indemnity agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary, (y) transactions between or among the Company and/or its Restricted Subsidiaries, and (z) Restricted Payments that are permitted by Section 4.07 hereof, in each case, shall not be deemed Affiliate Transactions; and provided further that (i) transactions between the Company or a Restricted Subsidiary and any Club in the ordinary course of business or (ii) a securitization or similar transaction between the Company and a Receivables Subsidiary shall not be subject to clause (ii)(b) above. SECTION 4.12. LIENS. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired, or any income or profits therefrom (or assign or convey any right to receive income therefrom), which secures Indebtedness or trade payables that rank pari passu with or subordinate to the Notes or the Subsidiary Guarantees, as applicable, unless (i) if such Lien secures Indebtedness or trade payables that ranks pari passu with the Notes or Subsidiary Guarantees, as applicable, the Notes and such Subsidiary Guarantees are secured on an equal and ratable basis with the obligation so secured until such time as such obligation is no longer secured by a Lien or (ii) if such Lien secures Indebtedness or trade payables that is subordinated to the Notes or Subsidiary Guarantees, as applicable, such Lien shall be subordinated to a Lien granted to the Holders of Notes and Subsidiary Guarantees on the same collateral as that securing such Lien to the same extent as such Indebtedness, as applicable, until such obligation is no longer secured by a lien. SECTION 4.13. BUSINESS ACTIVITIES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, engage in any business other than the same line of business in which the Company and its Restricted Subsidiaries are engaged on the date hereof or a Related Business, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. The Company shall not permit any of its Receivables Subsidiaries to engage in any business other than the business for which the Receivables Subsidiary was established. SECTION 4.14. CORPORATE EXISTENCE. (a) Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Restricted Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Restricted Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Restricted Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. (b) The Company shall do or cause to be done all things necessary to preserve and keep in full force and effect the corporate, partnership or other existence of each of its Receivables Subsidiaries in accordance with the respective organizational documents (as the same may be amended from time to time) of such Receivables Subsidiary; provided, however, that the Company shall not be required to preserve the 29 corporate, partnership or other existence of any of its Receivables Subsidiaries, if the Board of Directors of the Company shall determine that the purpose for which the Receivables Subsidiary was established has been fulfilled. SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, the Company shall make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $500 or an integral multiple thereof) of each Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Change of Control Payment"). Within ten days following any Change of Control, the Company shall mail a notice to each Holder stating: (1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes tendered will be accepted for payment; (2) the purchase price and the purchase date, which shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $500 in principal amount or an integral multiple thereof. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes as a result of a Change of Control. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Notes so tendered the Change of Control Payment in an amount equal to the purchase price for the Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered by such Holder, if any; provided, that each such new Note shall be in a principal amount of $500 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (c) Notwithstanding anything to the contrary in this Section 4.15, the Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.15 applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. (d) Notwithstanding the foregoing, prior to complying with the provisions of this Section 4.15, but in any event within 90 days following a Change of Control, the Company will either repay all 30 outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this Section 4.15. SECTION 4.16. SALE AND LEASEBACK TRANSACTIONS. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company may enter into a sale and leaseback transaction if (i) the Company could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction pursuant to the Consolidated Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof and (b) incurred a Lien to secure such Indebtedness pursuant to Section 4.12 hereof, (ii) the gross cash proceeds of such sale and leaseback transaction are at least equal to the fair market value (as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the Trustee) of the property that is the subject of such sale and leaseback transaction, and (iii) the transfer of assets in such sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with the provisions of Section 4.10 hereof. SECTION 4.17. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED RESTRICTED SUBSIDIARIES. The Company (i) shall not, and shall not permit any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary of the Company to any Person (other than to the Company or a Wholly Owned Restricted Subsidiary that is a Guarantor), unless (a) such transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of such Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.10 hereof, and (ii) will not permit any Wholly Owned Restricted Subsidiary or Receivables Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Restricted Subsidiary of the Company that is a Guarantor. SECTION 4.18. DESIGNATION OF A SUBSIDIARY AS AN UNRESTRICTED SUBSIDIARY. A Subsidiary, other than a Receivables Subsidiary, is a Restricted Subsidiary unless designated as an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if at the time of such designation: (a) all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated are deemed to be a Restricted Payment at the time of such designation (all such outstanding Investments will be deemed to constitute an amount equal to the greatest of (i) the net book value of such Investments at the time of such designation, (ii) the fair market value of such Investments at the time of such designation and (iii) the original fair market value of such Investments at the time they were made), and such Restricted Payment is permitted at such time under Section 4.07 hereof; (b) giving pro forma effect thereto as if such designation had occurred at the beginning of the Company's most recently completed applicable reference period set forth in the first paragraph of Section 4.09 hereof for which internal financial statements are available preceding the date of such designation, the pro forma Consolidated Coverage Ratio for such period is greater than the historical Consolidated Coverage Ratio for such period; (c) no Default or Event of Default shall have occurred and be continuing immediately preceding such designation and giving pro forma effect thereto or would occur as a consequence thereof; and (d) such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. In the event that a Restricted Subsidiary becomes an Unrestricted Subsidiary in accordance with this paragraph, then such Restricted Subsidiary shall be released from its obligations under its Subsidiary Guarantee in accordance with Section 11.04 hereof. The Board of Directors of the Company may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary, if at the time of such redesignation: (x) giving pro forma effect to the redesignation and incurrence of Indebtedness of the Unrestricted Subsidiary (if any) as if they occurred at the beginning of the Company's most recently completed applicable reference period set forth in the first paragraph of Section 4.09 hereof for which 31 internal financial statements are available preceding the date of such redesignation, (i) any Indebtedness of such Unrestricted Subsidiary (including any Non-Recourse Debt) could be incurred pursuant to the Consolidated Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof and (ii) the pro forma Consolidated Coverage Ratio for such period is greater than the historical Consolidated Coverage Ratio for such period; (y) the newly redesignated Domestic Restricted Subsidiary executes and delivers a Subsidiary Guarantee and an Opinion of Counsel; and (z) no Default or Event of Default shall have occurred and be continuing immediately preceding such redesignation and giving pro forma effect thereto or would occur as a consequence thereof. Any such designation or redesignation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the board resolution giving effect to such designation or redesignation and an Officers' Certificate certifying that such designation or redesignation complied with the foregoing conditions. If any Unrestricted Subsidiary becomes a Restricted Subsidiary, such Subsidiary shall be subject to the provisions of Article 11 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the definition of an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture. If the Unrestricted Subsidiary at such time would not be permitted to be redesignated a Restricted Subsidiary, the Company shall be in default of this Section 4.18. SECTION 4.19. LIMITATION ON STATUS AS INVESTMENT COMPANY. The Company and its Restricted Subsidiaries shall take all actions (and refrain from taking all actions) necessary to ensure that neither the Company nor any of its Restricted Subsidiaries will be required to register as an "investment company" (as that term is defined in the Investment Company Act of 1940, as amended), or will otherwise become subject to regulation under the Investment Company Act. SECTION 4.20. NO SENIOR SUBORDINATED DEBT. Notwithstanding the provisions of Section 4.09 hereof, (i) the Company shall not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes, and (ii) no Guarantor shall incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Subsidiary Guarantees. No Indebtedness shall be deemed to be Senior Debt solely because it is secured and no Indebtedness shall be deemed to be subordinated solely because it is convertible into Equity Interests. SECTION 4.21. NO AMENDMENT OF SUBORDINATION PROVISIONS. Without the consent of the Holders of at least 75% in aggregate principal amount of the Notes then outstanding, the Company will not amend, modify or alter the provisions of Article 10 of this Indenture in any way that will adversely affect the rights of Holders of Notes. SECTION 4.22. PAYMENTS FOR CONSENT. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. SECTION 4.23. LISTINGS OF COMPANY COMMON STOCK ON EXCHANGES. The Company will use reasonable efforts to (i) maintain the quotation of the Company's common stock on the OTC Bulletin Board and (ii) effect a listing of the Company's common stock on the NASDAQ SmallCap Market or higher trading market as soon as practicable following issuance of the Notes. The Company shall remain 32 compliant with the corporate governance regulations set forth in Section 4350 of the Bylaws of the Nasdaq Stock Market, Inc. (the "Nasdaq"), as in effect from time to time (or any successor regulations), other than, unless otherwise required of the Company, any provisions relating to the filing of reports or other information with Nasdaq or the execution of a listing agreement. SECTION 4.24 DIRECTORS AND OFFICERS INSURANCE. The Company will maintain directors' and officers' insurance in amounts acceptable to, and with companies acceptable to, the Company's Board of Directors. SECTION 4.25 MANAGEMENT EQUITY BASED COMPENSATION. Unless approved by a majority of the Board of Directors, the Company may not authorize any equity based compensation arrangement in addition to the presently authorized and outstanding grants under the 1997 Stock Option Plan and the 2003 Stock Option Plan (whether in the form of a stock option plan, stock appreciation rights plan, restricted share plan or other form of stock based incentive plan) for management of the Company that would obligate the Company to issue shares of its common stock at any time in excess of five percent (5%) of the shares of common stock outstanding as of the day immediately following the date of original issuance of Notes under this Indenture. ARTICLE 5. SUCCESSORS SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS. The Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation) or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia, (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company pursuant to a supplemental indenture under the Notes and this Indenture in a form reasonably satisfactory to the Trustee, (iii) immediately after such transaction, no Default or Event of Default exists and (iv) except in the case of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) shall have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) shall, immediately after such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable reference period test set forth in the first paragraph of Section 4.09 hereof, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Coverage Ratio set forth in such Section 4.09. SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor 33 corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. ARTICLE 6. DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if: (a) the Company defaults in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions hereof) and such default continues for a period of 30 days; (b) the Company defaults in the payment when due of principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions hereof) when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise; (c) the Company fails to comply for 30 days after notice from the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes with any of the provisions of Section 4.07, 4.09, 4.10, 4.15 or 5.01 hereof; (d) the Company fails to observe or perform any other covenant, representation, warranty or other agreement in this Indenture or the Notes for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes; (e) a default occurs under any mortgage, indenture, or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; provided, that in the case of any such Payment Default under clause (a) such default continues beyond the lesser of 30 days or the longest period for cure provided in any such Indebtedness as to which a Payment Default exists, or in the case of any acceleration of Indebtedness described in clause (b), such Indebtedness is not discharged or such acceleration cured, waived, rescinded or annulled within the lesser of 30 days after acceleration or the longest period for cure provided in any such Indebtedness which has been accelerated; (f) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Restricted Subsidiaries and such judgment or judgments remain undischarged for a period (during which execution shall not be effectively stayed) of 60 days, provided that the aggregate of all such undischarged judgments exceeds $5.0 million; 34 (g) except as permitted by this Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; (h) the Company, any Significant Restricted Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Restricted Subsidiary, pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or (i) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company, any Significant Restricted Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Restricted Subsidiary, in an involuntary case; (ii) appoints a Custodian of the Company, any Significant Restricted Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Restricted Subsidiary, or for all or substantially all of the property of the Company, any Significant Restricted Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Restricted Subsidiary; or (iii) orders the liquidation of the Company, any Significant Restricted Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Restricted Subsidiary, and the order or decree remains unstayed and in effect for 60 consecutive days. SECTION 6.02. ACCELERATION. If any Event of Default (other than an Event of Default specified in clause (h) or (i) of Section 6.01 hereof) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; provided, however, that so long as any Designated Senior Debt is outstanding, no such acceleration shall be effective until five business days after the giving of written notice of such acceleration to the Company and the Representatives (as defined in Section 10.02) under the Designated Senior Debt at addresses (if any) previously reported to the Trustee by the Company. Upon any such declaration (and such period after notice, if applicable), the Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (h) or (i) of Section 6.01 hereof occurs, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict 35 with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. If an Event of Default occurs by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to, Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. If an Event of Default occurs prior to April 1, 2005 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then, upon acceleration of the Notes, the Make-Whole Price shall become immediately due and payable to the extent permitted by law. SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04. WAIVER OF PAST DEFAULTS. Holders of not less than a majority in principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, and premium, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.05. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. SECTION 6.06. LIMITATION ON SUITS. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; 36 (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, and premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company or any Guarantor for the whole amount of principal of, and premium, if any, and interest remaining unpaid on the Notes and, to the extent lawful, interest on overdue principal and interest as provided in Section 4.01 and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: 37 First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, and premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, and premium, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this 6.10. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. SECTION 6.12 ACKNOWLEDGMENTS AND AGREEMENTS OF HOLDERS WITH RESPECT TO DZ BANK FACILITY (a) Each Holder of the Notes, by its acceptance thereof, acknowledges and agrees that in connection with the DZ Bank Facility (i) any sale or other transfer of Mortgages Receivable and related assets by the Company to a Receivables Subsidiary constitutes a true sale of such Mortgages Receivable and (ii) there are no grounds upon which the assets of the Company and any Restricted Subsidiary could be substantively consolidated with the assets of such Receivables Subsidiary upon the occurrence and continuation of an Event of Default set forth in Sections 6.01 (h) or (i) hereof or otherwise. (b) Regarding the DZ Bank Facility, each Holder of the Notes, by its acceptance thereof, (i) agrees to take such action as may be necessary or appropriate to effect the acknowledgements and agreements set forth in clause (a) of this Section 6.12 and not to take any action contrary to, or inconsistent with, such acknowledgments and agreements, in each case, upon the occurrence and continuation of an Event of Default set forth in Sections 6.01(h) or (i) hereof or otherwise and (ii) subject to Sections 6.05 and 7.01 hereof, authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to effect such acknowledgements and agreements and not to take any action contrary to, or inconsistent with, such acknowledgments and agreements, in each case, upon the occurrence and continuation of an Event of Default set forth in Sections 6.01(h) or (i) hereof or otherwise, and appoints the Trustee its attorney-in-fact for any and all such purposes. (c) With respect to any creditor of a Receivables Subsidiary, the Trustee undertakes to perform or observe only such of its covenants and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations with respect to such creditors shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to any creditors of a Receivables Subsidiary, and shall not be liable to any such creditors for any loss, liability or expense in connection with this Indenture or otherwise. 38 ARTICLE 7. TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein.) (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section 7.01; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. 39 SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company or any Guarantor shall be sufficient if signed by an Officer of the Company or such Guarantor. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by the agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation. (h) The Trustee shall not be charged with knowledge of any Event of Default with respect to the Notes for which it is acting as Trustee unless either (1) a Responsible Officer of the Trustee shall have actual knowledge of the Event of Default or (2) written notice of such Event of Default shall have been given to a Responsible Officer of the Trustee by the Company, any other obligor on such Notes or by any Holder of such Notes. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any 40 money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. SECTION 7.05. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. 41 When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. 42 SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, and premium, if any, and interest on such Notes when such payments are due, (b) the Company's and the Guarantors' obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's and the Guarantors' obligations in connection therewith and (d) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. SECTION 8.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20, 4.21, 4.22 and 5.01 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and 43 the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(d) through 6.01(f) hereof shall not constitute Events of Default. SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, and premium, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article 8 concurrently with such incurrence) or insofar as Sections 6.01(h) or 6.01(i) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; 44 (f) the Company shall have delivered to the Trustee an Opinion of Counsel (which may be subject to customary exceptions) to the effect that on the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.06. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, and premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. 45 SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.02 of this Indenture, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Subsidiary Guarantees or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; (c) to provide for the assumption of the Company's or a Guarantor's obligations to the Holders of the Notes by a successor to the Company or a Guarantor pursuant to Article 5 or Article 11 hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of a Note; (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (f) to provide for the issuance of Additional Notes in accordance with the limitations set forth in this Indenture as of the date hereof; or (g) to allow any Guarantor to execute a supplemental indenture and/or Subsidiary Guarantee with respect to the Notes. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company and the Guarantors in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. 46 SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES. Except as provided in Section 4.21 and below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including Sections 3.09, 4.10 and 4.15 hereof), the Subsidiary Guarantees and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, and premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer, or purchase of, the Notes). In addition, without the consent of the Holders of at least 66-2/3% in principal amount of then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes), no waiver or amendment to this Indenture may make any change in the provisions of Section 4.15 hereof that adversely affects the rights of any Holder of Notes. Section 2.08 hereof shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 4.21, 6.04 and 6.07 hereof, the Holders of a majority in principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. Notwithstanding anything to the contrary herein, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes, except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof; (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in 47 principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or interest on the Notes; (g) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions; or (h) release any Guarantor from any of its obligations under its Subsidiary Guarantee or this Indenture, except in accordance with the terms of this Indenture. SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder of a Note and every subsequent Holder of a Note. SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01) shall be fully protected in relying upon, in addition to the documents required by Section 12.04 hereof, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. 48 ARTICLE 10. SUBORDINATION SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. The Notes shall rank pari passu with the 6% Notes. The Notes shall rank senior in right of payment to the 10-1/2% Notes, which are also subordinate to the 6% Notes. SECTION 10.02. CERTAIN DEFINITIONS. "Permitted Junior Securities" means Equity Interests in the Company or debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to the Indenture. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Debt. A distribution may consist of cash, securities or other property, by set-off or otherwise. SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, in an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities: (1) holders of Senior Debt shall be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before Holders of the Notes shall be entitled to receive any payment with respect to the Notes; and (2) until all Obligations with respect to Senior Debt (as provided in subsection (1) above) are paid in full, any distribution to which Holders would be entitled but for this Article 10 shall be made to holders of Senior Debt (except that Holders of Notes may receive (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.04 hereof), as their interests may appear. SECTION 10.04. DEFAULT ON DESIGNATED SENIOR DEBT. The Company may not make any payment or distribution to the Trustee or any Holder in respect of Obligations (other than (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.04 hereof) until all principal and other Obligations with respect to the Senior Debt have been paid in full if: (i) a default in the payment of the principal of, premium, if any, or interest on Designated Senior Debt occurs and is continuing beyond any applicable grace period in the agreement, indenture or other document governing such Designated Senior Debt; or (ii) a default, other than a payment default, on Designated Senior Debt occurs and is continuing that then permits holders of the Designated Senior Debt to accelerate its maturity and 49 the Trustee receives a notice of the default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt. The Company may and shall resume payments on and distributions in respect of the Notes and may acquire them upon the earlier of: (1) the date upon which the default is cured or waived, or (2) in the case of a default referred to in Section 10.04(ii) hereof, 179 days pass after notice is received if the maturity of such Designated Senior Debt has not been accelerated, if this Article 10 otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. SECTION 10.05. ACCELERATION OF NOTES. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.04 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. SECTION 10.07. NOTICE BY COMPANY. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article 10. SECTION 10.08. SUBROGATION. After all Senior Debt is paid in full and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt. A distribution made under this Article 10 to holders of Senior Debt that otherwise would have been made to Holders of Notes is not, as between the Company and Holders, a payment by the Company on the Notes. 50 SECTION 10.09. RELATIVE RIGHTS. This Article 10 defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article 10 to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default. SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 10. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. 51 SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. ARTICLE 11. GUARANTEES SECTION 11.01. UNCONDITIONAL GUARANTEE. Subject to the provisions of this Article 11, each Guarantor hereby unconditionally, jointly and severally, on a senior subordinated basis, guarantees (each such Guarantee being a "Subsidiary Guarantee" and all such Guarantees being the "Subsidiary Guarantees") to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Notes or this Indenture, that: (i) the principal of and interest and premium, if any, on the Notes will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal of, and interest on, to the extent lawful, the Notes and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or of any such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 11.05 hereof. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, subject to Section 11.05 hereof, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. Each Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that the Subsidiary Guarantees will not be discharged except by complete performance of the obligations contained in the Notes, this Indenture and in the Subsidiary Guarantees. If any Holder of Notes or the Trustee is required by any court or otherwise to return to the Company, any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Guarantor, any amount paid by the Company or any Guarantor to the Trustee or such Holder of Notes, the Subsidiary Guarantees, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that they shall not be entitled to any right of subrogation in relation to the Holders of the Notes in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between each Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 for the purposes of the Subsidiary Guarantees, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6, such obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of the Subsidiary Guarantees. The Guarantors shall have the right to contribution from any non-paying Guarantor so long as the exercise of such right does not 52 impair the rights of the Holders under this Guarantee. The Notes will not be guaranteed by any present or future Subsidiary that is not a Domestic Restricted Subsidiary or any Unrestricted Subsidiary. SECTION 11.02. SUBORDINATION OF NOTE GUARANTEE. The Obligations of each Guarantor under its Note Guarantee pursuant to this Article 10 shall be junior and subordinated in right of payment to the rights of holders of the Senior Debt of such Guarantor on the same basis as the Notes are junior and subordinated to Senior Debt of the Company. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Article 10 hereof. SECTION 11.03. SEVERABILITY. In case any provision of a Subsidiary Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.04. RELEASE OF A GUARANTOR. In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, in each case to a corporation, Person or entity which is not, and giving effect to the transaction will not be, the Company or a Restricted Subsidiary of the Company, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be released and relieved of any obligations under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition shall be applied in accordance with Section 4.10 and the other applicable provisions of the Indenture. The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate certifying as to the compliance with Section 4.17 hereof and this Section 11.04. Any Guarantor not so released remains liable for the full amount of principal of and interest on the Notes as provided in this Article 11. SECTION 11.05. LIMITATION OF GUARANTOR'S LIABILITY. Each Guarantor and by its acceptance of a Note each Holder confirms that it is the intention of all such parties that the Subsidiary Guarantee by such Guarantor pursuant to its Subsidiary Guarantee does not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law. To effectuate the foregoing intention, the Holders and such Guarantor hereby irrevocably agree that the obligations of such Guarantor under the Subsidiary Guarantees shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under the Subsidiary Guarantees not constituting a fraudulent transfer or conveyance. SECTION 11.06. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS. Subject to the provisions of Section 11.04, no Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another corporation, Person or entity whether or not affiliated with such Guarantor, or sell or otherwise dispose of all or substantially all of its assets to or liquidate into any such corporation (other than the Company or another Restricted Subsidiary), Person or entity, unless: (i) subject to the provisions of Section 11.05, the Person formed by or surviving any such consolidation or merger or acquiring such assets upon such sale, disposition or liquidation (if 53 other than a Guarantor or the Company) unconditionally assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee under the Notes, the Indenture and the Subsidiary Guarantee on the terms set forth herein or therein; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) such Guarantor, or any Person formed by or surviving any such consolidation or merger or acquiring such assets upon a sale, disposition or liquidation, would have Consolidated Net Worth (immediately after giving effect to such transaction) equal to or greater than the Consolidated Net Worth of such Guarantor immediately preceding the transaction. SECTION 11.07. Waiver of Subrogation. Each Guarantor hereby irrevocably waives, until and unless all of the Obligations guaranteed hereby are indefeasibly discharged, any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under the Subsidiary Guarantees and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Notes against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Notes shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Notes, and shall forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Notes, whether matured or unmatured, in accordance with the terms of this Indenture. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 11.07 is knowingly made in contemplation of such benefits. SECTION 11.08. EXECUTION OF GUARANTEE. To evidence its Subsidiary Guarantee to the Holder of Notes specified in Section 11.01, each Guarantor hereby agrees that a notation of such Subsidiary Guarantee in the form set forth in Exhibit A-1 hereto shall be endorsed on each Note ordered to be authenticated and delivered by the Trustee. Each Guarantor hereby agrees that the Subsidiary Guarantees set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of the Subsidiary Guarantees. Each such Subsidiary Guarantee shall be signed on behalf of each Guarantor by two Officers, or an Officer and an Assistant Secretary, or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to such Subsidiary Guarantee prior to the authentication of the Note on which it is endorsed, and the delivery of such Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of such Subsidiary Guarantee on behalf of such Guarantor. Such signatures upon the Subsidiary Guarantees may be by manual or facsimile signature of such Officers and may be imprinted or otherwise reproduced on the Subsidiary Guarantees, and in case any such Officer who shall have signed the Subsidiary Guarantees shall cease to be such Officer before the Note on which such Subsidiary Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Note nevertheless may be authenticated and delivered or disposed of as though the person who signed the Subsidiary Guarantees had not ceased to be such Officer of the Guarantor. 54 SECTION 11.09. ADDITIONAL SUBSIDIARY GUARANTEES. If the Company or any of its Subsidiaries shall acquire or create another Restricted Subsidiary after the date of the Indenture, then such newly acquired or created Restricted Subsidiary shall become a Guarantor, on a senior subordinated basis, of the Company's obligations under the Notes and this Indenture by (i) executing a supplemental indenture to this Indenture in the form set forth in Exhibit B hereto, (ii) executing a Subsidiary Guarantee in the form set forth in Exhibit A-1 hereto and (iii) delivering to the Trustee an Opinion of Counsel, in form reasonably satisfactory to the Trustee, that the Subsidiary Guarantee and supplemental indenture have been duly authorized, executed and delivered by such Restricted Subsidiary and constitute the valid and binding obligations of such Restricted Subsidiary and enforceable against such Restricted Subsidiary in accordance with their respective terms, subject to customary exceptions for bankruptcy and equitable principles; provided, however, that this Section 11.09 shall not apply to any Subsidiary during such period as such Subsidiary (y) would not be a Domestic Restricted Subsidiary or (z) has been properly designated as an Unrestricted Subsidiary in accordance with this Indenture for so long as it continues to constitute an Unrestricted Subsidiary. ARTICLE 12. MISCELLANEOUS SECTION 12.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. SECTION 12.02. NOTICES. Any notice or communication by the Company, any Guarantor or the Trustee to the others is duly given if in writing and delivered in person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company or any Guarantor: Silverleaf Resorts, Inc. 1221 River Bend Drive, Suite 120 Dallas, Texas 75247 Telecopier No.: (214) 905-0514 Attention: Robert E. Mead With a copy to: Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P. 901 Main Street, Suite 3700 Dallas, Texas 75202-3792 Telecopier No.: (214) 747-3732 Attention: David N. Reed 55 If to the Trustee: Wells Fargo Bank, National Association Corporate Trust Department 6th and Marquette Minneapolis, Minnesota 55479 Telecopier No.: (612) 667-9825 Attention: Silverleaf Resorts, Inc. Administrator The Company, any Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company or any Guarantor mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Guarantors, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company and/or any Guarantor to the Trustee to take any action under this Indenture, the Company and/or such Guarantor, as the case may be, shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. 56 SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. SECTION 12.06. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 12.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No past, present or future director, Officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, the Subsidiary Guarantees, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. SECTION 12.08. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUESTED THEREBY. SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture, the Notes, or the Subsidiary Guarantees. SECTION 12.10. SUCCESSORS. All agreements of the Company and the Guarantors in this Indenture, the Notes or the Subsidiary Guarantees shall bind the respective successors of the Company and the Guarantors. All agreements of the Trustee in this Indenture shall bind its successors. 57 SECTION 12.11. SEVERABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 12.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 58 SIGNATURES Dated as of ________, 2004 SILVERLEAF RESORTS, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Harry J. White, Jr. Title: Chief Financial Officer and Treasurer Dated as of ________, 2004 AWARDS VERIFICATION CENTER, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Harry J. White, Jr. Title: Vice President and Treasurer Dated as of ___________, 2004 SILVERLEAF TRAVEL, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Harry J. White, Jr. Title: Vice President and Treasurer 59 Dated as of ___________, 2004 SILVERLEAF RESORT ACQUISITIONS, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Harry J. White, Jr. Title: Vice President and Treasurer Dated as of _________, 2004 BULL'S EYE MARKETING, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Harry J. White, Jr. Title: Treasurer Dated as of _________, 2004 SILVERLEAF BERKSHIRES, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: ________________________________ Title: _______________________________ 60 Dated as of _________, 2004 ESTARCOMMUNICATIONS, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Harry J. White, Jr. Title: Chief Financial Officer Dated as of _________, 2004 PEOPLE REALLY WIN SWEEPSTAKES, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Harry J. White, Jr. Title: Chief Financial Officer and Treasurer Dated as of _________, 2004 SLR RESEARCH, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Harry J. White, Jr. Title: Chief Financial Officer and Treasurer Dated as of ____________, 2004 WELLS FARGO BANK, NATIONAL ASSOCIATION By: Name: Jane Y. Schweiger Title: Vice President 61 EXHIBIT A (Face of Note) 8% Senior Subordinated Notes due 2010 No. 001 $[28,467,000.00] SILVERLEAF RESORTS, INC. promises to pay to Cede & Co. CUSIP No. 828395 ____ or registered assigns, the principal sum of [TWENTY-EIGHT MILLION, FOUR HUNDRED SIXTY-SEVEN THOUSAND DOLLARS] on April 1, 2010. Interest Payment Dates: April 1, and October 1 Record Dates: March 15, and September 15 Dated: _________, 2004 By: __________________________________ Name: Robert E. Mead Title: Chief Executive Officer By: __________________________________ Name: Harry J. White, Jr. Title: Chief Financial Officer and Treasurer (SEAL) This is one of the Global Notes referred to in the within-mentioned Indenture: Wells Fargo Bank, National Association as Trustee By:__________________________________ A-1 (Back of Note) 8% Senior Subordinated Notes due 2010 [Insert the Global Note Legend for Global Notes](1) Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Silverleaf Resorts, Inc., a Texas corporation (the "Company"), promises to pay interest on the principal amount of this Note at 8% per annum until maturity. The Company will pay such interest semi-annually on April 1 and October 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on this Note will accrue from the most recent date to which interest has been paid, provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the March 15 or September 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of - ----------------------------- (1) "UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF." A-2 and interest, and premium, if any, on the Global Note and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, Wells Fargo Bank, National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. INDENTURE. The Company issued the Notes under an Indenture dated as of _________, 2004 ("Indenture") between the Company, its Subsidiaries and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are unsecured obligations of the Company limited to [$28.467] million in aggregate principal amount. 5. OPTIONAL REDEMPTION. (a) The Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below:
Year Percentage - ---- ---------- 2005......................................................... 105.250% 2006......................................................... 103.500% 2007......................................................... 101.750% 2008 and thereafter.......................................... 100.000%
