10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2004
	OR
[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission file number: 001-13003

SILVERLEAF RESORTS, INC.

(Exact name of registrant as specified in its charter)

TEXAS
(State of incorporation) 75-2259890
(I.R.S. Employer
Identification No.)

1221 RIVER BEND DRIVE, SUITE 120
DALLAS, TEXAS 75247
(Address of principal executive offices, including zip code)

214-631-1166
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes [X]      No [   ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).      Yes [   ]      No [X]

Number of shares of common stock outstanding of the issuer’s Common Stock, par value $0.01 per share, as of November 12, 2004: 36,860,238

Explanatory Note

CERTAIN STATEMENTS CONTAINED IN THIS FORM 10-Q UNDER ITEMS 1 AND 2, IN ADDITION TO CERTAIN STATEMENTS CONTAINED ELSEWHERE IN THIS 10-Q, INCLUDING STATEMENTS QUALIFIED BY THE WORDS “BELIEVE,” “INTEND,” “ANTICIPATE,” “EXPECTS,” AND WORDS OF SIMILAR IMPORT, ARE “FORWARD-LOOKING STATEMENTS” AND ARE THUS PROSPECTIVE. THESE STATEMENTS REFLECT THE CURRENT EXPECTATIONS OF THE COMPANY REGARDING THE COMPANY’S FUTURE PROFITABILITY, PROSPECTS, AND RESULTS OF OPERATIONS. ALL SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES, AND OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE RISKS, UNCERTAINTIES, AND OTHER FACTORS ARE DISCUSSED UNDER THE HEADING “CAUTIONARY STATEMENTS” BEGINNING ON PAGE 22 OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003. ALL FORWARD-LOOKING STATEMENTS ARE MADE AS OF THE DATE OF THIS REPORT ON FORM 10-Q AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE THE FORWARD-LOOKING STATEMENTS OR TO UPDATE THE REASONS WHY ACTUAL RESULTS COULD DIFFER FROM THE PROJECTIONS IN THE FORWARD-LOOKING STATEMENTS.

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SILVERLEAF RESORTS, INC.

INDEX

	Page
PART I. FINANCIAL INFORMATION (Unaudited)
Item 1. Consolidated Statements of Income for the three months and nine months ended September 30, 2004 and 2003		3
Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003		4
Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2004		5
Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003		6
Notes to the Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosures about Market Risk		23
Item 4. Controls and Procedures		24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		25
Item 4. Submission of Matters to a Vote of Security Holders		26
Item 6. Exhibits and Reports on Form 8-K		26
Signatures		26
Amendment Agreement No. 2 to Purchase adn Contribution Agreement
Fourth Amendment Agreement
Amendment to Amended/Restated Loan and Security Agreement
Amendment to Loan and Security Agreement
Amendment to Amended/Restated Loan, Security and Agency Agreement
Amendment to Amended/Restated Loan, Security and Agency Agreement (Tranche B)
Amendment to Amended/Restated Loan, Security and Agency Agreement(Tranche A)
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

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PART I: FINANCIAL INFORMATION (UNAUDITED)

Item 1. Financial Statements

SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2004		2003			2004			2003
Revenues:
Vacation Interval sales	$	36,738	$	34,132		$	105,869		$	95,169
Sampler sales		571		389			1,485			1,275
Total sales		37,309		34,521			107,354			96,444
Interest income		9,354		8,570			27,575			25,988
Management fee income		300		300			900			1,247
Gain on sales of notes receivable		—		—			580			2,832
Other income		1,610		1,486			4,171			4,156
Total revenues		48,573		44,877			140,580			130,667
Costs and Operating Expenses:
Cost of Vacation Interval sales		6,166		5,871			19,485			16,531
Sales and marketing		18,477		16,654			53,643			50,056
Provision for uncollectible notes		7,348		6,827			21,180			47,988
Operating, general and administrative		6,908		7,378			20,405			21,288
Depreciation and amortization		1,074		1,116			3,273			3,461
Interest expense and lender fees		4,568		3,835			13,144			12,463
Total costs and operating expenses		44,541		41,681			131,130			151,787
Other Income:
Gain on early extinguishment of debt		—		5,118			—			6,376
Total other income		—		5,118			—			6,376
Income (loss) before provision for income taxes		4,032		8,314			9,450			(14,744	)
Provision for income taxes		—		(10	)		(23	)		(83	)
Net income (loss)	$	4,032	$	8,304		$	9,427		$	(14,827	)
Basic income (loss) per share:	$	0.11	$	0.23		$	0.26		$	(0.40	)
Diluted income (loss) per share:	$	0.10	$	0.23		$	0.24		$	(0.40	)
Weighted average basic shares outstanding:		36,860,238		36,826,906			36,849,411			36,826,906
Weighted average diluted shares outstanding:		38,954,815		36,826,906			38,922,668			36,826,906

See notes to condensed consolidated financial statements.

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SILVERLEAF RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)
(Unaudited)

	September 30,			December 31,
	2004			2003
ASSETS
Cash and cash equivalents	$	4,223		$	4,093
Restricted cash		2,994			1,624
Notes receivable, net of allowance for uncollectible notes of $55,172 and $48,372, respectively		205,073			193,379
Accrued interest receivable		2,337			2,169
Investment in Special Purpose Entity		5,441			6,053
Amounts due from affiliates		1,638			150
Inventories		101,650			101,399
Land, equipment, buildings, and utilities, net		25,160			27,488
Land held for sale		2,991			2,991
Prepaid and other assets		14,231			12,441
TOTAL ASSETS	$	365,738		$	351,787
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Accounts payable and accrued expenses	$	7,642		$	6,705
Accrued interest payable		1,055			1,087
Amounts due to affiliates		1,323			656
Unearned revenues		4,736			3,712
Notes payable and capital lease obligations		218,963			215,337
Senior subordinated notes		34,883			36,591
Total Liabilities		268,602			264,088
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Preferred stock, 10,000,000 shares authorized, none issued and outstanding		—			—
Common stock, par value $0.01 per share, 100,000,000 shares authorized, 37,249,006 shares issued, 36,860,238 shares outstanding at September 30, 2004, and 36,826,906 shares outstanding at December 31, 2003		372			372
Additional paid-in capital		116,614			116,999
Retained deficit		(15,246	)		(24,673	)
Treasury stock, at cost, 388,768 shares at September 30, 2004 and 422,100 shares at December 31, 2003		(4,604	)		(4,999	)
Total Shareholders’ Equity		97,136			87,699
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	365,738		$	351,787

See notes to condensed consolidated financial statements.

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SILVERLEAF RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(in thousands, except share and per share amounts)
(Unaudited)

	Common Stock
	Number of		$0.01		Additional						Treasury Stock
	Shares		Par		Paid-in			Retained
	Issued		Value		Capital			Deficit			Shares			Cost			Total
January 1, 2004		37,249,006	$	372	$	116,999		$	(24,673	)		(422,100	)	$	(4999	)	$	87,699
Exercise of stock options		—		—		(385	)		—			33,332			395			10
Net income		—		—		—			9,427			—			—			9,427
September 30, 2004		37,249,006	$	372	$	116,614		$	(15,246	)		(388,768	)	$	(4,604	)	$	97,136

See notes to condensed consolidated financial statements.

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SILVERLEAF RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

	Nine Months Ended
	September 30,
	2004			2003
OPERATING ACTIVITIES:
Net income (loss)	$	9,427		$	(14,827	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for uncollectible notes		21,180			47,988
Gain on sales of notes receivable		(580	)		(2,832	)
Gain on early extinguishment of debt		—			(6,376	)
Gain on sale of land held for sale		—			(273	)
Loss on sale of Crown management properties		—			44
Proceeds from sales of notes receivable		9,559			28,835
Depreciation and amortization		3,273			3,461
Increase (decrease) in cash from changes in assets and liabilities:
Restricted cash		(1,370	)		2,083
Notes receivable		(40,917	)		(29,833	)
Accrued interest receivable		(168	)		175
Investment in Special Purpose Entity		612			1,307
Amounts due to/from affiliates, net		(821	)		(1,004	)
Inventories		(1,187	)		(2,635	)
Prepaid and other assets		(1,790	)		928
Accounts payable and accrued expenses		937			(397	)
Accrued interest payable		(32	)		(140	)
Unearned revenues		1,024			697
Net cash provided by (used in) operating activities		(853	)		27,201
INVESTING ACTIVITIES:
Purchases of land, equipment, buildings, and utilities		(945	)		(1,073	)
Proceeds from sale of land held for sale		—			2,862
Net cash provided by (used in) investing activities		(945	)		1,789
FINANCING ACTIVITIES:
Proceeds from borrowings from unaffiliated entities		70,413			66,896
Payments on borrowings to unaffiliated entities		(68,495	)		(91,628	)
Proceeds from exercise of stock options		10			—
Net cash provided by (used in) financing activities		1,928			(24,732	)
Net change in cash and cash equivalents		130			4,258
CASH AND CASH EQUIVALENTS:
Beginning of period		4,093			1,153
End of period	$	4,223		$	5,411
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized	$	12,944		$	12,454

See notes to condensed consolidated financial statements.

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SILVERLEAF RESORTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1 – Background

These condensed consolidated financial statements of Silverleaf Resorts, Inc. and subsidiaries (the “Company”) presented herein do not include certain information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. However, in the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission. The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in such Form 10-K.

Note 2 – Significant Accounting Policies Summary

Basis of Presentation — The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the Company, the accompanying consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, the results of operations and changes in cash flows of the Company and its subsidiaries.

Principles of Consolidation — The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, excluding Silverleaf Finance I, Inc., the Company’s wholly-owned special purpose entity (“SPE”). All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Revenue and Expense Recognition — A substantial portion of Vacation Interval sales are made in exchange for mortgage notes receivable, which are secured by a deed of trust on the Vacation Interval sold. The Company recognizes the sale of a Vacation Interval under the accrual method after a binding sales contract has been executed, the buyer has made a down payment of at least 10%, and the statutory rescission period has expired. If all accrual method criteria are met except that construction is not substantially complete, revenues are recognized on the percentage-of-completion basis. Under this method, the portion of revenue applicable to costs incurred, as compared to total estimated construction and direct selling costs, is recognized in the period of sale. The remaining amount is deferred and recognized as the remaining costs are incurred. The deferral of sales and costs related to the percentage-of-completion method is not significant.

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

In addition to sales of Vacation Intervals to new prospective owners, the Company sells upgraded and additional Vacation Intervals to existing Silverleaf Owners. Revenues are recognized on these upgrade Vacation Interval sales when the criteria described above are satisfied. The revenue recognized is the net of the incremental increase in the upgrade sales price and cost of sales is the incremental increase in the cost of the Vacation Interval purchased.

A provision for estimated customer returns is reported net against Vacation Interval sales. Customer returns represent cancellations of sales transactions in which the customer fails to make the first installment payment.

The Company recognizes interest income as earned. Interest income is accrued on notes receivable, net of an estimated amount that will not be collected, until the individual notes become 90 days delinquent. Once a note

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becomes 90 days delinquent, the accrued interest is reduced to $0 and the accrual of additional interest income ceases until collection is deemed probable.

Revenues related to one-time sampler contracts, which entitles the prospective owner to sample a resort during certain periods, are recognized when earned. Revenue recognition is deferred until the customer uses the stay, purchases a Vacation Interval, or allows the contract to expire.

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

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

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

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

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

Investment in Special Purpose Entity — The Company is party to an $85 million revolving credit agreement to finance Vacation Interval notes receivable through an off-balance-sheet SPE. The Company accounts for and evaluates its investment in the SPE in accordance with SFAS 140, EITF 99-20, and SFAS 115, as applicable. Sales of notes receivable from the Company to its SPE that meet certain underwriting criteria occur on a periodic basis. The SPE funds these purchases through advances under a credit agreement arranged for this purpose. The gain or loss on the sale is determined based on the proceeds received, the fair value assigned to the investment in SPE, and the recorded value of notes receivable sold. The fair value of the investment in the SPE is estimated based on the present value of future expected cash flows back to the Company from the notes receivable sold. The Company utilized the following key assumptions to estimate the fair value of such cash flows: customer prepayment rate – ranging from 2.3% to 4.3%; expected accounts paid in full as a result of upgrades – ranging from 5.8% to 6.2%; expected credit losses – ranging from 5.6% to 8.1%; discount rate – ranging from 13.5% to 19%; base interest rate – ranging from 3.3% to 4.4%; agent fee – ranging from 2% to 2.37%; and loan servicing fees — 1%. The Company’s assumptions are based on experience with its notes receivable portfolio, available market data, estimated prepayments, the cost of servicing, and net transaction costs. Such assumptions are assessed quarterly and, if necessary, adjustments are made to the carrying value of the investment in SPE. The carrying value of the investment in SPE represents the Company’s maximum exposure to loss regarding its involvement with the SPE.

Provision for Uncollectible Notes — Such provision is recorded at an amount sufficient to maintain the allowance for uncollectible notes at a level management considers adequate to provide for anticipated losses resulting from customers’ failure to fulfill their obligations under the terms of their notes. Such allowance for uncollectible notes is adjusted based upon periodic analysis of the notes receivable portfolio, historical credit loss experience, and current economic factors.

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

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

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The Company classifies the components of the provision for uncollectible notes as either credit losses or customer returns (cancellations of sales whereby the customer fails to make the first installment payment). The provision for uncollectible notes pertaining to credit losses and customer returns are classified in the provision for uncollectible notes and a reduction in Vacation Interval sales, respectively.

Inventories — Inventories are stated at the lower of cost or market value. Cost includes amounts for land, construction materials, direct labor and overhead, taxes, and capitalized interest incurred in the construction or through the acquisition of resort dwellings held for timeshare sale. Timeshare unit costs are capitalized as inventory and are allocated to Vacation Intervals based upon their relative sales values. Upon sale of a Vacation Interval, these costs are charged to cost of sales on a specific identification basis. Vacation Intervals reacquired are placed back into inventory at the lower of their original historical cost basis or market value.

The Company estimates the total cost to complete all amenities at each resort. This cost includes both costs incurred to date and expected future costs to be incurred. The Company allocates the estimated total amenities cost to cost of Vacation Interval sales based on Vacation Intervals sold in a given period as a percentage of total Vacation Intervals expected to sell over the life of a particular resort project.

