<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 1998
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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SILVERLEAF RESORTS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
TEXAS 6552 75-2259890
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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SEE ATTACHED TABLE OF ADDITIONAL CO-REGISTRANTS
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<TABLE>
<S> <C>
ROBERT E. MEAD
CHIEF EXECUTIVE OFFICER
SILVERLEAF RESORTS, INC.
1221 RIVERBEND DRIVE, SUITE 120 1221 RIVERBEND DRIVE, SUITE 120
DALLAS, TEXAS 75247 DALLAS, TEXAS 75247
(214) 631-1166 (214) 631-1166
(Address, including zip code, and telephone (Address, including zip code, and telephone
number, including area code, number, including area code,
of registrant's principal executive offices) of agent for service)
</TABLE>
Copies to:
<TABLE>
<S> <C>
DAVID N. REED, ESQ.
MEADOWS, OWENS, COLLIER, REED, THOMAS W. DOBSON, ESQ.
COUSINS & BLAU, LLP LATHAM & WATKINS
901 MAIN STREET, SUITE 3700 633 W. FIFTH STREET, SUITE 4000
DALLAS, TEXAS 75202-3792 LOS ANGELES, CALIFORNIA 90071
(214) 744-3700 (213) 485-1234
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
of the Securities Act of 1933, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT PROPOSED OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED TO BE REGISTERED PER NOTE PRICE(A) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Senior Subordinated Notes due 2008...... $75,000,000 100% $75,000,000 $22,125
- -------------------------------------------------------------------------------------------------------------------------------
Subsidiary Guarantees(b)................... (c) (c) (c) (b)(c)
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Total............................ -- -- $75,000,000 $22,125
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</TABLE>
(a) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457.
(b) The Subsidiary Guarantees of the Senior Subordinated Notes by the
Co-Registrants is also being registered hereby. Pursuant to Rule 457(n), no
registration fee is required with respect to the Subsidiary Guarantees.
(c) No separate consideration will be received for the Subsidiary Guarantees
from the purchasers of the Notes.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
TABLE OF ADDITIONAL CO-REGISTRANTS*
<TABLE>
<CAPTION>
(EXACT NAME OF CO-REGISTRANT AS (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
SPECIFIED IN ITS CHARTER) INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
------------------------------- ------------------------------- -------------------
<S> <C> <C>
CONDOMINIUM BUILDERS INC. TEXAS 75-2464985
DATABASE RESEARCH, INC. TEXAS 75-2651673
BULL'S EYE MARKETING, INC. DELAWARE 75-2744475
SILVERLEAF BERKSHIRES, INC. TEXAS 75-2738474
SILVERLEAF HOTELS, INC. TEXAS 75-2748906
SILVERLEAF RESORT ACQUISITIONS, INC. TEXAS 75-2716857
SILVERLEAF TRAVEL, INC. TEXAS 75-2658235
VILLAGES LAND, INC. TEXAS 75-2585679
BULL'S EYE MARKETING, INC. CALIFORNIA 77-0403133
</TABLE>
- ---------------
* Each Co-Registrant is a wholly owned direct subsidiary of Registrant and will
execute a joint and several Subsidiary Guarantee of the Notes.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 6, 1998
<TABLE>
<S> <C> <C>
[SILVERLEAF RESORTS LOGO] $75,000,000
SILVERLEAF RESORTS, INC.
% SENIOR SUBORDINATED NOTES DUE 2008
</TABLE>
Interest payable and Due , 2008
------------------
The % Senior Subordinated Notes due 2008 (the "Notes") are being offered
(the "Note Offering") by Silverleaf Resorts, Inc., a Texas corporation
("Silverleaf" or the "Company"). Silverleaf will use the net proceeds of the
Note Offering and an equity offering (the "Equity Offering") to repay existing
indebtedness, to finance development at its resorts, and for acquisitions,
working capital, and general corporate purposes. See "Sources and Uses of
Proceeds". The Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after , 2003 in cash at the redemption
prices set forth herein, plus accrued and unpaid interest thereon to the date of
redemption. In addition, at any time prior to , 2001, the Company, at
its option, may redeem up to 33 1/3% of the aggregate principal amount of Notes
originally issued at a redemption price equal to % of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, with
the net proceeds of one or more public equity offerings; provided that, in each
case, at least 66 2/3% of the initially outstanding aggregate principal amount
of Notes remains outstanding immediately following such redemption. See
"Description of Notes -- Optional Redemption". In addition, upon the occurrence
of a Change of Control (as defined), each holder of Notes will have the right to
require the Company to repurchase all or any part of such holder's Notes at a
price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest thereon to the date of purchase. See "Description of
Notes -- Repurchase at the Option of Holders -- Change of Control". There can be
no assurance that, in the event of a Change of Control, the Company would have
sufficient funds to purchase all Notes tendered. See "Risk Factors -- Payment
Upon a Change of Control and Certain Asset Sales".
The Company is also offering 2,000,000 shares of its common stock, $.01 par
value (the "Common Stock"), for estimated net proceeds to the Company of $49.3
million. The closing of the Note Offering will be conditioned upon the closing
of the Equity Offering, but the closing of the Equity Offering is not
conditioned upon the closing of the Note Offering. The Company will use
approximately $13.0 million of the proceeds of the Equity Offering and the Note
Offering to repay indebtedness owed to an affiliate of the lead managing
underwriter.
The Notes will be general unsecured obligations of the Company, ranking
subordinate in right of payment to all existing and future Senior Debt (as
defined) of the Company, including indebtedness under the Company's credit
facilities. The Notes will rank pari passu with any future senior subordinated
indebtedness of the Company and will rank senior to all subordinated
indebtedness of the Company. The Notes will be unconditionally guaranteed (the
"Subsidiary Guarantees"), jointly and severally, on a senior subordinated basis
by all existing and future domestic Restricted Subsidiaries (as defined) of the
Company (collectively, the "Guarantors"). The Subsidiary Guarantees will be
general unsecured obligations of the Guarantors, ranking subordinate in right of
payment to all existing and future Senior Debt of the Guarantors. As of December
31, 1997, on a pro forma basis after giving effect to the consummation of the
Note Offering and the Equity Offering and the application of the estimated net
proceeds thereof, the Company would have had no Senior Debt. In addition,
subject to the Subsidiary Guarantees, the Notes will be structurally
subordinated to all existing and future liabilities of the Guarantors. At
December 31, 1997, on a pro forma basis after giving effect to the consummation
of the Note Offering and the Equity Offering, the Company's subsidiaries would
have had no material liabilities (other than intercompany obligations).
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE NOTES, SEE "RISK FACTORS" BEGINNING ON PAGE 19.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS COMPANY(1)(2)
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Per Note........................................... % % %
Total.............................................. $ $ $
</TABLE>
(1) Plus accrued interest, if any, from , 1998.
(2) Before deduction of expenses payable by the Company estimated at $ .
The Notes are offered by the several Underwriters when, as and if delivered
to and accepted by the Underwriters and subject to their right to reject orders,
in whole or in part. It is expected that delivery of the Notes in book-entry
form will be made through the facilities of The Depository Trust Company on or
about , 1998, against payment therefor in immediately available funds.
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
Prospectus dated , 1998.
<PAGE> 4
CAPTION: "SILVERLEAF RESORTS, INC. LODGE GETAWAY(TM)"
MAP OF U.S. DEPICTING LOCATIONS OF EXISTING RESORTS AND NEW RESORTS,
AND THEIR RESPECTIVE PROXIMITIES
TO EACH OTHER AND TO AREA ATTRACTIONS AND MAJOR METROPOLITAN AREAS.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED HEREBY,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
2
<PAGE> 5
CAPTION: "SILVERLEAF RESORTS, INC. THE ONLY MAJOR VACATION OWNERSHIP OPERATOR
FOCUSED ON THE VALUE SEGMENT IN "DRIVE-TO" LOCATIONS."
1. First Picture -- drawing of planned clubhouse at Hill Country Resort.
Caption: "Lodge Getaway(TM) Rendering of Planned Expansion for
Clubhouse/Activity Center at Hill Country Resort (San Antonio-Austin
market)."
2. Second Picture -- photo of exterior of timeshare units at Piney Shores
Resort. Caption: "Lodge Getaway(TM) Piney Shores Resort -- Houston Market".
3. Third Picture (inset) -- photo of interior of new "lodge-style" unit at Piney
Shores Resort.
4. Fourth Picture (inset) -- Photo of horseback riding available at Piney Shores
Resort.
CAPTION: "SILVERLEAF RESORTS GROWTH STRATEGY"
- -- Focus on Lodge Getaway(TM) Resorts in "Drive-to" Locations.
- -- Increase New Sales and Upgrade Sales at Existing Resorts.
- -- Add New Lodge Getaway(TM) and Club Destination(TM) Resorts.
3
<PAGE> 6
CAPTION: "SILVERLEAF RESORTS, INC."
1. First Picture -- photo of woman playing golf at golf course at Holiday
Hills Resort. Caption: "Club Destination(TM) Holiday Hills Resort --
Branson, Missouri 18-hole Golf Course."
2. Second Picture (inset) -- Man with two small children fishing off dock.
3. Third Picture -- photo of spa facility at Ozark Mountain Resort.
Caption: "Club Destination(TM) Ozark Mountain Resort -- Branson,
Missouri Wellness Center amenities."
4. Fourth Picture (inset) -- photo of man with tennis racquet.
5. Fifth Picture -- photo of woman jet skiing on lake. Caption: "Activities
and vacation life-style at various resorts."
6. Sixth Picture (inset) -- photo of a man, a woman and a child, all
smiling.
7. Seventh Picture -- photo of interior of timeshare unit. Caption: "Club
Destination (TM) President's View Interior, Ozark Mountain Resort,
Branson, Missouri."