6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) If there is a Change of Control, the Company shall be required to make an offer (a "Change of Control Offer") to repurchase all or any part (equal to $500 or an integral multiple thereof) of each Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest to the date of purchase (a "Change of Control Payment"). Within ten days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Subsidiary consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company shall commence a pro rata Asset Sale Offer pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes (including Additional Notes) that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary) A-3 may use any remaining Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis (but in no event shall Notes be purchased in an amount less than $500 or an integral multiple thereof). Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $500 may be redeemed in part but only in whole multiples of $500, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $500 and integral multiples of $500. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture, the Subsidiary Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture, the Subsidiary Guarantees or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions regarding payment and exchange of Notes in a manner that does not materially adversely affect any Holder, to provide for the assumption of the Company's or Guarantor's obligations to Holders of the Notes in case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Subsidiary Guarantee with respect to the Notes, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture or to allow any Guarantor to execute a supplemental indenture to the Indenture and/or Subsidiary Guarantee with respect to the Notes. 12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) default in payment when due of principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Indenture) when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, (iii) failure by the Company to comply for 30 days after notice from the Trustee or the Holders of at least 25% in principal amount of then outstanding Notes with Section 4.07, 4.09, 4.10, 4.15 or 5.01 of the Indenture; (iv) failure by the Company for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in principal amount of then outstanding Notes to comply with certain other agreements in the Indenture or the Notes; (v) default under certain other agreements relating to Indebtedness of the A-4 Company which default results in the acceleration of such Indebtedness prior to its express maturity and such default has not been cured or waived as provided in the Indenture; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (vii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease to be in full force and effect or any Guarantor or any Person acting on its behalf shall deny or disaffirm its obligations under such Guarantor's Subsidiary Guarantee; and (viii) certain events of bankruptcy or insolvency with respect to the Company or any of its Material Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. SUBSIDIARY GUARANTEES. Payment of principal and interest (including interest on overdue principal and overdue interest, if lawful) is unconditionally guaranteed on a senior subordinated basis by certain subsidiaries of the Company. 14. SUBORDINATION. The payment of principal, premium, if any, and interest on the Notes is subordinated to the prior payment of Senior Debt on the terms provided in the Indenture. 15. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 16. NO RECOURSE AGAINST OTHERS. A director, Officer, employee, incorporator or stockholder, of the Company, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 17. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 18. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. A-5 The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Silverleaf Resorts, Inc. 1221 River Bend Drive, Suite 120 Dallas, Texas 75247 Telecopier No.: (214) 905-0514 Attention: Sandra Cearley A-6 EXHIBIT A-1 [FORM OF NOTATION ON NOTE RELATING TO SUBSIDIARY GUARANTEE] SUBSIDIARY GUARANTEE Silverleaf Berkshires, Inc., a Texas corporation, Bull's Eye Marketing, Inc., a Delaware corporation, Silverleaf Resort Acquisitions, a Texas corporation, Silverleaf Travel, Inc., a Texas corporation, Awards Verification Center, Inc., a Texas corporation, eStarCommunications, Inc., a Texas corporation, People Really Win Sweepstakes, Inc., a Texas corporation, and SLR Research, Inc., a Texas corporation (hereinafter referred to as the "Guarantors", which term includes any successor or additional Guarantor under the Indenture referred to in the Note upon which this notation is endorsed), on terms and conditions provided in the Indenture, (i) has unconditionally guaranteed (a) the due and punctual payment of the principal of and interest, if any, on the Notes, whether at maturity or interest payment date, by acceleration, call for redemption or otherwise, (b) the due and punctual payment of interest on the overdue principal of and (if lawful) interest on the Notes, (c) the due and punctual performance of all other obligations of the Company to the Holders or the Trustee, all in accordance with the terms set forth in the Indenture, and (d) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise and (ii) has agreed to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under this Subsidiary Guarantee. Capitalized terms used herein have the meanings assigned to them in the Indenture unless otherwise indicated. No stockholder, Officer, director or incorporator, as such, past, present or future, of the Guarantors shall have any personal liability under this Subsidiary Guarantee by reason of his or its status as such stockholder, Officer, director or incorporator. This Subsidiary Guarantee shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized Officers. Dated as of ______, 2004 AWARDS VERIFICATION CENTER, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Harry J. White, Jr. Title: Vice President and Treasurer Dated as of _____, 2004 SILVERLEAF TRAVEL, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Harry J. White, Jr. Title: Vice President & Treasurer Dated as of ______, 2004 SILVERLEAF RESORT ACQUISITIONS, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Harry J. White, Jr. Title: Vice President and Treasurer Dated as of ______, 2004 BULL'S EYE MARKETING, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Harry J. White, Jr. Title: Treasurer Dated as of ______, 2004 SILVERLEAF BERKSHIRES, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Sharon K. Brayfield Title: President Dated as of ______, 2004 ESTARCOMMUNICATIONS, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Harry J. White, Jr. Title: Chief Financial Officer Dated as of _________, 2004 PEOPLE REALLY WIN SWEEPSTAKES, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Harry J. White, Jr. Title: Chief Financial Officer & Treasurer Dated as of _________, 2004 SLR RESEARCH, INC. By: Name: Robert E. Mead Title: Chief Executive Officer By: Name: Harry J. White, Jr. Title: Chief Financial Officer & Treasurer ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint ________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: _________________________ Your Signature: ______________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee. OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $___________ Date: ________________________ Your Signature: ______________________ (Sign exactly as your name appears on the Note) Tax Identification No.: ______________ Signature Guarantee. [INSERT FOR GLOBAL NOTE] SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE The following exchanges of a part of this Global Note for and interest in another Global Note or for a Definitive Note have been made:
Principal Amount at maturity of this Signature of Amount of decrease in Amount of increase in Global Note authorized Officer of Principal Amount of this Principal Amount of this following such decrease Trustee or Note Date of Exchange Global Note Global Note (or increase) Custodian - ---------------- ------------------------ ------------------------ ----------------------- ---------------------
EXHIBIT B FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of ________________, among __________________ (the "Guaranteeing Subsidiary"), a subsidiary of Silverleaf Resorts, Inc. (or its permitted successor), a Texas corporation (the "Company"), the Company, the other Guarantors (as defined in the Indenture referred to herein) and Wells Fargo Bank, National Association, as trustee under the indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of ________ providing for the issuance of an aggregate principal amount of up to [$28,467,000] of 8% Senior Subordinated Notes due 2010 (the "Notes"); WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "New Subsidiary Guarantee"); and WHEREAS, pursuant to Section 9.01(g) of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees as follows: (a) Along with all Guarantors named in the Indenture, to jointly and severally guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (i) the principal of and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. B-1 (b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. (c) The following is hereby waived: the benefit or advantage of any stay, extension or usury law wherever enacted, now or at any time hereafter in force, diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever. (d) This New Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture, and the Guaranteeing Subsidiary accepts all of the obligations of a Guarantor under the Indenture. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, any Guarantor, or any Custodian, trustee, liquidator or other similar official acting in relation to either the Company or any Guarantor, any amount paid by the Company or any Guarantor either to the Trustee or such Holder, this New Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (f) The Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. (g) As between the Guaranteeing Subsidiary, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this New Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guaranteeing Subsidiary for the purpose of this New Subsidiary Guarantee. (h) The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. (i) After giving effect to any maximum amount and any other contingent and fixed liabilities that are relevant under any applicable Bankruptcy or fraudulent conveyance laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under Article 11 of the Indenture, this New Subsidiary Guarantee shall be limited to the maximum amount as shall result in the obligations of such Guarantor under its New Subsidiary Guarantee not constituting a fraudulent transfer or conveyance. 3. Execution and Delivery. The Guaranteeing Subsidiary agrees that this New Subsidiary Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of this New Subsidiary Guarantee. 4. Guaranteeing Subsidiary may Consolidate, Etc., On Certain Terms. (a) Subject to Section 11.06 of the Indenture and Section 5 hereof, the Guaranteeing Subsidiary may not consolidate with or merge with or into (whether or not such Guaranteeing B-2 Subsidiary is the surviving Person) another corporation, Person or entity whether or not affiliated with such Guaranteeing Subsidiary or sell or otherwise dispose of all or substantially all of its assets to or liquidate into any such corporation, Person or entity, unless: (i) subject to Section 2(i) hereof, the Person formed by or surviving any such consolidation or merger or acquiring such assets upon such sale, disposition or liquidation (if other than a Guarantor or the Company) unconditionally assumes all the obligations of such Guaranteeing Subsidiary, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture, the Subsidiary Guarantees and this New Subsidiary Guarantee on the terms set forth herein or therein; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; (iii) such Guaranteeing Subsidiary, or any Person formed by or surviving any such consolidation or merger, would have Consolidated Net Worth (immediately after giving effect to such transaction) equal to or greater than the Consolidated Net Worth of such Guaranteeing Subsidiary immediately preceding the transaction; and (b) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the New Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by the Guaranteeing Subsidiary, such successor corporation shall succeed to and be substituted for the Guaranteeing Subsidiary with the same effect as if it had been named herein as a Guarantor. Such successor corporation thereupon may cause to be signed any or all of the New Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the New Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such New Subsidiary Guarantees had been issued at the date of the execution hereof. (c) Except as set forth in Articles 4, 5 and 11 of the Indenture, and notwithstanding clauses (a) and (b) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of the Guaranteeing Subsidiary with or into the Company or another Guarantor, or shall prevent any sale or conveyance of the property of the Guaranteeing Subsidiary as an entirety or substantially as an entirety to the Company or another Guarantor. 5. Releases. (a) In the event of a sale or other disposition of all of the assets of the Guaranteeing Subsidiary, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of the Guaranteeing Subsidiary, in each case to a corporation, Person or entity which is not, and giving effect to the transaction will not be, the Company or a Restricted Subsidiary of the Company, then such Guaranteeing Subsidiary (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of such Guaranteeing Subsidiary) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guaranteeing Subsidiary) will be released and relieved of any obligations under this New Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture, including without limitation Section 4.10 of the Indenture. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of the Indenture, including without limitation Section 4.10 of the Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of the Guaranteeing Subsidiary from its obligations under this New Subsidiary Guarantee B-3 (b) Any Guarantor (including the Guaranteeing Subsidiary) not released from its obligations under its Subsidiary Guarantee or New Subsidiary Guarantee, as the case may be, shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under the Indenture as provided in Article 11 of the Indenture. 6. No Recourse Against Others. No past, present or future director, Officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 7. New York Law to Govern. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 8. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 10. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. B-4 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: _______________, ____ [GUARANTEEING SUBSIDIARY] By: ______________________________________ Name: Title: By: ______________________________________ Name: Title: SILVERLEAF RESORTS, INC. By: ______________________________________ Name: Title: By: ______________________________________ Name: Title: AWARDS VERIFICATION CENTER, INC. By: ______________________________________ Name: Title: By: ______________________________________ Name: Title: B-5 SILVERLEAF TRAVEL, INC. By: ______________________________________ Name: Title: By: ______________________________________ Name: Title: SILVERLEAF RESORT ACQUISITIONS, INC. By: ______________________________________ Name: Title: By: ______________________________________ Name: Title: SILVERLEAF BERKSHIRES, INC. By: ______________________________________ Name: Title: By: ______________________________________ Name: Title: BULL'S EYE MARKETING, INC. By: ______________________________________ Name: Title: By: ______________________________________ Name: Title: B-6 ESTARCOMMUNICATIONS, INC. By: ______________________________________ Name: Title: By: ______________________________________ Name: Title: PEOPLE REALLY WIN SWEEPSTAKES, INC. By: ______________________________________ Name: Title: By: ______________________________________ Name: Title: SLR RESEARCH, INC. By: ______________________________________ Name: Title: By: ______________________________________ Name: Title: WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION as Trustee By: ______________________________________ Name: Title: B-7 EX-99.T3E.1 3 d14692exv99wt3ew1.txt FORM OF OFFER TO EXCHANGE EXHIBIT T3E.1 SILVERLEAF RESORTS, INC. OFFER TO EXCHANGE 8% SENIOR SUBORDINATED NOTES DUE 2010, AND AN ADDITIONAL INTEREST PAYMENT FOR ALL OUTSTANDING 6% SENIOR SUBORDINATED NOTES DUE 2007 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON JUNE 2, 2004, UNLESS EXTENDED. TENDERS OF NOTES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE. THE OLD NOTES. On May 2, 2002, we issued $28,467,000 of our 6% Senior Subordinated Notes due 2007 (the "Old Notes") pursuant to an indenture dated May 2, 2002 (the "Old Indenture"). The Old Notes were issued in the principal amount of $500 each. As of the date hereof, the aggregate outstanding principal balance of the Old Notes remains at $28,467,000. THE EXCHANGE OFFER. In connection with our need to improve our ability to access new capital markets to finance our future operations and to refinance certain of our senior credit facilities, we are hereby offering (the "Exchange Offer") to exchange for each $500 principal amount of the Old Notes (i) $500 principal amount of our 8% Senior Subordinated Notes due 2010 (the "Exchange Notes"), and (ii) an additional payment of interest (the "Additional Interest Payment") in an amount equal to the amount of interest accrued on each Old Note held by each exchanging noteholder from April 1, 2004 through the day before the Exchange Date, which shall be payment in full of the accrued, unpaid interest on each Old Note exchanged. The Exchange Notes will be issued pursuant to an indenture (the "New Indenture") dated as of the Exchange Date (as defined) by and among us, certain of our subsidiaries, as guarantors, and Wells Fargo Bank, National Association (the "New Indenture Trustee"). THE EXCHANGE NOTES. Each Exchange Note will bear interest at a rate of 8.00% per annum. The Exchange Notes will be general unsecured obligations of ours and the Guarantors and will be subordinated in right of payment to all existing and future Senior Debt (as defined herein) of ours and the Guarantors. The Exchange Notes will rank pari passu with the Old Notes and any of our existing and future senior subordinated indebtedness and will rank senior to all of our other subordinated unsecured indebtedness, including our 10-1/2% senior subordinated notes due 2008. The Exchange Notes will be effectively subordinated to all secured indebtedness of ours and the Guarantors to the extent of the security. At December 31, 2003, after giving pro forma effect to the Exchange Offer and assuming that only the minimum of 80% in principal amount of the Old Notes are exchanged, the Company and its consolidated subsidiaries would have approximately $251.9 million of outstanding indebtedness, of which approximately $215.3 million will be secured or structurally senior in right of payment to the Exchange Notes, approximately $6.9 million will be equal in right of payment to the Exchange Notes but due prior to the Exchange Notes, and approximately $2.1 million will be subordinated in right of payment to the Exchange Notes but due prior THE EXCHANGE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFER TO EXCHANGE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE EXCHANGE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND ARE BEING OFFERED IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION PROVIDED BY SECTION 3(a)(9) OF THE SECURITIES ACT. SEE "RISK FACTORS" ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS BEFORE TENDERING THEIR OLD NOTES. ------------ THE DATE OF THIS OFFER TO EXCHANGE IS MAY 4, 2004 to the Exchange Notes. The Exchange Notes will be available initially only in book-entry form. The Exchange Notes issued pursuant to the Exchange Offer will be issued in the form of one or more global notes that will be deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in its name or in the name of Cede & Co., as its nominee. Beneficial interests in the global note representing the Exchange Notes will be shown on, and transfers thereof will be effected only through, records maintained by DTC . Payments of the principal and interest on the global note (as well as the Additional Interest Payment) will be made to DTC or its nominee, as the case may be, as the registered owners thereof. See "Description of Exchange Notes -- Global Note and Definitive Notes." THE ADDITIONAL INTEREST PAYMENT. The Additional Interest Payment represents interest accruing on the Old Notes during the period beginning on April 1, 2004 and ending on the day before the Exchange Date and shall be reported as such by us. Holders whose Old Notes are accepted by us in exchange for the Exchange Notes and the Additional Interest Payment will be deemed to have waived the right to receive any additional payments on the Old Notes. See "The Exchange Offer" and "Description of Exchange Notes." Holders of Old Notes should discuss the income tax consequences of the Exchange Offer with their own advisors. See "Certain Federal Income Tax Considerations." CONDITIONS OF EXCHANGE OFFER. We will accept for exchange any and all validly tendered Old Notes not withdrawn prior to 5:00 p.m., New York City time, on June 2, 2004, unless the Exchange Offer is extended by us in our sole discretion (the "Expiration Date"). At a time and date as soon as practicable following the Expiration Date, the Exchange Offer will be fully consummated (the "Exchange Date"). You may withdraw tenders of Old Notes at any time prior to the Expiration Date. Old Notes may be tendered by holders only in multiples of $500 principal amount. The Exchange Offer is conditioned upon holders of a minimum of 80% in principal amount of the Old Notes agreeing to (i) exchange their Old Notes for the Exchange Notes and the Additional Interest Payment, and (ii) approve the terms and conditions of the Exchange Notes and the New Indenture. See "The Exchange Offer." THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL WE ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. We are relying on Section 3(a)(9) of the Securities Act of 1933, as amended (the "Securities Act"), to exempt the Exchange Offer from the registration requirements of the Securities Act. Section 3(a)(9) provides that registration requirements of the Securities Act will not apply to "any security exchanged by the issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange." The Exchange Offer is also, pursuant to Section 18(b)(4)(C) of the Securities Act, exempt from the registration and qualification requirements of state securities laws. We have no contract, arrangement, or understanding relating to, and will not, directly or indirectly, pay any commission or other remuneration to any broker, dealer, salesperson, agent, or any other person for soliciting votes to accept or reject the Exchange Offer. In addition, none of our financial advisors, nor any broker, dealer, salesperson, agent, or any other person, is engaged or authorized to express any statement, opinion, recommendation, or judgment with respect to the relative merits and risks of the Exchange Offer. Under current interpretations of the Securities and Exchange Commission (the "Commission"), securities that are obtained in a Section 3(a)(9) exchange assume the same character (i.e., restricted or unrestricted) as the securities that have been surrendered. To the extent that the Old Notes are unrestricted securities, the Exchange Notes to be issued in the Exchange Offer will be unrestricted securities. In such event, recipients who are not our "affiliates" (as such term is defined in Rule 144 under the Securities Act) will be able to resell the Exchange Notes without registration. Recipients who are our affiliates may resell their securities subject to the provisions of Rule 144, absent registration or the availability of another appropriate exemption. We do not intend to list the Exchange Notes on any securities exchange or to seek approval for quotation through any automated quotation system. There can be no assurance that an active market for the Exchange Notes will develop. To the extent that a market for the Exchange Notes does develop, the market value of the Exchange Notes will depend on market conditions (such as yields on alternative investments), general economic conditions, our financial condition, and certain other factors. Such conditions might cause the Exchange Notes, to the extent that ii they are traded, to trade at a significant discount from face value. See "Risk Factors -- Risks Related to the Exchange Offer and an Investment in the Exchange Notes." We will not receive any proceeds from, and have agreed to bear the expenses of, the Exchange Offer. No commission or other remuneration will be paid or given by the Company, directly or indirectly, for soliciting any exchange. THE COMPANY HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY BROKER, DEALER, AGENT OR OTHER PERSON TO SOLICIT TENDERS OF THE OLD NOTES. REGULAR EMPLOYEES OF THE COMPANY, WHO WILL NOT RECEIVE ADDITIONAL COMPENSATION FOR THEIR SERVICES MAY SOLICIT TENDERS FROM HOLDERS. NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE COMPANY AS TO WHETHER HOLDERS SHOULD TENDER OLD NOTES PURSUANT TO THE EXCHANGE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THOSE CONTAINED IN THE OFFER TO EXCHANGE. IF MADE OR GIVEN, SUCH RECOMMENDATION OR ANY SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. TABLE OF CONTENTS Questions and Answers About the Exchange Offer........................1 Where You Can Find More Information...................................4 Incorporation of Documents By Reference...............................4 Summary...............................................................5 Risk Factors.........................................................13 Selected Historical Consolidated Financial Data......................16 Description of Senior Indebtedness...................................17 The Exchange Offer...................................................22 Description of Exchange Notes........................................28 Certain Federal Income Tax Considerations............................55 Plan of Exchange.....................................................65 Annex A - Letter of Transmittal.....................................A-1 Annex B - Form of Indenture for Exchange Notes......................B-1 FORWARD LOOKING STATEMENTS This Offer to Exchange contains "forward-looking statements" within the meaning of Section 21E of the Exchange Act. Statements that do not state historical facts are forward-looking statements. Words such as "believe," "expect" and "anticipate" and similar expressions identify forward-looking statements. Although we believe that our forward-looking statements are based on expectations and assumptions that are reasonable, forward-looking statements are inherently subject to risk and uncertainties, some of which cannot be predicted. Various uncertainties exist with respect to our operations and business environment, and the outcome of these uncertainties is dependent on various important risk factors. We caution users of this document that numerous important risk factors discussed herein, among others, may have caused prior actual results, and could cause future results, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Among the factors or uncertainties that could cause actual results to differ from forward-looking statements are the risks related to the Exchange Offer discussed herein; dependence on various conditions existing within the U. S. economy, which has experienced a general economic slowdown over the past several years; our dependence on the few lenders currently willing to provide financing for the timeshare industry; uncertainties related to the Company's ability to comply in future periods with financial covenants in its agreements with its lenders; changes in the regulatory environment in which we operate; our significant financial leverage; and the impact of this leverage on our relationship with our lenders, customers, employees, and shareholders. See "Risk Factors." iii QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER Q: WHO ARE WE? A: Silverleaf Resorts, Inc. is in the business of owning and operating timeshare resorts. Our income is derived principally from marketing and selling timeshare interests at our resorts in one-week intervals. We presently own and operate 12 timeshare resorts in the states of Texas, Missouri, Illinois, Massachusetts and Georgia. We are based in Dallas Texas. Our common stock is traded on the OTC Bulletin Board under the ticker symbol "SVLF.OB." Q: WHY ARE WE PROPOSING THE EXCHANGE OFFER? A: Our business is heavily dependent upon our ability to borrow working capital under revolving credit facilities with our Senior Lenders. Our Senior Credit Facilities currently cease to revolve on March 31, 2006 and mature on March 31, 2007. We are also dependent on our ability to access new sources of financing. Based upon our discussions with various potential new sources of financing, as well as with our Senior Lenders, we believe it will be very difficult for us to access the capital markets, particularly securitization and conduit financing sources, with $28,467,000 in Old Notes maturing in April 2007. However, we believe that if we can first extend the maturity date of at least 80% of the Old Notes for three years to April 1, 2010, we will be able to successfully pursue new opportunities in the capital markets, obtain alternative financing and work with our Senior Lenders to refinance our obligations to them. So, if the Exchange Offer is consummated, we expect to be able to achieve the liquidity and capital resources we need to operate our business beyond the current maturity date of the Old Notes and the flexibility we feel we need in order to improve our balance sheet over the next three years and thereby generate sufficient liquidity in our operations to pay both the remaining Old Notes and the Exchange Notes as they mature. Q: WHO MAY PARTICIPATE IN THE EXCHANGE OFFER? A: All holders of our Old Notes may participate in the Exchange Offer. Q: WHAT INCENTIVES ARE BEING OFFERED TO YOU TO PARTICIPATE IN THE EXCHANGE OFFER? A: The Exchange Notes will pay interest at 8% per annum through their maturity date in 2010, rather than the 6% per annum interest paid on the Old Notes through their maturity date in 2007. Q: WHAT WILL YOU RECEIVE IN THE EXCHANGE OFFER? A: For each $500 principal amount of Old Notes you tender, you will receive $500 principal amount of Exchange Notes and an Additional Interest Payment. The Additional Interest Payment will be an amount equal to the accrued and unpaid interest on each $500 principal amount of the Old Notes exchanged from April 1, 2004, through the day before the Exchange Date. Q: WHAT ARE THE EXCHANGE NOTES? A: Our Exchange Notes, when issued, will be 8% senior subordinated notes due 2010. We describe the New Notes in more detail under the section entitled "Description of Exchange Notes." Q: WHAT PAYMENTS DO YOU CURRENTLY HAVE A RIGHT TO RECEIVE AS A HOLDER OF THE OLD NOTES? A: The Old Notes entitle you to receive all accrued and unpaid interest at 6% from April 1, 2004, (the day after the last interest payment), through April 1, 2007 and at maturity on April 1, 2007, payment of principal. Q: WHAT PAYMENTS WOULD YOU RECEIVE FOLLOWING THE EXCHANGE OFFER AS A HOLDER OF THE EXCHANGE NOTES? 1 A: If you tender your Old Notes and the Exchange Offer is consummated, you will be entitled to receive cash interest payments at a rate of 8% per annum on April 1 and October 1 of each year, beginning on October 1, 2004 and ending on April 1, 2010. You will also be entitled to receive a return of your outstanding principal when the New Notes mature on April 1, 2010. We describe the terms of the New Notes in more detail in the section entitled "Description of Exchange Notes." Q: HOW DO THE EXCHANGE NOTES RANK IN RIGHT OF PAYMENT WITH OUR OTHER INDEBTEDNESS? A: The Exchange Notes will be general unsecured obligations of ours and will be subordinated in right of payment to all existing and future Senior Debt of Silverleaf and the Guarantors. The Exchange Notes will rank on a parity in right of payment with the Old Notes and with all of our other existing and future senior subordinated indebtedness, and will rank senior to our 10-1/2 senior subordinated notes due 2008. The Exchange Notes will rank subordinate to our existing and future Senior Debt. Q: DO WE HAVE A RIGHT TO REDEEM THE EXCHANGE NOTES BEFORE MATURITY? A: Yes. Provided no default under the New Indenture has occurred and is continuing, we may redeem all or a portion of the Exchange Notes at any time upon at least 30 days written notice on or after April 1, 2005 at the redemption prices specified in the New Indenture. These redemption prices are described in the section entitled "Description of Exchange Notes." However, such an optional redemption will not be permitted under the current terms and conditions of our existing Senior Debt. Q: WHAT WILL HAPPEN IF OLD NOTES REMAIN OUTSTANDING AFTER THE EXCHANGE OFFER AND MATURE AS SCHEDULED ON APRIL 1, 2007? A: Assuming that at least 80% percent of the holders of Old Notes accept the Exchange Offer there will be no more than $5,693,000 in principal amount of Old Notes outstanding on April 1, 2007. Under our current credit facilities, we would not be able to borrow the funds from our Senior Lenders to pay-off the remaining Old Notes outstanding. If Old Notes remain outstanding after the Exchange Offer, we will be forced to either negotiate with our current Senior Lenders the right to pay these Old Notes at their maturity or find alternative financing to pay amounts due to the holders of Old Notes. If we are unable to do so, we may have to seek some extension or accommodation from the holders of the Old Notes, or seek to file a voluntary petition in bankruptcy court to reorganize our debts under the provisions of the U.S. Bankruptcy Code. Q: HOW DOES A HOLDER OF OLD NOTES PARTICIPATE IN THE EXCHANGE OFFER? A: To participate in the Exchange Offer, a holder of Old Notes must deliver: o A completed letter of transmittal or an agent's message if the existing notes are tendered through DTC's Automated Tender Offer Program ("ATOP"); or o The Old Notes or a Notice of Guaranteed Delivery, unless the Old Notes are tendered through ATOP. All of these documents must be delivered to the Exchange Agent before the expiration date of the Exchange Offer. For more information on how to participate in the Exchange Offer, please see the section entitled "The Exchange Offer." Q: WHAT ARE THE CONDITIONS OF THE EXCHANGE OFFER? A: The Exchange Offer is conditioned upon each of our Senior Lenders entering into an amendment or waiver to their existing credit facilities consenting to the issuance of the Exchange Notes. The Exchange Offer is also subject to the valid tender of not less than $22,773,600 in aggregate principal amount (i.e., 80% percent) of the Old Notes outstanding and various other conditions. We describe these conditions in more 2 detail under the section entitled "The Exchange Offer." Q: WHEN DOES THE EXCHANGE OFFER EXPIRE? A: The Exchange Offer will expire at 5:00 p.m. New York City time on June 2, 2004, unless extended by us in our sole discretion. Q: MAY YOU WITHDRAW YOUR TENDER OF OLD NOTES? A: Yes, you may withdraw any tendered Old Notes at anytime prior to 5:00 p.m., New York City time on the Expiration Date, which will be June 2, 2004, unless extended. Q: WHO WILL PAY THE FEES AND EXPENSES ASSOCIATED WITH THE EXCHANGE OFFER? A: We will bear all fees and expenses incurred in connection with consummating the Exchange Offer. See "The Exchange Offer." Q: WHO CAN ANSWER YOUR QUESTIONS CONCERNING THE EXCHANGE OFFER? A: If you have any questions about the Exchange Offer or how to submit your letter of transmittal, or if you need additional copies of this Offer to Exchange or of our Annual Report on Form 10-K for the year ended December 31, 2003, you should contact the Exchange Agent or the Information Agent. The contact information for the Exchange Agent and the Information Agent is listed on the back cover of this Offer to Exchange. As described under "Incorporation of Documents by Reference" copies of our SEC reports, the Old Indenture and the proposed form of the New Indenture are available from the Company. Our address is 1221 River Bend Drive, Suite 120, Dallas, Texas 75247, Attention: Sandra G. Cearley, and our telephone number is (214) 631-1166. 3 WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and periodic reports, proxy statements and other information with the Securities and Exchange Commission. You can read and copy these documents at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices located at 233 Broadway, New York, New York 10279, and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Please call the SEC at (800) SEC-0330 for further information on the Public Reference Room. The SEC also maintains an internet website through which all of our filings are available. The address of the SEC's website is http://www.sec.gov. INCORPORATION OF DOCUMENTS BY REFERENCE We are "incorporating by reference" in this Offer to Exchange the information that we file with the SEC, which means that we are disclosing important information to you by referring you to the documents filed with the SEC containing that information. The information incorporated by reference is an important part of this Offer to Exchange and information that we file later with the SEC including our Quarterly Reports on Form 10-Q for the first quarter of 2004 will automatically update and supercede this information. We incorporate by reference the documents listed below and any future filings made with the SEC under the Securities Exchange Act of 1934 as amended, until the expiration of the Exchange Offer made by this Offer to Exchange: o our Annual Report on Form 10-K for the year ended December 31, 2003; o our Proxy Statement on Schedule 14A for our May 11, 2004 Annual Meeting; and o our Current Reports on Forms 8-K filed with the SEC on February 17, 2004, March 12, 2004, and May 4, 2004. You may request a copy of the above information which is incorporated by reference, as well as copies of the Old Indenture, and the proposed form of the New Indenture, at no cost, by writing or calling: Sandra G. Cearley Corporate Secretary Silverleaf Resorts, Inc. 1221 River Bend Drive, Suite 120, Dallas, Texas 75247 Phone: (214) 631-1166 You should rely only on the information incorporated by reference or provided in this Offer to Exchange or any supplement to this Offer to Exchange. We have not authorized anyone else to provide you with different information. You should not assume that the information in this Offer to Exchange or any supplement to this Offer to Exchange is accurate as of any date other than the date of this Offer to Exchange or any supplement thereto. 4 SUMMARY The following summary describes us and certain events which we believe have either lead to, or have a direct impact on the Exchange Offer. Each holder of Old Notes is urged to become thoroughly familiar with the provisions of this Summary, as well as the terms and provisions of the other sections of this Offer to Exchange. This summary is qualified in its entirety by and should be read in conjunction with the more detailed information and financial data, including the Company's consolidated financial statements and notes thereto, which may be found in our annual report on Form 10-K for the year ended December 31, 2003. This Offer to Exchange contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results we discuss in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors." ABOUT US We are in the business of marketing and selling vacation ownership in one-week intervals ("Vacation Intervals"). Our principal activities in this regard include (i) acquiring and developing timeshare resorts; (ii) marketing and selling annual and biennial Vacation Intervals to prospective first-time owners; (iii) marketing and selling upgraded and/or additional Vacation Intervals to existing owners of Silverleaf's Vacation Intervals ("Silverleaf Owners"); (iv) providing financing for the purchase of Vacation Intervals sold by us; and (v) operating timeshare resorts. We also perform certain marketing and sales functions internally and make significant investments in operating technology, including sophisticated telemarketing and computer systems and proprietary software applications. We identify potential purchasers through various marketing techniques, and sell Vacation Intervals through on-site sales offices at certain of our timeshare resorts, which are located in close proximity to major metropolitan areas. The close proximity of our timeshare resorts to major population centers has historically allowed us an alternative to incurring the marketing costs necessary for subsidized airfare and lodging which are typically associated with the timeshare industry. The Company's principal executive offices are located at 1221 River Bend Drive, Suite 120, Dallas, Texas 75247. BACKGROUND AND PURPOSE OF THE EXCHANGE OFFER The purpose of the Exchange Offer is to enhance our long-term viability by allowing us to access new capital markets. In order to achieve this we must first extend the maturity date of at least 80% in principal amount of the Old Notes. The Company's business plan is dependent upon either expanding our existing lines of credit or obtaining new sources of financing. Our current Senior Credit Facilities cease to revolve on March 31, 2006 and mature on March 31, 2007. However, if we can extend the maturity date of at least 80% of the Old Notes for three years to April 1, 2010, we believe we will be able to successfully pursue new opportunities in the capital markets, obtain alternative financing and work with our Senior Lenders to refinance our obligations to them. We believe that completing the Exchange Offer, is essential to our long term financial viability. 5 THE EXCHANGE OFFER AND SOLICITATION OF CONSENTS The Exchange Offer.................... We are hereby offering to exchange for each $500 principal amount of the Old Notes (i) $500 principal amount of Exchange Notes, and (ii) the Additional Interest Payment. We will issue the Exchange Notes on or promptly after the Expiration Date. As of the date hereof, the Old Notes have an aggregate principal amount outstanding of $28,467,000. See "The Exchange Offer." The Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by a holder thereof, other than a person who is an affiliate of the Company within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act. Expiration Date....................... The Exchange Offer will expire at 5:00 p.m., New York City time, on June 2, 2004, unless the Exchange Offer is extended by us in our sole discretion, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. Accrued Interest on the Exchange Notes and the Old Notes............................. The Exchange Notes will bear interest from the Exchange Date at 8% per annum. The Additional Interest Payment will be paid on the Exchange Date. Holders whose Old Notes are accepted in exchange for the Exchange Notes and the Additional Interest Payment will be deemed to have waived the right to receive any additional payments on the Old Notes. We will report the Additional Interest Payment as payment of interest accrued on the Old Notes during the period beginning on April 1, 2004 and ending on the day before the Exchange Date. The Old Notes which are not exchanged will continue to accrue interest pursuant to the terms of the Old Notes and the Old Indenture. Conditions to the Exchange Offer........................ The Exchange Offer is conditional upon the holders of a minimum of 80% of the principal amount outstanding of the Old Notes agreeing to exchange the Old Notes for the Exchange Notes and the Additional Interest Payment. The Exchange Offer is also conditioned upon obtaining certain consents from our senior lenders. See "The Exchange Offer -- Conditions." Procedures for Tendering Old Notes............................. Unless a holder intends to make book-entry delivery of Old Notes through the book-entry transfer facility, each holder of Old Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and transmit or otherwise deliver such Letter of Transmittal, or such facsimile, together with such Old Notes and any other required documentation to Wells Fargo Bank, National Association, as exchange agent
6 (the "Exchange Agent"), at the address set forth on the back cover to this Offer to Exchange. See "The Exchange Offer" -- Procedures for Tendering." Special Procedures for Beneficial Owners................. Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender such Old Notes in the Exchange Offer should contact such registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the Expiration Date. See "The Exchange Offer -- Procedures for Tendering." Guaranteed Delivery Procedures............................ Holders of Old Notes who wish to tender their Old Notes and whose Old Notes are not immediately available or who cannot deliver their Old Notes, the Letter of Transmittal or any other documentation required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date must tender their Old Notes according to the guaranteed delivery procedures set forth under "The Exchange Offer -- Guaranteed Delivery Procedures." Acceptance of the Old Notes and Delivery of the Exchange Notes and the Additional Interest Payment........... Subject to the satisfaction or waiver of the conditions to the Exchange Offer, we will accept for exchange any and all Old Notes that are properly tendered in the Exchange Offer prior to the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer and the Additional Interest Payment will be delivered through the Exchange Agent on the earliest practicable date following the Expiration Date. See "The Exchange Offer." Withdrawal Rights..................... Tenders of Old Notes may be withdrawn at any time prior to the Expiration Date. See "The Exchange Offer -- Withdrawal of Tenders." Certain Federal Income Tax Considerations.................... The exchange of Old Notes for Exchange Notes should constitute a recapitalization for federal income tax purposes, and the Additional Interest Payment should be treated as the payment of ordinary interest income for federal income tax purposes. See "Certain Federal Income Tax Considerations" for a discussion of the material federal income tax consequences expected to result for holders whose Old Notes
7 are exchanged for Exchange Notes in the Exchange Offer and for holders whose Old Notes are not exchanged. Exchange Agent........................ Wells Fargo Bank, National Association is serving as the Exchange Agent in connection with the Exchange Offer.