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

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

Prepaid and Other Assets — Prepaid and other assets consists primarily of prepaid insurance, prepaid postage, intangibles, commitment fees, debt issuance costs, novelty inventories, deposits, collected cash in lender lock boxes which have not yet been applied to the loan balances by the lenders, and miscellaneous receivables. Commitment fees and debt issuance costs are amortized over the life of the related debt. Intangibles are amortized over their useful lives, which do not exceed ten years.

Income Taxes — Deferred income taxes are recorded for temporary differences between the bases of assets and liabilities as recognized by tax laws and their carrying value as reported in the consolidated financial statements. A provision is made or benefit recognized for deferred income taxes relating to temporary differences for financial reporting purposes. To the extent a deferred tax asset does not meet the criteria of “more likely than not” for realization, a valuation allowance is recorded.

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

Stock-Based Compensation — In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS 148”). SFAS 148 amends the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” and APB Opinion No. 28, “Interim Financial Reporting,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While SFAS No. 148 does not amend SFAS No. 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS No. 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS No. 123 or the intrinsic value method of APB Opinion No. 25, “Accounting for Stock Issued to Employee” (“APB No. 25”).

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As allowed by SFAS No. 123, the Company has elected to continue to utilize the accounting method prescribed by APB No. 25, provide the disclosure requirements of SFAS No. 123 and, as of December 31, 2002, adopt the disclosure requirements of SFAS No. 148. Although the Company selected an accounting policy which requires only the excess of the market value of its common stock over the exercise price of options granted to be recorded as compensation expense (intrinsic method), pro forma information regarding net income (loss) is required as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. Pro forma net income (loss) applicable to the options granted is not likely to be representative of the effects on reported net income (loss) for future years. The fair value for these options is estimated at the date of grant using the Black-Scholes option-pricing model. Stock compensation determined under the intrinsic method is recognized over the vesting period using the straight-line method.

Had compensation cost for the Company’s stock option grants been determined based on the fair value at the date of grant in accordance with the provisions of SFAS No. 123, the Company’s net income (loss) and net income (loss) per share would have been the following pro forma amounts (in thousands, except per share amounts):

	3 Months			3 Months			9 Months			9 Months
	Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,
	2004			2003			2004			2003
Net income (loss), as reported	$	4,032		$	8,304		$	9,427		$	(14,827	)
Stock-based compensation expense recorded under the intrinsic value method		—			—			—			—
Pro forma stock-based compensation expense computed under the fair value method		(72	)		(106	)		(222	)		(354	)
Pro forma net income (loss)	$	3,960		$	8,198		$	9,205		$	(15,181	)
Net income (loss) per share, basic
As reported	$	0.11		$	0.23		$	0.26		$	(0.40	)
Pro forma	$	0.11		$	0.22		$	0.25		$	(0.41	)
Net income (loss) per share, diluted
As reported	$	0.10		$	0.23		$	0.24		$	(0.40	)
Pro forma	$	0.10		$	0.22		$	0.24		$	(0.41	)

There were no stock options granted during the first nine months of 2004. The fair value of the stock options granted during the first nine months of 2003 were $0.32. The fair value of the stock options granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected volatility ranging from 143.2% to 217.3% for all grants, risk-free interest rates which vary for each grant and range from 4.1% to 12.2%, expected life of 7 years for all grants, and no distribution yield for all grants.

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

Reclassifications — Certain reclassifications have been made to the 2003 consolidated financial statements to conform to the 2004 presentation. These reclassifications had no effect on net income (loss). The reclassification relates to the Gain on Sales of Notes Receivable as presented on the consolidated statements of income and the consolidated statements of cash flows. The Gain on Sales of Notes Receivable is no longer classified as Other Income on the consolidated statements of income and is no longer classified as a financing activity on the consolidated statements of cash flows. The reclassification more accurately reflects the true operations of the Company.

Recent Accounting Pronouncements —

FIN No. 46 – In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN No. 46”). FIN No. 46 requires the primary beneficiary of a variable interest entity’s activities to consolidate the variable interest entity. FIN No. 46 defines a variable interest entity as an entity in which the equity investors do not have substantive voting rights and there is not sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. The primary

10

beneficiary is the party that absorbs a majority of the expected losses and/or receives a majority of the expected residual returns of the variable interest entity’s activities. In December 2003, the Financial Accounting Standards Board issued FIN No. 46R (“FIN No. 46R”), which supercedes and amends certain provisions of FIN No. 46. While FIN No. 46R retains many of the concepts and provisions of FIN No. 46, it also provides additional guidance related to the application of FIN No. 46, provides for certain additional scope exceptions, and incorporates several Financial Accounting Standards Board Staff Positions issued related to the application of FIN No. 46.

The provisions of FIN No. 46 are immediately applicable to variable interest entities created, or interests in variable interest entities obtained, after January 31, 2003 and the provisions of FIN No. 46R are required to be applied to such entities, except for special purpose entities, by the end of the first reporting period ending after March 15, 2004. For variable interest entities created, or interests in variable interest entities obtained, on or before January 31, 2003, FIN No. 46 or FIN No. 46R is required to be applied to special-purpose entities by the end of the first reporting period ending after December 15, 2003 (December 31, 2003 for calendar-year entities) and is required to be applied to all other non-special purpose entities by the end of the first reporting period ending after March 15, 2004 (March 31, 2004 for calendar-year entities). FIN No. 46 and FIN No. 46R may be applied prospectively with a cumulative-effect adjustment as of the date it is first applied, or by restating previously issued financial statements with a cumulative-effect adjustment as of the beginning of the first year restated. FIN No. 46 and FIN No. 46R also require certain disclosures of an entity’s relationship with variable interest entities. The adoption of FIN No. 46 and FIN No. 46R required the Company to consolidate its wholly-owned financing subsidiary, Silverleaf Finance II, Inc. (“SF-II”), formed in December 2003.

SFAS No. 150 – In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 specifies that certain financial instruments within its scope constitute obligations of the issuer and that, therefore, the issuer must classify them as liabilities. Such financial instruments include mandatorily redeemable financial instruments, obligations to repurchase the issuer’s equity shares by transferring assets, and certain obligations to issue a variable number of shares. SFAS No. 150 is effective immediately for all financial instruments entered into or modified after May 31, 2003. For all other instruments, SFAS No. 150 is effective at the beginning of the third quarter of 2003. The adoption of SFAS No. 150 did not impact the Company’s consolidated financial position or results of operations.

Note 3 – Debt Restructuring

As of December 31, 2002, we were in compliance with all of our operating covenants. However, due to the results of the quarter ended March 31, 2003, we were not in compliance with three of our financial covenants. 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.

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 increased from 52.5% to 55% the maximum permitted ratio of sales and marketing expenses to total sales for each rolling twelve month period beginning with the quarter ended March 31, 2003. They also exclude the $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.

In addition, as a result of the loss for the quarter ended March 31, 2003, our 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.

As a result of these amendments and waivers, we have been and continue to be in full compliance with all of the financial covenants under our credit facilities with our senior lenders since December 31, 2003.

11

Note 4 – Earnings Per Share

The following table illustrates the reconciliation between basic and diluted weighted average shares outstanding for the three and nine months ended September 30, 2004 and 2003:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2004			2003		2004			2003
Weighted average shares outstanding — basic		36,860,238			36,826,906		36,849,411			36,826,906
Issuance of shares from stock options exercisable		2,777,147			—		2,777,147			—
Repurchase of shares from stock options proceeds		(682,570	)		—		(703,890	)		—
Weighted average shares outstanding — diluted		38,954,815			36,826,906		38,922,668			36,826,906

For the three and nine months ended September 30, 2003, the weighted average shares outstanding assuming dilution was non-dilutive. Outstanding stock options totaling 3,705,479 at September 30, 2003 were excluded from the computation of diluted earnings per share for this period because including such stock options would have been non-dilutive.

Note 5 – Notes Receivable

The Company provides financing to the purchasers of Vacation Intervals, which is collateralized by their interest in such Vacation Intervals. The notes receivable generally have initial terms of seven to ten years. The average yield on outstanding notes receivable at September 30, 2004 was approximately 15.1%. In connection with the sampler program, the Company routinely enters into notes receivable with terms of 10 months. Notes receivable from sampler sales were $2.1 million and $1.4 million at September 30, 2004 and 2003, respectively, and are non-interest bearing.

The activity in gross notes receivable is as follows for the three and nine-month periods ended September 30, 2004 and 2003 (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Balance, beginning of period	$	252,674		$	235,654		$	241,751		$	261,784
Sales		30,145			28,895			90,622			78,893
Collections		(16,088	)		(14,661	)		(46,098	)		(43,391	)
Receivables charged off		(6,486	)		(6,457	)		(13,305	)		(18,755	)
Sold notes receivable		—			—			(12,725	)		(35,100	)
Balance, end of period	$	260,245		$	243,431		$	260,245		$	243,431

The Company considers accounts over 60 days past due to be delinquent. As of September 30, 2004, $1.0 million of notes receivable, net of accounts charged off, were considered delinquent. An additional $46.9 million of notes, approximately 18% of total gross notes receivable, would have been considered to be delinquent had the Company not granted payment concessions to the customers at some point since the inception of these notes. The activity in the allowance for uncollectible notes is as follows for the three and nine months ended September 30, 2004 and 2003 (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Balance, beginning of period	$	54,310		$	51,887		$	48,372		$	28,547
Provision for credit losses		7,348			6,827			21,180			47,988
Receivables charged off		(6,486	)		(6,457	)		(13,305	)		(18,755	)
Allowance related to notes sold		—			—			(1,075	)		(5,523	)
Balance, end of period	$	55,172		$	52,257		$	55,172		$	52,257

During the nine months ended September 30, 2004, the Company sold $12.7 million of notes receivable and recognized pre-tax gains of $580,000. The SPE funded these purchases through advances under a credit agreement arranged for this purpose. In connection with these sales, the Company received cash consideration of $9.6 million, which was used to pay down borrowings under its revolving loan facilities.

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Note 6 – Debt

Notes payable, capital lease obligations, and senior subordinated notes as of September 30, 2004 and December 31, 2003 (in thousands):

	September 30,		December 31,
	2004		2003
$55.9 million loan agreement, which contains certain financial covenants, due March 2007, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note (the loan agreement is limited to a $44.6 million revolver with an interest rate of LIBOR plus 3% with a 6% floor and a $11.3 million term loan with an interest rate of 8%)	$	38,098	$	25,095
$11.3 million term loan with an interest rate of 8%, due in March 2007		10,242		10,998
$55.1 million loan agreement, which contains certain financial covenants, due March 2007, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note (the loan agreement is limited to a $44.1 million revolver with an interest rate of LIBOR plus 3% with a 6% floor and a $11.0 million term loan with an interest rate of 8%)		38,478		28,325
$11.0 million term loan with an interest rate of 8%, due in March 2007		10,100		10,845
$7.9 million loan agreement, which contains certain financial covenants, due March 2007, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note (the loan agreement is limited to a $6.2 million revolver with an interest rate of Prime plus 3% with a 6% floor and a $1.7 million term loan with an interest rate of 8%)		5,474		3,734
$1.7 million term loan with an interest rate of 8%, due in March 2007		1,451		1,558
$66.4 million conduit loan, due December 2014, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of 7.035%		53,547		66,381
$40.4 million loan agreement, which contains certain financial covenants, due March 2009, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note (as of July 2004 the loan agreement is limited to a $25 million revolver with an interest rate of Federal Funds plus 2.75% with a 6% floor)		19,782		16,897
$5.4 million term loan with an interest rate of 8%, due in March 2007 (paid in full as of July 2004)		—		5,412
$70 million loan agreement, capacity reduced by amounts outstanding under the $10 million inventory loan agreement and the $9 million supplemental revolving loan agreement, which contains certain financial covenants, due February 2006, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of LIBOR plus 2.65% with a 6.0% floor (additional draws are no longer available under this facility)		10,723		17,009
$9 million supplemental revolving loan agreement, which contains certain financial covenants, due March 2007, principal and interest payable from the proceeds obtained on customer notes receivable pledged as collateral for the note, at an interest rate of LIBOR plus 2.67% with a 6% floor		6,506		8,345
$10 million revolving loan agreement, which contains certain financial covenants, due March 2009, collateralized by either notes receivable or inventory, interest payable monthly, at an interest rate of the higher of Prime plus 2% or Federal Funds plus 4.75% with a 6.0% floor		5,100		—
$10 million inventory loan agreement, which contains certain financial covenants, due March 2007, interest payable monthly, at an interest rate of LIBOR plus 3.25%		10,000		10,000
$8 million inventory loan agreement, which contains certain financial covenants, due March 2007, interest payable monthly, at an interest rate of Prime plus 3% (as of August 2004 the loan agreement is limited to $6 million)		6,000		—
$10 million inventory loan agreement, which contains certain financial covenants, due March 2007, interest payable monthly, at an interest rate of LIBOR plus 3.5% with a 6% floor		—		7,733
Various notes, due from May 2005 through February 2009, collateralized by various assets with interest rates ranging from 0.9% to 10.3%		3,011		1,676
Total notes payable		218,512		214,008
Capital lease obligations		451		1,329
Total notes payable and capital lease obligations		218,963		215,337
8.0% senior subordinated notes, due 2010, interest payable semiannually on April 1 and October 1, guaranteed by all of the Company’s present and future domestic restricted subsidiaries		24,671		—
6.0% senior subordinated notes, due 2007, interest payable semiannually on April 1 and October 1, guaranteed by all of the Company’s present and future domestic restricted subsidiaries		3,796		28,467
10½% senior subordinated notes, subordinate to the 6.0% senior subordinated notes above, due 2008, interest payable semiannually on April 1 and October 1, guaranteed by all of the Company’s present and future domestic restricted subsidiaries		2,146		2,146

13

	September 30,		December 31,
	2004		2003
Interest on the 6.0% senior subordinated notes, due 2007, and the 8.0% senior subordinated notes, due 2010, interest payable semiannually through October 2007 on April 1 and October 1, guaranteed by all of the Company’s present and future domestic restricted subsidiaries		4,270		5,978
Total senior subordinated notes		34,883		36,591
Total	$	253,846	$	251,928

At September 30, 2004, LIBOR rates on the Company’s senior credit facilities were from 1.60% to 1.80%, and the Prime rate was 4.50%. At December 31, 2003, LIBOR rates on the Company’s senior credit facilities were from 1.15% to 1.18%, and the Prime rate was 4.00%.