<TABLE>
<CAPTION>
GRAPH: INDUSTRY REVENUES GRAPH: SILVERLEAF REVENUES
- ------------------------ ---------------------------
$ BILLIONS $ MILLIONS
<S> <C> <C> <C>
1985 1.6 1994 31.9
1990 3.2 1995 44.1
1995 5.0 1996 57.9
1996E 5.7 1997 85.1
</TABLE>
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4
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data included
elsewhere in this Prospectus, including the Consolidated Financial Statements
and the Notes thereto. Unless otherwise indicated, all timeshare industry data
contained herein is derived from information prepared by the American Resort
Development Association ("ARDA"). This Prospectus contains certain statements of
a forward-looking nature relating to future events or the future financial
performance of the Company. In evaluating such statements, prospective investors
should specifically consider the various factors identified in this Prospectus,
including the matters set forth under the caption "Risk Factors", which could
cause actual results to differ materially from those indicated in such
forward-looking statements. Unless the context otherwise indicates, the
"Company" or "Silverleaf" means Silverleaf Resorts, Inc. and its subsidiaries.
"Pro forma" financial information appearing herein is prepared on the assumption
that the Company's June 1997 initial public offering of 3.6 million shares of
Common Stock (the "IPO"), the Equity Offering and the Note Offering occurred at
the beginning of 1997 for statement of operations data and that the Equity
Offering and the Note Offering occurred on December 31, 1997 for balance sheet
data. "EBITDA" means earnings before interest, taxes, depreciation and
amortization.
THE COMPANY
Silverleaf is a leading developer, marketer, and operator of "drive-to"
timeshare resorts. The Company currently owns and operates eight "drive-to"
resorts in Texas, Missouri, Illinois, and Massachusetts (the "Drive-to Resorts")
and two "destination" resorts in Missouri (the "Destination Resorts", and
together with the Drive-to Resorts, the "Existing Resorts"). The Company has
recently acquired sites in Las Vegas, Nevada and Galveston, Texas to be
developed as new Destination Resorts (the "New Resorts"). The number of annual
one-week vacations ("Vacation Intervals") sold by the Company increased at an
annual compounded growth rate of 29.2% from 1992 to 1997. At December 31, 1997,
the Company had an inventory of 10,930 Vacation Intervals, was constructing 120
new units (6,192 new Vacation Intervals), and had plans to construct 2,670
additional units (137,728 new Vacation Intervals) at the Existing Resorts. The
Company plans to construct 557 new units (28,964 Vacation Intervals) at the New
Resorts. Due to standardized architectural designs and procedures, new units can
typically be constructed at the Existing Resorts within 150 days, weather
permitting. Silverleaf generally starts construction of new units after sales of
Vacation Intervals for those units have occurred.
The Company markets Vacation Intervals to value-conscious customers and has
advanced proprietary computer systems to track and identify potential timeshare
owners. Through exclusive marketing arrangements with race tracks, amusement
parks, and other event sponsors, the Company identifies a substantial number of
prospects in its target markets. As a result of these and other activities, more
than 1,500 potential customers currently tour the resorts each week. During
1997, approximately 12.7% of the Company's visitors purchased Vacation Intervals
from the Company. Management anticipates the pool of potential customers will
remain strong due to expansion into new geographic regions and growth in major
Texas metropolitan areas, population turnover in such metropolitan areas, and
further penetration of the target markets.
The Drive-to Resorts are designed to appeal to value-conscious vacationers
seeking comfortable and affordable accommodations in locations convenient to
their residences. These resorts are located proximate to major metropolitan
areas (currently Dallas-Ft. Worth, Houston, San Antonio/Austin, St. Louis,
Chicago, Boston and the greater New York City area), facilitating more frequent
"short stay" getaways, which the Company believes is a growing vacation trend.
The Destination Resorts, which are located in the popular country and western
music entertainment resort area of Branson, Missouri, offer Silverleaf customers
the opportunity to upgrade into higher quality resorts as their lifestyles and
travel budgets permit. Both the Drive-to Resorts and the Destination Resorts are
in rustic areas which provide a quiet, relaxing vacation environment and offer
an economical alternative to commercial vacation lodging. Consistent with
Silverleaf's strategy of targeting value-conscious customers, the average price
of a Vacation Interval for a two-bedroom unit at the Existing Resorts was $7,834
for 1997 and $6,922 for 1996, as compared to the industry average price of
$10,790 for 1996.
The Company offers benefits to owners of Silverleaf Vacation Intervals
("Silverleaf Owners") which are uncommon in the timeshare industry. These
benefits include (i) use of vacant lodging facilities at no extra cost
5
<PAGE> 8
through Silverleaf's "Endless Escape" program; (ii) year-round access to
non-lodging amenities such as fishing, boating, horseback riding, tennis or golf
on a "country-club" basis for little or no additional charge; and (iii) the
right to exchange a Vacation Interval for a different time period or different
Existing Resort through Silverleaf's internal exchange program. These benefits
are subject to availability and other limitations. Most Silverleaf Owners may
also enroll in the world's largest Vacation Interval exchange network operated
by Resort Condominiums International ("RCI").
The Company's 1997 pro forma revenues and EBITDA were $84.9 million and
$24.8 million, respectively. The Company's Common Stock is listed on the New
York Stock Exchange ("NYSE") under the symbol "SVR", and based on a closing
price of $26.75 per share on February 27, 1998, the Company had a market
capitalization of approximately $300.0 million.
TIMESHARE INDUSTRY
The timeshare industry has experienced substantial growth since 1980.
Annual worldwide timeshare sales have increased from approximately $490 million
in 1980 to approximately $5 billion in 1995. The U.S. market has also grown
considerably -- from $1.3 billion of timeshare sales in 1992 to $2.2 billion of
timeshare sales in 1996. The growth in the U.S. timeshare industry is due to (i)
higher quality accommodations and services; (ii) involvement of well-recognized
hotel companies in the upscale segment of the industry such as Marriott
Ownership Resorts ("Marriott"), The Walt Disney Company ("Disney"), and Hilton
Hotels Corporation ("Hilton"); (iii) improved availability of financing for
purchasers of Vacation Intervals; (iv) increased flexibility of timeshare use;
(v) increased governmental regulation; and (vi) improved overall image of the
industry. Since timeshare units typically include two bedrooms and kitchen
facilities, Vacation Interval ownership is often more economical for a family
than an extended vacation at a commercial lodging establishment.
OPERATIONS
Silverleaf's operations include (i) developing and acquiring timeshare
resorts; (ii) marketing and selling Vacation Intervals to prospective first-time
owners; (iii) marketing and selling upgraded Vacation Intervals to existing
Silverleaf Owners; (iv) providing financing for the purchase of Vacation
Intervals; and (v) operating timeshare resorts. The Company has substantial
in-house capabilities which enable it to coordinate all aspects of development
and expansion of the Existing Resorts and the development of the New Resorts,
including site selection, design, and construction pursuant to standardized
plans and specifications. The Company also performs substantially all marketing
and sales functions internally and has made a significant investment in
operating technology, including sophisticated telemarketing and computer systems
and proprietary software applications. The Company identifies potential
purchasers through internally developed marketing techniques, and sells Vacation
Intervals through on-site sales offices located at certain Drive-to Resorts.
This practice allows the Company to avoid the more expensive marketing costs of
subsidized airfare and lodging which are typically associated with the timeshare
industry. The Company believes its marketing program and operating and computer
systems enable it to market and sell Vacation Intervals at a lower cost than its
competitors in the timeshare industry. The costs of maintaining and operating
the Existing Resorts are paid from Silverleaf Owners' monthly ownership dues.
As part of the Vacation Interval sales process, the Company offers customer
financing of up to 90% of the purchase price to be paid over a seven year
period. At December 31, 1997, the Company had a portfolio of approximately
21,320 Vacation Interval customer notes receivable totalling approximately
$104.4 million with an average yield of 14.5% per annum. The Company has
typically financed its operations by pledging eligible customer notes to lending
institutions who make loans secured by such notes. The Company has three
revolving credit facilities providing for loans up to an aggregate of $115.0
million to finance customer notes receivable. See "Description of Certain
Indebtedness".
6
<PAGE> 9
COMPETITIVE ADVANTAGES
Silverleaf believes the following characteristics afford it certain
competitive advantages:
LOWER MARKETING, SALES, AND ADMINISTRATIVE COSTS. With resorts and on-site
sales offices within a two-hour drive of its targeted customers, Silverleaf can
invite potential customers to tour the Drive-to Resorts without offering
subsidized airline tickets and lodging, a significant marketing expense
typically incurred by competitors in the industry. Silverleaf has also reduced
marketing, operating, and administrative costs through centralization and
automation of many functions. While marketing and sales costs as a percentage of
revenue will increase for newly acquired resorts, the Company believes that
these costs will, over time, return to historical levels.
CONVENIENT DRIVE-TO LOCATIONS. Silverleaf's Drive-to Resorts are located
within a two-hour drive of a majority of the target customers' residences, which
accommodates the growing demand for shorter, more frequent, close to home
vacations. This proximity facilitates use of Silverleaf's Endless Escape
program, which allows Silverleaf Owners to use vacant units for no additional
charge, subject to availability and certain limitations. Silverleaf believes it
is the only timeshare operator in the industry which offers its customers these
benefits. Silverleaf Owners can also conveniently enjoy non-lodging resort
amenities year-round on a "country-club" basis.
SUBSTANTIAL INTERNAL GROWTH CAPACITY. At December 31, 1997, Silverleaf had
an inventory of 10,930 Vacation Intervals, and a master plan to construct new
units which will result in up to 143,920 additional Vacation Intervals at the
Existing Resorts and 28,964 Vacation Intervals at the New Resorts. Silverleaf's
master plan for construction of new units is contingent upon future sales at the
Existing Resorts and New Resorts and the availability of financing, grant of
government permits, and future land-planning and site-layout considerations. See
"Risk Factors -- Development, Construction and Property Acquisition Activities".
IN-HOUSE OPERATIONS. Silverleaf has in-house marketing, sales, financing,
development, and property management capabilities. While Silverleaf utilizes
outside contractors to supplement internal resources, when appropriate, the
breadth of Silverleaf's internal capabilities allows greater control over all
phases of its operations and helps maintain operating standards and reduce
overall costs.
LOWER CONSTRUCTION AND OPERATING COSTS. Silverleaf has developed and
generally employs standard architectural designs and operating procedures which
it believes significantly reduce construction and operating expenses.
Standardization and integration also allow Silverleaf to rapidly develop new
inventory in response to demand. Weather permitting, new units at Existing
Resorts can normally be constructed on an "as needed" basis within 150 days.