8 THE EXCHANGE NOTES The Exchange Offer applies to $28,467,000 aggregate principal amount of the Old Notes. The Exchange Notes will be issued under, and be entitled to the benefits of, an Indenture (i.e. the New Indenture) dated as of the Exchange Date among the Company, certain of its subsidiaries, and the New Indenture Trustee. The form of the New Indenture for the Exchange Notes is attached hereto as Annex B. For further information and for definitions of certain capitalized terms used below, see "Description of Exchange Notes." Notes Offered......................... The Exchange Notes are comprised of up to $28,467,000 aggregate principal amount of our Senior Subordinated Notes due 2010. Maturity Date of Exchange Notes........................ April 1, 2010. Interest Payment Dates................ April 1 and October 1, commencing October 1, 2004. Additional Interest Payment........... The exchanging holders shall receive the Additional Interest Payment on the Exchange Date in an amount equal to the amount of interest that accrues from April 1, 2004 through the day before the Exchange Date on the Old Notes. We will report the Additional Interest Payment as payment of interest accrued on the Old Notes during the period beginning as April 1, 2004 and ending on the day before the Exchange Date. Ranking............................... The Exchange Notes will be general unsecured obligations of ours and the Guarantors and will be subordinated in right of payment to all existing and future Senior Debt (as defined herein) of ours and the Guarantors. The Exchange Notes will rank pari passu with any existing and future senior subordinated indebtedness of ours and the Guarantors, including but not limited to the Old Notes, and will rank senior to our 10 1/2% senior subordinated notes due 2008 and all other subordinated unsecured indebtedness of ours and the Guarantors. The Exchange Notes will be subordinated to all secured indebtedness of ours and the Guarantors to the extent of the security. To the extent the guarantees may be limited or ineffective, the Exchange Notes will be structurally subordinated to all existing and future liabilities of the Guarantors. Assuming a minimum 80% acceptance rate by exchanging holders, at December 31, 2003, after giving pro forma effect to the Exchange Offer, the Company and its subsidiaries would have had approximately $251.9 million of outstanding indebtedness of which approximately $215.3 million would have been secured or structurally senior in right of payment to the Exchange Notes and approximately $2.1 million would have been subordinated in right of payment to the Exchange Notes. Optional Redemption................... The Exchange Notes will be redeemable, in whole or in part, at the option of the Company on or after April 1, 2005 at the redemption prices (expressed as a percentage of principal amount) set forth herein, plus accrued and unpaid interest, if any, to the date of redemption. See "Description of Exchange Notes -- Optional Redemption."
9 Change Of Control..................... Upon a Change of Control (as defined), holders of the Exchange Notes will have the right to require the Company to repurchase all or a portion of such holder's Exchange Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. Certain Covenants..................... The New Indenture contains certain covenants that, among other things, limit our ability and the ability of our Restricted Subsidiaries (as defined herein) to (i) incur additional indebtedness, (ii) pay dividends or make other distributions with respect to Capital Stock (as defined) of the Company and its Restricted Subsidiaries, (iii) create certain liens, (iv) sell certain of our assets or certain assets of our Restricted Subsidiaries, (v) enter into certain mergers and consolidations or (vi) engage in transactions with an affiliate, except on an arm's length basis. See "Description of Exchange Notes -- Certain Covenants." Exemption from Registration.......................... The Exchange Notes will be exempt from registration under Section 3(a)(9) of the Securities Act. Limited Market for Exchange Notes........................ The Old Notes have never been listed on an exchange and the Company has no plan to list the Exchange Notes on any exchange. Therefore, there will be a very limited market, if any, for both the Old Notes and the Exchange Notes. Use Of Proceeds....................... The Company will not receive any proceeds from the issuance of the Exchange Notes offered hereby.
10 COMPARISON OF OLD NOTES AND EXCHANGE NOTES The following is a brief comparison of the principal terms of the Old Notes and the Exchange Notes. The following descriptions are brief summaries, do not purport to be complete and are qualified in their entirety by reference to the Exchange Notes and the New Indenture attached hereto as Exhibit B. For further information regarding the Exchange Notes and for definitions of capitalized terms used with respect to the Exchange Notes but not otherwise defined herein, see "Description of Exchange Notes." Except for coupon rate and date of maturity, the existing terms and conditions of the Old Notes are substantially similar to the proposed terms and conditions of the Exchange Notes. See "Description of Exchange Notes." THE FOLLOWING TABLE COMPARES CERTAIN PROPOSED TERMS OF THE EXCHANGE NOTES WITH SIMILAR TERMS OF THE OLD NOTES.
OLD NOTES EXCHANGE NOTES --------- -------------- Obligor..................... Silverleaf Resorts, Inc. Silverleaf Resorts, Inc. Trustee..................... Wells Fargo Bank, National Wells Fargo Bank, National Association Association Aggregate Principal Amount...................... Up to $5,693,000, if only the Up to $28,467,000 million, minimum of 80% of the Old Notes are depending upon the principal exchanged amount of Old Notes exchanged Maturity Date............... April 1, 2007 April 1, 2010 Interest Rate............... 6% per annum 8% per annum Interest Payment Dates....................... April 1 and October 1 annually April 1 and October 1 annually Ranking..................... The Old Notes will rank pari passu The Exchange Notes will rank pari with all existing and future senior passu with any existing and future subordinated indebtedness of the senior subordinated indebtedness Company and the Guarantors, of the Company and the Guarantors, including the Exchange Notes. including the Old Notes. Optional Redemption.................. We may, at our option, redeem the We may, at our option, redeem the Old Notes at any time after April Exchange Notes at any time after 1, 2003 until maturity, in whole or April 1, 2005 until maturity, in in part, upon not less than 30 nor whole or in part, upon not less more than 60 days' notice, at the than 30 nor more than 60 days' redemption prices set forth in the notice, at the redemption prices Amended Indenture plus accrued and set forth in the New Indenture unpaid interest thereon, if any, to plus accrued and unpaid interest the applicable redemption date. thereon, if any, to the applicable redemption date. Change of Control........... In the event of a Change of In the event of a Change of Control, as defined in the Old Control, as defined in the New Indenture, each Holder shall have Indenture, each Holder shall have the right to require the Company to the right to require the Company to
11 repurchase all or any part of such repurchase all or any part of holder's Old Notes at a price in such holder's Exchange Notes at a cash of 101% of the aggregate price in cash of 101% of the principal amount thereof plus aggregate principal amount thereof accrued and unpaid interest plus accrued and unpaid interest thereon. thereon. Asset Sales................. At any time that the Company has At any time that the Company has Excess Proceeds (as defined by the Excess Proceeds (as defined by the New Indenture) available in an New Indenture) available in an amount exceeding $5 million in the amount exceeding $5 million in the aggregate, the Company shall make aggregate, the Company shall make an offer to all holders of the an offer to all holders of the Exchange Notes to purchase all or a Exchange Notes to purchase all or portion of the Exchange Notes for a a portion of the Exchange Notes price in cash of 100% of the for a price in cash of 100% of the outstanding amount thereof, plus outstanding amount thereof, plus accrued and unpaid interest accrued and unpaid interest thereon. thereon. Registration................ The Old Notes were issued in The Exchange Notes are being issued in exchange for notes registered reliance upon an exemption from registration under the Securities Act and are under the Securities Act pursuant to Section freely tradable, except by persons 3(a)(9) thereof. When issued, the Exchange who are considered affiliates of Notes should be freely tradable, except by the Company, as that term is defined persons who are considered to be affiliates in Rule 405 under the Securities Act. of the Company, as that term is defined in Rule 405 under the Securities Act. Certain Covenants........... The New Indenture contains covenants The New Indenture contains covenants that, that, among other things, limit the among other things, limit the ability of the ability of the Company and its Company and its Restricted Subsidiaries (as Restricted Subsidiaries (as defined) defined) to (i) incur additional to (i) incur additional indebtedness, indebtedness, (ii) pay dividends or make (ii) pay dividends or make other other distributions with respect to Capital distributions with respect to Capital Stock (as defined), (iii) create certain Stock (as defined), (iii) create liens, (iv) sell certain assets, (v) enter certain liens, (iv) sell certain into certain mergers and consolidations, or assets, (v) enter into certain (vi) engage in transactions with an mergers and consolidations, or (vi) affiliate except on an arm's length basis. engage in transactions with an affiliate, except on an arm's length basis.
12 RISK FACTORS Holding the Exchange Notes, as well as continuing to hold the Old Notes, involves a high degree of risk. In addition to other information contained in this Offer to Exchange, we urge you to consider the following risks in making your decision regarding whether to tender the Old Notes you hold for Exchange Notes. You should also consider the information included under "Cautionary Statements" on pages 22 through 30 of our Annual Report on Form 10-K for the year ended December 31, 2003. FACTORS RELATING TO THE EXCHANGE OFFER WE MAY NOT BE ABLE TO REPAY OR REFINANCE THE EXCHANGE NOTES WHEN THEY MATURE. Although the Exchange Offer will delay the maturity of our debt represented by the Exchange Notes, giving us more time to continue our efforts to improve the financial performance of our business, we will remain highly leveraged following completion of the Exchange Offer. Our ability to service our debt following the Exchange Offer, including our payment obligations under our Senior Credit Facilities, our senior subordinated notes due 2008, our remaining Old Notes outstanding, and other financial obligations, will depend upon our future operating performance, which in turn is subject to market conditions and other factors, including factors beyond our control. Accordingly, there can be no assurance that we will have, or will be able to obtain, sufficient funds to repay the Exchange Notes when they become due in 2010. YOU MAY SUFFER A REDUCTION IN THE MARKET VALUE OF YOUR OLD NOTES IF THE EXCHANGE OFFER IS NOT COMPLETED. By participating in the Exchange Offer, you are agreeing to exchange your Old Notes for the Exchange Notes. Once your Old Notes are tendered, you will be unable to trade your Old Notes in the open market or otherwise, unless you withdraw your tender. In the event that the Exchange Offer is not consummated for any reason, your Old Notes will be released to you and will be freely tradable as before. However, the fact that we were unable to complete the Exchange Offer may reduce the liquidity and market value of your Old Notes. IF YOU DO NOT TENDER YOUR OLD NOTES AND THE EXCHANGE OFFER IS CONSUMMATED, THERE MAY BE A SMALLER TRADING MARKET FOR YOUR OLD NOTES AND THE MARKET PRICE OF YOUR OLD NOTES MAY DECLINE. The Old Notes are currently traded in limited amounts primarily through the over-the-counter market. If the Exchange Offer is consummated, the trading and the liquidity of the market for Old Notes is likely to be very limited since there will be a smaller principal amount of the Old Notes outstanding. A debt security with a smaller aggregate outstanding principal amount available for trading (i.e. a smaller "float") may command a significantly lower price than would a comparable debt security with a greater float. Therefore, following consummation of the Exchange Offer, the market price for the Old Notes may decline significantly. In addition, the occurrence of an event of default under our Old Indenture on the maturity date of the Old Notes could result in the Old Notes trading at a significantly lower price and the price at which trading on the Old Notes occurs could be extremely volatile. Following consummation of the Exchange Offer, an active market in the Old Notes may not exist and the untendered Old Notes may trade at a lower price. AN ACTIVE TRADING MARKET FOR THE EXCHANGE NOTES MAY NOT DEVELOP. The Exchange Notes constitute a new issue of securities with no established trading market. We do not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation through any automated dealer quotation system. Although large institutional holders may make a market in the Exchange Notes after the completion of the Exchange Offer, they are not obligated to do so and may discontinue any such market making activity at any time without notice. Accordingly, no assurance can be given as to the liquidity of, or adequate trading markets for, the Exchange Notes. 13 WE HAVE NOT OBTAINED A THIRD PARTY DETERMINATION THAT THE EXCHANGE OFFER IS FAIR TO THE HOLDERS OF THE OLD NOTES. The Exchange Offer has been approved by our Board of Directors. We are not, however, making a recommendation whether holders should exchange their Old Notes. We have not retained and do not intend to retain any unaffiliated representative to act solely on behalf of the holders of Old Notes for purposes of negotiating the terms of the Exchange Offer and/or preparing a report concerning the fairness of the Exchange Offer. We cannot assure holders of Old Notes that the value of the Exchange Notes issuable will equal or exceed the value of the Old Notes. WE MAY PURCHASE OR REPAY ANY OLD NOTES NOT TENDERED IN THE EXCHANGE OFFER ON TERMS THAT COULD BE MORE FAVORABLE TO HOLDERS OF OLD NOTES THAN THE TERMS OF THE EXCHANGE OFFER. If our senior lenders consent, we may, at any time, purchase Old Notes in the open market, in privately negotiated transactions, through subsequent tender or exchange offers, repayment at maturity or otherwise. Any other purchases may be made on the same terms or on terms that are more or less favorable to holders than the terms of the Exchange Offer. We reserve the right to repay any Old Notes not tendered. Although we currently do not intend to do so, and would not be permitted by our existing credit facilities to do so, if we decided to repurchase or repay Old Notes that are not tendered in the Exchange Offer on terms that are more favorable than the terms of the Exchange Offer, those holders who decided not to participate in the Exchange Offer will be better off than those that participated in the Exchange Offer. RISKS RELATED TO OUR BUSINESS AND FINANCIAL CONDITION WE ARE SUBSTANTIALLY LEVERAGED AND HAVE PLEDGED ALL OF OUR SIGNIFICANT ASSETS TO OUR SENIOR LENDERS. We are, and following the Exchange Offer will continue to be, highly leveraged. As of December 31, 2003, our total indebtedness was approximately $264.1 million, our total assets were approximately $351.8 million and our stockholders' equity was approximately $87.7 million. Our substantial current indebtedness and high level of fixed charges could have important consequences, including: (i) a substantial portion of our cash flow from operations must be dedicated to debt service and will not be available for other purposes; (ii) our ability to obtain additional debt financing in the future for working capital, capital expenditures, acquisitions, or the repayment of existing debt may be limited; and (iii) our level of indebtedness could limit our flexibility in reacting to changes in our industry and economic conditions generally. Moreover, we are more leveraged than certain of our competitors, which could place us at a competitive disadvantage. Our ability to make scheduled payments or to refinance our obligations with respect to our indebtedness depends on our financial and operating performance, which in turn, is subject to prevailing industry and economic conditions and to financial, business and other factors beyond our control. As discussed above, our operating results will not be sufficient for payment of the Old Notes when they presently mature in 2007, and there can be no assurance that our operating results will be sufficient for payment of our other indebtedness, including the Exchange Notes. All of our indebtedness under our Senior Credit Facilities is secured by a pledge of all of our accounts receivable, inventory, general intangibles, machinery and equipment and other personal property and a lien on substantially all of our real estate assets. WE HAVE A HISTORY OF NET LOSSES. We experienced a net loss of approximately $13.9 million for the year ended December 31, 2003. We have experienced net losses in three of the past five years. Our operating performance is subject to industry, economic and other factors beyond our control. There can be no assurance that we will be able to eliminate the net losses we have suffered in recent years or even maintain our current operating performance. Because of restrictions placed on our operations by agreements with our senior lenders, growth in our sales revenues will be very difficult and future profits, if any, will be possible only through achieving greater operational efficiencies and by controlling our operating expenses. There can be no assurance that we can achieve these efficiencies or cost controls. OUR LENDERS HAVE NOT COMMITTED TO EXTEND OUR CREDIT FACILITIES Our Senior Credit Facilities currently cease to revolve on March 31, 2006, and mature on March 31, 2007 Our lenders have not committed to extend these dates and there can be no assurance that our lenders will agree to such 14 extensions, even if the Exchange Offer is consummated. We believe that consummation of the Exchange Offer will allow us to successfully pursue new opportunities in the capital markets, obtain alternative financing, and work with our Senior Lenders to refinance our obligations; however, there can be no assurance that this will occur, or that alternative financing will become available even if the Exchange Offer is successful. 15 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The following selected historical consolidated financial data has been taken or derived from our consolidated financial statements and should be read in conjunction with the consolidated financial statements and the notes thereto which may be found in our annual reports on Form 10-K for the years ended December 31, 1999, 2000, 2001, 2002, and 2003. The following selected historical consolidated financial data should also be read in conjunction with the section entitled "Management's Discussion and Analysis of financial Condition and Results of Operations" contained in each of these Forms 10-K which relate to each of the above referenced consolidated financial statements and notes thereto.
Year Ended December 31, ----------------------- (in thousands, except share and per share amounts) -------------------------------------------------- 1999 2000 2001 2002 2003 ------------ ------------ ------------ ------------ ------------ STATEMENT OF OPERATIONS DATA: Revenues $ 230,443 $ 281,536 $ 191,333 $ 170,540 167,200 Costs and expenses 184,795 345,291 178,183 151,800 174,064 Impairment loss of long-lived assets -- 6,320 5,442 -- -- ------------ ------------ ------------ ------------ ------------ Operating income (loss) 45,648 (70,075) 7,708 18,740 (6,864) Other income -- 7,754 -- 24,723 9,581 Interest expense and lender fees 16,847 32,750 35,016 22,193 16,551 ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes (benefit) 28,801 (95,071) (27,308) 21,270 (13,834) Income tax expense (benefit) 11,090 (35,191) (99) (1,523) 86 ------------ ------------ ------------ ------------ ------------ Net income (loss) $ 17,711 $ (59,880) $ (27,209) $ 22,793 $ (13,920) ============ ============ ============ ============ ============ Per share - Basic and Diluted (1): Net income (loss) $ 1.37 $ (4.65) $ (2.11) $ 0.79 $ (0.38) ============ ============ ============ ============ ============ Weighted average shares outstanding-basic(1) 12,889,417 12,889,417 12,889,417 28,825,882 36,826,906 ============ ============ ============ ============ ============ Weighted average shares outstanding-diluted(1) 12,890,044 12,889,417 12,889,417 28,825,882 36,826,906 ============ ============ ============ ============ ============ BALANCE SHEET DATA (AT PERIOD END): Total assets $ 477,942 $ 467,614 $ 458,100 $ 398,245 $ 351,787 Total debt 269,468 337,297 361,156 282,332 251,928 Stockholders' equity 158,016 98,136 70,927 101,619 87,699 OTHER DATA: Cash flow provided by (used in) operating activities $ (120,971) $ (125,494) $ (23,985) $ (11,592) $ (7,843) Cash flow provided by (used in) investing activities (10,480) (2,622) (1,511) (1,537) 2,982 Cash flow provided by financing activities 124,910 130,102 24,900 8,078 7,801
16 DESCRIPTION OF SENIOR INDEBTEDNESS AMENDED AGREEMENTS WITH SENIOR LENDERS TEXTRON FACILITY. We originally entered into a Loan and Security Agreement (the "Textron Agreement") with Textron in August 1995 pursuant to which we borrowed $5 million. Since that time, the Textron Agreement has been amended various times. Effective December 2003, the Company and Textron entered into an amendment (the "Textron Amendment") to the Textron Agreement. Pursuant to the Textron Amendment, the facility (the "Textron Tranche A Facility") provides us with a revolving loan ("Revolving Loan Component") in the amount of $44.6 million. The Textron Tranche A Facility also provides for a term loan ("Term Loan Component") of $11.3 million. The interest rate on the Revolving Loan Component is a variable rate equal to LIBOR plus 3% per annum, but at no time less than 6% per annum. The rate on the Term Loan Component is a fixed rate equal to 8% per annum. The maturity date of the Revolving Loan Component of the Textron Tranche A Facility is the earlier of March 31, 2007 or the weighted average maturity date of the eligible consumer loans pledged as collateral as of the end of the Revolving Loan Term. The maturity date of the Term Loan Component is March 31, 2007. The Textron Amendment also provides for a Textron Tranche B Facility, with a revolving loan component of $44.1 million and a term loan component of $11.0 million. The Textron Tranche B Facility is substantially identical to the Textron Tranche A Facility. The maturity of the revolving loan component of the Textron Tranche B Facility is the earlier of March 31, 2007 or the weighted average maturity date of the eligible consumer loans pledged as collateral. The maturity date of the term loan component is also March 31, 2007. The Inventory Loan in the amount of $10 million which we initially entered into with Textron in December 1999, as amended in April 2001, was further amended to extend the final maturity date to March 31, 2007. Subsequent to December 31, 2003, this facility was further amended to increase the availability under it to $18.0 million. The Inventory Loan is collateralized by a first priority security interest in certain of our inventory and a second priority security interest in the stock of SFI and the customer notes receivable pledged as collateral under the other Textron loan agreements. In April 2001, we entered into another Loan and Security Agreement with Textron for a $10.2 million credit facility. The original note issued in April 2001 was replaced with a Revolving Loan Component Note equal to $6.2 million and a Term Loan Component Note equal to $1.7 million ("Textron Tranche C Facility"). The Textron Tranche C Facility is substantially identical to the Textron Tranche A Facility. The maturity date of the Revolving Loan Component Note is the earlier of March 31, 2007 or the weighted average maturity date of the eligible consumer loans pledged as collateral. The maturity date of the Term Loan Component Note is March 31, 2007. The Textron Amendment includes a "change of control" provision which provides that Textron would have no obligation to make any advances under the facilities if there is a change in more than fifty percent of the executive management of Silverleaf, as such management is designated in a schedule to the Textron Amendment, unless Textron determines that the replacement management personnel's experience, ability and reputation is equal to or greater than that of the members of management specified. Additionally, Textron would have no obligation to make any additional advances under the facility if more than two of the five members of our Board of Directors are controlled by the holders of the Exchange Notes. In December 2003, we closed a $66.4 million conduit term loan transaction through a newly-formed wholly-owned financing subsidiary, Silverleaf Finance II, Inc. ("SF-II"). This conduit loan was arranged through Textron. Under the terms of the new conduit loan, we sold approximately $78.1 million of our Vacation Interval receivables to our subsidiary SF-II for an amount equal to the aggregate principal balances of the receivables. The purchase of these receivables was financed by Textron through a one-time advance to SF-II of $66.4 million, which is approximately 85% of the outstanding balance of the receivables SF-II purchased from us. All customer receivables that we transferred to SF-II have been pledged as security to Textron. Textron has also received as additional collateral a pledge of all of our equity interest in SF-II and a $15.7 million demand note from us to SF-II under which payment may be demanded if SF-II defaults on its loan from the lender. We used the proceeds from the sale 17 of the receivables to SF-II to pay down approximately $65.5 million of amounts outstanding under our two senior revolving credit facilities with Textron and Sovereign. Textron's new conduit loan to SF-II will mature in 2014 and bears interest at a fixed annual rate of 7.035%. As a result of the closing of the $66.4 million conduit loan, we obtained a two-year extension of our senior revolving credit facilities with Textron. These facilities now revolve through March 31, 2006, and are due in March 2007. The Textron senior facilities are now limited to, in aggregate, $118.9 million, with receivable-based revolvers of $95.0 million and term loans of $23.9 million. SOVEREIGN FACILITY. Our Revolving Credit Agreement ("Sovereign Facility") with a group of lenders led by Sovereign Bank (collectively, "Sovereign") was amended effective December 2003 to provide a two-tranche receivables financing arrangement in an aggregate amount not to exceed $40.4 million. The first tranche ("Sovereign Tranche A") is a revolving loan component of approximately $35.0 million. The Sovereign Tranche A maturity date is the earlier of March 30, 2007 or the weighted average maturity date of the eligible consumer loans pledged as collateral as of the Sovereign Tranche A Conversion Date. Sovereign Tranche A bears interest at a base rate equal to the higher of (i) a variable annual rate of interest equal to the prime rate charged by Sovereign or (ii) 2.75% above the rate established by the Federal Reserve Bank of New York on overnight federal funds transactions with members of the Federal Reserve System; provided, that in no event shall the base rate be less than 6%. The second tranche ("Sovereign Tranche B") is a term loan component equal to approximately $5.4 million. Sovereign Tranche B shall be reduced automatically on a monthly basis as of the first day of each calendar month based on a 20-year amortization schedule. Sovereign Tranche B bears interest at the rate of 8% per annum. Interest is payable on the first day of each month. The Sovereign Tranche B maturity date is March 30, 2007. Sovereign Tranche B is secured by the same collateral pledged under Sovereign Tranche A. As a result of the closing of the $66.4 million conduit loan mentioned above, we obtained a two-year extension of our senior revolving credit facilities with Sovereign. These facilities now revolve through March 31, 2006, and are due in March 2007. HELLER FACILITY. We originally entered into a Loan and Security Agreement ("Heller Receivables Loan") with Heller in October 1994 pursuant to which we have pledged notes receivable as collateral. The Heller Receivables Loan has been amended several times to increase the amount of borrowing capacity to $70 million. We also entered into a Loan and Security Agreement ("Heller Inventory Loan") in December 1999 for $10 million. The Heller Inventory Loan is secured by our unsold inventory of Vacation Intervals. In March 2001, we obtained a supplemental $10 million inventory and receivables loan ("Heller Supplemental Loan"). There is currently no availability under the Heller Receivables Loan. The Heller Receivables Loan will mature on August 31, 2004 (subsequently extended in March 2004 to February 28, 2006). The Heller Inventory Loan was amended effective April 30, 2002 to extend the availability period to March 31, 2004 and the maturity date to March 31, 2007. Subsequent to December 31, 2003, we reached an agreement with Heller and Textron whereby the amount outstanding under the Heller Inventory Loan agreement would be paid off via an additional $8.0 million of availability under the Textron inventory loan agreement. The maturity date of the Heller Supplemental Loan was amended effective April 30, 2002 to extend the maturity to March 31, 2007. CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC. We entered into a Revolving Loan and Security Agreement in October 1996 with Credit Suisse First Boston Mortgage Capital LLC ("CSFB"). The agreement has been amended several times since that date, with the maturity date being extended to August 2002. The agreement was amended, effective upon completion of the Restructuring Plan to extend the maturity date to August 2003 and to revise the collateralization requirements. In March 2003, we paid off the remaining $8.8 million balance of this facility and recognized a $1.3 million gain on early extinguishment of debt. FEATURES COMMON TO AMENDED SENIOR CREDIT FACILITIES WITH TEXTRON, SOVEREIGN, AND HELLER. The Amended Senior Credit Facilities with Textron, Sovereign and Heller described above provide for a first priority security interest in (i) substantially all of our customer notes receivable that have been pledged to one of the 18 senior secured lenders previously, and the mortgages attached thereto, (ii) substantially all of our real and personal property, including the Company's rights under the management agreements for the Existing Resorts, (iii) the stock of Silverleaf Finance, I, Inc., the SPE owned by us, and SF-II, (iv) the agreement with the Standby Manager (as defined below), (v) all books, records, reports, computer tapes, disks and software relating to the collateral pledged to Textron, Sovereign, and Heller; and (vi) all extensions, additions, improvements, betterments, renewals, substitutions and replacements of, for or to any of the collateral pledged to Textron, Sovereign, and Heller, together with the products, proceeds, issues, rents and profits thereof. The Amended Senior Credit Facilities with Textron, Sovereign, and Heller also provide that we shall retain, at our expense, a "Standby Manager" approved by the Senior Lenders who shall at any time that an event of default occurs and the Senior Lenders so direct, assume full control of the management of the Existing Resorts. We may also be replaced at the sole discretion of these Senior Lenders as servicing agent for the customer notes receivable pledged under the Amended Senior Credit Facilities. The Standby Manager designated by Textron, Sovereign and Heller under the Amended Senior Credit Facilities is J&J Limited, Inc. located in Windermere, Florida. FINANCIAL COVENANTS UNDER AMENDED SENIOR CREDIT FACILITIES. The Amended Senior Credit Facilities with Heller, Textron and Sovereign provide certain financial covenants which we must satisfy. Any failure to comply with the financial covenants will result in a default under such Amended Senior Credit Facilities. In November 2003, we entered into agreements with our three senior lenders to amend our senior credit facilities to modify our financial covenants under which we had been in default since the first quarter of 2003. The amended covenants will increase from 52.5% to 55% the maximum permitted ratio of sales and marketing expenses to total sales for each quarter beginning with the quarter ended March 31, 2003, exclude our $28.7 million increase in our allowance for uncollectible notes in the quarter ended March 31, 2003 from the calculation of our minimum required consolidated net income, and from the calculation of our minimum required interest coverage ratio of 1.25 to 1.0. In addition to the above amendments, we also received waivers under our senior credit facilities of covenant defaults which occurred in the first quarter of 2003 due to our increase in our allowance for uncollectible notes and our failure to maintain a ratio of sales and marketing expense to total sales of no more than 52.5%. As a result of these amendments and waivers, we are in full compliance with all of our credit facilities with our senior lenders as of December 31, 2003. The financial covenants are described below. TANGIBLE NET WORTH COVENANT. We must maintain a Tangible Net Worth at all times equal to (i) the greater of (A) $100,000,000 and (B) an amount equal to 90% of the Tangible Net Worth of the Company as of September 30, 2001, plus (ii) (A) on a cumulative basis, 100% of the positive Consolidated Net Income after January 1, 2002, plus (B) 100% of the proceeds of (1) any sale by the Company of (x) equity securities issued by the Company or (y) warrants or subscriptions rights for equity securities issued by the Company or (2) any indebtedness incurred by the Company, other than the loans under the Heller Facility, the Textron Facility or the Sovereign Facility, in the case of each of (1) and (2) above occurring after January 1, 2002. For purposes of the three Amended Senior Credit Facilities, "Tangible Net Worth" is (i) the consolidated net worth of the Company and its consolidated subsidiaries, plus (ii) to the extent not otherwise included in the such consolidated net worth, unsecured subordinated indebtedness of the Company and its consolidated subsidiaries the terms and conditions of which are reasonably satisfactory to the Required Banks, minus (iii) the consolidated intangibles of the Company and its consolidated subsidiaries, including, without limitation, goodwill, trademarks, tradenames, copyrights, patents, patent applications, licenses and rights in any of the foregoing and other items treated as intangibles in accordance with generally accepted accounting principles. "Consolidated Net Income" is the consolidated net income of the Company and its subsidiaries, after deduction of all expenses, taxes, and other proper charges (but excluding any extraordinary profits or losses), determined in accordance with generally accepted accounting principles. It also excludes the $28.7 million increase in our allowance for uncollectible notes booked in the first quarter of 2003. MARKETING AND SALES EXPENSES COVENANT. As of the last day of each fiscal quarter, commencing with the fiscal quarter ending March 31, 2003, we will not permit the ratio of marketing expenses to total sales for the latest rolling 12 months then ending to equal or exceed .55 to 1. 19 MINIMUM LOAN DELINQUENCY COVENANT. We will not permit as of the last day of each fiscal quarter our over 30-day delinquency rate on our entire consumer loan portfolio to be greater than 25%. In the event that such delinquency rate is over 20% on the last day of the quarter, one or more Senior Lenders may conduct an audit of the Company. As part of our credit and collection process, we grant payment concessions on occasion to customers, whereby we bring a delinquent note current and extend the maturity date if two consecutive payments have been made. DEBT SERVICE. As of the last day of each fiscal quarter, commencing with the fiscal quarter ending March 31, 2003, we will not permit the ratio of (i) EBITDA less capital expenditures (excluding the $28.7 million increase in our allowance for uncollectible notes booked in the first quarter of 2003) as determined in accordance with generally accepted accounting principles to (ii) the interest expense minus all non-cash items constituting interest expense for such period, for the latest rolling 12 months then ending to be less than 1.25 to 1. PROFITABLE OPERATIONS COVENANT. We will not permit Consolidated Net Income (i) for any fiscal year, commencing with the fiscal year ending December 31, 2002, to be less than $1.00 and (ii) for any two consecutive fiscal quarters (reviewed on an individual rather than on an aggregate basis) to be less than $1.00, excluding the $28.7 million increase in our allowance for uncollectible notes booked in the first quarter of 2003. As of December 31, 2002, we were in compliance with these financial covenants. However, due to the results of the quarter ended March 31, 2003, we were 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, we were 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. In addition, due to the results for the nine months ended September 30, 2003, we were in default of one of the financial covenants described above. The interest coverage ratio for the twelve months ended September 30, 2003 was 0.40 to 1.0, compared to a minimum requirement of 1.25 to 1.0. As stated above, these defaults have been waived. AMENDED DZ BANK FACILITY Effective as of October 30, 2000, we entered into a Receivables Loan and Security Agreement (the "RLSA") with our wholly-owned subsidiary, Silverleaf Finance I, Inc. ("SFI"), as Borrower, and Autobahn Funding Company LLC ("Autobahn"), as Lender, DZ Bank, as Agent, and other parties. SFI is a special purpose entity ("SPE") of Silverleaf. Pursuant to the DZ Bank facility, we service receivables which we sold to SFI under a separate agreement and which SFI pledged as collateral for funds borrowed from Autobahn. The facility ("DZ Bank Facility") has a maximum borrowing capacity of $100 million, of which SFI borrowed approximately $62.9 million during the year ended December 31, 2000. The RLSA established certain financial conditions which we must satisfy in order for SFI to borrow additional funds under the facility. Effective April 30, 2002, the RLSA was amended and restated (the "Amended DZ Bank Facility") with modifications to the term of the facility and the financial covenants imposed on us thereunder. The principal balance of the loan, which was originally scheduled to mature on October 30, 2005, will now mature on April 30, 2007. We must maintain financial covenants under the Amended DZ Bank Facility, including maintaining a minimum tangible net worth of $100 million and an Interest Coverage Ratio of 1.1 to 1 until April 30, 2003, with an increase to 1.25 to 1 thereafter. "Interest Coverage Ratio" is defined as "the ratio of (i) EBITDA for such period less Capital Expenditures for such period to (ii) the Cash Interest Expense for such period." Additional amendments to the agreement with Autobahn include (i) a reduction in the borrowing limits on an eligible receivable from a range of 80.0% to 85.0% of the principal balance outstanding to a range of 77.5% to 82.5% of the principal balance outstanding, and (ii) the requirement that the receivables pledged by SFI as collateral must have received a weighted average score of 650 and, individually, a minimum score of 500 under a nationally recognized credit rating developed by Fair, Isaac and Co. at the time the original obligor purchased the Vacation Interval related to the pledged receivable. 20 As a result of the loss for the quarter ended March 31, 2003, the SPE was in default of financial covenants with its lender. The lender subsequently waived the defaults as of March 31, 2003 and modified its agreement with the SPE whereby there were no defaults for the remainder of 2003. As a result of the closing of the $66.4 million conduit loan through our new financing subsidiary, SF-II, we obtained an extension of our existing revolving credit facility through our SPE through March 31, 2006. In order to obtain the two-year extension of this facility, however, we agreed to reduce the principal amount of the facility from $100 million to $85 million. 