Note 7 – Subsidiary Guarantees

As of September 30, 2004, all subsidiaries of the Company, except the SPE and SF-II, have guaranteed the $34.9 million of senior subordinated notes. Separate financial statements and other disclosures concerning each guaranteeing subsidiary (each, a “Guarantor Subsidiary”) are not presented herein because the guarantee of each Guarantor Subsidiary is full and unconditional and joint and several, and each Guarantor Subsidiary is a wholly-owned subsidiary of the Company, and together comprise all direct and indirect subsidiaries of the Company.

The Guarantor Subsidiaries had no operations for the nine months ended September 30, 2004 and 2003. Combined summarized balance sheet information as of September 30, 2004 for the Guarantor Subsidiaries is as follows (in thousands):

	September 30,
	2004
Other assets	$	2
Total assets	$	2
Investment by parent (includes equity and amounts due to parent)	$	2
Total liabilities and equity	$	2

Note 8 – Commitments and Contingencies

Holiday Hills Condominium Association, Inc. et al v. Silverleaf Resorts, Inc. et al, Circuit Court of Christian County, Missouri. The homeowners’ associations of five condominium projects that a former subsidiary of the Company constructed in Missouri filed two separate actions against the Company in 1999 and 2000, respectively, alleging breach of warranty, construction defects and breach of management agreements. These two cases have been consolidated, but no trial date has been set. The plaintiffs have filed an amended petition alleging actual damages in excess of $25,000 and punitive damages. A special master has been appointed by agreement of all the parties in this case. A special master is appointed by the court to assist the court with judicial duties. The special master will decide discovery disputes and make recommendations on substantive motions. Discovery continued in the lawsuit during the first nine months of 2004, but is not yet complete. The Company has filed a counterclaim seeking contractual indemnification under the terms of management agreements with each of the plaintiffs. At this time, the Company’s legal fees and costs of litigation are being paid by its insurance carriers, subject to a reservation of rights by these insurers. The Company cannot predict the final outcome of these claims, nor can it estimate the additional costs it could incur, or whether its insurance carriers will continue to cover its costs in connection with these claims. The Company intends to vigorously defend this litigation.

Ozark Mountain Condominium Association, Inc. et al v. Silverleaf Resorts, Inc., Circuit Court of Stone County, Missouri. The homeowners’ associations of three condominium projects that a former subsidiary of the Company constructed in Missouri filed an action against the Company in 2000 alleging construction defects, misrepresentation, breach of fiduciary duty, negligence, and breach of management agreements and seeking damages and certain other equitable relief. The plaintiffs seek actual and punitive damages in excess of $500,000, attorneys fees and costs. The Company has filed a counterclaim seeking contractual indemnification under the terms of management agreements with the plaintiffs. At this time, a majority of the Company’s legal fees and costs of litigation are being paid by its insurance carriers, subject to a reservation of rights by these insurers. Discovery in the case is ongoing. The trial, which was originally set for November 1, 2004, has been rescheduled to March 21,

14

2005. The Company cannot predict the final outcome of these claims, nor can it estimate the additional costs it could incur, or whether its insurance carriers will continue to cover its costs in connection with these claims. The Company intends to vigorously defend this litigation.

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

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

Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. Reserves will be established from time to time by the Company when deemed appropriate under generally acceptable accounting principles. However, the outcome of a claim for which the Company has not deemed a reserve to be necessary may be decided unfavorably to the Company and could require the Company to pay damages or make other expenditures in amounts or a range of amounts that could be materially adverse to the Company.

During 2001, Silverleaf Club entered into a loan agreement for $1.8 million, whereby the Company guaranteed such debt with certain of its aircraft or related sales proceeds. As of September 30, 2004, Silverleaf Club’s related note payable balance was $686,000.

Note 9 – Subsequent Events

In October 2004, the Company sold $14.7 million of notes receivable and recognized pre-tax gains of approximately $1.3 million. The SPE funded these purchases through advances under a credit agreement arranged for this purpose. In connection with these sales, the Company received cash consideration of $11.0 million, which was used to pay down borrowings under its revolving loan facilities.

In October 2004, the Company completed the acquisition of a 4.8 acre tract of land located in Davenport, Florida, just outside Orlando, Florida, for an aggregate purchase price of approximately $6.0 million. The site, formerly known as the Villas at Polo Park, is near the major Florida tourist attractions of Walt Disney World, Sea World, and Universal Studios. The property is comprised of 48 two and three bedroom units and provides resort amenities such as a heated outdoor swimming pool with whirlpool, fitness center, arcade, playground, sand volleyball and basketball courts. The Company’s public offering statement filed with the Florida Bureau of Standards and Registrations requests initial approval for 16 units encompassing 832 one-week vacation intervals. The Company purchased this property in lieu of building units at its existing destination resorts, and plans to operate the resort as a timeshare resort under the name “Orlando Breeze.”

15

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain matters discussed throughout this Form 10-Q filing are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, but are not limited to, those discussed in the Company’s Form 10-K for the year ended December 31, 2003.

The Company currently owns and operates 12 resorts in various stages of development. These resorts offer a wide array of country club-like amenities, such as golf, swimming, horseback riding, boating, and many organized activities for children and adults. The Company consists of a Vacation Interval ownership base of over 86,000. The condensed consolidated financial statements of the Company include the accounts of Silverleaf Resorts, Inc. and its subsidiaries except the SPE, all of which are wholly-owned.

The Company’s discussion and analysis of its financial condition and results of operations are based on the Company’s financial statements, which have been prepared in accordance with accounting policies generally accepted in the United Sates of America. The Company believes certain critical accounting policies affect its more significant judgments and estimates used in the preparation of financial statements. A description of the Company’s critical accounting policies is set forth in the Company’s Form 10-K for the year ended December 31, 2003. As of, and for the three and nine month periods ended September 30, 2004, there have been no material changes or updates to the Company’s critical accounting policies.

Results of Operations

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
As a percentage of total revenues:
Vacation Interval sales		75.6	%		76.0	%		75.3	%		72.8	%
Sampler sales		1.2	%		0.9	%		1.1	%		1.0	%
Total sales		76.8	%		76.9	%		76.4	%		73.8	%
Interest income		19.3	%		19.1	%		19.6	%		19.9	%
Management fee income		0.6	%		0.7	%		0.6	%		0.9	%
Gain on sale of notes receivable		0.0	%		0.0	%		0.4	%		2.2	%
Other income		3.3	%		3.3	%		3.0	%		3.2	%
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%
As a percentage of Vacation Interval sales:
Cost of Vacation Interval sales		16.8	%		17.2	%		18.4	%		17.4	%
Provision for uncollectible notes		20.0	%		20.0	%		20.0	%		50.4	%
As a percentage of total sales:
Sales and marketing		49.5	%		48.2	%		50.0	%		51.9	%
As a percentage of total revenues:
Operating, general and administrative		14.2	%		16.4	%		14.5	%		16.3	%
Depreciation and amortization		2.2	%		2.5	%		2.3	%		2.6	%
As a percentage of interest income:
Interest expense and lender fees		48.8	%		44.7	%		47.7	%		48.0	%

16

Results of Operations for the Three Months Ended September 30, 2004 and 2003

Revenues

Revenues for the quarter ended September 30, 2004 were $48.6 million, representing a $3.7 million or 8.2% increase from revenues of $44.9 million for the quarter ended September 30, 2003. The increase is primarily due to increased sales and increased interest income in the third quarter of 2004 versus the same period of 2003.

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

	Quarter Ended September 30, 2004						Quarter Ended September 30, 2003
					Average						Average
	$ Sales		Units		Price		$ Sales		Units		Price
Outside Sales	$	16,849		1,503	$	11,210	$	18,849		1,839	$	10,249
In-house Upgrade Sales		6,286		893		7,039		9,754		1,364		7,152
In-house Reload Sales		13,603		1,665		8,170		5,529		730		7,574
Total	$	36,738					$	34,132

Overall, Vacation Interval sales increased $2.6 million during the third quarter of 2004 versus the third quarter of 2003, primarily due to higher in-house reload sales at higher average prices in 2004 versus 2003. The number of outside sales (sales to new customers) decreased 18.3% and the number of in-house upgrade sales (sales to existing customers who exchange their current Vacation Interval for a more expensive one) decreased 34.5%, but the number of in-house reload sales (sales of second Vacation Intervals to existing customers) increased 128.1% during the third quarter of 2004 versus the same period of 2003. The increase in total in-house sales and decrease in outside sales is consistent with the Company’s strategy to increase the proportion of sales to existing customers, which have a lower related marketing expense, while decreasing proportionately the outside sales to new customers.

Sampler sales increased $182,000 to $571,000 for the quarter ended September 30, 2004, compared to $389,000 for the same period in 2003. Sampler sales are not recognized as revenue until the Company’s obligation has elapsed, which often does not occur until the sampler contract expires eighteen months after the sale is consummated. Hence, a significant portion of sampler sales recognized in the third quarter of 2004 relate to 2003 sales activity.

Interest income increased $784,000, or 9.1%, to $9.4 million for the quarter ended September 30, 2004, from $8.6 million for the same period of 2003. This increase primarily resulted from an increase in notes receivable, net of allowance for doubtful notes, since September 30, 2003 primarily due to the increase in Vacation Interval sales during the first nine months of 2004. The average yield on the Company’s outstanding notes receivable at September 30, 2004 was approximately 15.1%.

Management fee income, which consists of management fees collected from the resorts’ management clubs, remained constant at $300,000 for the third quarters of both 2004 and 2003.

Other income consists of water and utilities income, marina income, golf course and pro shop income, and other miscellaneous items. Other income increased $124,000 to $1.6 million for the third quarter of 2004 compared to $1.5 million for the same period of 2003. The increase was primarily due to increased water and utilities income in 2004 versus 2003.

Cost of Sales

Cost of sales as a percentage of Vacation Interval sales decreased to 16.8% during the third quarter of 2004 versus 17.2% for the same period of 2003. This decrease was primarily the result of modifications to the Company’s master plan whereby the current build out strategy was adjusted to reflect a more realistic mix of inventory and amenity costs between the Company’s various units. This modification to the Company’s master plan resulted in lower cost recognition during the third quarter of 2004 versus the third quarter of 2003, which was offset by an increase due to increased sales volume.

Sales and Marketing

Sales and marketing expenses as a percentage of total sales increased to 49.5% for the quarter ended September 30, 2004, from 48.2% for the same period of 2003. This increase is primarily the result of the Company increasing its commission rates associated with in-house sales during 2004, partially offset by the Company’s marketing strategy

17

to improve the sales margin and increase the proportion of inside sales over outside sales, as inside sales require less sales and marketing expense. The $1.8 million overall increase in sales and marketing expense is primarily attributable to the overall increase in Vacation Interval sales during the third quarter of 2004 versus the same period of 2003.

Provision for Uncollectible Notes

The provision for uncollectible notes as a percentage of Vacation Interval sales remained unchanged at 20.0% for the third quarters of both 2004 and 2003.

Operating, General and Administrative

Operating, general and administrative expenses as a percentage of total revenues decreased to 14.2% for the third quarter of 2004, from 16.4% for the same period of 2003. Overall, operating, general and administrative expense decreased to $6.9 million during the third quarter of 2004 from $7.4 million for the third quarter of 2003. The decrease was primarily related to higher litigation-related fees during the third quarter of 2003 versus the same period of 2004.

Depreciation and Amortization

Depreciation and amortization expense as a percentage of total revenues decreased to 2.2% for the quarter ended September 30, 2004 versus 2.5% for the same quarter of 2003. Overall, depreciation and amortization expense decreased $42,000 for the third quarter of 2004, as compared to 2003, primarily due to a general reduction in capital expenditures since 2000.

Interest Expense and Lender Fees

Interest expense and lender fees as a percentage of interest income increased to 48.8% for the third quarter of 2004, from 44.7% for the same period of 2003. This increase is primarily the result of the increase in the Company’s weighted average cost of funds for all borrowings, including the senior subordinated debt, to 6.8% as of September 30, 2004 from 6.1% as of September 30, 2003.

Gain on Early Extinguishment of Debt

There was no gain on early extinguishment of debt during the third quarter of 2004. Gain on early extinguishment of debt was $5.1 million during the third quarter of 2003, resulting from the early extinguishment of $7.6 million of 101/2% senior subordinated notes due 2008.

Income before Provision for Income Taxes

Income before provision for income taxes decreased to $4.0 million for the quarter ended September 30, 2004, as compared to $8.3 million for the quarter ended September 30, 2003, as a result of the above mentioned operating results.

Provision for Income Taxes

There was no provision for income taxes during the third quarter of 2004. Provision for income taxes as a percentage of income before provision for income taxes was 0.1% for the third quarter of 2003. The effective income tax rate is the result of the 2003 and 2004 projected income tax benefits being reduced by the effect of a valuation allowance, which reduces the projected net deferred tax assets to zero due to the unpredictability of recovery.

Net Income

Net income decreased to $4.0 million for the quarter ended September 30, 2004, as compared to $8.3 million for the quarter ended September 30, 2003, as a result of the above mentioned operating results.

18

Results of Operations for the Nine Months Ended September 30, 2004 and 2003

Revenues

Revenues for the nine months ended September 30, 2004 were $140.6 million, representing a $9.9 million or 7.6% increase from revenues of $130.7 million for the nine months ended September 30, 2003. The increase is primarily due to increased sales and increased interest income, partially offset by decreased gains on sales of notes receivable in the first nine months of 2004 versus the same period of 2003.