CENTRALIZED PROPERTY MANAGEMENT. Silverleaf operates all of the Existing
Resorts on a centralized and collective basis, with operating and maintenance
costs paid from Silverleaf Owners' monthly dues. Silverleaf believes that
consolidation of resort operations benefits Silverleaf Owners by providing them
with a uniform level of service, accommodations and amenities on a standardized,
cost-effective basis. Such standardization also facilitates Silverleaf's
internal exchange program, the Endless Escape program, and external Vacation
Interval exchange programs.
EXPERIENCED MANAGEMENT. The Company's senior management has extensive
experience in the acquisition, development, and operation of timeshare resorts.
Robert E. Mead, Chairman of the Board and Chief Executive Officer, has more than
18 years of experience in the timeshare industry and since 1995 has served as a
director of ARDA, the primary trade association for the timeshare industry. Pro
forma for the Equity Offering (assuming no exercise of the Underwriters'
over-allotment option granted by Mr. Mead), Mr. Mead will own 53.5% of the
Common Stock of the Company. The Company's senior officers have an average of
ten years of experience in the timeshare industry.
GROWTH STRATEGY
Silverleaf intends to grow through the following strategies:
INCREASING DEVELOPMENT AND SALES OF VACATION INTERVALS. Silverleaf intends
to capitalize on its significant expansion capacity at the Existing Resorts and
the New Resorts by increasing marketing, sales and development
7
<PAGE> 10
activities. At December 31, 1997, Silverleaf owned approximately 930 acres of
land that were available for further development of timeshare units and
amenities under Silverleaf's master plan. The master plan forecasts development
of 3,347 additional units, which would result in 172,884 additional Vacation
Intervals. During 1997, Silverleaf enhanced its marketing efforts, including
increased telemarketing capacity arising from investments in computer and
automated dialing technology, increased its sales force, enhanced its lead
generation methods, completed the construction of new sales offices and other
amenities, and commenced the development of newer lodging facilities.
Furthermore, Silverleaf continues to emphasize its Endless Escape program
designed to accommodate shorter, "getaway" vacations and has broadened its
product offerings to include biennial (alternate year) intervals and short-term
leasing packages ("Samplers") which are designed to accommodate more cost-
conscious customers.
INCREASING SALES OF UPGRADED INTERVALS. Silverleaf believes it can continue
to improve operating margins by increasing sales of upgraded Vacation Intervals
to existing Silverleaf Owners since these sales have significantly lower sales
and marketing costs. Upgrades by a Silverleaf Owner include the purchase of (i)
an interval in a newly designed and constructed standard unit; (ii) an interval
in a larger or higher quality unit; (iii) an interval during a more desirable
time period; (iv) an interval at a different Drive-to Resort; or (v) an interval
at a Destination Resort. Silverleaf has designed specific marketing and sales
programs to sell upgraded Vacation Intervals to Silverleaf Owners. Silverleaf
continues to construct higher quality, larger units for sale as upgraded
intervals, as well as developing new sites such as Las Vegas and Galveston as
new upgrade locations. For example, at Ozark Mountain Resort in Branson,
Missouri, luxury "President's View" units are offered for sale at prices ranging
from $8,000 to $17,500 per Vacation Interval. Intervals exchanged for upgraded
intervals are added back to inventory at historical cost for resale at the
current offering price. Sales of upgrades increased to $16.9 million in 1997,
from $7.9 million in 1996 (upgrade sales represented 24.6% of Silverleaf's
Vacation Interval sales in 1997 as compared to 17.1% for 1996). Silverleaf
incurs additional sales commissions upon the resale of Vacation Intervals
reconveyed to Silverleaf by purchasers of upgraded intervals, and such sales
absorb their proportionate share of marketing costs to the extent they displace
the sale of another interval, although they do not directly result in
incremental marketing costs.
DEVELOPMENT OF ADDITIONAL RESORTS AND ACQUISITIONS. In 1997, Silverleaf
purchased four sites for development as Drive-to and Destination Resorts and
acquired an existing timeshare resort which it markets as a Drive-to Resort.
Additionally, in 1998, Silverleaf entered into agreements to acquire property
with a golf course near Atlanta, undeveloped land near Kansas City, and the
right to manage eight timeshare resorts in seven states. Silverleaf continues to
seek new properties for Drive-to Resorts in scenic wooded areas on lakes or
waterways that are near major metropolitan areas that have favorable demographic
characteristics. For Destination Resorts, Silverleaf seeks popular destination
resort areas that are easily accessible to Silverleaf Owners. Silverleaf is
currently exploring a number of other property acquisition opportunities, and
intends to continue acquiring and/or developing additional resorts.
RECENT DEVELOPMENTS
Since the IPO, Silverleaf has taken actions which it believes will enhance
its growth and competitive position within the U.S. timeshare industry. These
actions are summarized below and discussed in greater detail elsewhere in this
Prospectus.
- DEVELOPMENT OF TIMBER CREEK PROPERTY. In August 1997, Silverleaf
purchased the Timber Creek Resort for $1.2 million for development as a
Drive-to Resort. Timber Creek is located approximately 50 miles south of
St. Louis, Missouri. Silverleaf intends to develop approximately 600 units
(31,200 Vacation Intervals) at the Timber Creek Resort and has begun
construction of 24 units to be completed in May 1998. Sales of Vacation
Intervals at Timber Creek began in October 1997.
- DEVELOPMENT OF FOX RIVER PROPERTY. In August 1997, Silverleaf purchased
the Fox River Resort for $1.7 million for development as a Drive-to Resort.
Fox River is located approximately 70 miles southwest of Chicago.
Silverleaf intends to develop approximately 492 (25,584 Vacation Intervals)
units on this property, and has begun construction on 36 units to be
completed in May 1998. Sales of Vacation Intervals at Fox River began in
November 1997.
8
<PAGE> 11
- ACQUISITION OF OAK N' SPRUCE RESORT. In December 1997, Silverleaf
acquired the Oak N' Spruce Resort, an existing 55 room hotel and 132 unit
timeshare resort, in the Berkshire Mountains of western Massachusetts for
$5.1 million. This new Drive-to Resort serves Boston and the greater New
York City market and Silverleaf plans to develop approximately 420 new
units (21,840 Vacation Intervals) at this resort. At December 31, 1997,
there were 1,629 unsold Vacation Intervals at the resort. Silverleaf's
sales of Vacation Intervals at Oak N' Spruce began in January 1998.
- PURCHASE OF LAS VEGAS SITE. In November 1997, Silverleaf acquired a two
acre parcel near the "strip" in Las Vegas, Nevada, for $2.7 million.
Silverleaf intends to develop this property as a new Destination Resort
which will contain approximately 157 units (8,164 Vacation Intervals).
- PURCHASE OF GULF COAST SITE. In December 1997 and February 1998,
Silverleaf acquired two adjoining tracts of land in Galveston, Texas, for
approximately $1.7 million, to be developed as a new beach-front Gulf Coast
Destination Resort. Silverleaf intends to develop approximately 400 units
(20,800 Vacation Intervals) at this resort.
- INCREASED SALES OF VACATION INTERVALS AT EXISTING RESORTS. In addition to
the acquisitions described above, Silverleaf has also worked since the IPO
to improve internal sales growth at the Existing Resorts. During 1997,
Silverleaf sold 6,592 Vacation Intervals (excluding upgrades), compared to
5,634 and 4,464 during 1996 and 1995, respectively. Total revenues
increased to $85.1 million in 1997 from $57.9 million and $44.1 million in
1996 and 1995, respectively.
- ENHANCED CREDIT FACILITIES. Silverleaf has improved its borrowing
capacity by increasing its revolving credit facilities from $80.0 million
to $115.0 million and by acquiring a construction line of credit in the
amount of $10.0 million. Additionally, Silverleaf has been able to
negotiate lower interest rates and extensions of maturity of certain loan
facilities.
- INVESTMENTS IN OPERATING AND TELEMARKETING SYSTEMS. Silverleaf has
invested approximately $2.1 million in a new automated dialer, telephone
system, and a new central marketing facility to improve Silverleaf's
operating and telemarketing systems.
- ADDITIONS TO MANAGEMENT TEAM. Silverleaf formed a new acquisition
subsidiary, Silverleaf Resort Acquisitions, Inc., and hired Thomas G.
Franks as President of the new subsidiary. Mr. Franks is a former President
of ARDA, the primary trade association for the timeshare industry, and has
more than 15 years of experience in the timeshare industry. Silverleaf has
also added marketing and operational personnel to its management team.
- PROPOSED ACQUISITION OF MANAGEMENT RIGHTS. In January 1998, Silverleaf
entered into an agreement with Crown Resort Co., LLC ("Crown") to acquire
management rights to eight timeshare resorts in Alabama, Mississippi, North
Carolina, Pennsylvania, South Carolina, Tennessee, and Texas for $3.8
million. At December 31, 1997 these eight resorts had approximately 21,500
timeshare owners. As part of this agreement, Silverleaf will also receive
approximately 1,800 unsold Vacation Intervals and certain equipment at
these eight resorts. This proposed acquisition is subject to completion of
customary due diligence investigations and there is no assurance that it
will be consummated.
- PROPOSED PURCHASE OF ATLANTA AND KANSAS CITY SITES. In February 1998,
Silverleaf entered into two agreements, one to acquire a 220 acre property,
including a 160 acre golf course, 72 miles north of Atlanta, Georgia for
$3.5 million, and another to acquire 260 acres of undeveloped land near
Kansas City, Missouri for $1.6 million. If acquired, each property will be
developed as a Drive-to Resort. Each contract may be cancelled by
Silverleaf if it is not satisfied with each property after conducting its
due diligence investigation. Accordingly, there is no assurance that either
of these contracts will be closed.
9
<PAGE> 12
RESORTS SUMMARY
The following tables set forth certain information regarding each of the
Existing Resorts and New Resorts at December 31, 1997, unless otherwise
indicated.