21 THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Offer to Exchange and in the Letter of Transmittal, all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date will be accepted for exchange. Exchange Notes, and the Additional Interest Payment, as more fully described herein, will be issued in exchange for Old Notes accepted in the Exchange Offer. Old Notes may be tendered only in integral multiples of $500. No partial tenders by the beneficial owners of the Old Notes will be accepted. This Offer to Exchange, together with the Letter of Transmittal, is being sent to all holders as of May 4, 2004. The Exchange Offer is conditioned upon, among other things, the holders of at least 80% of the principal amount of Old Notes tendering the Old Notes for exchange. The obligation to accept Old Notes for exchange pursuant to the Exchange Offer is also subject to certain conditions as set forth herein under "-- Conditions." Old Notes shall be deemed to have been accepted as validly tendered when, as, and if we have given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of Old Notes for the purposes of receiving the Old Notes and delivering or coordinating with the Company to deliver the Exchange Notes. The Additional Interest Payment will be paid on the Exchange Date. In addition to our own legal, accounting, and advisory fees, we have also incurred, and are continuing to incur, costs and expenses for legal and other services rendered on behalf of the Old Indenture Trustee. The Company is also obligated to pay for the services of the New Indenture Trustee, the Transfer Agent, the Exchange Agent and the Information Agent, as well as for expenses they each incur in performing their respective duties. Based on interpretations by the Staff of the SEC as set forth in no-action letters issued to third parties, we believe that the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act. We have not sought, and do not intend to seek, a no-action letter from the SEC with respect to the effects of the Exchange Offer, and there can be no assurance that the Staff would make a similar determination with respect to the Exchange Notes as it has in other such no-action letters. IF A HOLDER OF OLD NOTES IS AN "AFFILIATE" OF THE COMPANY WITHIN THE MEANING OF RULE 405 OF THE SECURITIES ACT, SUCH HOLDER MAY NOT RELY ON THE APPLICABLE INTERPRETATIONS OF THE STAFF OF THE SEC AND MUST COMPLY WITH THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY SECONDARY RESALE TRANSACTION UNLESS SUCH SALE IS MADE PURSUANT TO AN EXEMPTION FROM SUCH REQUIREMENTS. Upon consummation of the Exchange Offer, any Old Notes not tendered will remain outstanding and continue to accrue interest. EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION The Expiration Date of the Exchange Offer shall be June 2, 2004, unless we, in our sole discretion, extend the Exchange Offer, in which case the Expiration Date shall be the latest date to which the Exchange Offer is extended. To extend the Expiration Date, we will notify the Exchange Agent of any extension by oral or written notice and will notify the holders of Old Notes by means of a press release or other public announcement prior to 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. Such announcement may state that the Company is extending the Exchange Offer for a specified period of time. We reserve the right to delay acceptance of any Old Notes, to extend the Exchange Offer or to terminate the Exchange Offer and not permit acceptance of Old Notes not previously accepted if any of the conditions set forth herein under "-- Conditions" shall have occurred and shall not have been waived by the Company prior to the Expiration Date, by giving oral or written notice of such delay, extension or termination to the Exchange Agent. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the Exchange Agent. Without limiting the manner in which we may choose to make public announcement of any delay, extension, amendment or termination of the Exchange Offer, we shall have no obligations to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to an appropriate news agency. 22 INTEREST ON THE EXCHANGE NOTES The Exchange Notes will accrue interest at a rate of 8.00% per annum, beginning with the Effective Date of the Exchange Offer. Prior to the Effective Date, interest will continue to accrue on the Old Notes at 6.00% per annum. Interest on the Exchange Notes is payable on April 1 and October 1 of each year, commencing October 1, 2004. BY EXECUTING AND RETURNING THE LETTER OF TRANSMITTAL EACH EXCHANGING NOTEHOLDER WILL BE AUTHORIZING AND APPROVING THE TERMS AND CONDITIONS OF THE NEW INDENTURE FOR THE EXCHANGE NOTES IN THE FORM ATTACHED HERETO AS ANNEX B. PROCEDURES FOR TENDERING To tender in the Exchange Offer, unless a holder intends to make book-entry delivery of Old Notes through the book-entry transfer facility, a holder must complete, sign and date the applicable Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile together with any other required documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. In addition, either certificates of such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal; or a timely confirmation of a book-entry transfer of such Old Notes, if such procedure is available, into the Exchange Agent's account at the book-entry transfer facility, The DTC, pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date; or the holder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE OLD NOTE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO OLD NOTES, LETTERS OF TRANSMITTAL, OR OTHER REQUIRED DOCUMENTS SHOULD BE SENT TO THE COMPANY. Delivery of all Old Notes (if applicable), Letters of Transmittal and other documents must be made to the Exchange Agent at its address set forth on the back cover of this Offer to Exchange. Holders may also request their respective brokers, dealers, commercial banks, trust companies or nominees to effect such tender for such holders. The tender by a holder of Old Notes will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the applicable Letter of Transmittal. Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on his behalf. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by any member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor" institution within the meaning of Rule 17Ad-15 under the Exchange Act, or an eligible institution unless the Old Notes tendered pursuant thereto are tendered (1) by a registered holder of Old Notes who has not completed the box "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (2) for the account of an eligible institution. If the certificates for Old Notes are registered in the name of a person other than the signer of a Letter of Transmittal, the certificate must be endorsed or accompanied by appropriate bond powers, signed exactly as the name or names of the holder or holders appear on the certificates, with the signatures on the certificates or bond powers guaranteed. If the Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, or held through a book-entry transfer facility, who wishes to tender Old Notes, the holder should contact the registered holder promptly and instruct such registered holder to tender the original certificates evidencing the 23 Old Notes on such holder's behalf. If the holder wishes to tender Old Notes, he must either make appropriate arrangements to register ownership of the Old Notes in his name prior to completing and executing the Letter of Transmittal and, where applicable, to deliver original certificates evidencing such Old Notes or follow the procedures described in the immediately preceding paragraph. If a Letter of Transmittal is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such person should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with such Letter of Transmittal. All questions as to the validity, form, eligibility, time of receipt and withdrawal of the tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes which, if accepted, would, in the opinion of the Company's counsel, be unlawful. The Company also reserves the absolute right to waive any irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer, including the instructions in the Letter of Transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Old Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such irregularities have been cured or waived. Any Old Note received by the Exchange Agent that is not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned without cost to such holder by the Exchange Agent, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. In addition, the Company reserves the right in its sole discretion, subject to the provisions of the Indenture pursuant to which the Old Notes are issued, to purchase or make offers for any Old Notes that remain outstanding subsequent to the Expiration Date; and to the extent permitted under applicable law and the New Indenture, to purchase Old Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES Upon satisfaction or waiver of all of the conditions to the Exchange Offer, all Old Notes properly tendered will be accepted promptly after the Expiration Date, and the Exchange Notes will be issued as soon as practicable following the Expiration Date. See "-- Conditions." For purposes of the Exchange Offer, Old Notes shall be deemed to have been accepted as validly tendered for exchange when, as, and if the Company has given oral or written notice thereof to the Exchange Agent. For each Old Note accepted for exchange, the holder of such Old Note will receive on the Exchange Date the Exchange Notes. In all cases, issuance of Exchange Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for such Old Notes or a timely book-entry confirmation of such Old Notes into the Exchange Agent's account at the applicable book-entry transfer facility, a properly completed and duly executed Letter of Transmittal (unless delivery of Old Notes is made by book-entry transfer), and all other required documents. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer, such unaccepted or such nonexchanged Old Notes will be returned without expense to the tendering holder thereof (if in certificated form) or credited to an account maintained with such book-entry transfer facility as promptly as practicable after the expiration or termination of the Exchange Offer. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Notes at the book-entry transfer facility for purposes of the Exchange Offer within two business days after the date of this Offer to Exchange. Any financial institution that is a participant in the book-entry transfer facility's systems may make book- 24 entry delivery of Old Notes by causing the book-entry transfer facility to transfer such Old Notes into the Exchange Agent's account at the book-entry transfer facility in accordance with such book-entry transfer facility's procedures for transfer. EXCHANGING BOOK-ENTRY NOTES The Exchange Agent and the book-entry transfer facility have confirmed that any financial institution that is a participant in the book-entry transfer facility may utilize the book-entry transfer facility Automated Tender Offer Program, or ATOP procedures, to tender Old Notes. Any participant in the book-entry transfer facility may make book-entry delivery of Old Notes by causing the book-entry transfer facility to transfer such Old Notes into the Exchange Agent's account in accordance with the book-entry transfer facility's ATOP procedures for transfer. However, the exchange for the Old Notes so tendered will only be made after a book-entry confirmation of the book-entry transfer of Old Notes into the Exchange Agent's account, and timely receipt by the Exchange Agent of an agent's message and any other documents required by the Letter of Transmittal. The term "agent's message" means a message, transmitted by the book-entry transfer facility and received by the Exchange Agent and forming part of a book-entry confirmation, which states that the book-entry transfer facility has received an express acknowledgment from a participant tendering Old Notes that are the subject of such book-entry confirmation that such participant has received and agrees to be bound by the terms of the Letter of Transmittal, and the Notice of Guaranteed Delivery, if applicable, and that the Company may enforce such agreement against such participant. GUARANTEED DELIVERY PROCEDURES If the procedures for book-entry transfer cannot be completed on a timely basis or certificates for the Old Notes cannot be delivered on a timely basis, a tender may be effected if the tender is made through an eligible institution and prior to the Expiration Date, the Exchange Agent receives by facsimile transmission, mail or hand delivery from such eligible institution a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Company or a properly transmitted agent's message relating to the guaranteed delivery procedure, which (i) sets forth the name and address of the holder of Old Notes and the amount of Old Notes tendered; (ii) states that the tender is being made thereby; and (iii) guarantees that within three New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Old Notes, in proper form for transfer, or a book-entry confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the eligible institution with the Exchange Agent; and the certificates for all physically tendered Old Notes, in proper form for transfer, or a book-entry confirmation, as the case may be, and all other documents required by the Letter of Transmittal are received by the Exchange Agent within three NYSE trading days after the date of execution of the notice of guaranteed delivery. WITHDRAWAL OF TENDERS Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent prior to 5:00 p.m., New York City time on the Expiration Date at the address set forth below under "-- Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the Old Notes to be withdrawn; identify the Old Notes to be withdrawn, including the principal amount of such Old Notes; in the case of Old Notes tendered by book-entry transfer, specify the number of the account at the book-entry transfer facility from which the Old Notes were tendered and specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility; contain a statement that such holder is withdrawing its election to have such Old Notes exchanged; be signed by the holder in the same manner as the original signature on the Letter of Transmittal, if applicable, by which such Old Notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer to have the trustee with respect to the Old Notes register the transfer of such Old Notes in the name of the person withdrawing the tender; and specify the name in which such Old Notes are registered, if different from the person who tendered such Old Notes. 25 All questions as to the validity, form, eligibility and time of receipt of such notice will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the tendering holder thereof without cost to such holder, in the case of physically tendered Old Notes, or credited to an account maintained with the book-entry transfer facility for the Old Notes as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "-- Procedures for Tendering" and "-- Book-Entry Transfer" above at any time on or prior to 5:00 p.m., New York City time, on the Expiration Date. CONDITIONS The Exchange Offer is conditioned upon at least 80% of the principal amount of the Old Notes being tendered for exchange. By executing and returning the Letter of Transmittal, each exchanging holder of Old Notes will be authorizing and approving the terms , conditions, and execution of the New Indenture by the Company, the Subsidiary Guarantors, and the New Indenture Trustee. The Exchange Offer is also conditioned upon the Company's receipt of the written consent or other definitive authorization from each of its Senior Lenders. Finally, the Exchange Offer may not be consummated unless the Company's application for qualification of the New Indenture has become effective under the Trust Indenture Act of 1939 prior to the Exchange Date. Notwithstanding any other provision of the Exchange Offer and, the Company shall not be required to accept for exchange, or to issue Exchange Notes in exchange for, any Old Notes and may terminate or amend the Exchange Offer if at any time prior to 5:00 p.m., New York City time, on the Expiration Date, the Company determines in its reasonable judgment that the Exchange Offer violates applicable law, any applicable interpretation of the Staff of the SEC or any order of any governmental agency or court of competent jurisdiction. The foregoing conditions are for the Company's sole benefit and may be asserted by it regardless of the circumstances giving rise to any such condition or may be waived by it in whole or in part at any time and from time to time in its reasonable discretion. Failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. 26 EXCHANGE AGENT Wells Fargo Bank, National Association ("Wells Fargo") has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance and requests for additional copies of this Offer to Exchange and the Letter of Transmittal should be directed to the Exchange Agent addressed as follows: By Hand: By Registered or Certified Mail: By Overnight Courier: Wells Fargo Bank, National Wells Fargo Bank, National Wells Fargo Bank, National Association Association Association Northstar East Building Attention: Nicole K. Hill Attention: Nicole K. Hill Attention: Nicole K. Hill Corporate Trust Services Corporate Trust Services Corporate Trust Services P. O. Box 1517 Sixth and Marquette Avenue 608 Second Avenue South N9303-121 N9303-121 12th Floor Minneapolis, MN 55480 Minneapolis, MN 55479 Minneapolis, MN 55479 By Facsimile: (612) 667-4927 Confirm by Telephone: (612) 667-9764
INFORMATION AGENT The Company has retained D. F. King & Co., Inc. to act as Information Agent. Contact information for the Information Agent can be found on the back cover of this Offer to Exchange. FEES AND EXPENSES The expenses of soliciting tenders pursuant to the Exchange Offer will be borne by the Company. The principal solicitation for tenders pursuant to the Exchange Offer is being made by mail; however, additional solicitations may be made by telegraph, telephone, telecopy or in person by the Company's officers and regular employees. The Company will not make any payments to brokers, dealers or other persons soliciting acceptances of the Exchange Offer. The Company will, however, pay the Exchange Agent and the Information Agent reasonable and customary fees for their services and will reimburse the Exchange Agent and the Information Agent for their reasonable out-of-pocket expenses in connection therewith. The Company may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of the prospectus and related documents to the beneficial owners of the Old Notes, and in handling or forwarding tenders for exchange. The expenses to be incurred by the Company in connection with the Exchange Offer will be paid by the Company, including fees and expenses of the Exchange Agent, the Information Agent, the New Indenture Trustee and the Company's accounting, legal, financial advisory, printing and related fees and expenses. The Company will pay all transfer taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, Exchange Notes or Old Notes for principal amounts not tendered or accepted for exchange are to be registered or issued in the name of any person other than the registered holder of the Old Notes tendered, or if tendered Old Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes imposed on the registered holder or any other persons will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. 27 DESCRIPTION OF EXCHANGE NOTES The Exchange Notes will be issued pursuant to an indenture dated as of the Exchange Date (the "New Indenture") among the Company, each Restricted Subsidiary of the Company, as guarantors, and the New Indenture Trustee. The terms of the Exchange Notes include those stated in the New Indenture and those made part of the New Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Exchange Notes are subject to all such terms, and prospective investors are referred to the New Indenture and the Trust Indenture Act for a statement thereof. The following summary of the material provisions of the New Indenture does not purport to be complete and is qualified in its entirety by reference to the New Indenture, including the definitions therein of certain terms used below. A copy of the proposed form of New Indenture is delivered herewith as Annex B. The definitions of certain terms used in the following summary are set forth below under "Certain Definitions." For purposes of this summary, the term "Company" refers only to Silverleaf Resorts, Inc. and not to any of its Subsidiaries. The Exchange Notes will be general unsecured obligations of the Company and the Guarantors and will be subordinated in right of payment to all existing and future Senior Debt of the Company and the Guarantors. The Exchange Notes will rank pari passu with any existing and future senior subordinated indebtedness of the Company and the Guarantors (including the Old Notes) and will rank senior to the Company's 10-1/2% senior subordinated notes due 2008 and all other subordinated unsecured indebtedness of the Company and the Guarantors. The Exchange Notes will be effectively subordinated to all secured indebtedness of the Company and the Guarantors to the extent of the security. To the extent the guarantees may be limited or ineffective, the Exchange Notes will be structurally subordinated to all existing and future liabilities of the Guarantors, except for the Company's 10-1/2% senior subordinated notes due 2008. As of December 31, 2003, on a pro forma basis giving effect to the consummation of the Exchange Offer (assuming 80% of the Old Notes are tendered), the Company would have Senior Debt equal to approximately $215.3 million and unused commitments under the credit facilities equal to approximately $56.6 million, all of which will be secured Senior Debt. At such date, the Subsidiaries (other than the Receivables Subsidiaries) will have no material liabilities (other than intercompany payables). The New Indenture will permit the incurrence of additional Senior Debt and other indebtedness in the future, including secured indebtedness, subject to certain restrictions. See "Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" and "Liens." The Company's payment obligations under the Exchange Notes will be guaranteed by all of the Company's present and future Domestic Restricted Subsidiaries. See "Subsidiary Guarantees." As of the date of the New Indenture, all of the Company's Subsidiaries will be Restricted Subsidiaries except Silverleaf Finance I, Inc., a Delaware corporation, and Silverleaf Finance II, Inc., a Delaware corporation, each of which is a Receivables Subsidiary of the Company. However, under certain circumstances, the Company will be able to designate current or future Subsidiaries as Unrestricted Subsidiaries or Receivables Subsidiaries. Unrestricted Subsidiaries and Receivables Subsidiaries will not guarantee the Exchange Notes or be subject to most of the restrictive covenants set forth in the New Indenture. See "Subsidiary Guarantees" and "Designation of Restricted Subsidiary as Unrestricted or Unrestricted Subsidiary as Restricted." PRINCIPAL, MATURITY AND INTEREST The Exchange Notes will be limited in aggregate principal amount to $28,467,000, and will mature on April 1, 2010. Interest on the Exchange Notes will be payable semi-annually in arrears on April 1 and October 1, commencing on October 1, 2004, to holders of record of Exchange Notes on the immediately preceding March 15 and September 15. The Exchange Notes will bear interest at the rate of 8% per annum. In addition, the Exchange Offer provides for the Additional Interest Payment on the Settlement Date in an amount equal to the amount of interest that would have accrued from April 1, 2004, through the day before the Exchange Date. Holders whose Old Notes are accepted in exchange for the Exchange Notes and the Additional Interest Payment will be deemed to have waived the right to receive any additional payments on the Old Notes. We will report the Additional Interest Payment as payment of interest accrued on the Old Notes during the period beginning on April 1, 2004 and ending on the day before the Exchange Date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Principal of, interest and premium, if any, on the Exchange Notes will be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest and premium, if any, may be made by check mailed to the holders of the Exchange 28 Notes at their respective addresses set forth in the register of holders of Exchange Notes; provided that all payments of principal, interest and premium, if any, with respect to Exchange Notes the holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the holders thereof. See, however, "Global Notes and Definitive Notes." Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the New Indenture Trustee maintained for such purpose. The Exchange Notes will be issued in denominations of $500 and integral multiples thereof. All payments will be in immediately available funds. SUBSIDIARY GUARANTEES The Company's payment obligations under the Exchange Notes will be jointly and severally guaranteed, on a senior subordinated basis, by each of the Company's present and future Domestic Restricted Subsidiaries. The Exchange Notes will not be guaranteed by any present or future foreign subsidiary or any Unrestricted Subsidiary or Receivables Subsidiary. As of December 31, 2003, the total assets of and investment by the Company in the Guarantors was approximately $1,000. It is the present intent of the Company to review the status and purpose for which each of the Subsidiaries was formed and to dissolve any Subsidiary which the Company believes is not necessary for the continued operations of the Company. The Subsidiary Guarantee of each Guarantor will be subordinated to the prior payment in full of all Senior Debt of such Guarantor (none was outstanding as of the date of this Offer to Exchange) and any amounts for which the Guarantors become liable under guarantees issued from time to time with respect to Senior Debt, both subject to the limitations described under the caption "Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." The obligations of each Guarantor under its Subsidiary Guarantee will be limited so as not to constitute a fraudulent conveyance under applicable law, which may limit or obviate the effect of such Subsidiary Guarantees. The Subsidiary Guarantees will also be senior to the Subsidiary Guarantees of the Old Notes. The New Indenture will provide that no Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another corporation, Person or entity whether or not affiliated with such Guarantor or sell or otherwise dispose of all or substantially all of the assets to or liquidate into any such corporation (other than the Company or another Restricted Subsidiary) unless (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger or acquiring such assets upon such sale, disposition or liquidation (if other than such Guarantor) assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the New Indenture Trustee; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) such Guarantor, or any Person formed by or surviving any such consolidation or merger, would have Consolidated Net Worth (immediately after giving effect to such transaction) equal to or greater than the Consolidated Net Worth of such Guarantor immediately preceding the transaction and immediately following such transaction and giving pro forma effect thereto would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Coverage Ratio set forth in the New Indenture The New Indenture will also provide that in the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the New Indenture. See "Repurchase at the Option of Holders -- Asset Sales." ADDITIONAL SUBSIDIARY GUARANTEES. The New Indenture will provide that if the Company or any of its Restricted Subsidiaries shall acquire or create another Domestic Restricted Subsidiary after the date of the New Indenture, then such newly acquired or created Domestic Restricted Subsidiary shall execute a Subsidiary Guarantee and deliver an opinion of counsel in accordance with the terms of the New Indenture. 29 SUBORDINATION The payment of principal of, interest and premium, if any, on the Exchange Notes will be subordinated in right of payment, as set forth in the New Indenture, to the prior payment in full of all Senior Debt, whether outstanding on the date of the New Indenture or thereafter incurred. See "Risk Factors -- Subordination." Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of Senior Debt will be entitled to receive payment in full of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before the holders of Exchange Notes will be entitled to receive any payment with respect to the Exchange Notes, and until all Obligations with respect to Senior Debt are paid in full, any distribution to which the holders of Exchange Notes would be entitled shall be made to the holders of Senior Debt (except that holders of Exchange Notes may receive Permitted Junior Securities and payments made from the trust described under "Legal Defeasance and Covenant Defeasance"). The Company also may not make any payment upon or in respect of the Exchange Notes (except in Permitted Junior Securities or from the trust described under "Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of the principal of, premium, if any, or interest on Designated Senior Debt occurs and is continuing beyond any applicable period of grace or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the New Indenture Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt. Payments on the Exchange Notes may and shall be resumed upon the earlier of (a) the date on which such default is cured or waived, or (b) in case of default described in (ii) above, 179 days pass after notice is received if the maturity of such Designated Senior Debt has not been accelerated. The New Indenture will further require that the Company promptly notify holders of Senior Debt if payment of the Exchange Notes is accelerated because of an Event of Default. The Obligations of a Guarantor under its Subsidiary Guarantee are senior subordinated obligations. Therefore, the rights of the holders of the Exchange Notes to receive payment by a Guarantor pursuant to a Subsidiary Guarantee will be subordinated in right of payment to the rights of holders of Senior Debt of such Guarantor. The terms of the subordination provisions described above with respect to the Company's Obligations under the Exchange Notes apply equally to a Guarantor and the Obligations of such Guarantor under the Subsidiary Guarantee. As a result of the subordination provisions described above, in the event of a liquidation or insolvency of the Company, holders of Exchange Notes may recover less ratably than creditors of the Company and the Guarantors who are holders of Senior Debt. The New Indenture will limit, subject to certain financial tests, the amount of additional Indebtedness, including Senior Debt, that the Company and its Restricted Subsidiaries can incur. See "Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." NO SENIOR SUBORDINATED DEBT. The New Indenture will provide that (i) the Company will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Exchange Notes, and (ii) no Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Subsidiary Guarantees. No Indebtedness shall be deemed to be Senior Debt solely because it is secured and no Indebtedness shall be deemed to be subordinated solely because it is convertible into Equity Interests. REPURCHASE AT THE OPTION OF HOLDERS CHANGE OF CONTROL. Upon the occurrence of a Change of Control, each holder of Exchange Notes will have the right to require the Company to repurchase all or any part (equal to $500 or an integral multiple thereof) of such 30 holder's Exchange Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, to the date of purchase (the "Change of Control Payment"). Within ten days following any Change of Control, the Company will mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Exchange Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the New Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Exchange Notes as a result of a Change of Control. On the Change of Control Payment Date, the Company will, to the extent lawful, (i) accept for payment all Exchange Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Exchange Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the New Indenture Trustee the Exchange Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Exchange Notes or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each holder of Exchange Notes so tendered the Change of Control Payment for such Exchange Notes, and the New Indenture Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new Note equal in principal amount to any unpurchased portion of the Exchange Notes surrendered, if any; provided that each such new Exchange Note will be in a principal amount of $500 or an integral multiple thereof. The New Indenture will provide that, prior to complying with the provisions of this covenant, but in any event within 90 days following a Change of Control, the Company will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Exchange Notes required by this covenant. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Change of Control provisions described above will be applicable whether or not any other provisions of the New Indenture are applicable. Except as described above with respect to a Change of Control, the New Indenture does not contain provisions that permit the holders of the Exchange Notes to require that the Company repurchase or redeem the Exchange Notes in the event of a takeover, recapitalization or similar transaction. The existence of a Holder's right to require the Company to repurchase such holder's Exchange Notes upon the occurrence of a Change of Control may deter a third party from seeking to acquire the Company in a transaction that would constitute a Change of Control. The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the New Indenture applicable to a Change of Control Offer made by the Company and purchases all Exchange Notes validly tendered and not withdrawn under such Change of Control Offer. The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of the Company and its Restricted Subsidiaries taken as a whole. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of Exchange Notes to require the Company to repurchase such Exchange Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Restricted Subsidiaries taken as a whole to another Person or group may be uncertain. ASSET SALES. The New Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale (see "Certain Definitions") unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the New Indenture Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash; provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's 31 most recent balance sheet) of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Exchange Notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are promptly converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision. Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company or any Restricted Subsidiary may apply such Net Proceeds at its option, (a) to repay Senior Debt of the Company or a Guarantor, or (b) to the acquisition of a controlling interest in another business, the making of a capital expenditure or the acquisition of other long-term assets, in each case, in the same line of business as the Company and its Restricted Subsidiaries were engaged on the date of the New Indenture or in a Related Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce revolving Senior Debt or otherwise invest such Net Proceeds in any manner that is not prohibited by the New Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." Within five (5) days of each date on which the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will be required to make an offer to all holders of Exchange Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Exchange Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase, in accordance with the procedures set forth in the New Indenture. To the extent that the aggregate amount of Exchange Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for any purpose not otherwise prohibited by the New Indenture. If the aggregate principal amount of Exchange Notes surrendered by holders thereof exceeds the amount of Excess Proceeds, the New Indenture Trustee shall select the Exchange Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. REPURCHASE LIMITATIONS. The Company's credit facilities variously prohibit the Company from prepaying any Exchange Notes and provide that certain change of control events with respect to the Company would constitute a default thereunder. Any future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event a Change of Control or Asset Sale occurs at a time when the Company is prohibited from purchasing Exchange Notes, the Company could seek the consent of its lenders to purchase of Exchange Notes or repay the restrictive Indebtedness. If the Company does not obtain such a consent or repay such borrowings, the Company will continue to be prohibited from purchasing Exchange Notes. In such case, the Company's failure to purchase tendered Exchange Notes would constitute an Event of Default under the New Indenture which would, in turn, constitute a default under the Company's credit facilities. In such circumstances, the subordination provisions in the New Indenture would likely restrict payments to the holders of Exchange Notes. Finally, the Company's ability to repurchase Exchange Notes may be limited by the Company's then existing financial resources. See "Risk Factors -- Payment Upon a Change of Control and Certain Asset Sales" and "Description of Certain Indebtedness." 32 OPTIONAL REDEMPTION The Exchange Notes will not be redeemable at the Company's option prior to April 1, 2005. Thereafter, the Exchange Notes will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2005 105.25% 2006 103.50% 2007 101.75% 2008 and thereafter 100.00%