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

	Nine Months Ended September 30, 2004						Nine Months Ended September 30, 2003
					Average						Average
	$ Sales		Units		Price		$ Sales		Units		Price
Outside Sales	$	50,193		4,486	$	11,189	$	52,615		5,100	$	10,317
In-house Upgrade Sales		23,201		3,323		6,982		23,811		3,565		6,679
In-house Reload Sales		32,475		3,914		8,297		18,743		2,382		7,868
Total	$	105,869					$	95,169

Overall, Vacation Interval sales increased $10.7 million during the first nine months of 2004 versus the first nine months of 2003, primarily due to higher in-house reload sales at higher average prices in 2004 versus 2003. The number of outside sales (sales to new customers) decreased 12.0% and the number of in-house upgrade sales (sales to existing customers who exchange their current Vacation Interval for a more expensive one) decreased 6.8%, but the number of in-house reload sales (sales of second Vacation Intervals to existing customers) increased 64.3% during the first nine months of 2004 versus the same period of 2003. The increase in total in-house sales and decrease in outside sales is consistent with the Company’s strategy to increase the proportion of sales to existing customers, which have a lower related marketing expense, while decreasing proportionately the outside sales to new customers.

Sampler sales remained fairly consistent at $1.5 million for the nine months ended September 30, 2004, compared to $1.3 million for the same period in 2003. Sampler sales are not recognized as revenue until the Company’s obligation has elapsed, which often does not occur until the sampler contract expires eighteen months after the sale is consummated. Hence, a significant portion of sampler sales recognized in the first nine months of 2004 relate to 2002 and 2003 sales activity.

Interest income increased 6.1% to $27.6 million for the nine months ended September 30, 2004, from $26.0 million for the same period of 2003. This increase primarily resulted from an increase in notes receivable, net of allowance for doubtful notes, since September 30, 2003 primarily due to the increase in Vacation Interval sales during the first nine months of 2004. The average yield on the Company’s outstanding notes receivable at September 30, 2004 was approximately 15.1%.

Management fee income, which consists of management fees collected from the resorts’ management clubs, decreased $347,000 to $900,000 for the first nine months of 2004, from $1.2 million for the same period of 2003. This decrease was primarily due to the discontinuation of management fees from seven resorts the Company had managed since 1998, which were sold during the third quarter of 2003.

Gain on sales of notes receivable was $580,000 for the first nine months of 2004, resulting from the sale of $12.7 million of notes receivable to the SPE. The $2.8 million gain in the first nine months of 2003 resulted from the sale of $35.1 million of notes receivable to the SPE. Fewer sales of notes receivable took place in the first nine months of 2004 versus the same period of 2003 due primarily to the facility reduction that took place during the fourth quarter of 2003.

Other income consists of water and utilities income, marina income, golf course and pro shop income, and other miscellaneous items. Other income remained constant at $4.2 million for both of the nine-month periods ended September 30, 2004 and 2003.

Cost of Sales

Cost of sales as a percentage of Vacation Interval sales increased to 18.4% during the first nine months of 2004 versus 17.4% for the same period of 2003 primarily due to the Company selling a larger percentage of its inventory at lower margins in the first nine months of 2004. The increased percentage of reload sales, which typically have a

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lower sales price and lower margin than outside sales, contributed to the increase during the first nine months of 2004 versus the same period of 2003. Approximately 36% of the $3.0 million increase in cost of sales was due to these lower margins with the remaining 64% increase due to the increased sales volume.

Sales and Marketing

Sales and marketing expenses as a percentage of total sales decreased to 50.0% for the nine months ended September 30, 2004, from 51.9% for the same period of 2003. This reduction is the result of our marketing strategy to improve the sales margin and increase the proportion of inside sales over outside sales, as inside sales require less sales and marketing expense. For the nine months ended September 30, 2004, inside sales increased to 52.6% of Vacation Interval sales, up from 44.7% for the same period a year ago. The $3.6 million overall increase in sales and marketing expense is primarily attributable to the overall increase in Vacation Interval sales during the first nine months of 2004 versus the same period of 2003.

Provision for Uncollectible Notes

The provision for uncollectible notes as a percentage of Vacation Interval sales was 20.0% in the first nine months of 2004 compared to 50.4% for the first nine months of 2003. For the nine months ended September 30, 2004, management estimates that the 20% provision resulted in an adequate allowance for uncollectible notes for all future credit losses net of inventory recovery. For the quarter ended March 31, 2003 management observed that cancellations in the three months then ended had significantly exceeded the amount that would have been expected under its estimate for the December 31, 2002 allowance for uncollectible notes. Accordingly, the estimate was revised in the quarter ended March 31, 2003 as follows:

• the basis of the estimate of future cancellations was changed from Vacation Interval sales to incremental amounts financed, resulting in an increase of $1.6 million,

• certain historical cancellations from 2000 and 2001 that were previously excluded from predictive cancellations, as such cancellations were assumed to be uncharacteristically large as a result of the Company’s class action notices to all customers and announcements about its liquidity and possible bankruptcy issues in the first half of 2001, were included in predictive cancellations, resulting in an increase of $5.6 million,

• the estimate of cancellations in 7, 8, and 9 years after a sale were increased, resulting in an increase of $1.6 million,

• the estimate of inventory recoveries resulting from cancellations was revised, resulting in an increase of $300,000,

• the ratio of the excess of cancellations in the first quarter over the estimated cancellations for the same period based on the weighted average rate of cancellations divided by the incremental amounts financed for the period 1997 through 2002, was applied to all future estimated cancellations, resulting in an increase of $15.0 million, and

• an estimate was added for current notes with customers who received payment or term concessions that would have been deemed cancellations were it not for the concessions, resulting in an increase of $4.6 million.

The result of these revisions to the estimate was a $28.7 million increase from the original estimate for the provision for uncollectible notes in the quarter ended March 31, 2003. Management will continue its current collection programs and seek new programs to reduce note defaults and improve the credit quality of our customers. However, there can be no assurance that these efforts will be successful.

Operating, General and Administrative

Operating, general and administrative expenses as a percentage of total revenues decreased to 14.5% for the first nine months of 2004, from 16.3% for the same period of 2003. Overall, operating, general and administrative expenses decreased by $883,000 for the first nine months of 2004, as compared to the same period of 2003. The decrease was primarily related to higher litigation-related fees during the first nine months of 2003 versus the same period of 2004.

Depreciation and Amortization

Depreciation and amortization expense as a percentage of total revenues decreased to 2.3% in the first nine months of 2004 compared to 2.6% in the first nine months of 2003. Overall, depreciation and amortization expense

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decreased $188,000 for the first nine months of 2004, as compared to 2003, primarily due to a general reduction in capital expenditures since 2000.

Interest Expense and Lender Fees

Interest expense and lender fees as a percentage of interest income remained fairly constant at 47.7% for the first nine months of 2004 compared to 48.0% for the same period of 2003.

Gain on Early Extinguishment of Debt

Gain on early extinguishment of debt was $0 during the first nine months of 2004, compared to $6.4 million during the same period of 2003. $5.1 million of the gain in 2003 resulted from the early extinguishment of $7.6 million of 10 1/2% senior subordinated notes due 2008. In addition, the Company recognized a gain on early extinguishment of debt of $1.3 million during the first nine months of 2003, related to the early extinguishment of the $8.8 million remaining balance of the Company’s $60 million loan agreement, which would have been due August 2003.

Income (Loss) before Provision for Income Taxes

Income (loss) before provision for income taxes increased to income of $9.5 million for the nine months ended September 30, 2004 as compared to a loss of $14.7 million for the nine months ended September 30, 2003, as a result of the above mentioned operating results.

Provision for Income Taxes

Provision for income taxes as a percentage of income (loss) before provision for income taxes was 0.2% in the first nine months of 2004, as compared to 0.6% for the same period of 2003. The effective income tax rate is the result of the 2003 and 2004 projected income tax benefits being reduced by the effect of a valuation allowance, which reduces the projected net deferred tax assets to zero due to the unpredictability of recovery.

Net Income (Loss)

Net income (loss) increased to income of $9.4 million for the nine months ended September 30, 2004 as compared to a loss of $14.8 million for the nine months ended September 30, 2003, as a result of the above mentioned operating results.

Liquidity and Capital Resources

Financial Covenants. As of December 31, 2002, we were in compliance with all of our operating covenants. However, due to the results of the quarter ended March 31, 2003, we were not in compliance with three of our financial covenants. 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.

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 increased 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. They also exclude the $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.

In addition, as a result of the loss for the quarter ended March 31, 2003, our 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.

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As a result of these amendments and waivers, we have been and continue to be in full compliance with all of the financial covenants under our credit facilities with our senior lenders since December 31, 2003.

Sources of Cash. The Company generates cash primarily from the cash received from the sale of Vacation Intervals, the financing of customer notes receivable from Silverleaf Owners, the sale of notes receivable to the SPE, management fees, sampler sales, and resort and utility operations. The Company typically receives a 10% down payment on sales of Vacation Intervals and finances the remainder by receipt of a seven-year to ten-year customer promissory note. The Company generates cash from customer notes receivable by (i) borrowing at an advance rate of up to 75% of eligible customer notes receivable, (ii) selling notes receivable, and (iii) from the spread between interest received on customer notes receivable and interest paid on related borrowings. Because the Company uses significant amounts of cash in the development and marketing of Vacation Intervals, but collects cash on customer notes receivable over a seven-year to ten-year period, borrowing against receivables has historically been a necessary part of normal operations. During the nine months ended September 30, 2004, the Company’s operating activities reflected cash used in operating activities of $853,000 versus cash provided by operating activities of $27.2 million during the same period of 2003. The decrease in cash provided by operating activities was primarily the result of a $19.3 million decrease in proceeds from sales of notes receivable in the first nine months of 2004 versus the first nine months of 2003.

Although it appears the Company has adequate liquidity to meet its needs in 2004 and 2005, it is continuing to identify additional financing arrangements into 2006 and beyond. To finance the Company’s growth, development, and any future expansion plans, the Company may at some time be required to consider the issuance of other debt, equity, or collateralized mortgage-backed securities. Any debt incurred or issued by the Company may be secured or unsecured, have fixed or variable rate interest, and may be subject to such terms as management deems prudent.

Uses of Cash. Investing activities typically reflect a net use of cash due to capital additions and property acquisitions. During the first nine months of 2004, net cash used in investing activities was $945,000 due to equipment purchases. However in the first nine months of 2003, net cash provided by investing activities was $1.8 million due to proceeds from the sale of land held for sale of $2.9 million, partially offset by $1.1 million of equipment purchases. The Company evaluates sites for additional new resorts or acquisitions on an ongoing basis.

During the nine months ended September 30, 2004, net cash provided by financing activities was $1.9 million, whereas for the same period of 2003 net cash used in financing activities was $24.7 million. The decrease in cash used in financing activities was the result of decreased payments on borrowings against pledged notes receivable due to lower sales of notes receivable, the proceeds of which are used to pay down borrowings.

At September 30, 2004, the Company’s senior credit facilities provided for loans of up to $243.1 million of which approximately $215.5 million of principal related to advances under the credit facilities was outstanding. For the nine months ended September 30, 2004, the weighted average cost of funds for all borrowings, including the senior subordinated debt, was 6.8%. Customer defaults have a significant impact on cash available to the Company from financing customer notes receivable in that notes more than 60 days past due are not eligible as collateral. As a result, the Company must repay borrowings against such delinquent notes.

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

Off-Balance-Sheet Arrangements. The Company entered into a $100 million revolving credit agreement to finance Vacation Interval notes receivable through an off-balance-sheet SPE during 2000. Due to the results of operations during the first quarter of 2003, the SPE was in default of financial covenants with its lender. The lender subsequently waived the defaults and modified its agreement with the SPE in June 2003. The Company also obtained an extension of the SPE’s existing revolving credit facility through March 2006. In connection with the two-year extension of this facility, however, the Company agreed to reduce the principal amount of the facility from $100 million to $85 million. The SPE allows the Company to realize the benefit of an additional $85 million of revolving credit in addition to the on-balance-sheet credit arrangements it has with its senior lenders. Credit facilities are necessary for the Company to have the liquidity necessary to fund its costs and expenses. Therefore it is vitally important to the Company’s liquidity plan to have financing available in order to finance future sales, since it finances the majority of its timeshare sales over seven to ten years.

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During the first nine months of 2004, the Company sold $12.7 million of notes receivable to the SPE and recognized pre-tax gains of $580,000. In conjunction with these sales, the Company received cash consideration of $9.6 million, which was used to pay down borrowings under its revolving loan facilities. During the first nine months of 2003, the Company sold $35.1 million of notes receivable and recognized pre-tax gains of $2.8 million. In conjunction with these sales, the Company received cash consideration of $28.8 million, which was primarily used to pay down borrowings under its revolving loan facilities. The SPE funded these purchases through advances under a credit agreement arranged for this purpose. The Company receives fees for servicing sold notes, calculated based on 1% of eligible notes held by the facility. Such fees were $526,000 and $703,000 for the nine months ended September 30, 2004 and 2003, respectively. Such fees received approximate the Company’s internal cost of servicing such notes. As a result, the related servicing asset or liability was estimated to be insignificant. At September 30, 2004, the SPE held notes receivable totaling $78.0 million, with related borrowings of $58.1 million. Except for the repurchase of notes that fail to meet initial eligibility requirements, the Company is not obligated to repurchase defaulted or any other contracts sold to the SPE. It is anticipated, however, that it will place bids in accordance with the terms of the conduit agreement to repurchase some defaulted contracts in public auctions to facilitate the re-marketing of the underlying collateral. The investment in the SPE was valued at $5.4 million at September 30, 2004.

Taxes. For regular federal income tax purposes, the Company reports substantially all of the Vacation Interval sales it finances under the installment method. Under this method, income on sales of Vacation Intervals is not recognized until cash is received, either in the form of a down payment or as installment payments on customer notes receivable. The deferral of income tax liability conserves cash resources on a current basis. Interest is imposed, however, on the amount of tax attributable to the installment payments for the period beginning on the date of sale and ending on the date the payment is received. If the Company is otherwise not subject to tax in a particular year, no interest is imposed since the interest is based on the amount of tax paid in that year. The consolidated financial statements do not contain an accrual for any interest expense that would be paid on the deferred taxes related to the installment method as the interest expense is not estimable. In addition, the Company is subject to current alternative minimum tax (“AMT”) as a result of the deferred income that results from the installment sales treatment, although due to existing AMT loss carryforwards, it is anticipated that minimal current AMT liability exists. Payment of AMT creates a deferred tax asset in the form of a minimum tax credit, which, unless otherwise limited, reduces the future regular tax liability attributable to Vacation Interval sales. In 1998, the Internal Revenue Service approved a change in the method of accounting for installment sales effective as of January 1, 1997. As a result, the Company’s alternative minimum taxable income for 1997 through 1999 was increased each year by approximately $9.0 million for the pre-1997 adjustment, which resulted in the Company paying substantial additional federal and state taxes in those years. Subsequent to December 31, 2000, the Company applied for and received refunds of $8.3 million and $1.6 million during 2001 and 2002, respectively, as the result of the carryback of its 2000 AMT loss to 1999, 1998, and 1997. Accordingly, no minimum tax credit exists currently.