EXISTING RESORTS
<TABLE>
<CAPTION>
VACATION
VACATION INTERVALS INTERVALS
UNITS AT RESORTS AT RESORTS SOLD(A)
------------------------ ------------------------ ---------
PRIMARY INVENTORY INVENTORY DATE IN
MARKET AT PLANNED AT PLANNED SALES THROUGH 1997
RESORT/LOCATION SERVED 12/31/97 EXPANSION(B) 12/31/97 EXPANSION COMMENCED 12/31/97 ONLY
--------------- --------------- --------- ------------ --------- ------------ --------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DRIVE-TO RESORTS
Holly Lake Dallas- 130 108 1,129 5,400(d) 1982 5,371 539
Hawkins, TX Ft. Worth, TX
The Villages Dallas- 240 352 2,440 18,304(e) 1980 10,040 1,679
Flint, TX Ft. Worth, TX
Lake O' The Woods Dallas- 64 16 412 800(d) 1987 2,788 332
Flint, TX Ft. Worth, TX
Piney Shores Houston, TX 132 268 2,516 13,936(e) 1988 4,348 1,359
Conroe, TX
Hill Country Austin-San 153(g) 254 1,886 12,700(d) 1984 5,764 1,391
Canyon Lake, TX Antonio, TX
Timber Creek St. Louis, -- 600(h) -- 31,200(e)(h) 1997 32 32
DeSoto, MO MO
Fox River Chicago, IL -- 492(h) -- 25,584(e)(h) 1997 49 49
Sheridan, IL
Oak N' Spruce Boston, MA 132 420 1,629 21,840(e) 1998 -- --
South Lee, MA New York, NY(i)
DESTINATION RESORTS
Ozark Mountain Branson, 124 78 783 4,056(e) 1982 5,665 994
Kimberling City, MO MO
Holiday Hills Branson, 24 202 135 10,100(d) 1984 1,065 217
Branson, MO MO
--- ----- ------ ------- ------ -----
Total 999 2,790 10,930 143,920 35,122 6,592
=== ===== ====== ======= ====== =====
<CAPTION>
AVERAGE
SALES
PRICE AMENITIES/
RESORT/LOCATION IN 1997 ACTIVITIES(C)
--------------- ------- -------------
<S> <C> <C>
DRIVE-TO RESORTS
Holly Lake $7,062 B,F,G,H,
Hawkins, TX M,S,T
The Villages 7,640 B,F,H,
Flint, TX M,S,T
Lake O' The Woods 6,743 F,M,S,T(f)
Flint, TX
Piney Shores 8,518 B,F,H,
Conroe, TX M,S,T
Hill Country 8,552 M,S,T(f)
Canyon Lake, TX
Timber Creek 5,599 B,F,G,M,S,T
DeSoto, MO
Fox River 5,465 G,M,S,T
Sheridan, IL
Oak N' Spruce -- F,G,S,T
South Lee, MA
DESTINATION RESORTS
Ozark Mountain 7,282 B,F,H,
Kimberling City, MO M,S,T
Holiday Hills 8,046 G,M,S,T(f)
Branson, MO
------
Total $7,854
======
</TABLE>
NEW RESORTS
<TABLE>
<CAPTION>
PRIMARY
MARKET DATE PLANNED PLANNED EXISTING AND PLANNED
RESORT/LOCATION SERVED ACQUIRED UNITS(H) INTERVALS(H) AMENITIES/ACTIVITIES
--------------- ------------- -------- -------- ------------ --------------------
<S> <C> <C> <C> <C> <C>
Galveston, TX......................... Houston, TX 1997(j) 400(k) 20,800(e)(k) B,F,S,T
Las Vegas, NV......................... Las Vegas, NV 1997 157(l) 8,164(e)(l) S
----- ------
Total......................... 557 28,964
===== ======
</TABLE>
(See notes commencing on following page)
10
<PAGE> 13
- ---------------
(a) These totals do not reflect sales of upgraded Vacation Intervals to
Silverleaf Owners. For the year ended December 31, 1997, upgrade sales at
the Existing Resorts were as follows:
<TABLE>
<CAPTION>
AVERAGE SALES PRICE
FOR THE YEAR
ENDED 12/31/97
UPGRADED VACATION -- NET OF
RESORT INTERVALS SOLD EXCHANGED INTERVAL
------ ----------------- ----------------------
<S> <C> <C>
Holly Lake..................................... 187 $3,809
The Villages................................... 642 4,871
Lake O' The Woods.............................. 79 3,630
Piney Shores................................... 671 3,850
Hill Country................................... 648 3,928
Timber Creek................................... 2 945
Fox River...................................... 1 2,780
Ozark Mountain................................. 1,468 4,645
Holiday Hills.................................. 210 3,938
----- ------
3,908 $4,326
===== ======
</TABLE>
(b) Represents units included in the Company's master plan. This plan is
subject to change based upon various factors, including consumer demand,
the availability of financing, grant of governmental permits, and future
land-planning and site layout considerations. The following chart reflects
the status of certain planned units at December 31, 1997:
<TABLE>
<CAPTION>
LAND- LAND- LAND-
USE USE USE
PROCESS PROCESS PROCESS CURRENTLY IN SHELL
NOT STARTED PENDING COMPLETE CONSTRUCTION COMPLETE TOTAL
----------- -------- -------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Holly Lake................ 54 -- 50 -- 4 108
The Villages.............. 110 152 78 12 -- 352
Lake O' The Woods......... -- -- 16 -- -- 16
Piney Shores.............. 108 120 16 24 -- 268
Hill Country.............. 153 47 54 -- -- 254
Timber Creek.............. 576 -- -- 24 -- 600
Fox River................. 456 -- -- 36 -- 492
Oak 'N Spruce............. 420 -- -- -- -- 420
Ozark Mountain............ 36 -- 30 -- 12 78
Holiday Hills............. 70 -- 94 24 14 202
----- --- --- --- -- -----
1,983 319 338 120 30 2,790
===== === === === == =====
</TABLE>
"Land-Use Process Pending" means that the Company has commenced the
process which the Company believes is required under current law in order
to obtain the necessary land-use authorizations from the applicable local
governmental authority with jurisdiction, including submitting for approval
any architectural drawings, preliminary plats or other attendant items as
may be required.
"Land-Use Process Complete" means either that (i) the Company believes
that it has obtained all necessary land-use authorizations under current
law from the applicable local governmental authority with jurisdiction,
including the approval and filing of any required preliminary or final plat
and the issuance of building permit(s), in each case to the extent
applicable, or (ii) upon payment of any required filing or other fees, the
Company believes that it will under current law obtain such necessary
authorizations without further process. See "Risk Factors -- Development,
Construction and Property Acquisition Activities".
The 30 "Shell Complete" units are currently devoted to such uses as a
general store, registration office, sales office, activity center,
construction office, or pro shop. The Company anticipates that these units
will continue to be used for such purposes during 1998.
(c) Principal amenities available to Silverleaf Owners at each resort are
indicated by the following symbols: B -- boating; F -- fishing; G -- golf
course; H -- horseback riding; M -- miniature golf; S -- swimming pool; and
T -- tennis.
11
<PAGE> 14
(d) These figures are based on 50 one-week intervals per unit. In some
instances, the Company may be able to market 52 one-week intervals per
unit.
(e) These figures are based on 52 one-week intervals per unit.
(f) Boating is available near the resort.
(g) Includes three units which have not been finished-out for accommodations
and which are currently used for other purposes.
(h) Engineering, architectural and construction estimates have not been
completed by the Company, and there can be no assurance that the Company
will develop these properties at the unit numbers currently projected.
(i) The Company has commenced the timeshare permit process in New York, but has
not yet received a permit. (The Company has a timeshare permit in
Massachusetts.)
(j) One portion of this tract was acquired in February 1998.
(k) The Company has not commenced the timeshare permit process. The Company has
commenced the land use permit process. See "Risk Factors -- Development,
Construction and Property Acquisition Activities", "Business -- Description
of New Resorts -- Gulf Coast Resort".
(l) The Company has commenced the timeshare permit application process, but has
not yet received a permit. The Company has not commenced the land use
permit process. See "Risk Factors -- Regulation of Marketing and Sales of
Vacation Intervals and Related Laws".
CORPORATE BACKGROUND
The Company was incorporated in Texas in 1989 and has been owned by and
operated primarily under the direction of Robert E. Mead. Through the Company,
Mr. Mead consolidated in one entity all of the timeshare assets and operations
he previously owned through various partnerships and corporations affiliated
with Mr. Mead. In May 1989, a partnership, of which the Company was the general
partner, acquired seven of the Existing Resorts from a now dissolved corporation
which was also owned and controlled by Mr. Mead. In December 1995 (i) through a
merger of the partnership into the Company, such Existing Resorts were
transferred to the Company, (ii) the Company acquired additional assets of the
now dissolved corporation subject to certain indebtedness owing by such
corporation to Mr. Mead and his affiliates; and (iii) the Company acquired
Condominium Builders, Inc. ("CBI") and certain assets from Mr. Mead (all of the
acquisition and merger transactions in (i), (ii) and (iii) are collectively
referred to herein as the "Consolidation Transactions"). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Relationships and Related Transactions". The affiliated corporations
and partnership whose assets were acquired by the Company through the
Consolidation Transactions are sometimes collectively referred to herein as the
"Affiliated Companies" or individually as an "Affiliated Company".
The Company's principal executive offices are located at 1221 Riverbend
Drive, Suite 120, Dallas, Texas 75247. The Company's telephone number is (214)
631-1166.
THE EQUITY OFFERING
The Company is also offering 2,000,000 shares of Common Stock and Mr. Mead
is offering an additional 500,000 shares of Common Stock. The Equity Offering is
being made by separate prospectus. Giving effect to the Equity Offering, the
Company will have 13,311,517 shares of Common Stock outstanding. Silverleaf has
not historically paid dividends on its Common Stock and does not expect to pay
any dividends in the foreseeable future.
12
<PAGE> 15
SOURCES AND USES OF PROCEEDS
The net proceeds from the Note Offering are estimated to be $72.1 million.