SELECTION AND NOTICE If less than all of the Exchange Notes are to be redeemed at any time, selection of Exchange Notes for redemption will be made by the New Indenture Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Exchange Notes are listed, or, if the Exchange Notes are not so listed, on a pro rata basis, by lot or by such method as the New Indenture Trustee shall deem fair and appropriate; provided that no Exchange Notes of $500 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of Exchange Notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Exchange Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Exchange Note. Exchange Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Exchange Notes or portions of them called for redemption. MANDATORY REDEMPTION Except as set forth below under "Repurchase at the Option of Holders," the Company is not required to make mandatory redemption or sinking fund payments with respect to the Exchange Notes. CERTAIN COVENANTS RESTRICTED PAYMENTS. The New Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company and dividends and distributions payable solely to the Company or to a Guarantor); (ii) purchase, redeem or otherwise acquire, or retire for value (including without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company; (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinate to the Exchange Notes or the Subsidiary Guarantees, except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; 33 (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable reference period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Coverage Ratio test set forth in the New Indenture; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the New Indenture (excluding Restricted Payments permitted by clause (ii) of the next succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of the New Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company from the issue or sale since the date of the New Indenture of Equity Interests of the Company (other than Disqualified Stock) or of Disqualified Stock or debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Restricted Subsidiary of the Company and other than Disqualified Stock or debt securities that have been converted into or exchanged for Disqualified Stock), plus (iii) to the extent that any Unrestricted Subsidiary is redesigned as a Restricted Subsidiary after the date of the New Indenture, the fair market value of the Company's Investment in such Subsidiary as of the date of such redesignation; provided, however, that the foregoing amount shall not exceed the amount of Investments made (and treated as a Restricted Investment) by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, plus (iv) an amount equal to the net reduction in Investments (other than Permitted Investments) made by the Company or any Restricted Subsidiaries in any Person resulting from dividends or distributions on, or repurchases or redemptions of, such Investments by such Person, net cash proceeds realized upon the sale of such Investment to an unaffiliated purchaser, reductions in obligations of such Person guaranteed by, and repayments of loans or advances or other transfers of assets by such Person to, the Company or a Restricted Subsidiary, provided, however, that no amount shall be included under this clause (iv) to the extent it is already included in Consolidated Net Income. The foregoing provisions will not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the New Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary or a Receivables Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (b) (ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the defeasance, redemption, repurchase or other acquisition of subordinated Indebtedness with Excess Proceeds remaining after an Asset Sale Offer; (v) the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its respective Equity Interests on a pro rata basis; (vi) repurchases of Equity Interests of the Company deemed to occur upon exercise of employee options, warrants or rights if such Equity Interests represent a portion of the exercise price of or withholding tax due upon exercise of such options, warrants or rights; (vii) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary held by any employee or former employee pursuant to the terms of any of the Company's or such Restricted Subsidiaries' benefit plans or arrangements; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed $1.0 million in any twelve-month period and $5.0 million in the aggregate and no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (viii) the purchase, defeasance or other acquisition or retirement of all or part of the Old Notes at a cost no more than 10% of the face value of the Old Notes so acquired but only if the Company is permitted under the terms of the New Indenture to make any payment or other distribution to the New Indenture Trustee or any Holder in respect of the Obligations thereunder; and (ix) additional Restricted Payments in an amount not to exceed $5.0 million. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such 34 Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined by the Board of Directors whose resolution with respect thereto shall be delivered to the New Indenture Trustee, such determination to be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $1.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the New Indenture Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Restricted Payments" were computed, together with a copy of any fairness opinion or appraisal required by the New Indenture. INCURRENCE OF INDEBTEDNESS. The New Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company and the Guarantors will not issue any Disqualified Stock and the Company will not permit any of its Restricted Subsidiaries which are not Guarantors to issue any shares of preferred stock other than to the Company or to a Wholly Owned Restricted Subsidiary which is a Guarantor, provided that any subsequent issuance or transfer of Capital Stock that results in such Guarantor ceasing to be a Wholly Owned Restricted Subsidiary or any subsequent transfer of such preferred stock (other than to the Company or another Wholly Owned Restricted Subsidiary which is a Guarantor) will be deemed, in each case, to be the issuance of such preferred stock by the issuer thereof; provided, however, that the Company and any Guarantor may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if the Consolidated Coverage Ratio for the four most recently ended calendar quarters is at least 1.25:1 The Consolidated Coverage Ratio shall be determined on a pro forma basis (including a pro forma application of the net proceeds from such Indebtedness or Disqualified Stock), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of the four quarter period. The most recently ended calendar quarters shall be determined on the basis of the Company's calendar quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued. The provisions of the first paragraph of this covenant will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness secured by Mortgages Receivable; (ii) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant, equipment, land or inventory used or held for sale in the business of the Company or such Restricted Subsidiary in an aggregate principal amount at any time outstanding for the Company and its Restricted Subsidiaries not to exceed $5.0 million; (iii) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in connection with the acquisition of assets or a new Restricted Subsidiary; provided that such Indebtedness was incurred by the prior owner of such assets or such Restricted Subsidiary prior to such acquisition by the Company or one of its Restricted Subsidiaries and was not incurred in connection with, or in contemplation of, such acquisition by the Company or one of it Restricted Subsidiaries; and provided further that the principal amount (or accreted value, as applicable) of such Indebtedness, together with any other outstanding Indebtedness incurred pursuant to this clause (iii), does not exceed $5.0 million; (iv) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Existing Indebtedness or Indebtedness that was permitted by the New Indenture to be incurred; (v) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that (A) if the Company 35 or a Guarantor is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Exchange Notes and the Subsidiary Guarantees and (B)(i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (vi) the incurrence by the Company of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding; (vii) the guarantee by the Company or any Restricted Subsidiary of Indebtedness of the Company or a Restricted Subsidiary that was permitted to be incurred by another provision of this covenant; (viii) the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed an incurrence of Indebtedness by a Restricted Subsidiary of the Company; (ix) the incurrence by the Company and the Guarantors of Indebtedness represented by $28.467 million of Exchange Notes offered hereby, the Subsidiary Guarantees thereof and the New Indenture; (x) the incurrence by the Company or any of its Restricted Subsidiaries of Existing Indebtedness of the Company or any such Restricted Subsidiary; (xi) the incurrence by the Company or any of its Restricted Subsidiaries in the ordinary course of business of Indebtedness (A) in respect of performance, completion, surety or similar bonds or guarantees (including pursuant to letters of credit) in connection with new construction, development, leasing of billboards, or compliance with federal, state or local law, or (B) in respect of bankers acceptances, letters of credit, appeal or similar bonds other than pursuant to clause (A) in an aggregate amount at any time outstanding for the Company and its Restricted Subsidiaries not to exceed $5.0 million; (xii) the incurrence of Indebtedness of the Company or any Restricted Subsidiary arising from agreements providing for indemnification, adjustment of purchase price or similar obligations in connection with the disposition of any assets of the Company or any such Restricted Subsidiary (other than Guarantees of Indebtedness incurred by any Person acquiring all or any portion of such assets for the purpose of financing such acquisition), in principal amount not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; (xiii) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time (including all indebtedness incurred to replace, refund or refinance any such indebtedness) outstanding for the Company and its Restricted Subsidiaries not to exceed $7.5 million; and (xiv) the incurrence by a Receivables Subsidiary of Indebtedness. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xiv) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant and such item of Indebtedness will be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof Accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. DESIGNATION OF RESTRICTED SUBSIDIARY AS UNRESTRICTED OR UNRESTRICTED SUBSIDIARY AS RESTRICTED. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if at the time of such designation: (a) all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent 36 repaid in cash) in the Subsidiary so designated are deemed to be a Restricted Payment at the time of such designation (all such outstanding Investments will be deemed to constitute an amount equal to the greatest of (i) the net book value of such Investments at the time of such designation, (ii) the fair market value of such Investments at the time of such designation and (iii) the original fair market value of such Investments at the time they were made), and such Restricted Payment is permitted at such time under the covenant described under the caption "Restricted Payments"; (b) giving pro forma effect thereto as if such designation had occurred at the beginning of the Company's most recently completed applicable reference period for which internal financial statements are available preceding the date of such designation, the pro forma Consolidated Coverage Ratio for such period is greater than the historical Consolidated Coverage Ratio for such period; (c) no Default or Event of Default shall have occurred and be continuing immediately preceding such designation and giving pro forma effect thereto or would occur as a consequence thereof, and (d) such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary to be Restricted Subsidiary if at the time of such redesignation: (x) giving pro forma effect to the redesignation and incurrence of Indebtedness of the Unrestricted Subsidiary (if any) as if they occurred at the beginning of the Company's most recently completed applicable reference period for which internal financial statements are available preceding the date of such redesignation, (i) any Indebtedness of such Unrestricted Subsidiary (including any Non-Recourse Debt) could be incurred pursuant to the Consolidated Coverage Ratio test set forth in the first paragraph of the covenant described under the caption "Incurrence of Indebtedness and Issuance of Preferred Stock," and (ii) the pro forma Consolidated Coverage Ratio for such period is greater than the historical Consolidated Coverage Ratio for such period; (y) the newly redesignated Domestic Restricted Subsidiary executes and delivers a Subsidiary Guarantee and an opinion of counsel as required by the New Indenture; and (z) no Default or Event of Default shall have occurred and be continuing immediately preceding such redesignation and giving pro forma effect thereto or would occur as a consequence thereof. Any such designation or redesignation by the Board of Directors shall be evidenced to the New Indenture Trustee by filing with the New Indenture Trustee a certified copy of the Board Resolution giving effect to such designation or redesignation and an Officers' Certificate certifying that such designation or redesignation complied with the foregoing conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the definition of an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the New Indenture. If the Unrestricted Subsidiary at such time would not be permitted to be redesignated a Restricted Subsidiary, the Company shall be in default of the above covenant. LIENS. The New Indenture will provide that the Company will not and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired, or any income or profits therefrom (or assign or convey any right to receive income therefrom), which secures Indebtedness or trade payables that rank pari passu with or are subordinated to the Exchange Notes or the Subsidiary Guarantees, as applicable, unless (i) if such Lien secures Indebtedness or trade payables that rank pari passu with the Exchange Notes or Subsidiary Guarantees, as applicable, the Exchange Notes and such Subsidiary Guarantees are secured on an equal and ratable basis with the obligation so secured until such time as such obligation is no longer secured by a Lien or (ii) if such Lien secures Indebtedness or trade payables that are subordinated to the Exchange Notes or Subsidiary Guarantees, as applicable, such Lien shall be subordinated to a Lien granted to the holders of Exchange Notes and Subsidiary Guarantees on the same collateral as that securing such Lien to the same extent as such Indebtedness, as applicable, until such obligation is no longer secured by a lien. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. The New Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (b) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the 37 Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) Existing Indebtedness as in effect on the date of the New Indenture, (b) the New Indenture and the Exchange Notes, (c) applicable law, (d) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the New Indenture to be incurred, (e) by reason of customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (f) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, (g) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, (h) restrictions contained in security agreements or mortgages to the extent such restrictions restrict the transfer of the property or assets subject to such security agreements or mortgages, (i) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the capital stock or assets of such Restricted Subsidiary pending the closing of the sale of such sale or disposition, or (j) any restriction in any agreement that is not more restrictive than the restrictions in the Company's credit facilities as in effect on the date of the New Indenture. MERGER, CONSOLIDATION, OR SALE OF ASSETS. The New Indenture will provide that the Company may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Exchange Notes and the New Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the New Indenture Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) except in the case of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction, and (B) shall, immediately after such transaction and after giving pro forma effect to such transaction as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Coverage Ratio last set forth in the New Indenture. TRANSACTIONS WITH AFFILIATES. The New Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the New Indenture Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions (other than a securitization or similar transaction between the Company and a Receivables Subsidiary) involving aggregate consideration in excess of $5.0 million, an opinion as to the fairness to the holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing; provided that (x) any employment, compensation or indemnity agreement entered into by the Company or any of its Restricted 38 Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary, (y) transactions between or among the Company and/or its Restricted Subsidiaries and (z) Restricted Payments that are permitted by the provisions of the New Indenture described above under the caption "Restricted Payments," in each case, shall not be deemed Affiliate Transactions, and provided further that (i) transactions between the Company or a Restricted Subsidiary and any Club in the ordinary course of business (ii) a securitization or similar transaction between the Company and a Receivables Subsidiary shall not be subject to clause (ii)(b) above. SALE AND LEASEBACK TRANSACTIONS. The New Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company may enter into a sale and leaseback transaction if (i) the Company could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale or leaseback transaction pursuant to the covenant under the caption "Incurrance of Indebtedness" and (b) incurred a Lien to secure such Indebtedness pursuant to the covenant described above under the caption "Liens," (ii) the gross cash proceeds of such sale and leaseback transaction are at least equal to the fair market value (as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the New Indenture Trustee) of the property that is the subject of such sale and leaseback transaction, and (iii) the transfer of assets in such sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, the covenant described above under the caption "Repurchase at the Option of Holders -- Asset Sales." LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED RESTRICTED SUBSIDIARIES. The New Indenture will provide that the Company (i) will not, and will not permit any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary of the Company to any Person (other than to the Company or a Wholly Owned Restricted Subsidiary that is a Guarantor), unless (a) such transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of such Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described above under the caption "Repurchase at the Option of Holders -- Asset Sales," and (ii) will not permit any Wholly Owned Restricted Subsidiary or a Receivables Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Restricted Subsidiary of the Company that is a Guarantor. BUSINESS ACTIVITIES. The New Indenture will provide that the Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than the same line of business as the Company and its Restricted Subsidiaries were engaged in on the date of the New Indenture or a Related Business, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. The Company shall not permit any of its Receivables Subsidiaries to engage in any business other than the business for which the Receivables Subsidiary was established. LIMITATION ON STATUS AS AN INVESTMENT COMPANY. The New Indenture will prohibit the Company and its Restricted Subsidiaries from being required to register as an "investment company" (as defined in the Investment Company Act of 1940, as amended), or from otherwise becoming subject to regulation under the Investment Company Act. PAYMENTS FOR CONSENT. The New Indenture will provide that neither the Company nor any of its Restricted Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any Exchange Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the New Indenture or the Exchange Notes unless such consideration is offered to be paid or is paid to all holders of the Exchange Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. REPORTS. The New Indenture will provide that, whether or not required by the rules and regulations of the Commission, so long as any Exchange Notes are outstanding, the Company and the Guarantors will furnish to the holders of Exchange Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that 39 describes the financial condition and results of operations of the Company and its consolidated Subsidiaries (showing in reasonable detail, either on the face of the financial statements or in the footnotes thereto and in Management's Discussion and Analysis of Financial Condition and Results of Operations, the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company), and, with respect to the annual information only, a report thereon by the Company's independent certified public accountants, and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. The Company will also prepare a business plan which shall be created by management of the Company with the support of a financial advisory firm acceptable to the Board of Directors and approved by the Board of Directors for distribution to the holders of the Exchange Notes. LISTING OF COMPANY COMMON STOCK ON EXCHANGES The Company's common stock is currently eligible for quotation on the OTC Bulletin Board. The Company will use reasonable efforts to maintain the eligibility of its common stock for the quotation on the OTC Bulletin Board. Additionally the Company will use reasonable efforts to effect a listing of the Company's common stock on the Nasdaq SmallCap Market or higher trading market as soon as practicable following issuance of the Notes. The Company has agreed to use reasonable efforts to become compliant, and to remain compliant with the corporate governance regulations set forth in Section 4350 of the Bylaws of the Nasdaq Stock Market, Inc. (the "Nasdaq"), as in effect from time to time (or any successor regulations), other than, unless otherwise required of the Company, any provisions relating to the filing of reports or other information with the Nasdaq or the execution of a listing agreement. DIRECTORS' AND OFFICERS' INSURANCE The Company will maintain directors' and officers' insurance in amounts acceptable to, and with companies acceptable to, the Company's Board of Directors. EVENTS OF DEFAULT AND REMEDIES The New Indenture will provide that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest on the Exchange Notes (whether or not prohibited by the subordination provisions of the New Indenture); (ii) default in payment when due of the principal of or premium, if any, on the Exchange Notes (whether or not prohibited by the subordination provisions of the New Indenture); (iii) failure by the Company to comply for 30 days after notice from the New Indenture Trustee or the holders of at least 25% in principal amount of the then outstanding Exchange Notes with the provisions described under the captions "Repurchase at the Option of Holders -- Change of Control," "Repurchase at the Option of Holders -- Asset Sales," "Certain Covenants -- Restricted Payments," "Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," and "Certain Covenants -- Merger, Consolidation or Sale of Assets"; (iv) except as provided by the New Indenture, failure by the Company to comply with any of its other agreements in the New Indenture or the Exchange Notes for 60 days after notice from the New Indenture Trustee or the holders of at least 25% in principal amount of the then outstanding Exchange Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the New Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; provided, that in the case of any such Payment Default under clause (a) such default continues beyond the lesser of 30 days or the longest period for cure provided in any such Indebtedness as to which a Payment Default exists, or in the case of any acceleration of Indebtedness described in 40 clause (b), such Indebtedness is not discharged or such acceleration cured, waived, rescinded or annulled within the lesser of 30 days after acceleration or the longest period for cure provided in any such Indebtedness which has been accelerated; (vi) failure by the Company or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (viii) except as permitted by the New Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (ix) certain events of bankruptcy or insolvency with respect to the Company, any of its Significant Restricted Subsidiaries, or any group of Restricted Subsidiaries, that taken as a whole, would constitute a Significant Restricted Subsidiary. If any Event of Default occurs and is continuing, the New Indenture Trustee or the holders of at least 25% in principal amount of the then outstanding Exchange Notes may declare all the Exchange Notes to be due and payable immediately; provided, however, that so long as any Designated Senior Debt is outstanding, no such acceleration shall be effective until five business days after the giving of written notice to the Company and the representatives under the Designated Senior Debt of such acceleration. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Significant Restricted Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Restricted Subsidiary, all outstanding Exchange Notes will become due and payable without further action or notice. Holders of the Exchange Notes may not enforce the New Indenture or the Exchange Notes except as provided in the New Indenture. Subject to certain limitations, holders of a majority in principal amount of the then outstanding Exchange Notes may direct the New Indenture Trustee in its exercise of any trust or power. The New Indenture Trustee may withhold from holders of the Exchange Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company or any Guarantor with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Exchange Notes pursuant to the optional redemption provisions of the New Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Exchange Notes. If an Event of Default occurs prior to April 1, 2005 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company or any Guarantor with the intention of avoiding the prohibition on redemption of the Exchange Notes prior to such date, then the Make-Whole Price shall become immediately due and payable to the extent permitted by law upon the acceleration of the Exchange Notes. The holders of a majority in aggregate principal amount of the Exchange Notes then outstanding by notice to the New Indenture Trustee may on behalf of the holders of all of the Exchange Notes waive any existing Default or Event of Default and its consequences under the New Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Exchange Notes. The Company is required to deliver to the New Indenture Trustee annually a statement regarding compliance with the New Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the New Indenture Trustee a statement specifying such Default or Event of Default. ACKNOWLEDGMENTS AND AGREEMENTS OF HOLDERS WITH RESPECT TO DZ BANK FACILITY By accepting the Exchange Offer, each holder of the Exchange Notes will be deemed to have accepted, acknowledged and agreed that Section 6.12 of the New Indenture will provide that in connection with the DZ Bank facility (i) any sale or other transfer of Mortgage Receivables and related assets by the Company to a Receivables Subsidiary shall constitute a true sale of such Mortgage Receivables and (ii) there are no grounds upon which the assets of the Company and any Restricted Subsidiary could be substantively consolidated with the assets of such Receivables Subsidiary upon the occurrence and continuation of an Event of Default set forth in the New Indenture. Section 6.12 41 of the New Indenture further provides that in connection with the DZ Bank Facility each holder of the Exchange Notes, by its acceptance thereof, further agrees (i) to take such action as may be necessary or appropriate to effect such acknowledgements and agreements and (ii) not to take any action contrary to, or inconsistent with, such acknowledgments and agreements upon the occurrence and continuation of an Event of Default. Section 6.12 of the New Indenture also provides that in connection with the DZ Bank Facility each holder of the Exchange Notes authorizes and directs the New Indenture Trustee on its behalf to take such action as may be necessary or appropriate to effect such acknowledgements and agreements and not to take any action contrary to, or inconsistent with, such acknowledgments and agreements, in each case, upon the occurrence and continuation of an Event of Default and appoints the New Indenture Trustee its attorney-in-fact for such purposes. Finally, Section 6.12 of the New Indenture provides that, with respect to any creditor of a Receivables Subsidiary, the New Indenture Trustee will undertake to perform or observe only such of its covenants and obligations as are specifically set forth in the New Indenture, and no implied covenants or obligations with respect to such creditors shall be read into the New Indenture against the New Indenture Trustee. The New Indenture Trustee shall not be deemed to owe any fiduciary duty to any creditors of a Receivables Subsidiary, and shall not be liable to any such creditors for any loss, liability or expense in connection with the New Indenture or otherwise. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS No director, officer, employee, incorporator or shareholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Exchange Notes, the Subsidiary Guarantees, the New Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of Exchange Notes by accepting an Exchange Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Exchange Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its and the Guarantors' obligations discharged with respect to the outstanding Exchange Notes ("Legal Defeasance") except for (i) the rights of holders of outstanding Exchange Notes to receive payments in respect of the principal of, interest and premium, if any, on such Exchange Notes when such payments are due from the trust referred to below, (ii) the Company's obligations with respect to the Exchange Notes concerning issuing temporary Exchange Notes, mutilated, destroyed, lost or stolen Exchange Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the New Indenture Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the New Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company and its Subsidiaries released with respect to certain covenants that are described in the New Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Exchange Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Exchange Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the New Indenture Trustee, in trust, for the benefit of the holders of the Exchange Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, interest and premium, if any, on the outstanding Exchange Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Exchange Notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, the Company shall have delivered to the New Indenture Trustee an opinion of counsel in the United States reasonably acceptable to the New Indenture Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the New Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders of the outstanding Exchange Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the New Indenture Trustee an opinion of counsel in the United States reasonably acceptable to the New Indenture Trustee confirming that the holders of the outstanding Exchange 42 Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the New Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company must have delivered to the New Indenture Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company must deliver to the New Indenture Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the holders of Exchange Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company must deliver to the New Indenture Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the New Indenture or the Exchange Notes may be amended or supplemented with the consent of the holders of at least a majority in principal amount of the Exchange Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or Exchange Offer for, Exchange Notes), and any existing default or compliance with any provision of the New Indenture or the Exchange Notes may be waived with the consent of the holders of a majority in principal amount of the then outstanding Exchange Notes (including consents obtained in connection with a tender offer or Exchange Offer for Exchange Notes). Without the consent of each holder affected, an amendment or waiver may not (with respect to any Exchange Notes held by a non-consenting holder): (i) reduce the principal amount of Exchange Notes whose holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Exchange Note or alter the provisions with respect to the redemption of the Exchange Notes (other than provisions relating to the covenants described above under the caption "Repurchase at the Option of Holders"), (iii) reduce the rate of or change the time for payment of interest on any Exchange Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Exchange Notes (except a rescission of acceleration of the Exchange Notes by the holders of at least a majority in aggregate principal amount of the Exchange Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Exchange Note payable in money other than that stated in the Exchange Notes, (vi) make any change in the provisions of the New Indenture relating to waivers of past Defaults or the rights of holders of Exchange Notes to receive payments of principal of or premium, if any, or interest on the Exchange Notes, (vii) waive a redemption payment with respect to any Note (subject to the last sentence of this paragraph, other than a payment required by one of the covenants described above under the caption "Repurchase at the Option of Holders"), (viii) make any change in the foregoing amendment and waiver provisions, or (ix) release any Guarantor from any of its obligations under its Subsidiary Guarantee or the New Indenture, except as provided in the New Indenture In addition, any amendment to the provisions of Article 10 of the New Indenture (which relate to subordination) will require the consent of the holders of at least 75% in aggregate principal amount of the Exchange Notes then outstanding if such amendment would adversely affect the rights of holders of Exchange Notes. In addition, without the consent of the holders of 66 2/3% in principal amount of the Exchange Notes then outstanding (including consents obtained in connection with a tender offer or Exchange Offer for Exchange Notes), no waiver or amendment to the New Indenture may make any change in the provisions described above under the caption "Repurchase at the Option of Holders -- Change of Control" that adversely affect the rights of any Holder of Exchange Notes. Notwithstanding the foregoing, without the consent of any holder of Exchange Notes, the Company, the Guarantors and the New Indenture Trustee may amend or supplement the New Indenture, the Subsidiary Guarantees, or the Exchange Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Exchange Notes in addition to or in place of certificated Exchange Notes, to provide for the assumption of the 43 Company's or the Subsidiary Guarantors' obligations to holders of Exchange Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the holders of Exchange Notes or that does not adversely affect the legal rights under the New Indenture of any such holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the New Indenture under the Trust Indenture Act. GOVERNING LAW The New Indenture, the Subsidiary Guarantees and the Exchange Notes will be, subject to certain exceptions, governed by and construed in accordance with the internal laws of the State of New York, without regard to the choice of law rules thereof. GLOBAL NOTE AND DEFINITIVE NOTES The Exchange Notes will initially be issued in the form of one Global Note (the "Global Note"). The Global Note will be deposited on the date of the closing of the sale of the Exchange Notes with, or on behalf of, The Depository Trust Company (the "Depositary") and registered in the name of Cede & Co., as nominee of the Depositary (such nominee being referred to herein as the "Global Note Holder"). The Depositary is a limited-purpose trust company that was created to hold securities for its participating organizations (collectively, the "Participants" or the "Depositary's Participants") and to facilitate the clearance and settlement of transactions in such securities between Participants through electronic book-entry changes in accounts of its Participants. The Depositary's Participants include securities brokers and dealers (including the Underwriters, banks and trust companies, clearing corporations and certain other organizations). Access to the Depositary's system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the "Indirect Participants" or the "Depositary's Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. Persons who are not Participants may beneficially own securities held by or on behalf of the Depositary only through the Depositary's Participants or the Depositary's Indirect Participants. The Company expects that pursuant to procedures established by the Depositary, (i) upon deposit of the Global Note, the Depositary will credit the accounts of Participants designated by the Underwriters with portions of the principal amount of the Global Note and (ii) ownership of the Exchange Notes evidenced by the Global Note will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by the Depositary (with respect to the interests of the Depositary's Participants), the Depositary's Participants and the Depositary's Indirect Participants. Prospective purchasers are advised that the laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer Exchange Notes evidenced by the Global Note will be limited to such extent. So long as the Global Note Holder is the registered owner of any Exchange Notes, the Global Note Holder will be considered the sole Holder under the New Indenture of any Exchange Notes evidenced by the Global Notes. Beneficial owners of Exchange Notes evidenced by the Global Note will not be considered the owners or holders thereof under the New Indenture for any purpose, including with respect to the giving of any directions, instructions or approvals to the New Indenture Trustee thereunder. Neither the Company nor the New Indenture Trustee will have any responsibility or liability for any aspect of the records of the Depositary or for maintaining, supervising or reviewing any records of the Depositary relating to the Exchange Notes. Payments in respect of the principal of, premium, if any, and interest on any Exchange Notes (as well as applicable payments of the Partial Interest Payment and the Additional Interest Payment) registered in the name of the Global Note Holder on the applicable record date will be payable by the New Indenture Trustee to or at the direction of the Global Note Holder in its capacity as the registered Holder under the New Indenture. Under the terms of the New Indenture, the Company and the New Indenture Trustee may treat the persons in whose names Exchange Notes, including the Global Note, are registered as the owners thereof for the purpose of receiving such payments. Consequently, neither the Company nor the New Indenture Trustee has or will have any responsibility or liability for the payment of such amounts to beneficial owners of Exchange Notes. The Company believes, however, that it is currently the policy of the Depositary to immediately credit the accounts of the relevant Participants with such payments, in amounts proportionate to their respective holdings of beneficial interests in the relevant security 44 as shown on the records of the Depositary. Payments by the Depositary's Participants and the Depositary's Indirect Participants to the beneficial owners of Exchange Notes will be governed by standing instructions and customary practice and will be the responsibility of the Depositary's Participants or the Depositary's Indirect Participants. Global Notes may be exchanged for registered definitive certificates ("Definitive Notes") if (i) the Depositary notifies the Company that it is unwilling or unable to continue as depositary for the Global Notes and the Company thereupon fails to appoint a successor depositary within 90 days, (ii) the Company, in its sole discretion, determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the New Indenture Trustee or (iii) there shall have occurred and be continuing a Default or an Event of Default with respect to the Exchange Notes. Upon the occurrence of any of the preceding events in (i), (ii) or (iii) above, Definitive Notes shall be issued in such names and issued in any approved denominations as the Depositary shall instruct the New Indenture Trustee. Neither the Company nor the New Indenture Trustee will be liable for any delay by the Global Note Holder or the Depositary in identifying the beneficial owners of Exchange Notes and the Company and the New Indenture Trustee may conclusively rely on, and will be protected in relying on, instructions from the Global Note Holder or the Depositary for purposes. TRANSFER AND EXCHANGE A holder may transfer or exchange Notes in accordance with the New Indenture. The Registrar and the New Indenture Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a holder to pay any taxes and fees required by law or permitted by the New Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Exchange Notes to be redeemed. The registered holder of a Note will be treated as the owner of it for all purposes. CONCERNING THE NEW INDENTURE TRUSTEE The New Indenture contains certain limitations on the rights of the New Indenture Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The New Indenture Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The holders of a majority in principal amount of the then outstanding Exchange Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the New Indenture Trustee, subject to certain exceptions. The New Indenture provides that in case an Event of Default shall occur (which shall not be cured), the New Indenture Trustee will be required, in the exercise of its powers, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the New Indenture Trustee will be under no obligation to exercise any of its rights or powers under the New Indenture at the request of any holder of Exchange Notes, unless such holder shall have offered to the New Indenture Trustee security and indemnity satisfactory to it against any loss, liability or expense. ADDITIONAL INFORMATION Any noteholder who wishes to obtain additional information may do so by contacting the Information Agent at the phone number listed on the back cover of the Offer to Exchange. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the New Indenture. Reference is made to the New Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. 45 "6% Notes" means the Company's 6% Senior Subordinated Notes due 2007 issued by the Company pursuant to an indenture dated as of May 2, 2002, by and among the Company, certain of the Guarantors, and Wells Fargo Bank, National Association, as trustee. "10 1/2%" Notes means the Company's 10 1/2% Senior Subordinated Notes due 2008 issued by the Company pursuant to an indenture dated as of April 1, 1998 as amended and restated as of May 2, 2002, by and among the Company, certain of the Guarantors, and Wells Fargo Bank, National Association, as trustee. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Amended Indenture" means the Amended and Restated Indenture in the form of Annex B which will be executed on the Exchange Date by and among the Company, the Guarantors , and the New Indenture Trustee. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the New Indenture described above under the caption "Repurchase at the Option of Holders - -- Change of Control" and/or the provisions described above under the caption "Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Wholly-Owned Restricted Subsidiary that is a Guarantor or by a Restricted Subsidiary to the Company or to another Wholly-Owned Restricted Subsidiary that is a Guarantor, (ii) an issuance of Equity Interests by a Wholly-Owned Restricted Subsidiary to the Company or to another Wholly-Owned Restricted Subsidiary that is a Guarantor, (iii) a Restricted Payment that is permitted by the covenant described above under the caption "Certain Covenants -- Restricted Payments," (iv) Sales of Mortgages Receivable to a Receivables Subsidiary, and (v) sales, leases or contracts for deed in the ordinary course of business of Vacation Intervals or Mortgages Receivable, will not be deemed to be Asset Sales. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of 46 corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the full faith and credit of the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having the highest rating obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Corporation and, in each case, maturing within six months after the date of acquisition. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act), (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition), directly or indirectly, of more than 50% of the Voting Stock of the Company (measured by voting power rather than number of shares), or (iv) the Company consolidates with, or merges with or into, any Person, or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where the Voting Stock of the Company outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance). "Club" means the owners' associations for any of the Company's resorts or developments, or of nearby residential or condominium tracts developed by the Company or its predecessors, and the Silverleaf Club. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, minus (v) non-cash items increasing such Consolidated Net Income for such period (excluding any such non-cash items to the extent they represent a reversal of amounts that were accrued in prior periods and were then excluded from Consolidated Cash Flow as a result of the second parenthetical in clause (iv)), plus, (vi) non-cash items 47 increasing Consolidated Net Income for a prior period which were excluded from Consolidated Cash Flow in such period due to the application of clause (v), to the extent such non-cash item is collected in cash in a subsequent period, in each case, on a consolidated basis and determined in accordance with GAAP. The recognition of revenue on the accrual basis in accordance with GAAP upon the sale, lease, or sale by contract for deed of Vacation Intervals shall not be deemed a non-cash item increasing Consolidated Net Income. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Restricted Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in the same proportion) that the Net Income of such Person was included in calculating Consolidated Net Income. "Consolidated Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, issues, guarantees, repays, redeems, retires, repurchases or defeases any Indebtedness or Disqualified Stock (other than revolving credit borrowings) subsequent to the commencement of the period for which the Consolidated Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Consolidated Coverage Ratio is made (the "Calculation Date"), then the Consolidated Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, issuance, Guarantee, repayment, redemption, retirement, repurchase, or defeasance of Indebtedness or Disqualified Stock (and in the case of incurrence or issuance, the pro forma application of the net proceeds thereof) as if the same had occurred at the beginning of the applicable reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the applicable reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the applicable reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Consolidated Interest Expense attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Consolidated Interest Expense will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. For purposes of this definition, whenever pro forma effect is given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness incurred in connection therewith shall be determined in good faith by a responsible financial or accounting officer of the Company. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon), and (iv) the product of (a) all dividend payments, whether or not in cash, on any series of Disqualified Stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case on a consolidated basis and in accordance with generally accepted accounting principles ("GAAP"). "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or 48 distributions paid in cash by the referent Person to the Company or a Wholly Owned Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Restricted Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of the New Indenture in the book value of any asset owned by such Person or a consolidated Restricted Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Restricted Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Credit Facilities" means those certain credit facilities at the date hereof between the Company and certain lenders providing for revolving credit on the security of Mortgages Receivable in an aggregate amount up to $286.9 million, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, in each case as amended, modified, restated, renewed, increased, supplemented, refunded, replaced or refinanced from time to time, whether with the same or different lenders and in the same or different amounts. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Designated Senior Debt" means (i) any Indebtedness outstanding under the Company's credit facilities and (ii) any other Senior Debt permitted under the New Indenture, the principal amount of which is $25 million or more and that has been designated by the Company as "Designated Senior Debt." "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof in whole or in part, on or prior to the date that is 360 days after the date on which the Exchange Notes mature. "Domestic Restricted Subsidiary" means a Restricted Subsidiary that is not formed, incorporated or organized in a jurisdiction outside the United States. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Existing Indebtedness" means the aggregate principal amount of Indebtedness of the Company and its Restricted Subsidiaries (other than Indebtedness under the Company's credit facilities) in existence on the date of the New Indenture, until such amounts are repaid. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of the New Indenture. 49 "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantors" means each of (i) Silverleaf Travel, Inc., a Texas corporation, Silverleaf Berkshires, Inc., a Texas corporation, Silverleaf Resort Acquisitions, Inc., a Texas corporation, Awards Verification Center, Inc. (formerly known as Database Research, Inc.), a Texas corporation, eStarCommunications, Inc., a Texas corporation, and Bull's Eye Marketing, Inc., a Delaware corporation, (ii) any other Subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of the New Indenture, and their respective successors and assigns. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), or purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP, in each case excluding (i) Mortgages Receivable and (ii) receivables from "Sampler" contracts or lot or condominium sales. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "-- Restricted Payments." "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Make-Whole Amount" means, with respect to any Note, an amount equal to the excess, if any, of(a) the present value of the remaining principal, premium and interest payments that would be payable with respect to such Note if such Note were redeemed on April 1, 2003, computed using a discount rate equal to the Treasury Rate plus 75 basis points, over (b) the outstanding principal amount of such Note. "Make-Whole Average Life" means, with respect to any date of acceleration of Exchange Notes, the number of years (calculated to the nearest one-twelfth) from such date to April 1, 2003. 50 "Make-Whole Price" means, with respect to any Note, the greater of (a) the sum of the principal amount of and Make-Whole Amount with respect to such Note, and (b) the redemption price of such Note on April 1, 2003. "Mortgages Receivable" means (i) the gross principal amount of notes receivable of the Company and its Restricted Subsidiaries secured by Liens on Vacation Intervals (including notes receivable secured by Vacation Intervals or other comparable timeshare interests acquired by the Company and its Restricted Subsidiaries), determined in accordance with the books and records of the Company, and (ii) all related customer files, instruments or other assets. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain or loss, together with any related provision for taxes on (or tax benefit from) such gain or loss, realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain or loss, together with any related provision for taxes on (or tax benefit from) such extraordinary or nonrecurring gain or loss. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than the Company's credit facilities or other revolving Indebtedness if there is no corresponding permanent reduction in commitments with respect thereto) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Permitted Investments" means (a) any Investment in the Company or in a Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Wholly Owned Restricted Subsidiary of the Company and a Guarantor that is engaged in the same business as the Company and its Restricted Subsidiaries were engaged in on the date of the New Indenture or a Related Business, or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the Company that is a Guarantor and that is engaged in the same line of business as the Company and its Restricted Subsidiaries were engaged in on the date of the New Indenture or a Related Business; (d) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales"; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (f) payroll, travel, and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (g) loans or advances to employees 51 made in the ordinary course of business consistent with past practices in an aggregate amount outstanding at any one time not to exceed $500,000; (h) stock, obligations, or securities received in settlement of debts created in the ordinary course of business and owing to the Company or a Restricted Subsidiary; (i) any Investment acquired by the Company or any of its Restricted Subsidiaries (1) in exchange for any other Investment or receivable held by the Company or any such Restricted Subsidiary in connection with or as a result of any bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or receivable or (2) as a result of a foreclosure (or deed in lieu of) by the Company or any of its Restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default; (j) Hedging Obligations permitted under the covenant described under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock"; (k) all Investments existing on the date of the New Indenture; (l) Investments by the Company or a Restricted Subsidiary in a Club in an aggregate amount outstanding at any one time not to exceed $2.0 million; (m) investments in a Receivables Subsidiary; and (n) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (1) that are at the time outstanding, not to exceed $5.0 million. "Permitted Liens" means (i) Liens existing on the date of the New Indenture to the extent and in the manner such Liens are in effect on such date; (ii) Liens securing Senior Debt and Liens on assets securing Guarantees of Senior Debt, in each case permitted to be incurred under the New Indenture; (iii) Liens (if any) securing the Exchange Notes and the Subsidiary Guarantees; (iv) Liens securing Permitted Refinancing Indebtedness which is incurred to refinance any Indebtedness which has been secured by a Lien permitted under the New Indenture and which has been incurred in accordance with the provisions of the New Indenture, provided, however, that such Liens are not materially less favorable to the holders and are not materially more favorable to the Lien Holder with respect to such Liens than the Liens in respect of the Indebtedness being refinanced; (v) Liens in favor of the Company or any Wholly-Owned Restricted Subsidiary; (vi) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (vii) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (viii) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (ix) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (x) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; (xi) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $1.0 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary; and (xii) Liens on assets of Receivables Subsidiaries. "Permitted Refinancing Indebtedness" means any Indebtedness or Disqualified Stock of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries; provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date the same as or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Exchange Notes or the Subsidiary Guarantees, as applicable, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Exchange Notes and the Subsidiary Guarantees, as applicable, on terms at least as favorable to the holders of Exchange Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, 52 renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Receivables Subsidiary" of any Person means a Subsidiary which (i) is established and continues to operate for the limited purpose of acquiring, selling and financing Mortgages Receivable and related assets in connection with receivables securitization or financing transactions and (ii) all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person. "Related Business" means, at any time, any business related, ancillary or complementary (as determined in good faith by the Board of Directors) to the business conducted by the Company and its Restricted Subsidiaries on the date of the New Indenture. "Restricted Investment" means an Investment other than a Permitted Investment. "Significant Restricted Subsidiary" of a Person means any Significant Subsidiary that is a "Restricted Subsidiary" "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Senior Debt" means (i) all Indebtedness outstanding under the Company's credit facilities, (ii) any other Indebtedness permitted to be incurred by the Company or a Restricted Subsidiary under the terms of the New Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Exchange Notes or Subsidiary Guarantees, as applicable, and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) any Indebtedness of the Company or any Guarantor to the Company or any of their respective Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in violation of the New Indenture. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Treasury Rate" means, at any time of computation, the yield to maturity at such time (as compiled by and published in the most recent Federal Reserve Statistical Release H. 15(519), which has become publicly available at least two business days prior to the date of acceleration of the Exchange Notes, or if such Statistical Release is no longer published, any publicly available source of similar market data) of United States Treasury securities with a constant maturity most nearly equal to the Make-Whole Average Life; provided, however, that if the Make-Whole 53 Average Life is not equal to the constant maturity of the United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the Make-Whole Average Life is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has at least one director on its board of directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries; or (ii) any Receivables Subsidiary. "Vacation Interval" means an interest entitling the holder to use, for a limited period on an annual or other recurrent basis, a lodging unit, together with associated privileges and rights, at a Company resort, including, without limitation, a fee interest, a leasehold, a vendee's interest under a contract of deed, or other interest based on a floating period or points based system. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. 54 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a description of the material federal income tax consequences of the Exchange Offer. Subject to the assumptions and limitations contained herein, this section summarizes the principal federal income tax considerations of general application that holders should consider in deciding whether to tender their Old Notes and participate in the Exchange Offer. The discussion contained herein does not describe any tax consequences arising out of the laws of any state, locality or foreign jurisdiction. Moreover, the analysis contained herein may be subject to alternative or contrary interpretations and specific rules and/or exceptions may apply to different taxpayers depending on their specific circumstances. ACCORDINGLY, EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISER CONCERNING THE SPECIFIC FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES APPLICABLE TO IT. SUMMARY OF EXCHANGE OFFER. Pursuant to the Exchange Offer, for each $500 principal amount of Old Notes tendered, a participating holder will receive (i) an Exchange Note with a principal amount of $500, and (ii) an Additional Interest Payment in an amount equal to the accrued and unpaid interest on their Old Notes at the interest rate of 6% from April 1, 2004 through the day before the Exchange Date. The Exchange Notes will bear interest from the Exchange Date at 8% per annum. The Additional Interest Payment represents interest accruing on the Old Notes during the period beginning on April 1, 2004 and ending on the date before the Exchange Date. Such payments shall be reported as such by the Company. The Exchange Offer will be consummated and the Additional Interest Payment shall be paid only if the acceptance rate on the Exchange Offer exceeds 80% of the Old Notes. Those Old Notes held by holders who do not participate in the Exchange Offer will not be modified as a result of the Exchange Offer. SCOPE OF DISCUSSION. This discussion addresses (i) whether the exchange of the Old Notes for Exchange Notes qualifies as a recapitalization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"); (ii) certain federal income tax consequences of the Exchange Offer to the holders of the Old Notes, (iii) certain federal income tax consequences related to the ownership and disposition of the Exchange Notes to be received pursuant to the Exchange Offer, and (iv) certain federal income tax consequences of the Exchange Offer to the Company. TAX SOURCES. This discussion is based on the provisions of the Code, Treasury Regulations (including final, temporary and proposed regulations), administrative and judicial interpretations, and other related information (collectively the "Tax Sources"). The Tax Sources relied upon are all as in effect as of the date of this Offer to Exchange, and all are subject to change, possibly on a retroactive basis. There can be no assurance that the Internal Revenue Service or a court of competent jurisdiction will not take a different or contrary view as to the federal income tax consequences discussed herein. No ruling from the Internal Revenue Service has been or will be sought on any of the issues discussed herein. There is substantial uncertainty as to many of the federal income tax consequences discussed herein. CERTAIN LIMITATIONS. The discussion contained herein is limited to the material federal income tax consequences relating to holders of the Old Notes who hold the Old Notes (and will hold the Exchange Notes) as capital assets within the meaning of Section 1221 of the Code, each of whom is: o a citizen or resident of the United States for federal income tax purposes; o a corporation, partnership or other entity organized under the laws of the United States or any state of the United States; o an estate, the income of which is subject to United States federal income tax without regard to its source; o a trust which is subject to the primary supervision of a United States court and the control of one or more United States persons; or 55 o a trust which has a valid election in effect under applicable Treasury Regulations to be treated as a United States person. This discussion does not address all aspects of federal income taxation that may be applicable to any specific holder due to such holder's particular circumstances. Such particular circumstances may include, but are not limited to: o a holder's status as a dealer in securities, a financial institution, a tax-exempt entity, or a life insurance company; o a holder who acquired the Old Notes as part of a straddle, hedge, conversion transaction or other integrated transaction, or to whom property was or is transferred in connection with the performance of services; o a holder who is a foreign individual or entity; and/or o a person who holds the Old Notes through a partnership or other pass-through entity. Accordingly, each holder should consult its own tax adviser concerning the specific federal, state, local and foreign tax consequences applicable to it. QUALIFICATION AS A RECAPITALIZATION The Company believes that the Exchange Offer will constitute a "recapitalization" within the meaning of the Code. However, this conclusion is not free from doubt. It is possible that the Internal Revenue Service and/or a court of competent jurisdiction could reach a contrary conclusion. RECAPITALIZATION DEFINED. A "recapitalization" is a type of reorganization for purposes of the federal income tax laws. Neither the Code nor the Treasury Regulations specifically define a "recapitalization." Nevertheless, a recapitalization generally involves a readjustment of the capital structure of a single corporation. If the recapitalization is made pursuant to a "plan of reorganization," Section 354 of the Code provides that a corporation's shareholders and/or creditors will not recognize gain on loss on the exchange. The forgoing is limited, however, in that reorganization treatment applies only if stock or securities are exchanged solely for stock or securities in such corporation. If property other than stock or securities (i.e. "boot") is received in the exchange, a shareholder or creditor receiving such boot must recognize gain, if any, to the extent of the boot received. For these purposes, boot includes the fair market value of the excess of the principal amount of securities received over the principal amount of securities surrendered (see discussion below). Despite the non-recognition treatment afforded by a qualification of the exchange as a recapitalization, if applicable, additional tax consequences may arise relating to other items including but not limited to accrued but unpaid interest and/or accrued market discount. Some of these material tax consequences are discussed below. QUALIFICATION AS SECURITIES. The Exchange Offer will qualify as a recapitalization only if the Old Notes and the Exchange Notes are considered "securities" within the meaning of the Code. The term "securities" is not specifically defined by the Code or Treasury Regulations. Moreover, the term "securities" has not been clearly defined by judicial or administrative interpretation as such interpretations have been somewhat inconsistent. The classification of an instrument as a "security" is a fact-based determination dependent on all the facts and circumstances including, but not limited to: (i) the term (i.e. duration) of the instrument; (ii) the degree of participation and continuing interest in the business offered by the instrument; (iii) the extent of proprietary interest offered by the instrument when compared with the similarity of such instrument to a cash payment; (iv) the overall purpose of the instrument; (v) whether the instrument is secured; (vi) the degree of subordination of the instrument; (vii) the ratio of debt to equity of the issuer; (viii) the riskiness of the business of the issuer; and (ix) the negotiability of the instrument. The test as to whether notes are "securities" is not a mechanical determination of the time period of the note. Nevertheless, courts have generally looked at the term of the debt instrument as the most significant factor. In general, a bona fide debt instrument which has a term of five (5) years or less will likely not be considered a "security," while those with a term of ten (10) years or more will likely be classified as a "security." Under the 56 specific facts contained in Revenue Ruling 59-98, 1959-1 C.B. 76, the Internal Revenue Service ruled that secured bonds with an average life of six and one-half (6 1/2) years constituted "securities." Considering the terms of the Old Notes, and the Exchange Notes (which have a term just over five (5) years and just under six (6) years), respectively, it is likely that such instruments should be considered "securities" within the meaning of the Code. While the payment of the Additional Interest Payment may impact the qualification of the Exchange Notes as "securities," the treatment of such payments as accrued but unpaid interest on the Old Notes should be respected, as described below. Accordingly, (except for the potential receipt of boot discussed below) the exchange of the Old Notes for the Exchange Notes should constitute an exchange of "securities" solely for "securities" and the Exchange Offer should qualify as a "recapitalization" and a reorganization for federal income tax purposes. The conclusions that the Old Notes and the Exchange Notes constitute "securities" and that the Exchange Offer will constitute a recapitalization and reorganization are not free from doubt. No assurance can be made that the Internal Revenue Service or a court of competent jurisdiction would not reach a different or contrary conclusion. Accordingly, each holder should consult its own tax advisor and make its own independent determination regarding whether such instruments constitute securities and whether the Exchange Offer constitutes a recapitalization and reorganization. FEDERAL INCOME TAX CONSEQUENCES TO EXCHANGING HOLDERS The federal income tax consequences to a holder who exchanges Old Notes for Exchange Notes will depend on a number of factors, including but not limited to, whether the exchange made pursuant to the Exchange Offer constitutes either (a) a recapitalization and reorganization or (b) a taxable exchange. RECAPITALIZATION VS. TAXABLE EXCHANGE TREATMENT. If the exchange of Old Notes for Exchange Notes qualifies as a recapitalization, a holder will realize gain or loss on the exchange in an amount equal to the difference between (i) the fair market value (as of the date of the exchange) of the Exchange Notes, minus (ii) the holder's adjusted tax basis in the Old Notes. Such realized gain (but not loss) will be recognized only to the extent of the boot, if any, received. See "- Taxation of Boot." Any such recognized gain or loss should be capital gain or loss, and such capital gain or loss will be long-term capital gain or loss if the holder has held the Old Notes for more than twelve (12) months at the time of the exchange. The holding period of the Exchange Notes will include the holder's holding period of the Old Notes. If the Old Notes and/or the Exchange Notes do not constitute securities, the exchange of Old Notes for Exchange Notes will not qualify as a recapitalization. Absent a qualification of the exchange as a recapitalization, the exchange of Old Notes for Exchange Notes will be taxable as an exchange under Section 1001 of the Code. If taxable as an exchange, the holder will realize and recognize gain or loss on the exchange in an amount equal to the difference between (i) the fair market value (as of the date of the exchange) of the Exchange Notes received; minus (ii) the holder's adjusted basis in the Old Notes. Any such recognized gain or loss should be capital gain or loss, and such capital gain or loss will be long-term capital gain or loss if the holder held the Old Notes for more than twelve (12) months at the time of the exchange. A holder will have an aggregate tax basis in the Exchange Notes equal to the fair market value of the Exchange Notes as of the date of the exchange. The holding period of the Exchange Notes will begin on the day immediately following the date of the exchange. TAXATION OF BOOT. The following discussion is applicable only if the exchange constitutes a recapitalization and reorganization. Pursuant to the Exchange Offer, a participating holder of the Old Notes would receive Exchange Notes, including the right to a cash payment in the form of the Additional Interest Payment. The right to the Additional Interest Payment will constitute neither stock nor a security. The Company anticipates that the Additional Interest Payment will be treated as accrued but unpaid interest on the Old Notes (see discussion below) and therefore should not be considered as received in exchange for a portion of the principal amount of Old Notes and should not be considered boot. Even if a contrary conclusion is reached, the receipt of "boot" should not disqualify the exchange from qualifying as a recapitalization and reorganization, but a participating holder would be required to recognize the gain realized on the exchange up to the amount of boot received. "Boot" also includes the fair market value of the excess of the principal amount of securities received over the principal amount of securities surrendered. Assuming that the Old Notes and the Exchange Notes are "securities" (see discussion above), this characterization of excess principal amount of securities as "boot" should have no 57 application to a participant in the Exchange Offer as the stated principal amount of the Exchange Notes (i.e. $500) will not exceed the stated principal amount of the Old Notes (i.e. $500). However, some Tax Sources suggest that the use of the term "principal amount of securities" (as used in Section 354(a)(2) of the Code) should not refer to the stated principal amount of the Old and Exchange Notes, but instead should refer to their "issue price" (as used in Sections 1273 and 1274 of the Code). The Old Notes were issued as of May 2, 2002, each of which were issued with a stated principal amount of $500, and bearing interest at a rate of 6.00% per annum. The Old Notes were issued for property (i.e. as partial consideration for previously issued notes). The issue price of the Old Notes pursuant to Section 1273 of the Code should be the stated principal amount of the Old Notes, which is the aggregate amount of all payments due under the Old Notes, excluding any amount of stated interest. As this issue price is equal to the stated principal amount of the Old Notes, the issue price and the stated principal amount of the Old Notes are the same and the Old Notes did not contain any original issue discount ("OID"). It is not entirely certain what the "issue price" of the Exchange Notes will be. If the Old Notes or the Exchange Notes are considered to be "traded on an established market" (within the meaning of Section 1273(b)(3) of the Code), then the "issue price" of the Exchange Notes would be equal to such publicly traded value. The Treasury Regulations provide a high level of detail as to the definition of whether property (such as the Old Notes) are "traded on an established market." Pursuant to the Treasury Regulations, a security is "traded on an established market" if, at any time during the 60-day period ending 30 days after the issue date, the security (i) is listed on (a) a registered national exchange, (b) an interdealer quotation system sponsored by a national exchange, or (c) certain international exchanges, (ii) is traded either on a board of trade designated as a contract market by the Commodities Futures Trading Commission or on an interbank market, (iii) appears on a system of general circulation that provides a reasonable basis to determine fair market value, or (iv) has price quotations readily available from dealers. Considering the specifics associated with the above referenced tests for determining whether securities are "traded on an established market," the Company anticipates that neither the Old Notes nor the Exchange Notes will be considered "traded on an established market" within the meaning of the Code. Nevertheless, there is some doubt as to this conclusion and no assurance can be made that the Internal Revenue Service or a court of competent jurisdiction will not reach a different or contrary conclusion. Accordingly, if the Old Notes or the Exchange Notes are considered to be "traded on an established market" and if the term "principal amount of securities" is deemed to refer to the "issue price" of the Exchange Notes rather than their stated principal amount, it is anticipated that the "issue price" of the Exchange Notes will be less than the "issue price" of the Old Notes. This is because such issue price of the Exchange Notes would be determined by the fair market value of the Old Notes. As the trades that have occurred with respect to the Old Notes have been at substantial discounts, the issue price of the Exchange Notes would be less than the issue price of the Old Notes. Accordingly, this alternative interpretation of the "principal amount of securities" should not result in a holder receiving additional "boot." Moreover, if the Old Notes and the Exchange Notes are not "traded on an established market" and if the term "principal amount of securities" is deemed to refer to the "issue price" of the Exchange Notes rather than their stated principal amount, the issue price of the Exchange Notes will be equal to their stated redemption price as the Exchange Notes contain "adequate stated interest" within the meaning of the Code. In this case, the issue price of the Old Notes will equal their stated principal amount (i.e. $500) and the issue price of the Exchange Notes will equal their stated principal amount (i.e. $500). Accordingly, the computation of boot will be the same regardless of the interpretation of excess "principal amount of securities." As a result, no boot should result from this aspect of the exchange. As discussed below, the treatment of the Additional Interest Payment as accrued but unpaid interest on the Old Notes should be respected. As a result, the issue price of the Exchange Notes should not be affected by such payments and such payments should not be considered "boot." Nevertheless, such conclusions regarding the determination and amount of boot and the computation of issue price and stated redemption price at maturity of the Exchange Notes are not free from doubt. No assurances can be made that the Internal Revenue Service or a court of competent jurisdiction would not reach different or contrary 58 conclusions. Accordingly, each holder should consult its own tax adviser concerning whether additional boot is received in the exchange, the issue price and stated redemption price at maturity of the Exchange Notes, and the specific federal, state, local and foreign tax consequences applicable to it. ACCRUED BUT UNPAID INTEREST. Section 354(a)(2)(B) of the Code provides that recapitalization treatment will not apply to the exchange to the extent that the Exchange Notes or cash received is treated as exchanged for interest accrued but unpaid on the Old Notes during the period the holder held such Old Notes. Any Exchange Note or cash received which is attributable to accrued but unpaid interest will be treated as a payment of such accrued but unpaid interest received outside the recapitalization exchange. It is doubtful that taxable exchange treatment under Section 1001 of the Code, if otherwise applicable, would apply. Unless the holder has included such accrued interest in income, it is likely that exchange treatment under Section 1001 does not apply, and a holder would recognize ordinary interest income. It is unclear, under the Tax Sources, whether and/or to what extent the Exchange Notes or the cash payments will be considered to be received in exchange for accrued but unpaid interest on the Old Notes. Nevertheless, the legislative history surrounding the applicable sections of the Code indicate that if a plan of reorganization specifically allocates consideration between the debt securities exchanged in the reorganization and the interest accrued on such debt securities, both the issuer and the exchanging holders should use that allocation for federal income tax purposes. The Company anticipates that the Additional Interest Payment will be treated as accrued but unpaid interest on the Old Notes. The Company intends to report original issue discount, if any, and interest in its information filings to the holders of the Old Notes, if applicable, and to the Internal Revenue Service in a manner consistent with the above allocations. See "- Original Issue Discount." To the extent that the fair market value of the Exchange Notes, or the Additional Interest Payment is treated as accrued but unpaid interest on the Old Notes, a holder will likely recognize ordinary income if the holder has not previously included such accrued but unpaid interest in income. If the holder has previously included such accrued but unpaid interest in income, the holder will likely recognize an ordinary loss to the extent of the excess of the amount of accrued but unpaid interest previously included in income over the fair market value of the Exchange Notes, and payments allocated to accrued but unpaid interest. In such a situation, a holder's tax basis in the Exchange Notes received in exchange for accrued but unpaid interest will likely be equal to the fair market value of such Exchange Notes, as of the date of the exchange. The holding period for the Exchange Notes received in exchange for accrued but unpaid interest will begin on the day immediately following the date of the exchange. The Internal Revenue Service may challenge the Company's intended allocation and contend that some other allocation is required. For example, the Internal Revenue Service may argue that such allocation should provide for an allocation of the fair market value of the Exchange Notes, and any such payments between accrued but unpaid interest and original issue price of the Old Notes. Accordingly, each holder of Old Notes should consult its own tax advisor regarding the allocation of Exchange Notes, and payments to accrued but unpaid interest and make its own determination regarding whether any portion of the Exchange Notes, or payments received should be treated as received in exchange for accrued but unpaid interest and tax consequences of such determination. ORIGINAL ISSUE DISCOUNT. The Exchange Notes will not be registered or listed on a public exchange. If, as is anticipated by the Company, neither the Old Notes nor the Exchange Notes are considered to be "traded on an established securities market" within the meaning of Section 1273 of the Code, the issue price of the Exchange Notes will be equal to their stated principal amount. As a result, no OID should be associated with the Exchange Notes. The conclusion that the Old Notes and Exchange Notes are not traded on an established market, and the resulting conclusion that the Exchange Notes will not contain OID are not free from doubt. No assurance can be made that the Internal Revenue Service or a court of competent jurisdiction would not reach a different or contrary conclusion. Accordingly, each holder should consult its own tax advisor and make its own independent determination regarding whether the Old Notes, and Exchange Notes are traded on an established securities market and whether the Exchange Notes contain OID. 59 Such contrary conclusions could result in OID if the issue price of the Exchange Notes is less than their stated principal amount (i.e. $500). This could occur when such issue price is determined by reference to the fair market value of the Old Notes. If a substantial amount of the Exchange Notes are "traded on an established securities market" within the meaning of Section 1273 of the Code, the issue price of the Exchange Notes will be equal to the fair market value of the Exchange Notes as of the first date on which a substantial amount of the Exchange Notes are issued. Accordingly, if such fair market value is less than $500, the Exchange Notes may contain OID. If the Exchange Notes are not "traded on an established market" but the Old Notes are "traded on an established securities market" within the meaning of Section 1273 of the Code, the issue price of the Exchange Notes will be based on the fair market value of the Old Notes as of the first date on which a substantial amount of the Exchange Notes are issued. As this fair market value may be less than the stated principal amount of the Exchange Notes, OID may result. Accordingly, each holder should consult with its own tax adviser concerning the determination of the proper fair market value of the Old Notes and the issue price for the Exchange Notes. It is not entirely clear what the fair market value of the Old Notes or, the Exchange Notes would be in this situation. The Treasury Regulations provide detailed rules for determining such fair market value. However, these rules provide merely a presumption as to the fair market value of such property. The Treasury Regulations provide that the indications of fair market value derived from the use of the methods described in such Treasury Regulations may not reflect the true fair market value of the Old Notes or the Exchange Notes if certain facts indicate that the fair market value of the Old Notes or the Exchange Notes is less or more than the presumed fair market value. It is the Company's position that, if either the Old Notes or the Exchange Notes are "traded on an established securities market," facts exist which require that the fair market value of such property be determined by methods other than those described in the Treasury Regulations. Such facts include the inadequacy of the available market data due to the thinly traded nature of the Old Notes during the period preceding the Exchange Offer. Moreover, as discussed previously, it is not clear how the Additional Interest Payment might affect the computation of the issue price of the Exchange Notes. It is also uncertain how such payments will affect the fair market value of the Exchange Notes. If such payments are treated as part of the stated redemption price at maturity of the Exchange Notes, OID may result. If OID is associated with the Exchange Notes, a holder of such notes will be required to include in income an amount equal to the sum of the daily portions of the OID for each day during the taxable year on which the holder held the Exchange Note. Such OID is to be recognized by a holder regardless of its method of accounting. ACCRUED MARKET DISCOUNT. A holder that acquired Old Notes subsequent to their original issuance with more than a de minimis amount of market discount will be subject to the market discount rules of Sections 1276 through 1278 of the Code. Assuming that no election to include market discount in income on a current basis is in effect, those rules require that any gain recognized on the exchange will be characterized as ordinary income to the extent of the accrued market discount as of the date of the exchange. If the exchange qualifies as a recapitalization, any gain recognized as a result of the receipt of boot will be subject to these market discount rules. As a result, any gain recognized on the exchange by a holder who has accrued market discount associated with the Old Notes would be characterized as ordinary income to the extent of the market discount which had accrued as of the date of the exchange. Any market discount which has accrued on the Old Notes as of the exchange but which has not been recognized as ordinary income (after application of the above rule) will be carried over and be treated as accrued market discount on such Exchange Notes. Any unearned market discount associated with the Old Notes should no longer be applicable to the Exchange Notes. ACQUISITION PREMIUM. If a holder's tax basis in an Exchange Note exceeds the amount payable at maturity of such note, then the holder will not be required to include original issue discount, if any, in gross income, and may be entitled to deduct such excess as "amortizable bond premium" under Section 171 of the Code on a constant yield to maturity basis over the period from the holder's acquisition date to the maturity date of the Exchange Note. The "amount payable at maturity" is equal to the stated redemption price at maturity of the Exchange Note as determined under the original discount rules, less, in the case of a holder that purchases a Exchange Note subsequent to its original issue, the aggregate amount of all payments made on such note prior to the purchase of the Exchange Note 60 other than qualified stated interest payments. See previous discussion regarding the impact of the Additional Interest Payment on this computation. The deduction will be treated as a reduction of interest income. Such deduction will be available only if the holder makes, or has made, a timely election under Section 171 of the Code. The election, if made, would apply to all debt instruments held or subsequently acquired by the electing holder and could not be revoked without permission from the Internal Revenue Service. If a holder's adjusted basis in an Exchange Note, immediately after the exchange, exceeds its adjusted issue price, but is equal to or less than the sum of all amounts payable on the Exchange Note after the exchange other than payments of qualified stated interest, the holder will be considered to have acquired the Exchange Note with an acquisition premium in an amount equal to such excess. Under the acquisition premium rules of the Code and the Treasury Regulations thereunder, the daily portion of original issue discount which such holder must include in its gross income with respect to the Exchange Note for any taxable year will be reduced by an amount equal to such daily portion multiplied by a fraction, the numerator of which is the amount of such acquisition premium and the denominator of which is the original issue discount remaining for the period from the date the Exchange Note was acquired to its maturity date. The information that the Company reports to the record holders of the Exchange Notes on an annual basis will not account for an offset against original issue discount for any premium or portion of any acquisition premium. Moreover, it is uncertain how the Additional Interest Payment may affect such issues with respect to the Exchange Notes. Accordingly, each holder should consult its tax adviser as to the determination of any premium or acquisition premium amount and the resulting adjustments to the amount of reportable original issue discount, if any. CONSEQUENCES OF OWNERSHIP OF EXCHANGE NOTES On a sale, redemption or other taxable