The net operating losses (“NOLs”) expire between 2012 through 2021. Realization of the deferred tax assets arising from NOLs is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards. Management currently does not believe that it will be able to utilize its NOL from normal operations. At present, future NOL utilization is expected to be limited to the temporary differences creating deferred tax liabilities. If necessary, management could implement a strategy to accelerate income recognition for federal income tax purposes to utilize the existing NOL. The amount of the deferred tax asset considered realizable could be decreased if estimates of future taxable income during the carryforward period are reduced.

Due to the restructuring completed in May 2002, an ownership change within the meaning of Section 382(g) of the Internal Revenue Code (“the Code”) occurred. As a result, a portion of the Company’s NOL is subject to an annual limitation for taxable years beginning after the date of the exchange (“change date”), and a portion of the taxable year which includes the change date. The annual limitation is equal to the value of the stock of the Company immediately before the ownership change, multiplied by the long-term tax-exempt rate (i.e., the highest of the adjusted Federal long-term rates in effect for any month in the three-calendar-month period ending with the calendar month in which the change date occurs). This annual limitation may be increased for any recognized built-in gain to the extent allowed in Section 382(h) of the Code.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of and for the nine months ended September 30, 2004, the Company had no significant derivative financial instruments or foreign operations. Interest on the Company’s notes receivable portfolio, senior subordinated debt, capital leases, and miscellaneous notes is fixed. Interest on the Company’s primary loan agreements, which totaled $215.5 million at September 30, 2004, is partially fixed and partially variable. The impact of a one-point effective interest rate change on the $122.9 million balance of variable-rate financial instruments at September 30, 2004, on

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the Company’s results of operations for the first nine months of 2004 would be approximately $199,000, or approximately $0.005 per share.

At September 30, 2004, the carrying value of the Company’s notes receivable portfolio approximates fair value because the weighted average interest rate on the portfolio approximates current interest rates received on similar notes. If interest rates on the Company’s notes receivable are increased or perceived to be above market rates, the fair market value of the Company’s fixed-rate notes will decline, which may negatively impact the Company’s ability to sell new notes. The impact of a one-point interest rate change on the portfolio could result in a fair value impact of $6.1 million or approximately $0.16 per share.

Credit Risk — The Company is exposed to on-balance sheet credit risk related to its notes receivable. The Company is exposed to off-balance sheet credit risk related to notes sold.

The Company offers financing to the buyers of Vacation Intervals at the Company’s resorts. These buyers generally make a down payment of at least 10% of the purchase price and deliver a promissory note to the Company for the balance. The promissory notes generally bear interest at a fixed rate, are payable over a seven-year to ten-year period, and are secured by a first mortgage on the Vacation Interval. The Company bears the risk of defaults on these promissory notes. Although the Company prescreens prospects in the early stages of the marketing and sales process, it generally does not perform a detailed credit history review of its customers, as is the case with most other timeshare developers.

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

Interest Rate Risk — The Company has historically derived net interest income from its financing activities because the interest rates it charges its customers who finance the purchase of their Vacation Intervals exceed the interest rates the Company pays to its lenders. Because the Company’s indebtedness bears interest at variable rates and the Company’s customer receivables bear interest at fixed rates, increases in interest rates will erode the spread in interest rates that the Company has historically obtained and could cause the rate on the Company’s borrowings to exceed the rate at which the Company provides financing to its customers. The Company has not engaged in interest rate hedging transactions. Therefore, any increase in interest rates, particularly if sustained, could have a material adverse effect on the Company’s results of operations, cash flows, and financial position.

Availability of Funding Sources — The Company funds substantially all of the notes receivable, timeshare inventories, and land inventories which it originates or purchases with borrowings through its financing facilities, sales of notes receivable, internally generated funds, and proceeds from public debt and equity offerings. Borrowings are in turn repaid with the proceeds received by the Company from repayments of such notes receivable. To the extent that the Company is not successful in maintaining or replacing existing financings, it would have to curtail its operations or sell assets, thereby having a material adverse effect on the Company’s results of operations, cash flows, and financial condition.

Geographic Concentration — The Company’s notes receivable are primarily originated in Texas, Missouri, Illinois, Massachusetts, and Georgia. The risk inherent in such concentrations is dependent upon regional and general economic stability, which affects property values and the financial stability of the borrowers. The Company’s Vacation Interval inventories are concentrated in Texas, Missouri, Illinois, Massachusetts, and Georgia. The risk inherent in such concentrations is in the continued popularity of the resort destinations, which affects the marketability of the Company’s products and the collection of notes receivable.

Item 4. Controls and Procedures

An evaluation as of the end of the period covered by this report was carried out under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness and design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were adequate to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized, and reported as and when required.

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There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation referred to above.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

Holiday Hills Condominium Association, Inc. et al v. Silverleaf Resorts, Inc. et al, Circuit Court of Christian County, Missouri. The homeowners’ associations of five condominium projects that a former subsidiary of the Company constructed in Missouri filed two separate actions against the Company in 1999 and 2000, respectively, alleging breach of warranty, construction defects and breach of management agreements. These two cases have been consolidated, but no trial date has been set. The plaintiffs have filed an amended petition alleging actual damages in excess of $25,000 and punitive damages. A special master has been appointed by agreement of all the parties in this case. A special master is appointed by the court to assist the court with judicial duties. The special master will decide discovery disputes and make recommendations on substantive motions. Discovery continued in the lawsuit during the first nine months of 2004, but is not yet complete. The Company has filed a counterclaim seeking contractual indemnification under the terms of management agreements with each of the plaintiffs. At this time, the Company’s legal fees and costs of litigation are being paid by its insurance carriers, subject to a reservation of rights by these insurers. The Company cannot predict the final outcome of these claims, nor can it estimate the additional costs it could incur, or whether its insurance carriers will continue to cover its costs in connection with these claims. The Company intends to vigorously defend this litigation.

Ozark Mountain Condominium Association, Inc. et al v. Silverleaf Resorts, Inc., Circuit Court of Stone County, Missouri. The homeowners’ associations of three condominium projects that a former subsidiary of the Company constructed in Missouri filed an action against the Company in 2000 alleging construction defects, misrepresentation, breach of fiduciary duty, negligence, and breach of management agreements and seeking damages and certain other equitable relief. The plaintiffs seek actual and punitive damages in excess of $500,000, attorneys fees and costs. The Company has filed a counterclaim seeking contractual indemnification under the terms of management agreements with the plaintiffs. At this time, a majority of the Company’s legal fees and costs of litigation are being paid by its insurance carriers, subject to a reservation of rights by these insurers. Discovery in the case is ongoing. The trial, which was originally set for November 1, 2004, has been rescheduled to March 21, 2005. The Company cannot predict the final outcome of these claims, nor can it estimate the additional costs it could incur, or whether its insurance carriers will continue to cover its costs in connection with these claims. The Company intends to vigorously defend this litigation.

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

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

Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. Reserves will be established from time to time by the Company when deemed appropriate under generally acceptable accounting principles. However, the outcome of a claim for which the Company has not deemed a reserve to be necessary may be decided unfavorably to the Company and could require the Company to pay damages or make other expenditures in amounts or a range of amounts that could be materially adverse to the Company.

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Item 4. Submission of Matters to a Vote of Security Holders

The Company held a special meeting of shareholders on August 12, 2004 to consider the adoption of a performance-based incentive bonus plan for the Company’s chief executive officer in 2005 to comply with the requirements of Internal Revenue Code Section 162(m). The 2005 incentive bonus plan was approved by the shareholders of the Company by the following vote:

For	Against		Abstain
27,345,087		1,452,338		4,365

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits filed herewith.

10.1	Amendment Agreement No. 2 dated September 7, 2004 to Purchase and Contribution Agreement between the Company and Silverleaf Finance I, Inc.
10.2	Fourth Amendment Agreement dated as of September 7, 2004 to the Amended and Restated Receivables Loan and Security Agreement dated as of April 20, 2002 among the Company, Silverleaf Finance I, Inc., Autobahn Funding Company LLC, DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main, U.S. Bank Trust National Association and Wells Fargo Bank National Association.
10.3	Amendment dated July 30, 2004 to Amended and Restated Loan and Security Agreement dated as of March 5, 2004 between the Company and Textron Financial Corporation.
10.4	Amendment dated July 30, 2004 to Loan and Security Agreement dated as of April 17, 2001 between the Company and Textron Financial Corporation.
10.5	Amendment to Amended and Restated Loan, Security and Agency Agreement (Tranche B) dated as of April 30, 2002 between the Company and Textron Financial Corporation.
10.6	Amendment dated July 30, 2004 to Amended and Restated Loan, Security and Agency Agreement (Tranche B) dated as of April 30, 2002 between the Company and Textron Financial Corporation.
10.7	Amendment dated July 30, 2004 to Amended and Restated Loan, Security and Agency Agreement (Tranche A) dated as of April 30, 2002 between the Company and Textron Financial Corporation.
31.1	Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
31.2	Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1	Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2	Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

     The Company filed the following Current Reports on Form 8-K with the SEC during the quarter ended September 30, 2004:

     1. Current Report on Form 8-K filed with the SEC on August 12, 2004 announcing the Company’s results of operation for the quarter ended June 30, 2004 and the acquisition of land in Massachusetts.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 12, 2004	By:	/s/ ROBERT E. MEAD
		Robert E. Mead
		Chairman of the Board and
		Chief Executive Officer

Dated: November 12, 2004	By:	/s/ HARRY J. WHITE, JR.
		Harry J. White, Jr.
		Chief Financial Officer

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INDEX TO EXHIBITS

Exhibit No.	Description
10.1	Amendment Agreement No. 2 dated September 7, 2004 to Purchase and Contribution Agreement between the Company and Silverleaf Finance I, Inc.
10.2	Fourth Amendment Agreement dated as of September 7, 2004 to the Amended and Restated Receivables Loan and Security Agreement dated as of April 20, 2002 among the Company, Silverleaf Finance I, Inc., Autobahn Funding Company LLC, DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main, U.S. Bank Trust National Association and Wells Fargo Bank National Association.
10.3	Amendment dated July 30, 2004 to Amended and Restated Loan and Security Agreement dated as of March 5, 2004 between the Company and Textron Financial Corporation.
10.4	Amendment dated July 30, 2004 to Loan and Security Agreement dated as of April 17, 2001 between the Company and Textron Financial Corporation.
10.5	Amendment to Amended and Restated Loan, Security and Agency Agreement (Tranche B) dated as of April 30, 2002 between the Company and Textron Financial Corporation.
10.6	Amendment dated July 30, 2004 to Amended and Restated Loan, Security and Agency Agreement (Tranche B) dated as of April 30, 2002 between the Company and Textron Financial Corporation.
10.7	Amendment dated July 30, 2004 to Amended and Restated Loan, Security and Agency Agreement (Tranche A) dated as of April 30, 2002 between the Company and Textron Financial Corporation.
31.1	Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

27

EX-10.1

                                                                    EXHIBIT 10.1

                            AMENDMENT AGREEMENT NO. 2
                                       TO
                       PURCHASE AND CONTRIBUTION AGREEMENT

                  AMENDMENT AGREEMENT NO. 2, dated as of September 7, 2004 (this
"Amendment"), to PURCHASE AND CONTRIBUTION AGREEMENT dated as of April 30, 2002
(as the same may have been amended, supplemented, modified or restated prior to
the effectiveness hereof in accordance with its terms, the "Agreement") between
Silverleaf Resorts, Inc. (the "Seller") and Silverleaf Finance I, Inc. (the
"Purchaser"). Capitalized terms not otherwise defined herein shall have the
meanings attributed to them in the Agreement.

                  WHEREAS, the Seller and the Purchaser' desire to amend the
Agreement as hereinafter provided;

                  NOW THEREFORE, for good and valuable consideration, the
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

                  SECTION 1. Amendments. The parties hereto agree that, as of
the date of this Amendment:

                  (a) The definition of "Eligible Receivable" in Section 1.01 of
the Existing RLSA is hereby amended by inserting the following parenthetical
"(excluding all Eligible Receivables related to the Holiday Hills Development)"
immediately after the words "the Weighted Average Original Term of all Eligible
Receivables" in clause (oo) thereto.

                  (b) The definition of "Eligible Receivable" in Section 1.01 of
the Existing RLSA is hereby amended by adding a new clause (aaa) at the end
thereof:

                  "(aaa) If such Receivable related to the Holiday Hills
                  Development, upon inclusion of such Receivable as an Eligible
                  Receivable, the weighted average (weighted solely based on the
                  Outstanding Principal Balances of the Eligible Receivables
                  related to the Holiday Hills Development at such time) of the
                  original number of monthly payments owed in respect of all
                  Eligible Receivables related to the Holiday Hills Development
                  shall be no more than 114 months."

                  SECTION 2. Conditions to Effectiveness. The amendments
contained in this Amendment shall not become effective until the following
conditions have been satisfied in full or waived by the Purchaser or its
assignee:

                  (a) the Purchaser or its assignee shall have received an
         originally executed counterpart of this Amendment duly executed by the
         Seller;

                  (b) the conditions precedent to the amendment and restatement
         of the RLSA, dated as of the date hereof, shall have been satisfied and
         such agreement shall have been executed by the parties thereto;




                  (c) no event has occurred and is continuing which constitutes
         an Event of Default or would constitute an Event of Default but for the
         requirement that notice be given or time elapse, except as specifically
         described herein; and

                  (d) the Purchaser or its assignee shall have received such
         approvals, opinions or documents as the Purchaser or its assignee may
         reasonably request.