The net proceeds from the Equity Offering are estimated to be $49.3 million. The
following table sets forth the estimated sources and uses of funds at December
31, 1997:
<TABLE>
<CAPTION>
AMOUNT
------------
(DOLLARS IN
MILLIONS)
<S> <C>
Sources of Funds:
Senior Subordinated Notes due
2008......................... $ 75.0
Common Stock(a)................. 53.5
------
Total sources..................... $128.5
======
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
------------
(DOLLARS IN
MILLIONS)
<S> <C>
Uses of Funds:
Pay existing debt(b)(c)(d)...... $ 48.9
Develop units, amenities, and
infrastructure at Existing
Resorts(e)................... 32.0
Develop units, amenities, and
infrastructure at New
Resorts(e)................... 6.0
Acquisitions, working capital
and general corporate
purposes(b)(e)............... 34.5
Fees, expenses, and other
costs........................ 7.1
------
Total uses........................ $128.5
======
</TABLE>
- ---------------
(a) The Company is offering 2,000,000 primary shares of Common Stock in the
Equity Offering. The assumed offering price of $26.75 was the closing price
of Silverleaf's Common Stock on February 27, 1998. The Company will not
receive any of the proceeds from the sale of the shares of Common Stock
offered by Silverleaf's Chief Executive Officer, Robert E. Mead.
(b) Indebtedness is projected to increase from $48.9 million at December 31,
1997, to approximately $68.6 million at the closing of the Equity Offering
and the Note Offering, substantially all of which will be paid from the
proceeds of the Equity Offering and the Note Offering. As a result, cash
available at closing for acquisitions, working capital, and general
corporate purposes will be reduced to approximately $14.8 million.
Additionally, after repayment of existing indebtedness, there will be $125.0
million of borrowing capacity available under the Company's credit
facilities. See "Description of Certain Indebtedness".
(c) This includes $5.6 million owing to Credit Suisse First Boston Mortgage
Capital, L.L.C., an affiliate of Credit Suisse First Boston Corporation, the
lead managing underwriter for the Equity Offering and the Note Offering.
This indebtedness is projected to increase to $13.0 million by the closing
of the Equity Offering and the Note Offering. See "Underwriting".
(d) At December 31, 1997, indebtedness to be repaid from the net proceeds of the
Equity Offering and Note Offering bears interest at variable rates currently
ranging from 4.2% to 14.0% per annum and matures between January 1998 and
October 2005. See "Description of Certain Indebtedness". Indebtedness is
projected to increase from $48.9 million to approximately $68.6 million at
the closing of the Equity Offering and the Note Offering. Approximately
$58.0 million of this indebtedness will have been incurred within one year
prior to the date of this Prospectus. Of this indebtedness, $2.9 million was
incurred to purchase the Fox River and Timber Creek resorts in St. Louis and
Chicago, respectively, $2.7 million was incurred to purchase the New Resort
in Las Vegas, $1.7 million was incurred to purchase the New Resort in
Galveston, $5.1 million was incurred to purchase the Oak 'N Spruce Resort in
the Berkshires, $2.9 million was incurred for capital leases of equipment,
and the balance was used for working capital and general corporate purposes.
(e) The Company currently anticipates investing these proceeds during 1998.
Pending the final application of these proceeds, the Company will invest
these proceeds in commercial paper, bankers' acceptances, other short-term
investment-grade securities, or money-market accounts, and may utilize the
proceeds for working capital purposes.
13
<PAGE> 16
THE NOTE OFFERING
Securities Offered......... $75.0 million aggregate principal amount of %
Senior Subordinated Notes due 2008.
Maturity Date.............. , 2008.
Interest Payment Dates..... and , commencing ,
1998.
Optional Redemption........ The Notes will be redeemable, in whole or in part,
at the option of the Company on or after
, 2003, at the redemption prices (expressed as a
percentage of principal amount) set forth herein,
plus accrued and unpaid interest, if any, to the
date of redemption. In addition, prior to
, 2001, the Company may redeem up to
33 1/3% of the aggregate principal amount of the
Notes with the net cash proceeds of one or more
public offerings of its Common Stock, at a
redemption price equal to % of the principal
amount thereof, plus accrued and unpaid interest
thereon, if any, to the redemption date (subject to
the right of holders of record on the relevant
record date to receive interest due on the relevant
interest payment date); provided, however, that at
least 66 2/3% of the aggregate principal amount of
the Notes originally issued remains outstanding
after any such redemption. See "Description of
Notes -- Optional Redemption".
Change of Control.......... Upon a Change of Control (as defined), each holder
of Notes will have the right to require the Company
to repurchase all or a portion of such holder's
Notes at a purchase price equal to 101% of the
aggregate principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of
repurchase. See "Description of Notes -- Repurchase
at the Option of Holders -- Change of Control" and
"Risk Factors -- Payment Upon a Change of Control
and Certain Asset Sales".
Ranking.................... The Notes will be general unsecured obligations of
the Company and will be subordinated in right of
payment to all existing and future Senior Debt of
the Company. The Notes will rank pari passu with
any future senior subordinated indebtedness of the
Company and will rank senior to all subordinated
indebtedness of the Company. At December 31, 1997,
as adjusted to give effect to the consummation of
the Equity Offering, the Note Offering and the
application of the estimated net proceeds thereof,
the Company would have had no Senior Debt
(exclusive of unused commitments under the credit
facilities). The Notes, subject to the Subsidiary
Guarantees, will be structurally subordinated to
all existing and future liabilities of the
Guarantors. At December 31, 1997, as adjusted to
give effect to the consummation of the Equity
Offering and the Note Offering, such subsidiaries
would have had no material liabilities (other than
intercompany obligations).
Subsidiary Guarantees...... The payment of the principal, interest, and premium
(if any) on the Notes is fully and unconditionally
guaranteed, jointly and severally, on a senior
subordinated basis by all existing and future
domestic Restricted Subsidiaries (as defined) of
the Company. Each Subsidiary Guarantee will be
subordinated to all existing and future Senior Debt
of the respective Guarantor. See "Description of
Notes -- Subsidiary Guarantees". The Company will
be able to designate other current or future
subsidiaries as Unrestricted Subsidiaries (as
defined) under certain circumstances. Unrestricted
Subsidiaries will not be required to issue a
Subsidiary Guarantee
14
<PAGE> 17
with respect to the Notes and will not be subject
to many of the restrictive covenants set forth in
the Indenture pursuant to which the Notes will be
issued (the "Indenture").
Covenants.................. The Indenture will contain certain covenants that,
among other things, limit the ability of the
Company and certain of its subsidiaries to incur
additional Indebtedness and issue preferred stock,
make certain investments, pay dividends or make
other distributions, repurchase Equity Interests
(as defined) or subordinated indebtedness, enter
into certain transactions with affiliates, sell
assets of the Company or certain of its
subsidiaries, issue or sell Equity Interests of the
Company's subsidiaries or enter into certain
mergers and consolidations. In addition, under
certain circumstances, the Company will be required
to offer to purchase the Notes at a price equal to
100% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of
purchase, with the proceeds of certain Assets Sales
(as defined). See "Description of
Notes -- Repurchase at the Option of
Holders -- Asset Sales" and "-- Certain Covenants".
Conditions................. The closing of the Note Offering will be
conditioned upon, among other things, the closing
of the Equity Offering.
15
<PAGE> 18
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL, OPERATING AND
PRO FORMA INFORMATION
The summary consolidated historical financial and operating information set
forth below has been derived from the consolidated financial statements of the
Company which have been restated giving effect to the Consolidation Transactions
utilizing the historical cost basis of the combined entities since these
entities were under common ownership and control. The consolidated financial
statements of the Company for 1995, 1996 and 1997 included herein were audited
by Deloitte & Touche LLP. The data presented as of and for the year ended
December 31, 1994 has been derived from the Company's audited consolidated
financial statements which have not been included herein. Data presented as of
and for the year ended December 31, 1993 has been derived from the Company's
unaudited consolidated financial statements which in the opinion of management
of the Company reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial position at such
dates and results of operation for such periods.
The summary pro forma financial information set forth below has been
derived from the Unaudited Pro Forma Condensed Consolidated Financial
Information and related Notes included elsewhere in this Prospectus. The pro
forma statement of income data for the years ended December 31, 1997 gives
effect, at the beginning of the period, to the IPO, the Equity Offering, the
Note Offering, and the application of the proceeds thereof, and to the other
adjustments set forth in the Unaudited Pro Forma Condensed Consolidated
Financial Information and related Notes (collectively the "Pro Forma
Adjustments"). The pro forma balance sheet data at December 31, 1997 gives
effect to the Equity Offering, the Note Offering, and the application of the
proceeds thereof to pay indebtedness and offering expenses, on the basis of and
subject to the assumptions stated in the Notes thereto. The pro forma financial
information does not purport to present the actual financial position or results
of operations of the Company had the IPO, the Equity Offering, the Note Offering
and events associated therewith occurred on the dates specified, nor are they
necessarily indicative of the Company's future results of operations or
financial position.
During 1997 the Company began classifying the components of the previously
reported provision for uncollectible notes into three categories based on the
nature of the item -- credit losses, customer returns, and customer releases.
The Company has reclassified these amounts within the previously reported
financial information to conform to the classification for the year ended
December 31, 1997. This reclassification has no balance sheet effect and has no
effect on previously reported net income. See Note 2 of Notes to Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview".