disposition of an Exchange Note, subject to the above discussion as to accrued but unpaid interest, a holder will recognize gain or loss in an amount equal to the difference between (i) the amount received on the disposition (other than amounts attributable to accrued but unpaid interest), and (ii) the holder's adjusted tax basis, as of the date of disposition, in the Exchange Note (less any accrued but unpaid original issue discount treated as accrued but unpaid interest). The holder's adjusted tax basis, as of the date of disposition, in an Exchange Note generally will equal the holder's original tax basis in the Exchange Note (determined as described above), increased by any original issue discount and market discount previously included in the holder's gross income with respect to the Exchange Note pursuant to the rules described above, and reduced by any amortizable bond premium deducted as a reduction of interest income as described above, and further reduced, but not below zero, by all payments on the Exchange Note, other than payments of qualified stated interest, received by the holder. Subject to the above described rules for market discount and original issue discount, any such gain or loss will generally be capital gain or loss, and will be long-term capital gain or loss if the holder's holding period for the Exchange Note is more than twelve (12) months at the time of the disposition. A holder will be required to treat any principal payment on, or any gain recognized on the sale, exchange, redemption, retirement or other disposition of, an Exchange Note, as ordinary income to the extent of any accrued market discount that has not previously been included in income and treated as having accrued on the Exchange Note (including that market discount allocated to the Exchange Note from the Old Note as described above) at the time of such payment or disposition. If a holder disposes of an Exchange Note in a nontaxable transaction, other than as provided in Sections 1276(c) and 1276(d) of the Code, such holder must include as ordinary income the accrued market discount as if such holder had disposed of the Exchange Note in a taxable transaction at the note's fair market value. In addition, the holder may be required to defer, until the maturity date of the Exchange Note or its earlier disposition, including a nontaxable transaction other than as provided in Sections 1276(c) and 1276(d), the deduction of all or a portion of the interest expense on any indebtedness incurred or continued to purchase or carry the Exchange Note. 61 Any market discount will be considered to accrue ratably ("ratable method") during the period from the date of acquisition to the maturity date of an Exchange Note, unless the holder elects to accrue market discount on a constant interest method. A holder may elect to include market discount in income currently as it accrues, under either the ratable or constant interest method. For purposes of this election, interest includes stated interest, original issue discount, market discount, de minimis original issue discount, de minimis market discount and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. This election to include currently, once made, applies to all market discount obligations acquired in or after the first taxable year to which the election applies and may not be revoked without the consent of the Internal Revenue Service. If the holder makes such an election, the foregoing rules with respect to the recognition of ordinary income on sales and other dispositions of the Exchange Notes, and with respect to the deferral of interest deductions on debt incurred or continued to purchase or carry the Exchange Notes, would not apply. Special rules and limitations apply to taxpayers who make this election; therefore, holders should consult their tax advisors as to whether they should make this election. Should it be determined that there was an intention on the Company's part at the time of original issuance to call any of the Exchange Notes before their stated maturity, any gain recognized on a sale, redemption or other taxable disposition of an Exchange Note prior to its maturity would be taxable as ordinary income to the extent of any original issue discount not previously includable in income by the holder of the Exchange Note. The Company does not have any intention at the time of the Exchange Offer to call the Exchange Notes before maturity, but, due to the absence of Treasury Regulations or other guidance on this issue, the rules described in this paragraph could apply with respect to the Exchange Notes. In accordance with the discussion above, a portion of the amount received upon the disposition of an Exchange Note may be allocated to accrued but unpaid interest, and the holder of the Exchange Note will generally recognize ordinary gain or loss with respect to such portion. FEDERAL INCOME TAX CONSEQUENCES TO NON-EXCHANGING HOLDERS If a holder of Old Notes elects not to participate in the Exchange Offer, there should be no change in such holder's tax position. The tax consequences to the non-exchanging holder depends on whether there is a modification to the Old Notes which results in a "significant modification" of the Old Notes resulting in the Old Notes being considered materially different in kind or in extent. Since the Old Notes held by holders who do not participate in the Exchange Offer will not be modified as a result of the Exchange Offer, it is anticipated that there will be no "significant modification" of such Old Notes. BACKUP WITHHOLDING AND INFORMATION REPORTING In general, information reporting requirements may apply to the payment of principal, premium, if any, and interest on an Exchange Note or an Old Note, and payments of the proceeds of the sale of an Exchange Note or an Old Note, to certain noncorporate U.S. holders. Pursuant to Section 6049(d)(4)(A) of the Code, Wells Fargo Bank, National Association, in its capacity as Trustee under the New Indenture or the Old Indenture, shall be the party responsible for any such backup withholding in regard to the Exchange Notes or Old Notes. Accordingly, pursuant to Section 6049(d)(4)(B) of the Code, the Company should have no obligation and will not backup withhold on any payments made to a middleman relating to the Exchange Notes or the Old Notes. Nevertheless, the Trustee may be required to backup withhold on payments made to a holder of an Exchange Note or Old Note. Accordingly, such a holder may be subject to backup withholding at a rate of up to 30% (which rate is scheduled to gradually decrease to 28% by 2006) when such holder receives interest with respect to an Exchange Note or an Old Note, or when such holder receives proceeds upon the sale, exchange, redemption, retirement or other disposition of an Exchange Note or an Old Note. Moreover, except as provided in Section 6049(d)(4)(B) of the Code (relating to the backup withholding requirements of middlemen) or any other applicable provision of law, the Company intends to comply with all backup withholding rules applicable to it with respect to the holders of Old Notes and/or, Exchange Notes. In general, a holder can avoid this backup withholding by properly executing under penalties of perjury an IRS Form W-9 or substantially similar form that provides that such holder comes within certain enumerated exempt categories. Amounts withheld are generally not an additional tax and may be refunded or credited against the holder's federal income tax liability, provided such holder furnishes the required information to the Internal Revenue Service. Accordingly, each holder should consult with its own tax advisors regarding the application of the backup withholding rules to such holder's particular situation. 62 FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY OF THE EXCHANGE OFFER CANCELLATION OF INDEBTEDNESS INCOME. As a result of the consummation of the Exchange Offer the Company would realize cancellation of debt or "COD" income only if the adjusted issue price of the Old Notes exceeds the issue price of the Exchange Notes. As discussed above, while not entirely free from doubt, the Company anticipates that neither the Old Notes nor the Exchange Notes will be considered "traded on an established market" and that the issue price of the Old Notes will equal the issue price of the Exchange Notes. Accordingly, the Company anticipates that it will not realize COD income. However, as also noted above, no assurance can be made that the Internal Revenue Service or a court of competent jurisdiction would not reach a different or contrary conclusion. The Company further believes that if COD income is realized from the Exchange Offer the amount of such COD income would not exceed the amount of its current losses and net operating loss carryovers. Nevertheless, the Company may be subject to tax because of limitations on the use of its net operating loss carryovers, discussed below, or because of the alternative minimum tax, discussed below. ALTERNATIVE MINIMUM TAX. For purposes of computing the Company's regular tax liability imposed under Section 11 of the Code, all income recognized in a taxable year may be offset by the net operating loss carryovers permitted to be utilized in that year (see discussion below). Moreover, for purposes of computing the Company's regular tax liability imposed under Section 11 of the Code, the Company's use of the installment sale method generally results in no regular tax liability. However, for purposes of computing the 20% alternative minimum tax (imposed under Section 55 of the Code) on the Company's alternative minimum taxable income ("AMTI"), the installment sale method is generally not allowed. The Code requires an adjustment to the Company's AMTI for a portion of the Company's adjusted current earnings ("ACE"). The Company's ACE must be computed without application of the installment sale method. As a result, the Company's ACE is generally greater than the Company's AMTI. The Code requires that the Company increase its AMTI (as computed prior to the ACE adjustment and alternative minimum tax NOL deduction) by 75% of the excess, if any, of the Company's ACE over such computed AMTI. As a result, the Company anticipates that it will have an alternative minimum tax liability for 2004. Moreover, the Code requires the computation of a separate NOL carryover for purposes of the alternative minimum tax. Under this separate computation, the Company anticipates that its alternative minimum tax NOL remaining after the 2003 taxable year will be substantially smaller than its regular tax NOL. Moreover, only 90% of the Company's AMTI (as computed with the ACE adjustments describe above) may be offset by this alternative minimum tax NOL, if any. These and additional limitations are further discussed under the headings "--NOLs and AMT" and "-- Use Of NOL Carryforwards Could Be Limited By An Ownership Change." NOLS AND AMT. Under Section 172 of the Code, an NOL can generally be carried back to the two years preceding the loss year and then forward to the 20 years following the loss year. Only 90% of Alternative Minimum Taxable Income AMTI may be offset with AMT NOLs. The Company anticipates adequate AMT loss carryforwards to offset 90% of 2004 AMTI, resulting in minimal AMT liability for the year. However, the Company further anticipates that any AMT loss carryforward remaining at the end of 2004 will be small and will be fully utilized in 2005. Accordingly, the Company anticipates that it will have significant AMT liabilities in future years. USE OF NOL CARRYFORWARDS COULD BE LIMITED BY AN OWNERSHIP CHANGE. The Company had net operating loss ("NOL") carryforwards of approximately $232.1 million at December 31, 2003, for regular federal income tax purposes, related to the immediate deduction of expenses and the simultaneous deferral of installment sale gains. In addition to the general limitations on the carryback and carryforward of NOLs under Section 172 of the Code, Section 382 of the Code imposes additional limitations on the utilization of NOLs by a corporation following various types of ownership changes which result in more than a 50 percentage point change in ownership of a corporation within a three year period. A prior exchange offer in 2002 resulted in an ownership change within the meaning of Section 382(g) of the Code as of May 2, 2002 (the "change date"). As a result, a portion of the Company's NOL is subject to an annual limitation for a portion of 2002, commencing with the change date, as well as the taxable years beginning after the change date. The annual limitation is equal to the value of the Company's 63 stock 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 is small in comparison to the size of the NOL carryfowards. However, the annual limitation may be increased for any recognized built-in gain, which existed as of the change date to the extent allowed in Section 382(h) of the Code. The Company anticipates that the built-in gain associated with the installment sale gains as of the change date in 2002 increased the Section 382 Limitation and will allow the utilization of the NOL as needed. Nevertheless, the Company cannot be certain that the limitations of Section 382 will not limit or deny its future utilization of the NOL. Such limitation or denial would require the Company to pay substantial additional federal and state taxes and interest for any period following a change in ownership as described above. Moreover, pursuant to Section 383 of the Code, an ownership change may also limit or deny the Company's future utilization of certain carryover excess credits, including any unused minimum tax credit, if any, attributable to payment of alternative minimum taxes, as described above. Accordingly, the Company cannot be certain that these additional limitations will not limit or deny its future utilization of any NOL and/or excess tax credits. If the Company cannot utilize these NOL and/or excess tax credits, it will pay substantial additional federal and state taxes and interest for any periods following applicable changes in ownership as described above. Such tax and interest liabilities may adversely affect the Company's liquidity. 64 PLAN OF EXCHANGE The Company will not receive any proceeds from the Exchange Offer. The Company is relying on Section 3(a)(9) of the Securities Act, to exempt the Exchange Notes from the registration requirements of the Securities Act. Section 3(a)(9) provides that the registration requirements of the Securities Act will not apply to "any security exchanged by the issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange." The Exchange Notes are also, pursuant to Section 18(b)(4)(C) of the Securities Act, exempt from the registration and qualification requirements of state securities laws. The Company has no contract, arrangement, or understanding relating to, and will not, directly or indirectly, pay any commission or other remuneration to any broker, dealer, salesperson, agent, or any other person for soliciting votes to accept or reject the Exchange Offer. In addition, none of the Company's financial advisors and no broker, dealer, salesperson, agent, or any other person, is engaged or authorized to express any statement, opinion, recommendation, or judgment with respect to the relative merits and risks of the Exchange Offer. Under current interpretations of the Commission, securities that are obtained in a Section 3(a)(9) exchange assume the same character (i.e., restricted or unrestricted) as the securities that have been surrendered. To the extent that the Old Notes are unrestricted securities, the Exchange Notes to be issued in the Exchange Offer will be unrestricted securities. Recipients of Exchange Notes who are not "affiliates" of the Company (as such term is defined in Rule 144 under the Securities Act) will be able to resell the Exchange Notes without registration. Recipients who are affiliates of the Company may resell their Exchange Notes subject to the provisions of Rule 144, absent registration or another appropriate exemption. The Company has agreed to pay all expenses incident to the Exchange Offer, other than commissions or concessions of any broker or dealers. No dealer, salesman or other person has been authorized to give any information or to revoke any representations with respect to the matters described in this Offer to Exchange, other than those contained herein (including the documents annexed hereto). If given or made, such information or representation may not be relied upon as having been authorized by the Company Holders of Old Notes considering participation in the Exchange Offer should direct all inquiries to D. F. King & Co., Inc., the Company's Information Agent for the Exchange Offer, at the telephone number or address listed on the back cover page of this Offer to Exchange. If holders have questions regarding the procedures for tendering the Old Notes or if holders need assistance in tendering the Old Notes, they should contact the Exchange Agent at the telephone number and address listed on the back cover page of this Offer to Exchange. The Exchange Agent or the Information Agent may be contacted to receive copies of this Offer to Exchange or the accompanying Letter of Transmittal. The Company shall not be liable for any delay by DTC or any participant or indirect participant in identifying the beneficial owners of the Old Notes, and the Company and these participants may conclusively rely on, and shall be protected in relying on, instructions from DTC for all purposes, including with respect to the registration and delivery, of the Exchange Notes to be issued. 65 The Information Agent for the Exchange Offer is: D.F. KING & CO., INC. 77 Water Street 20th Floor New York, New York 10005 U.S.A. Attention: Edward McCarthy Banks and Brokerage Firms, Please Call: (212) 269-5550 All Others Call Toll-free: (800) 848-3408 ------------------------ The Exchange Agent is: WELLS FARGO BANK, NATIONAL ASSOCIATION ------------------------ By Hand: Wells Fargo Bank, National Association Attention: Nicole K. Hill Northstar East Building Corporate Trust Operations 608 Second Avenue South 12th Floor Minneapolis, MN 55479 By Registered or Certified Mail: Wells Fargo Bank, National Association Attention: Nicole K. Hill Corporate Trust Services N9303-120 Minneapolis, MN 55479-0113 By Overnight Courier: Wells Fargo Bank, National Association Attention: Nicole K. Hill Corporate Trust Services Sixth and Marquette Avenue N9303-121 Minneapolis, MN 55479 By Facsimile: (612) 667-4927 Confirm by Telephone: (612) 667-9764 For Information Call: (612) 667-9764 EX-99.T3E.2 4 d14692exv99wt3ew2.txt FORM OF LETTER OF TRANSMITTAL EXHIBIT T3E.2 LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE 6% SENIOR SUBORDINATED NOTES DUE 2007 (THE "OLD NOTES") (CUSIP 828395 AB 9) ISSUED BY SILVERLEAF RESORTS, INC. PURSUANT TO THE OFFER TO EXCHANGE DATED MAY 4, 2004 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JUNE 2, 2004 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION, IN WHICH CASE THE TERM "EXPIRATION DATE" SHALL MEAN THE LATEST DATE AND TIME TO WHICH THE EXCHANGE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. The Exchange Agent is: WELLS FARGO BANK, NATIONAL ASSOCIATION
By Hand: By Registered or Certified Mail: By Overnight Courier: - ------- ------------------------------- -------------------- Wells Fargo Bank, National Wells Fargo Bank, National Wells Fargo Bank, National Association Association Association Attention: Nicole K. Hill Attention: Nicole K. Hill Attention: Nicole K. Hill Northstar East Building Corporate Trust Services Corporate Trust Services Corporate Trust Services P.O. Box 1517 Sixth and Marquette Avenue 608 Second Avenue South N9303-121 N9303-121 12th Floor Minneapolis, MN 55480 Minneapolis, MN 55479 Minneapolis, MN 55479
By Facsimile: (612) 667-4927 Confirm by Telephone: (612) 667-9764 For Information Call: (612) 667-9764 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE VALID DELIVERY. THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. IN ORDER TO VALIDLY TENDER THE OLD NOTES IN THE EXCHANGE OFFER, A HOLDER MUST ALSO AUTHORIZE THE PROPOSED FORM OF THE NEW INDENTURE AS WELL AS OTHER MATTERS SET FORTH HEREIN AND IN THE OFFER TO EXCHANGE. -1- By signing this Letter of Transmittal ("Letter of Transmittal"), the undersigned acknowledges receipt of the Offer to Exchange dated May 4, 2004 (the "Offer to Exchange"), of Silverleaf Resorts, Inc., a Texas corporation (the "Company"), and this Letter of Transmittal, which together with the Offer to Exchange constitutes the Company's offer (the "Exchange Offer") to exchange for each $500 principal amount of Old Notes tendered (i) $500 principal amount of its 8% Senior Subordinated Notes due 2010 (the "Exchange Notes"), and (ii) an additional payment of interest (the "Additional Interest Payment") in an amount equal to the amount of interest accrued on each Old Note held by an exchanging noteholder from April 1, 2004 through the day before the Exchange Date, which shall be payment in full of the accrued, unpaid interest on each Old Note exchanged. Capitalized terms used but not defined herein have the meaning given to them in the Offer to Exchange. The undersigned hereby tenders the Old Notes described in the box entitled "Description of Old Notes" below pursuant to the terms and conditions described in the Offer to Exchange and this Letter of Transmittal. The undersigned is the registered owner of all the Old Notes described below and the undersigned represents that it has received from each beneficial owner of Old Notes ("Beneficial Owners") a duly completed and executed form of "Instructions to Registered Holder from Beneficial Owner" accompanying this Letter of Transmittal, instructing the undersigned to take the action described in this Letter of Transmittal. Any Beneficial Owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder of Old Notes promptly and instruct such registered holder of Old Notes to tender on behalf of the Beneficial Owner. If such Beneficial Owner wishes to tender on its own behalf, such Beneficial Owner must, prior to completing and executing this Letter of Transmittal and delivering its Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such Beneficial Owner's name or obtain a properly completed bond power from the registered holder of Old Notes. The transfer of record ownership may take considerable time. Holders tendering by book-entry transfer to the Exchange Agent's account at DTC can execute the tender through ATOP, for which the transaction will be eligible, by electronically transmitting their acceptance through ATOP. DTC participants that are accepting the Exchange Offer must transmit their acceptance to DTC, which will verify the acceptance and execute a book-entry delivery to the Exchange Agent's DTC account. DTC will then send an Agent's message to the Exchange Agent for its acceptance. Delivery of the Agent's message will satisfy the terms of the Exchange Offer as to execution and delivery of a Letter of Transmittal by the participant identified in the Agent's message. Holders of Old Notes who desire to tender their Old Notes for exchange and (i) whose Old Notes are not immediately available, (ii) who cannot deliver their Old Notes, this Letter of Transmittal and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date or (iii) who cannot complete the procedures for book-entry transfer on a timely basis, must tender the Old Notes pursuant to the guaranteed delivery procedures set forth in the section of the Offer to Exchange entitled "The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction 2. Holders of Old Notes who wish to tender Old Notes for exchange must (i) complete the box below entitled "Description of Old Notes," (ii) complete the box entitled "Method of Tender and Delivery," (iii) complete and sign the box below entitled "Please Sign Here," (iv) if appropriate, check and complete the boxes relating to book-entry transfer, guaranteed delivery, Special Issuance Instructions and Special Delivery Instructions, and (v) complete and sign the Substitute Form W-9 provided herein. If only those items are completed, such holder of Old Notes will have tendered for exchange all Old Notes listed in the box entitled "Description of Old Notes" below. If the holder of Old Notes is the nominee of more than one Beneficial Owner of Old Notes, and all Beneficial Owners represented by such nominee do not wish to tender for exchange all of their Old Notes, such holder of Old Notes should refer to Instruction 5. ---------- EACH HOLDER SHOULD READ THE DETAILED INSTRUCTIONS BEGINNING ON PAGE 10 BEFORE COMPLETING THIS LETTER OF TRANSMITTAL. ---------- -2- HOLDERS WHO VALIDLY TENDER OLD NOTES ON OR PRIOR TO THE EXPIRATION DATE ARE DEEMED TO HAVE (1) APPROVED THE TERMS AND CONDITIONS OF THE NEW INDENTURE; AND (2) AUTHORIZED THE COMPANY, THE GUARANTORS, AND THE NEW INDENTURE TRUSTEE TO EXECUTE AND DELIVER THE NEW INDENTURE AND THE EXCHANGE NOTES. List below the Old Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, affix a separately executed schedule to this Letter of Transmittal. DESCRIPTION OF OLD NOTES
AGGREGATE PRINCIPAL CERTIFICATE AMOUNT NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) NUMBERS(S) TENDERED* ----------------------------------------------- ----------- --------- TOTAL PRINCIPAL AMOUNT TENDERED
-3- METHOD OF TENDER AND DELIVERY 1. [ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH. 2. [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY): Name of Registered Holder(s): --------------------------------------------- Date of Execution of Notice of Guaranteed Delivery: ----------------------- Window Ticket Number (if available): -------------------------------------- Name of Eligible Institution which Guaranteed Delivery: ------------------- Account Number with DTC (if delivered by book-entry transfer): ------------ Transaction Code Number: -------------------------------------------------- Principal Amount of Old Notes Tendered: ----------------------------------- 3. [ ] CHECK HERE IF TENDERED OLD NOTES BEING DELIVERED ARE HELD BY YOU AS A NOMINEE FOR BENEFICIAL OWNER(S) WHO HAVE INSTRUCTED YOU TO TENDER ALL OF THE OLD NOTES OWNED BY SUCH BENEFICIAL OWNER(S). -4- SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Pursuant to the offer by Silverleaf Resorts, Inc., a Texas corporation (the "Company"), upon the terms and subject to the conditions set forth in the Offer to Exchange dated May 4, 2004 (the "Offer to Exchange") and this Letter of Transmittal (the "Letter of Transmittal"), which together with the Offer to Exchange constitutes the Company's offer (the "Exchange Offer") to exchange for each $500 principal amount of its Old Notes tendered (i) $500 principal amount of its 8% Senior Subordinated Notes due 2010 (the "Exchange Notes"), and (ii) an additional payment (the "Additional Interest Payment") in an amount equal to the amount of interest accrued on each Old Note held by each exchanging noteholder from April 1, 2004 through the day before the Exchange Date, which shall be payment in full of the accrued, unpaid interest on each Old Note exchanged. The undersigned hereby tenders to the Company for exchange the Old Notes indicated above. By executing and delivering this Letter of Transmittal and subject to and effective upon acceptance for exchange of the Old Notes tendered for exchange herewith, the undersigned hereby 1. sells, assigns, transfers, exchanges, and tenders to the Company, all right, title and interest in, to and under all of the Old Notes tendered for exchange hereby, 2. consents and agrees to the terms and conditions of the New Indenture and the Exchange Notes; and 3. authorizes the Company, the Guarantors, and the New Indenture Trustee to execute and deliver the New Indenture and the Exchange Notes. The undersigned hereby appoints the Exchange Agent as the true and lawful agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as agent of the Company) of such holder of Old Notes with respect to such Old Notes, with full power of substitution to (i) deliver certificates representing such Old Notes, or transfer ownership of such Old Notes on the account books maintained by DTC (together, in any such case, with all accompanying evidences of transfer and authenticity) to the Company, (ii) present and deliver such Old Notes for transfer on the books of the Company, (iii) deliver to the Company and the Old Notes Trustee this Letter of Transmittal as evidence of the undersigned's tender of Old Notes under the Exchange Offer and other matters in respect of the Old Notes and for the purposes of certification that properly executed, validly delivered (and not revoked) tenders from not less than 80% of the aggregate principal amount of the outstanding Old Notes, have been received in accordance with the terms of the Exchange Offer, and (iv) receive all benefits and otherwise exercise all rights and incidents of Beneficial Ownership with respect to such Old Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed to be irrevocable and coupled with an interest. The undersigned hereby represents and warrants that (i) the undersigned is the record owner of the Old Notes tendered; (ii) the undersigned has full power and authority to tender, exchange, assign and transfer the Old Notes; and (iii) that when such Old Notes are accepted for exchange by the Company, the Company will acquire good and marketable title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims. The undersigned will, upon receipt, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of the Old Notes tendered for exchange hereby. For purposes of the Exchange Offer, the Company will be deemed to have accepted for exchange, and to have exchanged, validly tendered Old Notes, if, as and when the Company gives oral or written notice thereof to the Exchange Agent. Tenders of Old Notes for exchange may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer -- Withdrawal of Tenders" in the Offer to Exchange. Any Old Notes tendered by the undersigned and not accepted for exchange will be -5- returned to the undersigned at the address set forth above unless otherwise indicated in the box above entitled "Special Delivery Instructions" as promptly as practicable after the Expiration Date. The undersigned acknowledges that the Company's acceptance of Old Notes validly tendered for exchange pursuant to any one of the procedures described in the section of the Offer to Exchange entitled "The Exchange Offer" and in the Instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. Unless otherwise indicated in the box entitled "Special Issuance Instructions," please return any Old Notes not tendered for exchange in the name(s) of the undersigned. Similarly, unless otherwise indicated in the box entitled "Special Delivery Instructions," please mail any certificates for Old Notes not tendered or exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Issuance Instructions" and "Special Delivery Instructions" are completed, please issue the certificates representing the Exchange Notes issued in exchange for the Old Notes accepted for exchange in the name(s) of, and return any Old Notes not tendered for exchange or not exchanged to the person(s) so indicated. The undersigned recognizes that the Company has no obligation pursuant to the "Special Issuance Instructions" and "Special Delivery Instructions" to transfer any Old Notes from the name of the holder of Old Note(s) thereof if the Company does not accept for exchange any of the Old Notes so tendered for exchange or if such transfer would not be in compliance with any transfer restrictions applicable to such Old Note(s). Except as stated in the Offer to Exchange, all authority herein conferred or agreed to be conferred shall survive the death, incapacity, or dissolution of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as otherwise stated in the Offer to Exchange, this tender for exchange of Old Notes is irrevocable. -6- PLEASE SIGN HERE (TO BE COMPLETED BY ALL TENDERING HOLDERS OF OLD NOTES) This Letter of Transmittal must be signed by the registered holder(s) of the Old Notes exactly as their name(s) appear(s) on certificate(s) for the Old Notes or, exactly as such name(s) appear on a security position listing the holder as the owner of the Old Notes, or by person(s) authorized to become registered holder(s) of the Old Notes by endorsements and documents transmitted herein. If the signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below under "Capacity" and submit evidence satisfactory to the Company of such person's authority to so act. See Instruction 6 below. If the signature appearing below is not of the registered holder(s) of the Old Notes, then the registered Holder(s) must sign a valid proxy. X ----------------------------------------------------------------------------- X ----------------------------------------------------------------------------- (SIGNATURE(S) OF HOLDER(S) OR AUTHORIZED SIGNATORY) Dated: , 2004 ------------------------------------- Name(s): ----------------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT) Capacity: ---------------------------------------------------------------------- Address(es) (including zip code): ---------------------------------------------- - -------------------------------------------------------------------------------- Area Code and Telephone No.: --------------------------------------------------- PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN SIGNATURE GUARANTEE (SEE INSTRUCTIONS 1 AND 6 BELOW) Certain Signatures Must be Guaranteed by an Eligible Institution - -------------------------------------------------------------------------------- (NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURE) - -------------------------------------------------------------------------------- (ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF ELIGIBLE INSTITUTION) - -------------------------------------------------------------------------------- (AUTHORIZED SIGNATURE) - -------------------------------------------------------------------------------- (TITLE) Date: , 2004 --------------------- -7- SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 1 ,6, 7, AND 8) To be completed ONLY (i) if the Exchange Notes issued in exchange for Old Notes are to be issued in the name of someone other than the registered holder or (ii) if Old Notes tendered by book-entry transfer that are not exchanged are to be returned by credit to an account maintained at DTC other than the account indicated above. Issue (check appropriate box(es)) [ ] Exchange Notes: [ ] Old Notes to: Name: -------------------------------------------------------------------------- (Please Type or Print) Address: ----------------------------------------------------------------------- (Include Zip Code) Area Code and Telephone No.: --------------------------------------------------- - -------------------------------------------------------------------------------- (Tax Identification or Social Security No.) [ ] Credit Old Notes not accepted for exchange and Tendered by book-entry transfer to DTC Account set forth below: - -------------------------------------------------------------------------------- (Account Number) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 6, 7 AND 8) To be completed ONLY if the Exchange Notes or the Old Notes not accepted for exchange are to be mailed or delivered (i) to someone other than the registered owner or (ii) to the registered owner at an address other than the address shown above. Deliver (check appropriate box(es)) [ ] Exchange Notes to: [ ] Old Notes to: Name: -------------------------------------------------------------------------- (Please Type or Print) Address: ----------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) Area Code and Telephone No.: --------------------------------------------------- - -------------------------------------------------------------------------------- (Tax Identification or Social Security No.) -8- PAYER'S NAME: WELLS FARGO BANK, NATIONAL ASSOCIATION Name (If a joint account or you changed your name, see the enclosed Guidelines for Certification of Taxpayer Identification Number (TIN) on Substitute Form W-9 (the "Guidelines")): Business name, if different from above: Check appropriate box: [ ] Individual [ ] Sole proprietor [ ] Corporation [ ] Partnership [ ] Other -------------------------- Address (number, street, and apt. or suite no.): City, State, and ZIP code: PART 1--PLEASE PROVIDE YOUR TAXPAYER SUBSTITUTE IDENTIFICATION NUMBER ("TIN") IN THE BOX TIN AT RIGHT AND CERTIFY THAT IT IS CORRECT --------------------------- FORM W-9 AND THAT YOU ARE A U.S. PERSON (INCLUDING (Social Security Number or A U.S. RESIDENT ALIEN) BY SIGNING AND Employer Identification DATING BELOW. Number) DEPARTMENT OF THE TREASURY PART 2--Check the box if you are NOT subject to backup withholding because INTERNAL REVENUE SERVICE either (1) you are exempt from backup withholding, (2) you have not been notified that you are subject to backup withholding as a result of failure to report all interest or dividends, or (3) the Internal Revenue Service has notified you that you are no longer subject to backup withholding. [ ] CERTIFICATION--UNDER THE PENALTIES OF PART 3 PERJURY, I CERTIFY THAT THE PAYER'S REQUEST FOR TAXPAYER INFORMATION PROVIDED ON THIS FORM IS Awaiting TIN [ ] IDENTIFICATION NUMBER TRUE, CORRECT AND COMPLETE. SIGNATURE ------------------------------ DATE , 2004 --------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF A PORTION OF ANY CASH PAYMENTS. THE IRS DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACKUP WITHHOLDING. PLEASE REVIEW ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of the exchange, a portion of all reportable payments made to me thereafter will be withheld until I provide a number. - ---------------------------------------------- ------------------------- Signature Date CERTIFICATE INSTRUCTIONS: You must not check the box in Part 2 above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, then you may check the box in Part 2 above. -9- INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by an institution that is (1) a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., (2) a commercial bank or trust company having an office or correspondent in the United States, or (3) an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934 which is also a member of one of the following recognized Signature Guarantee Programs (an "Eligible Institution"): o The Securities Transfer Agents Medallion Program (STAMP), o The New York Stock Exchange Medallion Signature Program (MSP), or o The Stock Exchange Medallion Program (SEMP). Signatures on this Letter of Transmittal need not be guaranteed (i) if this Letter of Transmittal is signed by the registered holder(s) of the Old Notes entered herewith and such registered holder(s) have not completed the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (ii) if such Old Notes are tendered for the account of an Eligible Institution. IN ALL OTHER CASES, ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION. 2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by holders of Old Notes (i) if certificates are to be forwarded herewith or (ii) if tenders are to be made pursuant to the procedures for tender by guaranteed delivery set forth in the section of the Offer to Exchange entitled "The Exchange Offer." Certificates for all physically tendered Old Notes as well as a properly completed and duly executed copy of this Letter of Transmittal or facsimile hereof and any other documents required by this Letter of Transmittal, or any timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") must be received by the Exchange Agent prior to 5:00 p.m., New York City time on the Expiration Date. Holders of Old Notes who elect to tender Old Notes and (i) whose Old Notes are not immediately available, (ii) who cannot deliver the Old Notes, this Letter of Transmittal or other required documents or (iii) who cannot complete the procedures for book-entry transfer on a timely basis may deliver their Old Notes according to the guaranteed delivery procedures set forth in the Offer to Exchange. Holders may have such tender effected if: (a) such tender is made through an Eligible Institution and (b) prior to 5:00 p.m., New York City time, on the Expiration Date, the Exchange Agent has received from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery, or a properly transmitted agent's message (as such term is defined in the Offer to Exchange) relating to the guaranteed delivery procedure, setting forth the name and address of the holder of such Old Notes and the principal amount of Old Notes tendered for exchange, stating that tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, this Letter of Transmittal (or facsimile hereof), together with the certificate(s) representing such Old Notes (or a Book-Entry Confirmation), in proper form for transfer, and any other documents required by this Letter of Transmittal, will be deposited by such Eligible Institution with the Exchange Agent. THE METHOD OF DELIVERY OF OLD NOTES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NEITHER THIS LETTER OF TRANSMITTAL NOR ANY OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. -10- No alternative, conditional or contingent tenders will be accepted. All tendering holders of Old Notes, by execution of this Letter of Transmittal (or facsimile hereof, if applicable) or by effecting a book-entry transfer or guaranteed delivery, waive any right to receive notice of the acceptance of their Old Notes for exchange. 3. INADEQUATE SPACE. If the space provided in the box entitled "Description of Old Notes" above is inadequate, the certificate numbers and principal amounts of the Old Notes tendered should be listed on a separate signed schedule affixed hereto. 4. WITHDRAWALS. A tender of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date by delivery of written or facsimile notice of withdrawal to the Exchange Agent at the address set forth on the cover of this Letter of Transmittal. To be effective, a notice of withdrawal of Old Notes must (i) specify the name of the person who tendered the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the certificate number or numbers, if any, and aggregate principal amount of such Old Notes), and (iii) be signed by the holder of Old Notes in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees). All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, in its sole discretion, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will therefore be deemed not validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Properly withdrawn Old Notes may be retendered by following the procedures described in the section of the Offer to Exchange entitled "The Exchange Offer -- Procedures for Tendering" at any time prior to 5:00 p.m., New York City. 5. PARTIAL TENDERS BY NOMINEES ONLY. Tenders of Old Notes will be accepted only in integral multiples of $500 principal amount. Partial tenders of Old Notes for exchange will be accepted by the Exchange Agent on the basis of a representation and warranty, that shall be deemed to have been made at the time of the tender by the record owner that the portion of Old Notes not tendered is held by the record owner only in the capacity as nominee of a Beneficial Owner that has elected not to tender any old Notes. No partial tenders for exchange by a Beneficial Owner will be accepted by the Exchange Agent. 