                  SECTION 3. Representations and Warranties. The Purchaser and
the Seller each represent and warrant that all of their representations and
warranties contained in the Transaction Documents are true and correct in all
material respects on the date hereof and with the same force and effect as
though such representations and warranties had been made on the date hereof,
except to the extent any such representations and warranties relate solely to an
earlier date.

                  SECTION 4. Reference to and Effect on the Documents.

                  (a) On and after the date hereof, each reference in the
         Agreement to "this Agreement" shall refer to the Agreement as amended
         hereby and each reference in the Agreement to "hereunder", "hereof",
         "herein" or words of like import shall mean and be a reference to the
         Agreement as amended hereby.

                  (b) Except as specifically amended above, the Agreement shall
         remain in full force and effect and is hereby ratified and confirmed.

                  (c) Except as expressly provided herein, the execution and
         delivery of this Amendment shall neither operate as a waiver of any
         right, power or remedy of any party to the Agreement nor constitute a
         waiver of any provision of the Agreement.

                  SECTION 5. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF, THE STATE. OF NEW
YORK.

                  SECTION 6. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed an
original and all of which when taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.

                                       2




                  IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.

                                         SILVERLEAF RESORTS, INC



                                         By:    /s/ HARRY J. WHITE, JR.
                                                -------------------------------
                                         Name:  Harry J. White, Jr.
                                                -------------------------------
                                         Title: Chief Financial Officer
                                                -------------------------------


                                         SILVERLEAF FINANCE 1, INC


                                         By:    /s/ HARRY J. WHITE, JR.
                                                -------------------------------
                                         Name:  Harry J. White, Jr.
                                                -------------------------------
                                         Title: Chief Financial Officer
                                                -------------------------------


                                         Agreed and Accepted:

                                         DZ BANK AG DEUTSCHE ZENTRAL-
                                         GENOSSENSCHAFTSBANK, FRANKFURT
                                         AM MAIN


                                         By:    /s/ PATRICK PREECE
                                                -------------------------------
                                         Name:  Patrick Preece
                                                -------------------------------
                                         Title: VP
                                                -------------------------------


                                         By:    /s/ MARK PARSA
                                                -------------------------------
                                         Name:  Mark Parsa
                                                -------------------------------
                                         Title: AVP
                                                -------------------------------

                                       3

EX-10.2

                                                                    EXHIBIT 10.2


                           FOURTH AMENDMENT AGREEMENT

                  FOURTH AMENDMENT AGREEMENT, dated as of September 7, 2004
(this "Fourth Amendment"), to the Amended and Restated Receivables Loan and
Security Agreement, dated as of April 30, 2002, among Silverleaf Finance I, Inc.
(the "Borrower"), Silverleaf Resorts, Inc. ("SRI"), as Servicer, Autobahn
Funding Company LLC, as lender (the "Lender"), DZ Bank AG Deutsche
Zentral-Genossenschaftsbank, Frankfurt Am Main, as agent (the "Agent"), U.S.
Bank Trust National Association, as Agent's Bank, and Wells Fargo Bank, National
Association (as successor by merger to Wells Fargo Bank Minnesota, National
Association), as Backup Servicer (as the same may have been amended,
supplemented, modified or restated prior to the effectiveness hereof in
accordance with its terms, the "Existing RLSA") Capitalized terms used herein
and not otherwise defined herein shall have the meanings attributed thereto in
the Existing RLSA, as amended hereby (as so amended, and as otherwise amended,
supplemented, modified or restated from time to time in accordance with its
terms, the "Amended RLSA"),

                  WHEREAS, the parties hereto have agreed to amend certain
provisions of the Existing RLSA on the terms and subject to the conditions
herein set forth;

                  NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and subject to the fulfillment of
the conditions set forth below, the parties hereto agree as follows:

         SECTION 1. AMENDMENT TO THE EXISTING RLSA

                  l.1 Section 1.01 of the Existing RLSA is hereby amended by
adding the following additional defined terms in appropriate alphabetical order:

                           "Business Model" means that certain business plan of
                  SRI annexed hereto as Schedule X."

                           "Holiday Hills Development" means SRI's timeshare
                  property located in Taney County, Missouri, known as Holiday
                  Hills Resort.

                  1.2 The definition of "Eligible Receivable" in Section 1.01 of
the Existing RLSA is hereby amended by inserting the following parenthetical
"(excluding all Eligible Receivables related to the Holiday Hills Development)"
immediately after the words "the Weighted Average Original Term of all Eligible
Receivables" in clause (oo) thereto.

                  1.3 The definition of "Eligible Receivable" in Section 1.01 of
the Existing RLSA is hereby amended by adding a new clause (zz) at the end
thereof:

                  "(zz) If such Pledged Receivable related to the Holiday Hills
         Development, upon inclusion of such Pledged Receivable as an Eligible
         Receivable, the weighted average (weighted solely based on the
         Outstanding Principal Balances of the Eligible Receivables related to
         the Holiday Hills Development at such time) of the original number of
         monthly payments owed in respect of all Eligible Receivables related to
         the Holiday Hills Development shall be no more than 114 months."




                  1.4 The definition of "FICO Score Adjustment Amount" in
Section 1.01 of the Existing RLSA is hereby amended by deleting such definition
in its entirety and substituting in lieu thereof the following:

                  "FICO Score Adjustment Amount"means, at anytime, the sum of
         (i) the sum of the Outstanding Principal Balances of each Eligible
         Receivable (excluding any Eligible Receivable related to the Holiday
         Hills Development) initially Pledged hereunder on or after the
         Amendment Date the Obligor of which had a FICO Score of less than 650
         at the time such Obligor purchased the related Interval, to the extent
         that including such Eligible Receivable in the calculation of the
         Weighted Average FICO Score of the Obligors related to all Eligible
         Receivables (excluding any Eligible Receivables related to the Holiday
         Hills Development) that are initially Pledged hereunder on or after the
         Amendment Date (such Weighted Average FICO Score to be determined with
         respect of each such Obligor at the time such Obligor purchased the
         related Interval) would cause such Weighted Average FICO Score to be or
         remain less than 650 and (ii) the sum of the Outstanding Principal
         Balances of each Eligible Receivable related to the Holiday Hills
         Development initially Pledged hereunder on or after the Amendment Date
         the Obligor of which had a FICO Score of less than 665 at the time such
         Obligor purchased the related Interval, to the extent that including
         such Eligible Receivable in the calculation of the Weighted Average
         FICO Score of all Obligors related to all Eligible Receivables related
         to the Holiday Hills Development that are initially Pledged hereunder
         on or after the Amendment Date (such Weighted Average FICO Score to be
         determined with respect of each such Obligor at the time such Obligor
         purchased the related Interval) would cause such Weighted Average FICO
         Score to be or remain less than 665.

                  1.5 The definition of "Overconcentration Amount" in Section
1.01 of the Existing RLSA is hereby amended by deleting clause (a) thereof' in
its entirety and substituting in lieu thereof the following:

                  "(a) (x) the amount by which the sum of the Outstanding
         Principal Balances of all Eligible Receivables related to any one
         Eligible Development (other than the Holiday Hills Development) at such
         time exceeds (i) in the case of an Eligible Development at which at
         such time at least 70% of the completed inventory has been sold, 30% or
         (ii) in the case of an Eligible Development at which at such time less
         than 70% of the completed inventory has been sold, 25% (or such higher
         percentage as the Agent may agree to in writing in respect of such
         Eligible Development at such time) of the Eligible Receivables Balance
         at such time plus (y) the amount by which the sum of the Outstanding
         Principal Balances of all Eligible Receivables related to the Holiday
         Hills Development at such time exceeds 50% of the Eligible Receivables
         Balance at such time."

                  1.6 Clause (z) of Section 551 of the Existing RLSA is hereby
amended by deleting such clause in its entirety and inserting in lieu thereof'
the following:

                  "(z) SRI shall, at all times after September 7, 2004, take all
         actions necessary to be and remain in material compliance with the
         Business Model."

                                       2




                  1.7 The Existing RLSA is hereby amended by attaching a new
Schedule X thereto to read in its entirety as set forth in Schedule X to this
Fourth Amendment.

         SECTION 2. CONDITIONS TO EFFECTIVENESS

                  This Fourth Amendment shall be effective upon the delivery to
the Agent of counterparts (i) hereof executed by each of the parties hereto and
(ii) of an amendment to the Receivables Purchase Agreement (in form and
substance satisfactory to the Agent) executed by each of the parties thereto.

         SECTION 3. MISCELLANEOUS

                  3.1 The Borrower and SRI each hereby certifies that the
representations and warranties set forth in Article IV of the Amended RLSA (and
any other representations and warranties made by the Borrower or SRI in the
Amended RLSA) are true and correct on the date hereof with the same force and
effect as if made on the date hereof In addition, the Borrower and SRI each
represents and warrants (which representations and warranties shall survive the
execution and delivery hereof) that (a) no unwaived Early Amortization Event or
Event of Default (nor any event that but for notice or lapse of time or both
would constitute an unwaived Early Amortization Event or Event of Default) shall
have occurred and be continuing as of the date hereof nor shall any unwaived
Early Amortization Event or Event of Default (nor any event that but for notice
or lapse of time or both would constitute an unwaived Early Amortization Event
or Event of Default) occur due to this Fourth Amendment becoming effective, (b)
the Borrower and SRI each has the corporate power and authority to execute and
deliver this Fourth Amendment and has taken or caused to be taken all necessary
corporate actions to authorize the execution and delivery of this Fourth
Amendment, and (c) no consent of any other person (including, without
limitation, shareholders or creditors of the Borrower or SRI), and no action of,
or filing with any governmental or public body or authority is required to
authorize, or is otherwise required in connection with the execution and
performance of this Fourth Amendment other than such that have been obtained.

                  3.2 The Amended RLSA is hereby ratified and confirmed in all
respects and remains in full force and effect in accordance with its terms.

                  3.3 MI references in the Amended RLSA to "this Agreement" and
"herein" and all references to the Existing RLSA in the documents executed in
connection with the Existing RLSA shall mean the Amended RLSA.

                  3.4 This Fourth Amendment may be executed by the parties
hereto individually or in combination, in one or more counterparts, each of
which shall be an original and all of which shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Fourth Amendment by facsimile shall be effective as delivery of a manually
executed counterpart of this Fourth Amendment.

                  3.5 The Borrower hereby agrees to pay all costs and expenses
incurred by the Lender and the Agent in connection with this Fourth Amendment
including, without limitation, the fees and expenses of Kaye Scholer LLP,
counsel to the Lender and the Agent.


                                       3





                  3.6 THIS FOURTH AMENDMENT SHALL, IN ACCORDANCE WITH SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ANY CONFLICTS OF LAW
PRINCIPLES THEREOF THAT WOULD CALL FOR THE APPLICATION OF THE LAWS OF ANY OTHER
JURISDICTION.

                  [Remainder of page intentionally left blank.]


                                       4




                  IN WITNESS WHEREOF, the parties hereto have executed this
Fourth Amendment as of the date first above written,


                                             SILVERLEAF RESORTS, INC


                                             By:     /s/ HARRY J. WHITE, JR.
                                                     --------------------------
                                             Name:   Harry J. White, Jr.
                                                     --------------------------
                                             Title:  Chief Financial Officer
                                                     --------------------------


                                             SILVERLEAF FINANCE 1, INC


                                             By:     /s/ HARRY J. WHITE, JR.
                                                     --------------------------
                                             Name:   Harry J. White, Jr.
                                                     --------------------------
                                             Title:  Chief Financial Officer
                                                     --------------------------


                                             Agreed and Accepted:

                                             DZ BANK AG DEUTSCHE ZENTRAL-
                                             GENOSSENSCHAFTSBANK, FRANKFURT
                                             AM MAIN


                                             By:     /s/ PATRICK PREECE
                                                     --------------------------
                                             Name:   Patrick Preece
                                                     --------------------------
                                             Title:  VP
                                                     --------------------------


                                             By:      /S/ MARK PARSA
                                                     --------------------------
                                             Name:    Mark Parsa
                                                     --------------------------
                                             Title:   AVP
                                                     --------------------------

                                       5

EX-10.3

                                                                    EXHIBIT 10.3

                                       TFC LETTERHEAD

Textron Financial Corporation                            333 East River Drive
Subsidiary of Textron Inc.                               Suite 104
                                                         East Hartford, CT 06108
                                                         (860) 282-7776 Phone
                                                         (860) 282-9053 Fax

Robert E. Mead, Chief Executive Officer
Silverleaf Resorts, Inc.
1221 Riverbend Drive, Suite 105
Dallas TX 75221

July 30, 2004

RE:   $18,000,000 credit facility [Inventory Loan] (the "Loan") provided to
      Silverleaf Resorts, Inc. ("Borrower") pursuant to that certain Amended and
      Restated Loan and Security Agreement dated as of March 5, 2004, by and
      between Silverleaf Resorts, Inc and Textron Financial Corporation (the
      "Loan Agreement")

Dear Bob:

Reference is hereby made to the Loan Agreement. All capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to such terms
in the Loan Agreement.

This letter shall confirm that, in connection with the amendments to the
Sovereign Facility, dated as of July 30, 2004, the List of Sovereign Documents
attached to the Loan Agreement is hereby modified, effective as of July 30,
2004, so that Schedule 1.1(jjjj) is deleted in its entirety and in its place is
substituted the attached Amended Schedule 1.1(jjjj).