The Summary Consolidated Historical Financial, Operating and Pro Forma
Information should be read in conjunction with the Consolidated Financial
Statements and Notes thereto, "Unaudited Pro Forma Condensed Consolidated
Financial Information" and Notes thereto, "Selected Consolidated Historical
Financial and Operating Information" and Notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
16
<PAGE> 19
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE PRICE OF
VACATION INTERVALS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Vacation Interval sales................................. $18,627 $24,551 $34,091 $45,907 $68,682
Other income............................................ 7,188 7,348 9,981 12,018 16,376
------- ------- ------- ------- -------
Total revenues..................................... 25,815 31,899 44,072 57,925 85,058
Costs and Operating Expenses:
Cost of Vacation Interval sales......................... 2,094 2,648 3,280 2,805 6,600
Sales and marketing..................................... 10,219 12,929 17,850 21,839 30,559
Provision for uncollectible notes....................... 1,877 4,205 6,632 8,733 10,524
Operating, general and administrative................... 6,501 5,853 8,780 10,116 12,230
Depreciation and amortization........................... 477 590 863 1,264 1,497
Interest expense........................................ 1,426 1,642 3,609 4,759 4,664
------- ------- ------- ------- -------
Total costs and operating expenses................. 22,594 27,867 41,014 49,516 66,074
------- ------- ------- ------- -------
Income from continuing operations before income taxes..... $ 3,221 $ 4,032 $ 3,058 $ 8,409 $18,984
======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
EBITDA(a)................................................. $ 5,124 $ 6,264 $ 7,530 $14,432 $25,145
Capital expenditures...................................... $ 2,986 $ 1,701 $ 4,497 $ 4,162 $ 8,692
Ratio of earnings to fixed charges(b)..................... 3.2x 3.4x 1.6x 2.5x 4.3x
SUPPLEMENTAL PRO FORMA DATA:
EBITDA(c)........................................................................................ $24,785
Total interest expense(d)........................................................................ $ 7,509
Ratio of EBITDA to total interest expense(c)(d)(e)............................................... 3.3x
Ratio of net debt to EBITDA(e)(f)................................................................ NM
Ratio of debt to EBITDA(e)....................................................................... 3.0x
Ratio of earnings to fixed charges............................................................... 3.1x
OTHER OPERATING DATA:
Number of Existing Resorts at period end.................. 7 7 7 7 10
Number of Vacation Intervals sold (excluding
upgrades)(g)............................................ 2,386 3,423 4,464 5,634 6,592
Number of upgraded Vacation Intervals sold................ 1,378 1,290 1,921 1,914 3,908
Number of Vacation Intervals in inventory................. 5,615 5,943 6,580 6,746 10,930
Average price of Vacation Intervals sold (excluding
upgrades)(g)(h)......................................... $ 5,599 $ 5,821 $ 5,965 $ 6,751 $ 7,854
Average price of upgraded Vacation Intervals sold (net of
exchanged interval)..................................... $ 3,822 $ 3,585 $ 3,885 $ 4,113 $ 4,326
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
HISTORICAL PRO FORMA(e)
---------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents...................................... $ 4,970 $ 77,499
Notes receivable, net..................................... 92,036 92,036
Total assets.............................................. 156,401 231,830
Senior Subordinated Notes, notes payable and capital lease
obligations............................................. 48,871 75,000
Total liabilities......................................... 72,636 98,765
Shareholders' equity...................................... 83,765 133,065
</TABLE>
- ---------------
(a) EBITDA represents income from continuing operations before interest
expense, income taxes and depreciation and amortization. EBITDA is
presented because it is a widely accepted indicator of a company's
financial performance. However, EBITDA should not be construed as an
alternative to net income as a measure of the Company's operating results
or to cash flows from operating activities (determined in accordance with
generally accepted accounting principles) as a measure of liquidity. Since
revenues from Vacation Interval sales include promissory notes received by
the Company, EBITDA does not reflect cash flow available to the Company.
Additionally, due to varying methods of reporting EBITDA within the
timeshare industry, the computation of EBITDA for the Company may not be
comparable to other companies in the timeshare industry which compute
EBITDA in a different manner. The Company's management interprets trends in
EBITDA to be an indicator of the Company's financial performance, in
addition to net income and cash flows from operating activities (determined
in accordance with generally accepted accounting principles).
17
<PAGE> 20
(b) For purposes of determining the ratio of earnings to fixed charges,
earnings is defined as income from continuing operations before provision
for income taxes, plus interest on indebtedness, imputed interest on the
portion of rent expense (one-third) deemed to represent interest expense,
and amortization of previously capitalized interest. Fixed charges consist
of interest on indebtedness whether expensed or capitalized, imputed
interest on the portion of rent expense (one-third) deemed to represent
interest expense, amortization of debt expense, and discount or premium
relating to any indebtedness whether expensed or capitalized.
(c) Pro forma EBITDA is adjusted for the Pro Forma Adjustments. Pro Forma
EBITDA is lower than historical EBITDA in 1997 due to two adjustments
relating to the IPO in June 1997. The difference is due to (i) lower
interest income associated with amounts due from affiliates that was repaid
indirectly from the IPO proceeds and (ii) expenses associated with being a
public company. See "Unaudited Pro Forma Condensed Consolidated Financial
Information".
(d) Pro forma total interest expense is defined as pro forma interest expense
plus pro forma capitalized interest, as adjusted for the Pro Forma
Adjustments. No interest income has been assumed on proceeds of the IPO,
the Equity Offering and Note Offering. Assuming interest income of 5.5%
(current market rate) on such proceeds, the ratio of pro forma EBITDA to
pro forma net interest expense for 1997 would have been 7.0x. The ratio of
pro forma EBITDA to pro forma net interest expense differs from the
Consolidated Coverage Ratio (as defined herein) as set forth in the
Indenture. See "Description of Notes".
(e) After December 31, 1997 and prior to the closing of the Equity Offering and
the Note Offering, the Company expects to borrow an additional amount of
approximately $19.7 million which will be repaid with proceeds of the
Equity Offering and the Note Offering and will reduce the pro forma cash
balance and alter the pro forma ratios accordingly.
(f) Represents the ratio of pro forma indebtedness less pro forma cash, to pro
forma EBITDA as adjusted for the Pro Forma Adjustments. (NM = Not
Meaningful.)
(g) The Vacation Intervals sold in 1997 include 1,517 biennial intervals
(counted as 759 annual Vacation Intervals). The Company did not begin
selling biennial intervals until January 1997.
(h) Includes annual and biennial Vacation Interval sales for one and two
bedroom units.
18
<PAGE> 21
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the Company
and its business before purchasing any of the Notes offered hereby. The Company
cautions the reader that this list of material risk factors may not be
exhaustive.
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Certain statements in this
Prospectus that are not historical fact constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Discussions containing such forward-looking statements may be found in the
material set forth under "Summary," "Sources and Uses of Proceeds",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business", as well as within this Prospectus generally. In
addition, when used in this Prospectus the words "believes", "anticipates",
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to a number of risks and uncertainties.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below and
the matters set forth in this Prospectus generally. The forward-looking
statements are made as of the date of this Prospectus 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.
INCREASED LEVERAGE
After the sale of the Notes, the Company will have an increased amount of
indebtedness. As of December 31, 1997 after giving effect to the Equity
Offering, the Note Offering and the application of the proceeds thereof, the
aggregate outstanding principal amount of the Company's indebtedness would have
been $75.0 million, versus indebtedness at December 31, 1997 of $48.9 million.
Upon consummation of the Note Offering, the Company also will have available to
it up to $125.0 million in borrowing capacity under the credit facilities.
In addition, the Indenture permits the Company to incur additional
indebtedness, including indebtedness in an amount up to 70% of Mortgages
Receivable (as defined) of the Company. Accordingly, to the extent the Mortgages
Receivable of the Company increase, the Indenture will permit the Company to
increase the borrowing capacity under its credit facilities. The Indenture also
permits the Company to borrow additional funds in order to finance development
of the Existing Resorts and New Resorts. Future construction loans will likely
result in liens against the respective properties. In the event of default by
the Company on such secured indebtedness or the insolvency of the Company, such
lenders will have a prior secured claim, and the Notes will be subordinated to
such development loans. See "-- Subordination".
The level of the Company's indebtedness could have important consequences
to Holders of the Notes, including, but not limited to, (i) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of principal and interest on the Notes and other indebtedness; (ii) the
Company's ability to obtain additional debt financing in the future for working
capital, capital expenditures or acquisitions may be limited; (iii) the
Company's level of indebtedness could limit its flexibility in reacting to
changes in the industry and economic conditions generally; (iv) certain of the
Company's borrowings are at variable rates of interest, and a substantial
increase in interest rates could adversely affect the Company's ability to meet
debt service obligations; and (v) borrowings under the credit facilities will
become due prior to the time the Notes become due, which may adversely affect
the ability of the Company to pay principal and interest when due on the Notes.
In addition, the Indenture and the credit facilities will contain financial and
other restrictive covenants that will limit the ability of the Company to, among
other things, borrow additional funds. Failure by the Company to comply with
such covenants could result in an event of default which, if not cured or
waived, could have material adverse effect on the Company's results of
operations, liquidity and financial position. In addition, the degree to which
the Company is leveraged and the terms of agreements governing Senior Debt could
prevent the Company from repurchasing all of the Notes upon the occurrence of a
Change of Control or an Asset Sale. See "Description of Notes -- Repurchase at
the Option of Holders -- Change of Control" and "Description of Certain
Indebtedness".
19
<PAGE> 22
The Company's ability to make scheduled payments of principal of, or to pay
the interest on, or to refinance, its indebtedness (including the Notes), or to
fund planned capital expenditures will depend on its future performance, which,
to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond its control. The
Company may, however, need to refinance all or a portion of the principal of the
Notes on or prior to maturity. There can be no assurance that the Company's
business will generate sufficient cash flow from operations or that future
borrowings will be available under the credit facilities in an amount sufficient
to enable the Company to service its indebtedness, including the Notes, or make
anticipated capital expenditures or acquisitions. In addition, there can be no
assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms, or at all.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture will restrict, among other things, the Company's ability to
incur additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, enter into certain transactions with affiliates, impose
restrictions on the ability of a subsidiary to pay dividends or make certain
payments to the Company, merge or consolidate with any other person or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of the assets of the Company. In addition, the credit facilities contain other
and more restrictive covenants and prohibit the Company from prepaying certain
other indebtedness (including the Notes). See "Description of Notes -- Certain
Covenants" and "Description of Certain Indebtedness". The credit facilities
require the Company to maintain specified financial collateral ratios and
satisfy certain financial condition tests. The Company's ability to meet those
ratios and tests can be affected by events beyond its control, and there can be
no assurance that the Company will meet those tests. A breach of any of these
covenants could result in a default under the credit facilities and/or the
Indenture. Upon the occurrence of an event of default under the credit
facilities, the lenders could elect to declare all amounts outstanding under
such credit facility, together with accrued interest, to be immediately due and
payable. If the Company were unable to repay those amounts, the lenders could
proceed against the collateral granted to them to secure that indebtedness. If
the lenders under any of the credit facilities accelerate the payment of the
indebtedness, there can be no assurance that the assets of the Company would be
sufficient to repay in full such indebtedness and the other indebtedness of the
Company, including the Notes. See "Description of Certain Indebtedness".