6. SIGNATURES ON THIS LETTER OF TRANSMITTAL, ASSIGNMENT AND ENDORSEMENTS. (a) The signature(s) of the holder of Old Notes on this Letter of Transmittal must correspond with the name(s) as written on the face of the Old Notes without alteration, enlargement or any change whatsoever. (b) If tendered Old Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. (c) If any tendered Old Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal and any necessary or required documents as there are different registrations or certificates. (d) When this Letter of Transmittal is signed by the holder of the Old Notes listed and transmitted hereby, no endorsements of Old Notes or bond powers are required. If, however, Old Notes not tendered or not accepted, are to be issued or returned in the name of a person other than the holder of Old Notes, then the Old Notes transmitted hereby must be endorsed or accompanied by a properly completed bond power, in a form satisfactory to the Company, in either case signed exactly as the name(s) of the holder of Old Notes appear(s) on the Old Notes. Signatures on such Old Notes or bond powers must be guaranteed by an Eligible Institution (unless signed by an Eligible Institution). (e) If this Letter of Transmittal or Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with this Letter of Transmittal. -11- (f) If this Letter of Transmittal is signed by a person other than the registered holder of Old Notes listed, the Old Notes must be endorsed or accompanied by a properly completed bond power, in either case signed by such registered holder exactly as the name(s) of the registered holder of Old Notes appear(s) on the certificates. Signatures on such Old Notes or bond powers must be guaranteed by an Eligible Institution (unless signed by an Eligible Institution). 7. TRANSFER TAXES. Except as set forth in this Instruction 7, the Company will pay all transfer taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the exchange of the Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemptions therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. 8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the Exchange Notes are to be issued, or if any Old Notes not tendered for exchange are to be issued or sent to someone other than the holder of Old Notes or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Holders of Old Notes tendering Old Notes by book-entry transfer may request that Old Notes not accepted be credited to such account maintained at DTC as such holder of Old Notes may designate. 9. IRREGULARITIES. All questions as to the validity, form, eligibility (including time of receipt), compliance with conditions, acceptance and withdrawal of tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes that the Company's acceptance of would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the absolute right to waive any defects, irregularities or conditions of tender for exchange as to any particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) will be final and binding. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notice of any defects or irregularities with respect to tenders of Old Notes for exchange, nor shall any of them incur any liability for failure to give such notice. Tenders of Old Notes will not be deemed to have been made until all defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Date. 10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive, amend or modify certain of the specified conditions as described under "The Exchange Offer -- Conditions" in the Offer to Exchange in the case of any Old Notes tendered (except as otherwise provided in the Offer to Exchange). 11. REQUESTS FOR INFORMATION OR ADDITIONAL COPIES. Questions, requests for information or for additional copies of the Offer to Exchange and this Letter of Transmittal may be directed to the Exchange Agent at the address or telephone number set forth on the cover of this Letter of Transmittal or to D. F. King & Co., Inc., the Information Agent for the Exchange Offer, at the address and telephone number set forth on the back cover of this Letter of Transmittal. Additional copies of the Offer to Exchange may also be obtained from your broker, dealer, commercial bank, trust company or other nominee. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF, IF APPLICABLE) TOGETHER WITH CERTIFICATES, OR CONFIRMATION OF BOOK-ENTRY OR THE NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. -12- IMPORTANT TAX INFORMATION Under current federal income tax law, a holder of Old Notes whose tendered Old Notes are accepted for exchange may be subject to backup withholding unless the holder provides the Company (as payor), through the Exchange Agent, with either (i) such holder's correct taxpayer identification number ("TIN") on Substitute Form W-9 attached hereto, certifying that the TIN provided on Substitute Form W-9 is correct (or that such holder of Old Notes is awaiting a TIN) and that (A) the holder of Old Notes has not been notified by the Internal Revenue Service that he or she is subject to backup withholding as a result of a failure to report all interest or dividends or (B) the Internal Revenue Service has notified the holder of Old Notes that he or she is no longer subject to backup withholding; or (ii) an adequate basis for exemption from backup withholding. If such holder of Old Notes is an individual, the TIN is such holder's social security number. If the Exchange Agent is not provided with the correct taxpayer identification number, the holder of Old Notes may be subject to certain penalties imposed by the Internal Revenue Service. Certain holders of Old Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. Exempt holders of Old Notes should indicate their exempt status on Substitute Form W-9. A foreign individual may qualify as an exempt recipient by submitting to the Exchange Agent a properly completed Internal Revenue Service Form W-8 (which the Exchange Agent will provide upon request) signed under penalty of perjury, attesting to the holder's exempt status. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (the "Guidelines") for additional instructions. If backup withholding applies, the Company is required to withhold 28% of any payment made to the holder of Old Notes or other payee. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. The holder of Old Notes is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the record owner of the Old Notes. If the Old Notes are held in more than one name or are not held in the name of the actual owner, consult the enclosed Guidelines for additional guidance regarding which number to report. -13- The Information Agent for the Exchange Offer is: D.F. KING & CO., INC. 77 Water Street 20th Floor New York, New York 10005 U.S.A. Attention: Edward McCarthy Banks and Brokerage Firms, Please Call: (212) 269-5550 All Others Call Toll-free: (800) 848-3408 ---------- The Exchange Agent is: WELLS FARGO BANK, NATIONAL ASSOCIATION ---------- By Hand: Wells Fargo Bank, National Association Attention: Nicole K. Hill Northstar East Building Corporate Trust Services 608 Second Avenue South 12th Floor Minneapolis, MN 55479 By Registered or Certified Mail: Wells Fargo Bank, National Association Attention: Nicole K. Hill Corporate Trust Services P.O. Box 1517 N9303-121 Minneapolis, MN 55480 By Overnight Courier: Wells Fargo Bank, National Association Attention: Nicole K. Hill Corporate Trust Services Sixth and Marquette Avenue N9303-121 Minneapolis, MN 55479 By Facsimile: (612) 667-4927 Confirm by Telephone: (612) 667-9764 For Information Call: (612) 667-9764 -14- EX-99.T3E.3 5 d14692exv99wt3ew3.txt FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT T3E.3 NOTICE OF GUARANTEED DELIVERY WITH RESPECT TO 6% SENIOR SUBORDINATED NOTES DUE 2007 (THE "OLD NOTES") (CUSIP 828395 AB 9) ISSUED BY SILVERLEAF RESORTS, INC. This Notice of Guaranteed Delivery, or one substantially equivalent to this form, or an agent's message (as such term is defined in the Offer to Exchange) relating to the guaranteed delivery procedure, must be used to tender under the Exchange Offer if any Old Notes of Silverleaf Resorts, Inc. are not lost but are not immediately available or time will not permit all required documents to reach the Exchange Agent by the Expiration Date or if the procedures for book-entry transfer cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand, overnight courier or mail, or transmitted by facsimile transmission to the Exchange Agent. See "The Exchange Offer -- Guaranteed Delivery Procedures" in the Offer to Exchange dated May 4, 2004. The Exchange Agent for the Exchange Offer is Wells Fargo Bank, National Association. All correspondence should be addressed to the Exchange Agent as follows:
By Hand: By Registered or Certified Mail: By Overnight Courier: - -------- -------------------------------- --------------------- Wells Fargo Bank, National Wells Fargo Bank, National Wells Fargo Bank, National Association Association Association Attention: Nicole K. Hill Attention: Nicole K. Hill Attention: Nicole K. Hill Northstar East Building Corporate Trust Services Corporate Trust Services Corporate Trust Services P.O. Box 1517 Sixth and Marquette Avenue 608 Second Avenue South N9303-121 N9303-121 12th Floor Minneapolis, MN 55480 Minneapolis, MN 55479 Minneapolis, MN
By Facsimile: (612) 667-4927 Confirm by Telephone: (612) 667-9764 For Information Call: (612) 667-9764 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE VALID DELIVERY. THIS NOTICE OF GUARANTEED DELIVERY SHOULD NOT BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE INSTITUTION UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. -1- As set forth in the Offer to Exchange dated May 4, 2004 (the "Offer to Exchange") under the heading "The Exchange Offer--Guaranteed Delivery Procedures" and in the Instructions to the Letter of Transmittal, this form, or one substantially equivalent hereto, or an agent's message (as such term is defined in the Offer to Exchange) relating to the guaranteed delivery procedure, must be used to accept the Exchange Offer if time will not permit the Letter of Transmittal, certificates representing the Old Notes and other required documents to reach the Exchange Agent, or the procedures for book-entry transfer cannot be completed, on or prior to the Expiration Date (as such term is defined in the Offer to Exchange). This form must be delivered by an Eligible Institution (as defined hereinafter) by mail or hand delivery or transmitted via facsimile to the Exchange Agent as set forth above. All capitalized terms used herein but not defined herein shall have the meanings ascribed to them in the Offer to Exchange. Ladies and Gentlemen: The undersigned hereby tender(s) to Silverleaf, upon the terms and subject to the conditions set forth in the Letter of Transmittal (receipt of which is hereby acknowledged), the principal amount of the Old Notes specified below pursuant to the guaranteed delivery procedure set forth in the Offer to Exchange under the heading "The Exchange Offer--Guaranteed Delivery Procedures." The undersigned hereby authorizes the Exchange Agent to deliver this Notice of Guaranteed Delivery to Silverleaf and the Trustee with respect to the Old Notes tendered pursuant to the Exchange Offer. The undersigned understands that holders who validly tender their Old Notes (with either a Letter of Transmittal, or a manually signed facsimile thereof, with respect to such Old Notes, properly completed and duly executed, with any signature guarantees and any other documents required by the Letter of Transmittal or a properly transferred Agent's message) using this Notice of Guaranteed Delivery and the guaranteed delivery procedure will be deemed to have properly tendered their Old Notes. The undersigned understands that tenders of Old Notes will be accepted only in principal amounts equal to $500, or integral multiples thereof. This Notice of Guaranteed Delivery may only be utilized on or prior to the Expiration Date. The undersigned also understands that tenders of Notes may be withdrawn at any time on or prior to the Expiration Date. The undersigned understands that the issuance of Exchange Notes for Old Notes tendered will occur only after timely receipt by the Exchange Agent of (i) such Old Notes or a Book-Entry Confirmation of the transfer of such Old Notes into the Exchange Agent's account at DTC and (ii) either a Letter of Transmittal (or a manually signed facsimile thereof) with respect to such Old Notes, properly completed and duly executed, with any signature guarantees and any other documents required by the Letter of Transmittal or a properly transferred Agent's message within three business days after the execution hereof. -2- PLEASE SIGN AND COMPLETE Signature(s) of Registered Holder(s) or Authorized Signatory: X ---------------- Name(s) of Registered Holder(s): ----------------------------------------------- - -------------------------------------------------------------------------------- Principal Amount of Notes Tendered: -------------------------------------------- Certificate No.(s) of Notes (if available): ------------------------------------ Date: -------------------------------------------------------------------------- Address (including zip code): -------------------------------------------------- Area Code and Telephone No.: --------------------------------------------------- Fax: --------------------------------------------------------------------------- If Notes will be delivered by book-entry transfer, check the box below: [ ] The Depository Trust Company Depository Account No.: -------------------------------------------------------- This Notice of Guaranteed Delivery must be signed by the holder(s) exactly as their name(s) appear(s) on certificate(s) for Old Notes or on a security position listing as the owner of Old Notes, or by person(s) authorized to become holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information. PLEASE PRINT NAME(s) AND ADDRESS(ES): Name(s): ----------------------------------------------------------------------- Capacity: ---------------------------------------------------------------------- Address(es) (including zip code): ---------------------------------------------- Tax Identification or Social Security Number: ---------------------------------- Area code and Telephone No.: Fax No.: ------------------- ---------------------- e-mail: ------------------------------------------------------------------------ -3- DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL. GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member of the Securities Transfer Agents Medallion Program, the Stock Exchange Medallion Program or the New York Stock Exchange, Inc. Medallion Signature Program (each, an "Eligible Institution"), hereby represents that the tender of Old Notes hereby complies with Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended, and guarantees that the Exchange Agent will receive (a) such Old Notes or a Book-Entry Confirmation of the transfer of such Old Notes into the Exchange Agent's account at DTC and (ii) either a Letter of Transmittal and Consent (or a manually signed facsimile thereof) with respect to such Old Notes, properly completed and duly executed, with any signature guarantees and any other documents required by the Letter of Transmittal and Consent or a properly transferred Agent's message within three business days after the execution hereof. The Eligible Institution that completes this form must communicate the guarantee to the Exchange Agent and must deliver the Letter of Transmittal and Consent and Old Notes to the Exchange Agent within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. Name of Firm: ------------------------------------------------------------------ Authorized Signature: ---------------------------------------------------------- Title: ------------------------------------------------------------------------- Address (including zip code): -------------------------------------------------- Area Code and Telephone No.: --------------------------------------------------- Fax No.: ----------------------------------------------------------------------- Date: , 2004 --------------------------------- -4- EX-99.T3E.4 6 d14692exv99wt3ew4.txt FORM OF LETTER TO BROKERS, DEALERS, BANKS & OTHERS EXHIBIT T3E.4 OFFER TO EXCHANGE IN RESPECT OF ANY AND ALL OUTSTANDING 6% SENIOR SUBORDINATED NOTES DUE 2007 (THE "OLD NOTES") (CUSIP 828395 AB 9) ISSUED BY SILVERLEAF RESORTS, INC. NOTICE TO BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES AND OTHER NOMINEES Enclosed for your consideration is an Offer to Exchange dated May 4, 2004 (the "Offer to Exchange") and a form of Letter of Transmittal relating to the offer by Silverleaf Resorts, Inc. (the "Company" or "Silverleaf") to exchange for each $500 principal amount of the Old Notes (i) $500 principal amount of its 8% Senior Subordinated Notes due 2010 (the "Exchange Notes"), and (ii) an additional payment (the "Additional Interest Payment") in an amount equal to the amount of interest accrued on each Old Note held by an exchanging noteholder from April 1, 2004 through the date before the Exchange Date, which payment shall be payment in full of the accrued, unpaid interest on each Old Note exchanged. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JUNE 2, 2004 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION, IN WHICH CASE THE TERM "EXPIRATION DATE" SHALL MEAN THE LATEST DATE AND TIME TO WHICH THE EXCHANGE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. The completion, execution and delivery of the Letter of Transmittal by a holder in connection with the tender of Old Notes on or prior to the Expiration Date will be deemed to be an approval of the terms and conditions of the New Indenture and the Exchange Notes and the other matters as described in the Offer to Exchange under the heading "The Exchange Offer." The Offer to Exchange is subject to the satisfaction of certain conditions, including the valid tender (without withdrawal) of not less than 80% in aggregate principal amount of the Old Notes outstanding on the Expiration Date. Capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Offer to Exchange. For your information and for forwarding to your clients for whom you hold Old Notes registered in your name or in the name of your nominee, we are enclosing the following documents: 1. Offer to Exchange dated May 4, 2004. 2. Letter of Transmittal for each of the Old Notes for your use and for the information of your clients, together with a pamphlet entitled "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" providing information relating to backup U.S. federal income tax withholding. 3. A Notice of Guaranteed Delivery for each of the Old Notes to be used to accept the Exchange Offer if the Old Notes and all other required documents cannot be delivered to the Depositary by the Expiration Date or the procedures for book-entry transfer cannot be completed by the Expiration Date. 4. A printed form of letter that may be sent to your clients for whose accounts you hold Notes registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Exchange Offer. This form will enable your clients to tender Old Notes that they own. Any inquiries you may have with respect to the Exchange Offer should be addressed to D. F King, the Information Agent, at (800) 488-8035 (U.S. only), (212) 493-6952 (outside the U.S.) or (44) 20 7920 9700 (outside the U.S.) or at the addresses set forth on the back cover of the Offer to Exchange. Additional copies of the enclosed materials may be obtained from the Information Agent at the numbers above. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF SILVERLEAF, THE OLD INDENTURE TRUSTEE, THE NEW INDENTURE TRUSTEE, THE INFORMATION AGENT OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. EX-99.T3E.5 7 d14692exv99wt3ew5.txt FORM OF LETTER TO CLIENTS EXHIBIT T3E.5 OFFER TO EXCHANGE IN RESPECT OF ANY AND ALL OUTSTANDING 6% SENIOR SUBORDINATED NOTES DUE 2007 (THE "OLD NOTES") (CUSIP 828395 AB 9) ISSUED BY SILVERLEAF RESORTS, INC. NOTICE TO BENEFICIAL OWNERS To Our Clients: Enclosed for your consideration is an Offer to Exchange dated May 4, 2004 (the "Offer to Exchange") and a form of Letter of Transmittal relating to the offer by Silverleaf Resorts, Inc. (the "Company" or "Silverleaf") to exchange for each $500 principal amount of the Old Notes (i) $500 principal amount of its 8% Senior Subordinated Notes due 2010 (the "Exchange Notes"), and (ii) an additional payment of interest (the "Additional Interest Payment") in an amount equal to the interest accrued on each Old Note held by an exchanging noteholder from April 1, 2004 through the date before the Exchange Date, which payment shall be payment in full of the accrued, unpaid interest on each Old Note exchanged. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JUNE 2, 2004 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION, IN WHICH CASE THE TERM "EXPIRATION DATE" SHALL MEAN THE LATEST DATE AND TIME TO WHICH THE EXCHANGE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. The completion, execution and delivery of the Letter of Transmittal by a Holder in connection with the tender of Notes on or prior to the Expiration Date will be deemed to be an approval of the terms and conditions of the New Indenture and the Exchange Notes and the other matters described in the Offer to Exchange under the heading "The Exchange Offer." The Offer to Exchange is subject to the satisfaction of certain conditions, including the valid tender (without withdrawal) of not less than 80% in aggregate principal amount of the Old Notes outstanding on the Expiration Date. Capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Offer to Exchange. This material relating to the Exchange Offer is being forwarded to you as the beneficial owner of Old Notes carried by us for your account or benefit but not registered in your name. A tender of any Old Notes may only be made by us as the registered holder and pursuant to your instructions. Therefore, Silverleaf urges beneficial owners of Old Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee to contact such registered Holder promptly if they wish to tender Old Notes pursuant to the Exchange Offer. Accordingly, we request instructions as to whether you wish us to tender any or all of the Old Notes held by us for your account. We urge you to read carefully the Offer to Exchange, the Letter of Transmittal, and the other materials provided herewith before instructing us to tender your Old Notes. Your instructions to us, which can be made using the attached form, should be forwarded as promptly as possible to permit us to tender your Old Notes on your behalf in accordance with the provisions of the Exchange Offer. Please note that tenders of Old Notes must be received by 5:00 p.m., Eastern Daylight time, on June 2, 2004, unless the Exchange Offer is extended. Tenders of Notes may be withdrawn at any time on or prior to the Expiration Date. Your attention is directed to the following: 1. The Exchange Offer is for any and all Old Notes that are outstanding. 2. If you desire to tender any Old Notes pursuant to the Exchange Offer, we must receive your instructions in ample time to permit us to effect a tender of your Old Notes on your behalf on or prior to 5:00 p.m., New York City time, on the Expiration Date. 3. Silverleaf's obligation to deliver the Exchange Notes and the Additional Interest Payment for tendered Old Notes is subject to certain conditions set forth in the Offer to Exchange under the caption "The Exchange Offer--Conditions." IF YOU WISH TO HAVE US TENDER ANY OR ALL OF YOUR OLD NOTES HELD BY US FOR YOUR ACCOUNT OR BENEFIT PURSUANT TO THE EXCHANGE OFFER, PLEASE SO INSTRUCT US BY COMPLETING, EXECUTING AND RETURNING TO US THE INSTRUCTION FORM THAT APPEARS ON THE FOLLOWING PAGES. The accompanying Letter of Transmittal is furnished to you for informational purposes only and may not be used by you to tender Old Notes held by us and registered in our name for your account. INSTRUCTIONS TO REGISTERED OWNER FROM BENEFICIAL OWNER The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer by Silverleaf with respect to the Old Notes. THIS WILL INSTRUCT YOU TO TENDER THE PRINCIPAL AMOUNT OF OLD NOTES INDICATED BELOW HELD BY YOU FOR THE ACCOUNT OR BENEFIT OF THE UNDERSIGNED WITH RESPECT TO THE PRINCIPAL AMOUNT OF OLD NOTES INDICATED BELOW, PURSUANT TO THE TERMS AND CONDITIONS SET FORTH IN THE OFFER TO EXCHANGE DATED MAY 4, 2004 AND IN THE LETTER OF TRANSMITTAL. 6% SENIOR SUBORDINATED NOTES DUE 2007 OF SILVERLEAF RESORTS, INC. WHICH ARE TO BE TENDERED IN THE OFFER TO EXCHANGE: Principal Amount Are 6% Senior Subordinated Notes due 2007 of Silverleaf Resorts Inc. to be tendered? ("Yes" or "No")* $ * UNLESS OTHERWISE INDICATED, "YES" WILL BE ASSUMED. The undersigned acknowledges that by tendering the Old Notes for exchange, the undersigned hereby instructs the registered holder to: 1. sell, assign, transfer, exchange and tender to the Company all right, title and interest in, to and under all of the Old Notes described above, 2. agree to the terms and conditions of the New Indenture and the Exchange Notes; and 3. authorize the Company, the Guarantors and the New Indenture Trustee to execute and deliver the New Indenture and the Exchange Notes. PLEASE SIGN HERE Signature(s): ------------------------------------------------------------------ Name(s) (Please Print): -------------------------------------------------------- Address(es) (including zip code): ---------------------------------------------- Area Code and Telephone No.: Fax No. --------------------- --------------------- E-mail address: ---------------------------------------------------------------- Tax Identification or Social Security No.: ------------------------------------- My Account Number With You: ---------------------------------------------------- Date: -------------------------------------------------------------------------- EX-99.T3E.6 8 d14692exv99wt3ew6.txt FORM OF TRANSMITTAL LETTER TO HOLDERS Silverleaf Resorts, Inc. 1221 River Bend Drive Suite 120 Dallas, Texas 75247 (214) 631-1166 EXHIBIT T3E.6 May 4, 2004 Dear Noteholder: Silverleaf Resorts, Inc. (the "Company") is proposing to offer the holders of its 6% Senior Subordinated Notes Due 2007 (the "Old Notes") the opportunity to exchange their Old Notes for newly issued 8% Senior Subordinated Notes Due 2010 (the "Exchange Notes"). A successful completion of the Exchange Offer is expected to permit the Company to obtain needed access to the capital markets and thereby obtain required financing for its future operations and to refinance its existing senior credit facilities. The Company is offering to increase from 6% to 8% the interest paid annually on the outstanding principal amount of indebtedness owed to each exchanging holder; however, in order to obtain the higher interest rate, each exchanging holder must agree to extend the date on which the Company must repay each holder's principal from April 1, 2007 to April 1, 2010. A minimum of 80% in principal amount of the Old Notes outstanding must be tendered in order for the Exchange Offer to be consummated. The attached Offer to Exchange (the "Offer to Exchange") explains the transaction and the exchange process in detail, and I encourage you to review these materials thoroughly before reaching a decision. For each $500 principal amount of Old Notes tendered, the Company is offering in exchange $500 in principal amount of Exchange Notes, which will bear interest at a rate of 8% per annum from the date of issuance until maturity at April 1, 2010. Exchanging holders are each being paid an additional interest payment (the "Additional Interest Payment") in an amount equal to the accrued interest on each Old Note exchanged from April 1, 2004 through the day immediately before the effective date of the Exchange Offer. Any Old Notes not tendered will continue to accrue interest at 6% and mature on April 1, 2007. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER. THE OFFER TO EXCHANGE WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JUNE 2, 2004, UNLESS THE OFFER IS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION. Sincerely, Robert E. Mead Chairman and Chief Executive Officer Silverleaf Resorts, Inc. EX-99.T3F 9 d14692exv99wt3f.txt CROSS REFERENCE SHEET . . . EXHIBIT T3F CROSS-REFERENCE TABLE
Trust Indenture Act Section Indenture Section 310 (a)(1)................................................................................ 7.10 (a)(2)................................................................................ 7.10 (a)(3)................................................................................ N.A. (a)(4)................................................................................ N.A. (a)(5)................................................................................ 7.10 (b)................................................................................... 7.10 (c)................................................................................... N.A. 311 (a)................................................................................... 7.11 (b)................................................................................... 7.11 (c)................................................................................... N.A. 312 (a)................................................................................... 2.05 (b)................................................................................... 12.03 (c)................................................................................... 12.03 313 (a)................................................................................... 7.06 (b)(1)................................................................................ N.A. (b)(2)................................................................................ 7.07 (c)................................................................................... 7.06; 12.02 (d)................................................................................... 7.06 314 (a)................................................................................... 4.03; 12.02 (b)................................................................................... N.A. (c)(1)................................................................................ 12.04 (c)(2)................................................................................ 12.04 (c)(3)................................................................................ N.A. (d)................................................................................... N.A. (e)................................................................................... 12.05 (f)................................................................................... N.A. 315 (a)................................................................................... 7.01 (b)................................................................................... 7.05; 12.02 (c)................................................................................... 7.01 (d)................................................................................... 7.01 (e)................................................................................... 6.11 316 (a)(last sentence).................................................................... 2.09 (a)(1)(A)............................................................................. 6.05 (a)(1)(B)............................................................................. 6.04 (a)(2)................................................................................ N.A. (b)................................................................................... 6.07 (c)................................................................................... 2.12 317 (a)(1)................................................................................ 6.08 (a)(2)................................................................................ 6.09 (b)................................................................................... 2.04 318 (a)................................................................................... 12.01 (b)................................................................................... N.A. (c)................................................................................... 12.01
N.A. means not applicable. EX-99.T3G 10 d14692exv99wt3g.txt STATEMENT OF ELIGIBILITY & QUALIFICATIONS-FORM T-1 EXHIBIT T3G ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ---------- __ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b) (2) WELLS FARGO BANK, NATIONAL ASSOCIATION (Exact name of trustee as specified in its charter) A NATIONAL BANKING ASSOCIATION 94-1347393 (Jurisdiction of incorporation or (I.R.S. Employer organization if not a U.S. national Identification No.) bank) 101 NORTH PHILLIPS AVENUE SIOUX FALLS, SOUTH DAKOTA 57104 (Address of principal executive offices) (Zip code) WELLS FARGO & COMPANY LAW DEPARTMENT, TRUST SECTION MAC N9305-175 SIXTH STREET AND MARQUETTE AVENUE, 17TH FLOOR MINNEAPOLIS, MINNESOTA 55479 (612) 667-4608 (Name, address and telephone number of agent for service) ---------- SILVERLEAF RESORTS, INC.(1) (Exact name of obligor as specified in its charter) TEXAS 75-2259890 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1221 RIVER BEND DRIVE, SUITE 120 DALLAS, TEXAS 75247 (Address of principal executive offices) (Zip code) ---------- 8% SENIOR SUBORDINATED NOTES DUE 2010 (Title of the indenture securities) ================================================================================ (1) See Table 1 - List of additional obligors Table 1 Address of each of the Guarantors listed below is 1221 RIVER BEND DRIVE, SUITE 120, DALLAS, TEXAS 75247.
Guarantor State of Incorporation Federal EIN --------- ---------------------- ----------- 1. Silverleaf Travel, Inc. Texas 75-2658235 2. Silverleaf Berkshires, Inc. Texas 75-2738474 3. Silverleaf Resort Acquisitions, Inc. Texas 75-2716857 4. Awards Verification Center, Inc. Texas 75-2651673 5. Bull's Eye Marketing, Inc. Delaware 75-2744475 6. eStarCommunications, Inc. Texas 75-2847436 7. People Really Win Sweepstakes, Inc. Texas 20-0335635 8. SLR Research, Inc. Texas 20-0849930
Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency Treasury Department Washington, D.C. Federal Deposit Insurance Corporation Washington, D.C. Federal Reserve Bank of San Francisco San Francisco, California 94120 (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. Item 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None with respect to the trustee. No responses are included for Items 3-14 of this Form T-1 because the obligor is not in default as provided under Item 13. Item 15. Foreign Trustee. Not applicable. Item 16. List of Exhibits. List below all exhibits filed as a part of this Statement of Eligibility. Exhibit 1. A copy of the Articles of Association of the trustee now in effect.* Exhibit 2. A copy of the Comptroller of the Currency Certificate of Corporate Existence and Fiduciary Powers for Wells Fargo Bank, National Association, dated February 4, 2004.** Exhibit 3. See Exhibit 2 Exhibit 4. Copy of By-laws of the trustee as now in effect.*** Exhibit 5. Not applicable. Exhibit 6. The consent of the trustee required by Section 321(b) of the Act. Exhibit 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority.**** Exhibit 8. Not applicable. Exhibit 9. Not applicable. * Incorporated by reference to the exhibit of the same number to the trustee's Form T-1 filed as exhibit 25 to the Form T-3 dated March 3, 2004 of Trans-Lux Corporation file number 022-28721. ** Incorporated by reference to the exhibit of the same number to the trustee's Form T-1 filed as exhibit 25 to the Form T-3 dated March 3, 2004 of Trans-Lux Corporation file number 022-28721. *** Incorporated by reference to the exhibit of the same number to the trustee's Form T-1 filed as exhibit 25 to the Form T-3 dated March 3, 2004 of Trans-Lux Corporation file number 022-28721. **** Wells Fargo Bank Minnesota, National Association was consolidated into Wells Fargo Bank, National Association effective February 20, 2004. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Wells Fargo Bank, National Association, a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Minneapolis and State of Minnesota on the 19th day of April 2004. WELLS FARGO BANK, NATIONAL ASSOCIATION /S/ JANE Y. SCHWEIGER -------------------------------------- Jane Y. Schweiger Vice President EXHIBIT 6 April 19, 2004 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: In accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, the undersigned hereby consents that reports of examination of the undersigned made by Federal, State, Territorial, or District authorities authorized to make such examination may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, WELLS FARGO BANK, NATIONAL ASSOCIATION /S/ JANE Y. SCHWEIGER -------------------------------------- Jane Y. Schweiger Vice President Exhibit 7 Consolidated Report of Condition of Wells Fargo Bank Minnesota, National Association of Sixth Street and Marquette Avenue, Minneapolis, MN 55479 And Foreign and Domestic Subsidiaries, at the close of business December 31, 2003, filed in accordance with 12 U.S.C. Section 161 for National Banks.
Dollar Amounts In Millions -------------- ASSETS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin $ 1,322 Interest-bearing balances 127 Securities: Held-to-maturity securities 0 Available-for-sale securities 2,568 Federal funds sold and securities purchased under agreements to resell: Federal funds sold in domestic offices 1,053 Securities purchased under agreements to resell 0 Loans and lease financing receivables: Loans and leases held for sale 14,457 Loans and leases, net of unearned income 27,715 LESS: Allowance for loan and lease losses 284 Loans and leases, net of unearned income and allowance 27,431 Trading Assets 49 Premises and fixed assets (including capitalized leases) 180 Other real estate owned 12 Investments in unconsolidated subsidiaries and associated companies 0 Customers' liability to this bank on acceptances outstanding 22 Intangible assets Goodwill 291 Other intangible assets 9 Other assets 1,281 ------------ Total assets $ 48,802 ============ LIABILITIES Deposits: In domestic offices $ 29,890 Noninterest-bearing 17,097 Interest-bearing 12,793 In foreign offices, Edge and Agreement subsidiaries, and IBFs 4 Noninterest-bearing 0 Interest-bearing 4 Federal funds purchased and securities sold under agreements to repurchase: Federal funds purchased in domestic offices 9,295 Securities sold under agreements to repurchase 237
Dollar Amounts In Millions -------------- Trading liabilities 2 Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases) 4,543 Bank's liability on acceptances executed and outstanding 22 Subordinated notes and debentures 0 Other liabilities 973 ------------ Total liabilities $ 44,966 Minority interest in consolidated subsidiaries 0 EQUITY CAPITAL Perpetual preferred stock and related surplus 0 Common stock 100 Surplus (exclude all surplus related to preferred stock) 2,134 Retained earnings 1,546 Accumulated other comprehensive income 56 Other equity capital components 0 ------------ Total equity capital 3,836 ------------ Total liabilities, minority interest, and equity capital $ 48,802 ============
I, Karen B. Martin, Vice President of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true to the best of my knowledge and belief. Karen B. Martin Vice President We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. Jon R. Campbell Marilyn A. Dahl Directors Gerald B. Stenson Exhibit 7 Consolidated Report of Condition of Wells Fargo Bank National Association of 420 Montgomery Street, San Francisco, CA 94163 And Foreign and Domestic Subsidiaries, at the close of business December 31, 2003, filed in accordance with 12 U.S.C. Section 161 for National Banks.
Dollar Amounts In Millions -------------- ASSETS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin $ 11,411 Interest-bearing balances 3,845 Securities: Held-to-maturity securities 0 Available-for-sale securities 17,052 Federal funds sold and securities purchased under agreements to resell: Federal funds sold in domestic offices 516 Securities purchased under agreements to resell 109 Loans and lease financing receivables: Loans and leases held for sale 14,571 Loans and leases, net of unearned income 172,511 LESS: Allowance for loan and lease losses 1,554 Loans and leases, net of unearned income and allowance 170,957 Trading Assets 6,255 Premises and fixed assets (including capitalized leases) 2,067 Other real estate owned 144 Investments in unconsolidated subsidiaries and associated companies 306 Customers' liability to this bank on acceptances outstanding 68 Intangible assets Goodwill 6,814 Other intangible assets 7,501 Other assets 8,858 ------------ Total assets $ 250,474 ============ LIABILITIES Deposits: In domestic offices $ 157,695 Noninterest-bearing 44,315 Interest-bearing 113,380 In foreign offices, Edge and Agreement subsidiaries, and IBFs 16,249 Noninterest-bearing 6 Interest-bearing 16,243 Federal funds purchased and securities sold under agreements to repurchase: Federal funds purchased in domestic offices 14,685 Securities sold under agreements to repurchase 1,613
Dollar Amounts In Millions -------------- Trading liabilities 4,277 Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases) 18,212 Bank's liability on acceptances executed and outstanding 68 Subordinated notes and debentures 6,742 Other liabilities 7,358 ------------ Total liabilities $ 226,899 Minority interest in consolidated subsidiaries 60 EQUITY CAPITAL Perpetual preferred stock and related surplus 0 Common stock 520 Surplus (exclude all surplus related to preferred stock) 17,709 Retained earnings 4,920 Accumulated other comprehensive income 366 Other equity capital components 0 ------------ Total equity capital 23,515 ------------ Total liabilities, minority interest, and equity capital $ 250,474 ============
I, James E. Hanson, Vice President of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true to the best of my knowledge and belief. James E. Hanson Vice President We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. Carrie L. Tolstedt Howard Atkins Directors John Stumpf -----END PRIVACY-ENHANCED MESSAGE-----