This Letter Agreement shall also confirm that the definition of "Collateral" in
the Loan Agreement is hereby modified, effective as of July 30, 2004, so that
Section 1.l(p)(xi) is deleted in its entirety and in its place is substituted
the following:

      "(xi) All collateral under the Additional Credit Facility, the Tranche C
      Facility, the Inventory Loan and the Sovereign Facility, as each such term
      is herein defined, except the Inventory Mortgages that are collateral for
      the Sovereign Facility; as that term (Inventory Mortgages) is defined in
      the Inventory and Receivables Revolving Credit Agreement, dated as of July
      30, 2004, among Silverleaf Resorts, Inc., Sovereign, as agent, and
      Sovereign and any other lending institutions that may become party thereto
      as lenders, as amended, amended and restated, or modified and in effect
      from time to time ;"

In addition, this Letter Agreement shall confirm that the Loan Agreement is
hereby modified, effective as of July 30, 2004, so that Section 3 is hereby
amended in part to add the following new paragraph:



      "3.14 HELLER RECEIVABLES COLLATERAL. Immediately upon repayment of the
      Heller Facility, the Borrower hereby covenants and agrees that the
      Borrower will grant to the Agent, for the benefit of the Lenders, a first
      priority security interest in all of the Notes Receivable and the
      Mortgages (each such term as defined in the Heller Documents) pledged to
      Heller to secure the Heller Facility immediately prior to the repayment in
      full of such Heller Facility (the "Heller Receivables Collateral"). The
      Borrower hereby covenants and agrees that, prior to repayment (in full of
      the Heller Facility, the Borrower will not, and will not permit any of its
      Subsidiaries to, create or incur or suffer to be created or incurred or to
      exist any lien, encumbrance, mortgage, pledge, charge, restriction or
      other security interest of any kind upon the Heller Receivables
      Collateral, other than in favor of Heller pursuant to the Heller
      Documents. The Agent and the Lenders hereby acknowledge that the Borrower
      has agreed to grant an identical and equal priority lien on the Heller
      Receivables Collateral to Sovereign. The Agent and the Lenders hereby
      acknowledge and agree that (a) until such time as the Heller Facility has
      been repaid in full, the Agent and the Lenders have no title or interest
      in the Heller Receivables Collateral and (b) Heller has no duty or
      obligations to the Agent and the Lenders with respect to the Heller
      Receivables Collateral.

            Notwithstanding the foregoing, in the event that in order to raise
      the funds necessary to repay the Heller Facility, the Borrower intends to
      sell the Heller Receivables Collateral into a securitization or to
      refinance the Heller Facility and pledge the Heller Receivables Collateral
      to the lender providing such refinancing, the Agent and the Lenders hereby
      acknowledge and agree that the Agent and the Lenders shall have no claim
      with respect to such Notes Receivables under this Section 3.14 to the
      extent such Notes Receivable are sold into such a securitization or
      pledged to a lender providing a new revolving credit facility permitted by
      the terms of this Agreement; provided however, that in the event that the
      proceeds of the Heller Receivables Collateral received by the Borrower
      from such sale or refinancing of the Heller Receivables Collateral exceed
      the Borrower's outstanding obligations under the Heller Facility, then,
      subject to the terms of the Intercreditor Agreement, the Borrower shall
      deliver any such excess proceeds to the Agent and any such proceeds shall
      be applied to reduce the principal of the Loans.

            The Borrower hereby agrees to take, at its sole cost and expense,
      such steps as the Agent may request to deliver the Heller Receivables
      Collateral to the Agent and to create and perfect the Agent's first
      priority security interest therein."

This Letter Agreement ("Letter Agreement") may be executed in two or more
counterparts, all of which together shall be considered a single instrument.
Delivery of an executed counterpart of a signature page to this Letter Agreement
by facsimile shall be effective as delivery of a manually executed counterpart
of this Letter Agreement.

Except as expressly set forth herein, this Letter Agreement does not constitute
an amendment or



waiver of any term or condition of the Loan, and all such terms and conditions
shall remain in full force and effect.

Please confirm your acknowledgement of and agreement with the terms of this
Letter Agreement by signing in the appropriate space below.

                                                  Very truly yours,
                                                  TEXTRON FINANCIAL CORPORATION,
                                                  A Delaware corporation

                                                  /s/ John D'Annibale
                                                  ----------------------------
                                                  By:  John D'Annibale
                                                  Its: V.P.

The undersigned party acknowledges its agreement with the terms and conditions
of this Letter Agreement:

                                                  SILVERLEAF RESORTS, INC.

                                                  /s/ Robert E. Mead
                                                  -----------------------------
                                                  By:  Robert E. Mead
                                                  Its: CEO

EX-10.4

                                                                    EXHIBIT 10.4

                                 TFC LETTERHEAD

Textron Financial Corporation                            333 East River Drive
Subsidiary of Textron Inc.                               Suite 104
                                                         East Hartford, CT 06108
                                                         (860) 282-7776 Phone
                                                         (860) 282-9053 Fax

Robert E. Mead, Chief Executive Officer
Silverleaf Resorts, Inc.
1221 Riverbend Drive, Suite 105
Dallas, TX 75221

July 30, 2004

RE:   $10,200,000 credit facility [Tranche C] (the "Loan") provided to
      Silverleaf Resorts, Inc. ("Borrower") pursuant to that certain Loan and
      Security Agreement dated as of April 17, 2001, as amended, by and between
      Silverleaf Resorts, Inc and Textron Financial Corporation (the "Loan
      Agreement")

Dear Bob:

Reference is hereby made to the Loan Agreement. All capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to such terms
in the Loan Agreement.

This letter shall confirm that, in connection with the amendments to the
Sovereign Facility, dated as of July 30, 2004, the List of Sovereign Documents
attached to the Loan Agreement is hereby modified, effective as of July 30,
2004, so that Schedule 1.1(ooo) is deleted in its entirety and in its place is
substituted the attached Amended Schedule 1.1 (ooo).

This Letter Agreement shall also confirm that the definition of "Collateral" in
the Loan Agreement is hereby modified, effective as of July 30, 2004, so that
Section 1.1(l)(x) is deleted in its entirety and in its place is substituted the
following:

      "(x) All collateral under the Additional Credit Facility, the Tranche C
      Facility, the Inventory Loan and the Sovereign Facility, as each such term
      is herein defined, except the Inventory Mortgages that are collateral for
      the Sovereign Facility, as that term (Inventory Mortgages) is defined in
      the Inventory and Receivables Revolving Credit Agreement, dated as of July
      30, 2004, among Silverleaf Resorts, Inc., Sovereign, as agent, and
      Sovereign and any other lending institutions that may become party thereto
      as lenders, as amended, amended and restated, or modified and in effect
      from time to time ;"

In addition, this Letter Agreement shall confirm that the Loan Agreement is
hereby modified, effective as of July 30, 2004, so that Section 3 is hereby
amended in part to add the following



new paragraph:

      "3.14 Heller Receivables Collateral. Immediately upon repayment of the
      Heller Facility, the Borrower hereby covenants and agrees that the
      Borrower will grant to the Agent, for the benefit of the Lenders, a first
      priority security interest in all of the Notes Receivable and the
      Mortgages (each such term as defined in the Heller Documents) pledged to
      Heller to secure the Heller Facility immediately prior to the repayment in
      full of such Heller Facility (the "Heller Receivables Collateral"). The
      Borrower hereby covenants and agrees that, prior to repayment in full of
      the Heller Facility, the Borrower will not, and will not permit any of its
      Subsidiaries to, create or incur or suffer to be created or incurred or to
      exist any lien, encumbrance, mortgage, pledge, charge, restriction or
      other security interest of any kind upon the Heller Receivables
      Collateral, other than in favor of Heller pursuant to the Heller
      Documents. The Agent and the Lenders hereby acknowledge that the Borrower
      has agreed to grant an identical and equal priority lien on the Heller
      Receivables Collateral to Sovereign. The Agent and the Lenders hereby
      acknowledge and agree that (a) until such time as the Heller Facility has
      been repaid in full, the Agent and the Lenders have no title or interest
      in the Heller Receivables Collateral and (b) Heller has no duty or
      obligations to the Agent and the Lenders with respect to the Heller
      Receivables Collateral.

            Notwithstanding the foregoing, in the event that in order to raise
      the funds necessary to repay the Heller Facility, the Borrower intends to
      sell the Heller Receivables Collateral into a securitization or to
      refinance the Heller Facility and pledge the Heller Receivables Collateral
      to the lender providing such refinancing, the Agent and the Lenders hereby
      acknowledge and agree that the Agent and the Lenders shall have no claim
      with respect to such Notes Receivables under this Section 3.14 to the
      extent such Notes Receivable are sold into such a securitization or
      pledged to a lender providing a new revolving credit facility permitted by
      the terms of this Agreement; provided however, that in the event that the
      proceeds of the Heller Receivables Collateral received by the Borrower
      from such sale or refinancing of the Heller Receivables Collateral exceed
      the Borrower's outstanding obligations under the Heller Facility, then,
      subject to the terms of the Intercreditor Agreement, the Borrower shall
      deliver any such excess proceeds to the Agent and any such proceeds shall
      be applied to reduce the principal of the Loans.

            The Borrower hereby agrees to take, at its sole cost and expense,
      such steps as the Agent may request to deliver the Heller Receivables
      Collateral to the Agent and to create and perfect the Agent's first
      priority security interest therein."

This Letter Agreement ("Letter Agreement") may be executed in two or more
counterparts, all of which together shall be considered a single instrument.
Delivery of an executed counterpart of a signature page to this Letter Agreement
by facsimile shall be effective as delivery of a manually executed counterpart
of this Letter Agreement.



Except as expressly set forth herein, this Letter Agreement does not constitute
an amendment or waiver of any term or condition of the Loan, and all such terms
and conditions shall remain in full force and effect.

Please confirm your acknowledgement of and agreement with the terms of this
Letter Agreement by signing in the appropriate space below.

                                                  Very truly yours,
                                                  TEXTRON FINANCIAL CORPORATION,
                                                  A Delaware corporation

                                                  /s/ John D'Annibale
                                                  -----------------------------
                                                  By:  John D'Annibale
                                                  Its: V.P.

The undersigned party acknowledges its agreement with the terms and conditions
of this Letter Agreement:

                                                  SILVERLEAF RESORTS, INC.

                                                  /s/ Robert E. Mead
                                                  ------------------------------
                                                  By:  Robert E. Mead
                                                  Its: CEO

EX-10.5

                                                                    EXHIBIT 10.5

                                 TFC LETTERHEAD

Textron Financial Corporation                            333 East River Drive
Subsidiary of Textron Inc.                               Suite 104
                                                         East Hartford, CT 06108
                                                         (860) 282-7776 Phone
                                                         (860) 282-9053 Fax

Mr. Scott A. Silvay, Vice President
Webster Bank
344 Main Street
Kensington, CT 06037

Bank of Scotland
566 Fifth Avenue
New York, NY 10017

Robert E. Mead, Chief Executive Officer
Silverleaf Resorts, Inc.
1221 Riverbend Drive, Suite 105
Dallas, TX 75221

July ___, 2004

RE:   $71,000,000 credit facility [Tranche B] (the "Loan") provided to
      Silverleaf Resorts, Inc. ("Borrower") pursuant to that certain Amended and
      Restated Loan, Security and Agency Agreement (Tranche B) dated as of April
      30, 2002, as amended by that certain Letter Amendment dated March 27,
      2003, as further amended by the First Amendment to Amended and Restated
      Loan, Security and Agency Agreement dated as of December 19, 2003, and as
      further amended by that certain Letter Amendment dated March 5, 2004 (the
      "Loan Agreement")

Ladies and Gentlemen:

Reference is hereby made to the Loan Agreement. All capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to such terms
in the Loan Agreement.

This letter agreement ("Letter Agreement") shall confirm that, for purposes of
the Loan Agreement and all Loan Documents (including Section 3.1 of the Loan
Agreement) the Silverleaf Finance II Stock and the Silverleaf Finance II
Subordinated Note shall secure the Term Loan Component, the Revolving Loan
Component, the Existing Inventory Loan (as such term is defined in the inventory
Loan Agreement) and the New Inventory Loan (as such term is defined in the
Inventory Loan Agreement) as follows:

      (a)   The Term Loan Component shall be secured by a subordinate security
            interest in the Silverleaf Finance II



            Stock and the Silverleaf Finance II Subordinated Note subject to the
            terms and conditions set forth in the SPV Subordination Agreement;

      (b)   The Revolving Loan Component and the Existing Inventory Loan shall
            be secured, pari passu, by a subordinate security interest in the
            Silverleaf Finance II Stock and the Silverleaf Finance II
            Subordinated Note subject to the security interest securing the Term
            Loan Component and subject to the terms and conditions set forth in
            the SPV Subordination Agreement;

      (c)   The New Inventory Loan shall be secured by a subordinate security
            interest in the Silverleaf Finance II Stock and the Silverleaf
            Finance II Subordinated Note subject to the security interest
            securing the Term Loan Component, the Revolving Loan Component and
            the Existing Inventory Loan Component and subject to the terms and
            conditions set forth in the SPV Subordination Agreement

Any proceeds received by Textron Financial Corporation, as Agent, in connection
with the Silverleaf Finance II Stock or the Silverleaf Finance II Subordinated
Note shall be applied: (i) first to the repayment of the Term Loan Component;
(ii) after repayment of the Term Loan Component in full, then to the repayment
of the Revolving Loan Component and Existing Inventory Loan, pari passu; and
(iii) after repayment of the Term Loan Component, Revolving Loan Component and
Existing Inventory Loan in full, then to the repayment of the New Inventory
Loan.

In addition, this Letter Agreement shall confirm that, for purposes of the Loan
Agreement and all Loan Documents (including Section 3.1 of the Loan Agreement)
the Additional Resort Collateral and the Silverleaf Finance I, Inc. Stock shall
secure the Term Loan Component, the Revolving Loan Component, the Existing
Inventory Loan and the New Inventory Loan as follows:

      (a)   The Term Loan Component and the Existing Inventory Loan shall be
            secured, pari passu, by a first priority security interest in the
            Additional Resort Collateral and the Silverleaf Finance I, Inc.
            Stock;

      (b)   The Revolving Loan Component shall be secured by a second priority
            security interest in the Silverleaf Finance I, Inc. Stock and the
            Additional Resort Collateral, subject only to the security interest
            securing the Term Loan Component and the Existing Inventory Loan;

      (c)   The New Inventory Loan shall be secured by a subordinate security
            interest in the Silverleaf Finance I, Inc. Stock and the Additional
            Resort Collateral, subject only to the security interest securing
            the Term Loan Component, the Existing Inventory Loan and the
            Revolving Loan Component.

Any proceeds received by Textron Financial Corporation, as Agent, in connection
with the Silverleaf Finance I, Inc. Stock or the Additional Resort Collateral
shall be applied:



(i) first to the repayment of the Term Loan Component and the Existing Inventory
Loan, pari passu; (ii) after repayment of the Term Loan Component and the
Existing Inventory Loan in full, then to the repayment of the Revolving Loan
Component; and (iii) after repayment of the Term Loan Component, the Existing
Inventory Loan and the Revolving Loan Component in full, then to the repayment
of the New Inventory Loan.