SUBORDINATION
The Notes will be subordinated in right of payment to all existing and
future Senior Debt, including the principal of (and premium, if any) and
interest on and all other amounts due on or payable in connection with Senior
Debt. As of December 31, 1997, on a pro forma basis after giving effect to the
Equity Offering, the Note Offering and the application of the proceeds thereof,
the Company would have had no Senior Debt. However, the Company would have had
$125.0 million of available capacity under the credit facilities, all of which
would be secured Senior Debt. By reason of such subordination, in the event of
the insolvency, liquidation, reorganization, dissolution or other winding-up of
the Company or upon a default in payment with respect to, or the acceleration
of, any Senior Debt, the holders of such Senior Debt, including any Senior Debt
held by creditors of the Guarantors and creditors of any future subsidiaries
that are not Guarantors must be paid in full before the holders of the Notes may
be paid. As of December 31, 1997, the Guarantors had no indebtedness which would
be Senior Debt. If the Company incurs any additional pari passu debt, the
holders of such debt would be entitled to share ratably with the Holders of the
Notes in any proceeds distributed in connection with any insolvency,
liquidation, reorganization, dissolution or other winding-up of the Company.
This may have the effect of reducing the amount of proceeds paid to Holders of
the Notes. In addition, certain holders of Senior Debt may prevent cash payments
with respect to the principal of (and premium if any) or interest on the Notes
for a period of up to 179 days following a non-payment default with respect to
Senior Debt. In addition, the Indenture permits the subsidiaries of the Company
to incur debt under certain circumstances. Any such debt incurred by a
subsidiary of the Company that is not a Guarantor could be structurally senior
to the Notes. To the extent the Subsidiary Guarantees are not enforceable, the
Notes and Subsidiary Guarantees would be effectively subordinated to all
liabilities of the Guarantors, including trade payables of such Guarantors,
whether or not such liabilities otherwise constitute Senior Debt of the
Guarantor under the Indenture. See "-- Fraudulent Transfer Statutes" and
"Description of Notes".
20
<PAGE> 23
SENSITIVITY OF CUSTOMERS TO GENERAL ECONOMIC CONDITIONS
The Company targets value-conscious customers and approximately two-thirds
of the Company's customers have annual household incomes of less than $50,000.
These customers are generally more vulnerable to deteriorating economic
conditions than consumers in the luxury or upscale markets. Any economic
downturn could depress spending for Vacation Intervals, limit the availability
or increase the cost of financing for the Company and its customers, and
adversely affect the collectibility of the Company's loans to Vacation Interval
buyers. During past economic slowdowns and recessions, Affiliated Companies
experienced increased delinquencies in the payment of Vacation Interval
promissory notes and monthly Club dues and consequent increased foreclosures and
loan losses. During any future economic slowdown or recession, the Company
projects that increased delinquencies, foreclosures, and loan losses are likely
to occur. Similar adverse consequences could result from significant increases
in transportation costs. Any or all of the foregoing could have a material
adverse effect on the Company's results of operations, liquidity and financial
position.
BORROWER DEFAULTS
The Company offers financing to the buyers of Vacation Intervals at the
Company's resorts. These buyers 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 period, and are secured by a first mortgage on the Vacation Interval.
The Company bears the risk of defaults on these promissory notes, and this risk
is heightened as the Company generally does not verify the credit history of its
customers and will provide financing if the customer is presently employed and
meets certain household income criteria.
The Company's credit experience is such that in 1997 it allocated 15.3% of
the purchase price of each Vacation Interval to its provision for uncollectible
notes. 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, Texas, Illinois, and certain other
states have laws which limit or hinder the Company's ability to recover personal
judgments against customers who have defaulted on their loans. For example,
under Texas law, if the Company were to pursue a post-foreclosure deficiency
claim against a customer, the customer may file a court proceeding to determine
the fair market value of the property foreclosed upon. In such event, the
Company may not recover a personal judgment against the customer for the full
amount of the deficiency, but may recover only to the extent that the
indebtedness owed to the Company exceeds the fair market value of the property.
Accordingly, the Company has generally not pursued this remedy.
Prior to 1996, the Company sold customer promissory notes and mortgages to
third parties, generally with recourse, as a means of financing its operations.
As a result, the Company may be required to repurchase customer promissory notes
previously sold which become delinquent. The Company takes these contingent
obligations into account in establishing its allowance for uncollectible notes.
At December 31, 1997, the Company had Vacation Interval customer notes
receivable in the approximate principal amount of $104.4 million, was
contingently liable with respect to approximately $7.4 million principal amount
of customer notes sold with recourse and had an allowance for uncollectible
notes of approximately $15.5 million. There can be no assurance that such
allowance is adequate. See Note 4 of Notes to Consolidated Financial Statements.
FINANCING CUSTOMER BORROWINGS
While the Company intends to use the proceeds of the Equity Offering and
Note Offering to pay indebtedness under its existing credit facilities, it may
borrow additional funds under existing or future credit arrangements and is
dependent on the ability to finance customer notes receivable through third
party lenders to conduct its business.
BORROWING BASE. To finance Vacation Interval customer notes receivable, the
Company has entered into agreements with lenders to borrow up to approximately
$115.0 million collateralized by customer promissory notes and mortgages. At
December 31, 1997, the Company had such borrowings from lenders in the
approximate principal amount of $40.4 million. The Company's lenders typically
lend the Company 70% of the principal
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<PAGE> 24
amount of performing notes, and payments from Silverleaf Owners on such notes
are credited directly to the lender and applied against the Company's loan
balance. At December 31, 1997, the Company had a portfolio of approximately
21,320 Vacation Interval customer notes receivable in the approximate principal
amount of $104.4 million, of which approximately $14.4 million in principal
amount were 61 days or more past due and therefore ineligible as collateral.
NEGATIVE CASH FLOW. The Company ordinarily receives only 10% of the
purchase price on the sale of a Vacation Interval but must pay in full the costs
of development, marketing, and sale of the interval. Maximum borrowings
available under the Company's credit facilities may not be sufficient to cover
these costs, thereby straining the Company's capital resources, liquidity, and
capacity to grow.
INTEREST RATE MISMATCH. At December 31, 1997, the Company's portfolio of
customer loans had a weighted average fixed interest rate of 14.5%. At such
date, the Company's borrowings (which bear interest at variable rates) against
the portfolio had a weighted average cost of funds of 10.1%. 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 existing indebtedness currently bears interest at variable
rates and the Company's customer notes receivable bear interest at fixed rates,
increases in interest rates would erode the spread in interest rates that the
Company has historically enjoyed and could cause the interest expense on the
Company's borrowings to exceed its interest income on its portfolio of customer
notes receivable. 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, liquidity and financial position. If the Note Offering is
consummated, the Notes will bear interest at a fixed rate for a ten year period,
which would lessen this risk initially.
To the extent interest rates decrease generally on loans available to the
Company's customers, the Company faces an increased risk that customers will
pre-pay their loans and reduce the Company's income from financing activities.
See "Business -- Customer Financing".
MATURITY MISMATCH. The Company typically provides financing to customers
over a seven year period which customer notes have an average maturity of 5.5
years at December 31, 1997. The credit facilities mature between December 1999
and October 2005 with $60.0 million of such credit facilities maturing in
December 1999. Accordingly, there could be a mismatch between the Company's
anticipated cash receipts and cash disbursements in December 1999 and subsequent
periods. Although the Company has historically been able to secure financing
sufficient to fund its operations, it does not presently have agreements with
its lenders to extend the term of its existing funding commitments or to replace
such commitments upon their expiration. Failure to obtain such refinancing
facilities could require the Company to sell its portfolio of customer notes
receivable, probably at a substantial discount, or to seek other alternatives to
enable it to continue in business. Such a sale of customer notes receivable,
however, may be limited under the Indenture if it is deemed to be an "Asset
Sale". See "Description of Notes -- Repurchase at Option of Holders -- Asset
Sales". While the Company has been successful in obtaining financing to date,
there is no assurance it will be able to do so in the future. See
"-- Acceleration of Deferred Taxes" and "-- Alternative Minimum Taxes". However,
if the Equity Offering and the Note Offering are consummated, substantially all
of the Company's indebtedness would be repaid, which would lessen this risk
initially.
IMPACT ON SALES. Limitations on the availability of financing would inhibit
sales of Vacation Intervals due to (i) the lack of funds to finance the initial
negative cash flow that results from sales that are financed by the Company, and
(ii) reduced demand if the Company is unable to provide financing to purchasers
of Vacation Intervals.
REGULATION OF MARKETING AND SALES OF VACATION INTERVALS AND RELATED LAWS
The Company's marketing and sales of Vacation Intervals and other
operations are subject to extensive regulation by the federal government and the
states and jurisdictions in which the Existing Resorts and New Resorts are
located and in which Vacation Intervals are marketed and sold. On a federal
level, the Federal Trade Commission has taken the most active regulatory role
through the Federal Trade Commission Act, which
22
<PAGE> 25
prohibits unfair or deceptive acts or competition in interstate commerce. Other
federal legislation to which the Company is or may be subject includes the
Truth-in-Lending Act and Regulation Z, the Equal Opportunity Credit Act and
Regulation B, the Interstate Land Sales Full Disclosure Act, the Real Estate
Settlement Procedures Act, the Consumer Credit Protection Act, the Telephone
Consumer Protection Act, the Telemarketing and Consumer Fraud and Abuse
Prevention Act, the Fair Housing Act and the Civil Rights Acts of 1964 and 1968.
In response to certain fraudulent marketing practices in the timeshare
industry in the 1980's, various states enacted legislation aimed at curbing such
abuses. Texas, Missouri, Illinois, Massachusetts, and Nevada, the states in
which the Company currently owns Existing Resorts or New Resorts, as well as
other states in which the Company markets its Vacation Intervals, have adopted
specific laws and regulations regarding the marketing and sale of Vacation
Intervals. The laws of most states, including Texas, Illinois, and Nevada,
require the Company to file a detailed offering statement and supporting
documents with a designated state authority, which describe the Company, the
project, and the promotion and sale of Vacation Intervals. The offering
statement must be approved by the appropriate state agency before the Company
may solicit residents of such state. The laws of Texas, Illinois, Massachusetts,
and Nevada, respectively, require the Company to deliver an offering statement
(or public report), together with certain additional information concerning the
terms of the purchase, to prospective purchasers of Vacation Intervals who are
residents of such state, even if the resort is not located in such state. The
laws of Missouri generally only require certain disclosures in sales documents
for prospective purchasers. There are also laws in each state where the Company
currently sells Vacation Intervals which grant the purchaser of a Vacation
Interval the right to cancel a contract of purchase at any time within three to
five calendar days following the date the contract was signed by the purchaser.