This Letter Agreement may be executed in two or more counterparts, all of which
together shall be considered a single instrument. Delivery of an executed
counterpart of a signature page to this Letter Agreement by facsimile shall be
effective as delivery of a manually executed counterpart of this Letter
Agreement.

This letter does not constitute an amendment or waiver of any term or condition
of the Loan Agreements, and all such terms and conditions shall remain in full
force and effect.

Please confirm your acknowledgement of and agreement with the terms of this
Letter Agreement by signing in the appropriate space below.

                                                  Very truly yours,
                                                  TEXTRON FINANCIAL CORPORATION,
                                                  A Delaware corporation

                                                  /s/ John D'Annibale
                                                  -----------------------------
                                                  By:  John D'Annibale
                                                  Its: V.P.

The undersigned party acknowledges its agreement with the terms and conditions
of this Letter Agreement:

                                                  SILVERLEAF RESORTS, INC.

                                                  /s/ Robert E. Mead
                                                  -----------------------------
                                                  By:  Robert E. Mead
                                                  Its: CEO

                                                  WEBSTER BANK

                                                  /s/ Scott A. Silvay
                                                  -----------------------------
                                                  By:  Scott A. Silvay
                                                  Its: Vice President



                                                  BANK OF SCOTLAND

                                                  /s/ Amena Nabi
                                                  ------------------------------
                                                  By:  Amena Nabi
                                                  Its: Assistant Vice President

EX-10.6

                                                                    EXHIBIT 10.6

                                 TFC LETTERHEAD

Textron Financial Corporation                            333 East River Drive
Subsidiary of Textron Inc.                               Suite 104
                                                         East Hartford, CT 06108
                                                         (860) 282-7776 Phone
                                                         (860) 282-9053 Fax

Robert E. Mead, Chief Executive Officer
Silverleaf Resorts, Inc..
1221 Riverbend Drive, Suite 105

Dallas, TX  75221

July 30, 2004

RE:   $71,000,000 credit facility [Tranche B] (the "Loan") provided to
      Silverleaf Resorts, Inc. ("Borrower") pursuant to that certain Amended and
      Restated Loan, Security and Agency Agreement dated as of April 30, 2002,
      as amended, by and among Silverleaf Resorts, Inc., the parties, including
      Textron Financial Corporation, a Delaware Corporation, which execute and
      deliver the Agreement, in their respective capacities as lenders, and
      Textron Financial Corporation, as Facility Agent and Collateral Agent (the
      "Loan Agreement")

Dear Bob:

Reference is hereby made to the Loan Agreement. All capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to such terms
in the Loan Agreement.

This letter shall confirm that, in connection with the amendments to the
Sovereign Facility, dated as of July 30, 2004, the List of Sovereign Documents
attached to the Loan Agreement is hereby modified, effective as of July 30,
2004, so that Schedule 1.l(iiii) is deleted in its entirety and in its place is
substituted the attached Amended Schedule 1.l(iiii).

This Letter Agreement shall also confirm that the definition of "Collateral" in
the Loan Agreement is hereby modified, effective as of July 30, 2004, so that
Section 1.1(p)(x) is deleted in its entirety and in its place is substituted the
following:

      "(x) All collateral under the Additional Credit Facility, the Tranche C
      Facility, the Inventory Loan and the Sovereign Facility, as each such term
      is herein defined, except the Inventory Mortgages that are collateral for
      the Sovereign Facility, as that term (Inventory Mortgages) is defined in
      the Inventory and Receivables Revolving Credit Agreement, dated as of July
      30, 2004, among Silverleaf Resorts, Inc., Sovereign, as agent, and
      Sovereign and any other lending institutions that may become party thereto
      as lenders, as amended, amended and restated, or modified and in effect
      from time to time ;"

In addition, this Letter Agreement shall confirm that the Loan Agreement is
hereby modified, effective as of July 30, 2004, so that Section 3 is hereby
amended in part to add the following



new paragraph:

      "3.14 Heller Receivables Collateral. Immediately upon repayment of the
      Heller Facility, the Borrower hereby covenants and agrees that the
      Borrower will grant to the Agent, for the benefit of the Lenders, a first
      priority security interest in all of the Notes Receivable and the
      Mortgages (each such term as defined in the Heller Documents) pledged to
      Heller to secure the Heller Facility immediately prior to the repayment in
      full of such Heller Facility (the "Heller Receivables Collateral"). The
      Borrower hereby covenants and agrees that, prior to repayment in full of
      the Heller Facility, the Borrower will not, and will not permit any of its
      Subsidiaries to, create or incur or suffer to be created or incurred or to
      exist any lien, encumbrance, mortgage, pledge, charge, restriction or
      other security interest of any kind upon the Heller Receivables
      Collateral, other than in favor of Heller pursuant to the Heller
      Documents. The Agent and the Lenders hereby acknowledge that the Borrower
      has agreed to grant an identical and equal priority lien on the Heller
      Receivables Collateral to Sovereign. The Agent and the Lenders hereby
      acknowledge and agree that (a) until such time as the Heller Facility has
      been repaid in full, the Agent and the Lenders have no title or interest
      in the Heller Receivables Collateral and (b) Heller has no duty or
      obligations to the Agent and the Lenders with respect to the Heller
      Receivables Collateral.

            Notwithstanding the foregoing, in the event that in order to raise
      the funds necessary to repay the Heller Facility, the Borrower intends to
      sell the Heller Receivables Collateral into a securitization or to
      refinance the Heller Facility and pledge the Heller Receivables Collateral
      to the lender providing such refinancing, the Agent and the Lenders hereby
      acknowledge and agree that the Agent and the Lenders shall have no claim
      with respect to such Notes Receivables under this Section 3.14 to the
      extent such Notes Receivable are sold into such a securitization or
      pledged to a lender providing a new revolving credit facility permitted by
      the terms of this Agreement; provided however, that in the event that the
      proceeds of the Heller Receivables Collateral received by the Borrower
      from such sale or refinancing of the Heller Receivables Collateral exceed
      the Borrower's outstanding obligations under the Heller Facility, then,
      subject to the terms of the Intercreditor Agreement, the Borrower shall
      deliver any such excess proceeds to the Agent and any such proceeds shall
      be applied to reduce the principal of the Loans.

            The Borrower hereby agrees to take, at its sole cost and expense,
      such steps as the Agent may request to deliver the Heller Receivables
      Collateral to the Agent and to create and perfect the Agent's first
      priority security interest therein."

This Letter Agreement ("Letter Agreement") may be executed in two or more
counterparts, all of which together shall be considered a single instrument.
Delivery of an executed counterpart of a signature page to this Letter Agreement
by facsimile shall be effective as delivery of a manually



executed counterpart of this Letter Agreement.

Except as expressly set forth herein, this Letter Agreement does not constitute
an amendment or waiver of any term or condition of the Loan, and all such terms
and conditions shall remain in full force and effect.

Please confirm your acknowledgement of and agreement with the terms of this
Letter Agreement by signing in the appropriate space below.

                                                  Very truly yours,
                                                  TEXTRON FINANCIAL CORPORATION,
                                                  A Delaware corporation

                                                  /s/ John D'Annibale
                                                  ------------------------------
                                                  By:  John D'Annibale
                                                  Its: V.P.

The undersigned party acknowledges its agreement with the terms and conditions
of this Letter Agreement:

                                                  SILVERLEAF RESORTS, INC.

                                                  /s/ Robert E. Mead
                                                  ------------------------------
                                                  By:  Robert E. Mead
                                                  Its: CEO

EX-10.7

                                                                    EXHIBIT 10.7

                                        TFC LETTERHEAD

Textron Financial Corporation                            333 East River Drive
Subsidiary of Textron Inc.                               Suite 104
                                                         East Hartford, CT 06108
                                                         (860) 282-7776 Phone
                                                         (860) 282-9053 Fax

Robert E. Mead, Chief Executive Officer
Silverleaf Resorts, Inc.
1221 Riverbend Drive, Suite 105

Dallas, TX 75221

July 30, 2004

RE:   $72,000,000 credit facility [Tranche A] (the "Loan") provided to
      Silverleaf Resorts, Inc. ("Borrower") pursuant to that certain Amended and
      Restated Loan, Security and Agency Agreement dated as of April 30, 2002,
      as amended, by and among Silverleaf Resorts, Inc., the parties, including
      Textron Financial Corporation, a Delaware Corporation, which execute and
      deliver the Agreement, in their respective capacities as lenders, and
      Textron Financial Corporation, as Facility Agent and Collateral Agent (the
      "Loan Agreement")

Dear Bob:

Reference is hereby made to the Loan Agreement. All Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to such terms
in the Loan Agreement.

This letter shall confirm that, in connection with the amendments to the
Sovereign Facility, dated as of July 30, 2004, the List of Sovereign Documents
attached to the Loan Agreement is hereby modified, effective as of July 30,
2004, so that Schedule 1.1(gggg) is deleted in its entirety and in its place is
substituted the attached Amended Schedule 1.1 (gggg).

This Letter Agreement shall also confirm that the definition of "Collateral" in
the Loan Agreement is hereby modified, effective as of July 30, 2004, so that
Section 1.1(p)(x) is deleted in its entirety and in its place is substituted the
following:

      "(x) All collateral under the Additional Credit Facility, the Tranche C
      Facility, the Inventory Loan and the Sovereign Facility, as each such term
      is herein defined, except the Inventory Mortgages that are collateral for
      the Sovereign Facility, as that term (Inventory Mortgages) is defined in
      the Inventory and Receivables Revolving Credit Agreement, dated as of July
      30, 2004, among Silverleaf Resorts, Inc., Sovereign, as agent, and
      Sovereign and any other lending institutions that may become party thereto
      as lenders, as amended, amended and restated, or modified and in effect
      from time to time ;"



In addition, this Letter Agreement shall confirm that the Loan Agreement is
hereby modified, effective as of July 30, 2004, so that Section 3 is hereby
amended in part to add the following new paragraph:

      "3.14 Heller Receivables Collateral. Immediately upon repayment of the
      Heller Facility, the Borrower hereby covenants and agrees that the
      Borrower will grant to the Agent, for the benefit of the Lenders, a first
      priority security interest in all of the Notes Receivable and the
      Mortgages (each such term as defined in the Heller Documents) pledged to
      Heller to secure the Heller Facility immediately prior to the repayment in
      full of such Heller Facility (the "Heller Receivables Collateral"). The
      Borrower hereby covenants and agrees that, prior to repayment in full of
      the Heller Facility, the Borrower will not, and will not permit any of its
      Subsidiaries to, create or incur or suffer to be created or incurred or to
      exist any lien, encumbrance, mortgage, pledge, charge, restriction or
      other security interest of any kind upon the Heller Receivables
      Collateral, other than in favor of Heller pursuant to the Heller
      Documents. The Agent and the Lenders hereby acknowledge that the Borrower
      has agreed to grant an identical and equal priority lien on the Heller
      Receivables Collateral to Sovereign. The Agent and the Lenders hereby
      acknowledge and agree that (a) until such time as the Heller Facility has
      been repaid in full, the Agent and the Lenders have no title or interest
      in the Heller Receivables Collateral and (b) Heller has no duty or
      obligations to the Agent and the Lenders with respect to the Heller
      Receivables Collateral.

            Notwithstanding the foregoing, in the event that in order to raise
      the funds necessary to repay the Heller Facility, the Borrower intends to
      sell the Heller Receivables Collateral into a securitization or to
      refinance the Heller Facility and pledge the Heller Receivables Collateral
      to the lender providing such refinancing, the Agent and the Lenders hereby
      acknowledge and agree that the Agent and the Lenders shall have no claim
      with respect to such Notes Receivables under this Section 3.14 to the
      extent such Notes Receivable are sold into such a securitization or
      pledged to a lender providing a new revolving credit facility permitted by
      the terms of this Agreement; provided however, that in the event that the
      proceeds of the Heller Receivables Collateral received by the Borrower
      from such sale or refinancing of the Heller Receivables Collateral exceed
      the Borrower's outstanding obligations under the Heller Facility, then,
      subject to the terms of the Intercreditor Agreement, the Borrower shall
      deliver any such excess proceeds to the Agent and any such proceeds shall
      be applied to reduce the principal of the Loans.

            The Borrower hereby agrees to take, at its sole cost and expense,
      such steps as the Agent may request to deliver the Heller Receivables
      Collateral to the Agent and to create and perfect the Agent's first
      priority security interest therein."

This Letter Agreement ("Letter Agreement") may be executed in two or more
counterparts, all of



which together shall be considered a single instrument. Delivery of an executed
counterpart of a signature page to this Letter Agreement by facsimile shall be
effective as delivery of a manually executed counterpart of this Letter
Agreement.

Except as expressly set forth herein, this Letter Agreement does not constitute
an amendment or waiver of any term or condition of the Loan, and all such terms
and conditions shall remain in full force and effect.

Please confirm your acknowledgement of and agreement with the terms of this
Letter Agreement by signing in the appropriate space below.

                                                  Very truly yours,
                                                  TEXTRON FINANCIAL CORPORATION,
                                                  A Delaware corporation

                                                  /s/ John D'Annibale
                                                  ------------------------------
                                                  By:  John D'Annibale
                                                  Its: V.P.

The undersigned party acknowledges its agreement with the terms and conditions
of this Letter Agreement:

                                                  SILVERLEAF RESORTS, INC.

                                                  /s/ Robert E. Mead
                                                  ------------------------------
                                                  By:  Robert E. Mead
                                                  Its: CEO

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Robert E. Mead, certify that:

1.	I have reviewed this quarterly report of Silverleaf Resorts, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2004.

/s/ ROBERT E. MEAD

Robert E. Mead

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Harry J. White, Jr., certify that:

1.	I have reviewed this quarterly report of Silverleaf Resorts, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2004.

/s/ HARRY J. WHITE, JR.

Harry J. White, Jr.

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Silverleaf Resorts, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert E. Mead, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: November 12, 2004	/s/ ROBERT E. MEAD
	Robert E. Mead

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Silverleaf Resorts, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Harry J. White, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: November 12, 2004	/s/ HARRY J. WHITE, JR.
	Harry J. White, Jr.