The Company qualifies each resort under the timeshare laws of the state
where it is located. The Company has recently filed a timeshare application in
Nevada with respect to the New Resort in Las Vegas. There can be no assurance
that the Company will obtain the requisite approval to sell Vacation Intervals
for this resort, and the Company has not commenced marketing or sales activities
for this resort.
The Company also markets and sells its Vacation Intervals to residents of
certain states which are near the states where the Company's resorts are
located. Many of these neighboring states also regulate the marketing and sale
of Vacation Intervals to their residents. The Company is currently in various
stages of obtaining permits to sell Vacation Intervals to residents of New York
and certain other states proximate to the Oak 'N Spruce Resort in Massachusetts.
There can be no assurance that the Company will obtain the requisite approvals
to sell Vacation Intervals to residents of such states. The Company does not
register all of its resorts in each of the states where it registers any
resorts.
Most states have additional laws which regulate the Company's activities
and protect purchasers, such as real estate licensure laws; travel sales
licensure laws; anti-fraud laws; consumer protection laws; telemarketing laws;
prize, gift and sweepstakes laws; and other related laws.
The Company believes it is in material compliance with federal, Texas,
Missouri, Illinois and Massachusetts laws and regulations to which it is
currently subject relating to the sale and marketing of Vacation Intervals.
However, the Company is normally and currently the subject of a number of
consumer complaints generally relating to marketing or sales practices filed
with relevant authorities, and there can be no assurance that all of these
complaints can be resolved without adverse regulatory actions or other
consequences. The Company expects some level of consumer complaints in the
ordinary course of its business as the Company aggressively markets and sells
Vacation Intervals in the value segment of the timeshare industry, which may
include individuals who are less financially sophisticated than more affluent
customers. There can be no assurance that the costs of resolving consumer
complaints or of qualifying under Vacation Interval ownership regulations in all
jurisdictions in which the Company desires to conduct sales will not be
significant, that the Company is in material compliance with applicable federal,
Texas, Missouri, Illinois, Massachusetts, or other laws and regulations, or that
violations of law will not have adverse implications for the Company, including
negative public relations, potential litigation, and regulatory sanctions. The
expense, negative publicity, and potential sanctions associated with the failure
to comply with applicable laws or regulations could have a material adverse
effect on the Company's results of operations, liquidity, and financial
position. Further, there can be no assurance that either the federal government
or states having jurisdiction over the Company's business will not adopt
23
<PAGE> 26
additional regulations or take other actions which would adversely affect the
Company's results of operations, liquidity, and financial position. See
"Business -- Governmental Regulation".
During the 1980's and continuing through the present, the timeshare
industry has been and continues to be afflicted with negative publicity and
prosecutorial attention due, among other things, to marketing practices which
were widely viewed as deceptive or fraudulent. Among the many timeshare
companies which have been the subject of federal, state and local enforcement
actions and investigations in the past were certain of the Affiliated Companies
and their affiliates. Some of the settlements, injunctions and decrees resulting
from litigation and enforcement actions (the "Orders") to which certain of the
Affiliated Companies consented purport to bind all successors and assigns, and
accordingly bind the Company. In addition, at that time the Company was directly
a party to one such Order issued in Missouri. No past or present officers,
directors or employees of the Company or any Affiliated Company were named as
subjects or respondents in any of these Orders; however, each Order purports to
bind generically unnamed "officers, directors and employees" of certain
Affiliated Companies. Therefore, certain of these Orders may be interpreted to
be enforceable against the present officers, directors and employees of the
Company even though they were not individually named as subjects of the
enforcement actions which resulted in these Orders. These Orders require, among
other things, that all parties bound by the Orders, including the Company,
refrain from engaging in deceptive sales practices in connection with the offer
and sale of Vacation Intervals. In one case in 1988, an Affiliated Company pled
guilty to deceptive uses of the mails in connection with promotional sales
literature mailed to prospective timeshare purchasers and agreed to pay a
judicially imposed fine of $1.5 million and restitution of $100,000. The
requirements of the Orders are substantially what applicable state and federal
laws and regulations mandate, but the consequence of violating the Order may be
that sanctions (including possible financial penalties and suspension or loss of
licensure) may be imposed more summarily and may be harsher than would be the
case if the Orders did not bind the Company. In addition, the existence of the
Orders may be viewed negatively by prospective regulators in jurisdictions where
the Company does not now do business, with attendant risks of increased costs
and reduced opportunities.
In early 1997, the Company was the subject of some consumer complaints
which triggered governmental investigations into the Company's affairs. In March
1997, the Company entered into an Assurance of Voluntary Compliance with the
Texas Attorney General, in which the Company agreed to make additional
disclosure to purchasers of Vacation Intervals regarding the limited
availability of its Endless Escape program during certain periods. The Company
paid $15,200 for investigatory costs and attorneys' fees of the Attorney General
in connection with this matter. Also, in March 1997, the Company entered into an
agreed order (the "Agreed Order") with the Texas Real Estate Commission
requiring the Company to comply with certain aspects of the Texas Timeshare Act,
Texas Real Estate License Act and Rules of the Texas Real Estate Commission,
with which it had allegedly been in non-compliance until mid-1995. The
allegations included (i) the Company's admitted failure to register the Missouri
Destination Resorts in Texas (due to its misunderstanding of the reach of the
Texas Timeshare Act); (ii) payment of referral fees for Vacation Interval sales,
the receipt of which was improper on the part of the recipients; and (iii)
miscellaneous other actions alleged to violate the Texas Timeshare Act, which
the Company denied. While the Agreed Order acknowledged that Silverleaf
independently resolved ten consumer complaints referenced in the Agreed Order,
discontinued the practices complained of, and registered the Destination Resorts
during 1995 and 1996, the Texas Real Estate Commission ordered Silverleaf to
cease its discontinued practices and enhance its disclosure to purchasers of
Vacation Intervals. In the Agreed Order, Silverleaf agreed to make a voluntary
donation of $30,000 to the State of Texas. The Agreed Order also directed
Silverleaf to revise its training manual for timeshare salespersons and
verification officers. While the Agreed Order resolved all of the alleged
violations contained in complaints received by the Texas Real Estate Commission
through December 31, 1996, the Company has encountered and expects to encounter
some level of additional consumer complaints in the ordinary course of its
business. See "Business -- Governmental Regulation".
EXPANSION INTO NEW GEOGRAPHIC AREAS
Prior to August 1997, all of the Company's operating resorts and
substantially all of its customers and borrowers were located in Texas and
Missouri. Since August 1997, the Company has acquired the Fox River Resort in
Illinois, the Timber Creek Resort near St. Louis, Missouri, the Oak N' Spruce
Resort in Massachusetts,
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<PAGE> 27
undeveloped beachfront property in Galveston, Texas, and an undeveloped parcel
in Las Vegas, Nevada. The recent expansion into new geographic areas,
particularly Illinois, Massachusetts, and Nevada, poses new risks because the
Company does not possess the same level of familiarity with and experience in
these markets as it possesses with respect to its historical markets in Missouri
and Texas, which could adversely affect the Company's ability to develop and
operate timeshare resorts and sell Vacation Intervals in these new markets. Such
expansion also requires the Company to comply with the laws and regulations of
additional jurisdictions, including Illinois, Massachusetts, Nevada, New York,
New Jersey, and Connecticut, where the Company currently markets or will market
its Vacation Intervals. Additionally, the Company is subject to and will become
subject to zoning and land use laws of additional municipalities in Texas,
Illinois, Massachusetts, and Nevada. There is no assurance the Company can
comply with all of these requirements economically or at all. The New Resorts
will also require new architectural plans and construction techniques with which
the Company is less familiar. For example, Silverleaf will utilize five-story
and nine-story, high density buildings for the proposed resort in Las Vegas,
Nevada, whereas the Company has historically utilized low-rise, lower density
building structures. The Oak N' Spruce Resort in Massachusetts and the Fox River
Resort in Illinois are subject to a longer and harsher winter climate than the
resorts in Missouri and Texas. Accordingly, construction costs at these new
resorts may be higher and the construction cycle may be longer. Expansion of the
Company's sales and marketing activities to Illinois, Massachusetts, Nevada, New
Jersey, New York, and Connecticut is expected to result in higher marketing
expenses to gain entrance to these new markets. Cultural differences between
customers in these new markets and the Company's historical markets may result
in additional marketing costs or lower sales. All of the above risks associated
with the Company's entrance into the new geographic areas could have a material
adverse effect on the Company's results of operation, liquidity, and financial
position.
RAPID GROWTH
The Company has experienced rapid growth which could place a strain on the
Company's management, employees and systems. Prior to August 1997, the Company
owned and operated seven resorts. Since then, the Company has acquired three
resorts and sites for two additional Destination Resorts and has entered into
agreements to acquire two sites for the development of Drive-to Resorts and
management rights with respect to eight timeshare resorts. As the Company's
business develops and expands, the Company will require additional management
and employees and will need to implement enhanced operational and financial
systems. There can be no assurance that the Company will successfully hire,
retain, integrate and utilize management and employees and implement and
maintain such operational and financial systems. Failure to hire, retain and
integrate management and employees or implement such systems successfully could
have a material adverse effect on the Company's results of operations,
liquidity, and financial position.
CONCENTRATION IN TIMESHARE INDUSTRY
Because the Company's operations are conducted solely within the timeshare
industry, any adverse changes affecting the timeshare industry such as an
oversupply of timeshare units, a reduction in demand for timeshare units,
changes in travel and vacation patterns, a decrease in popularity of any of the
Company's resorts with consumers, changes in governmental regulations or
taxation of the timeshare industry, as well as negative publicity about the
timeshare industry, could have a material adverse effect on the Company's
results of operations, liquidity, and financial position. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
COMPETITION
The timeshare industry is highly fragmented and includes a large number of
local and regional resort developers and operators. However, some of the world's
most recognized lodging, hospitality and entertainment companies, such as
Marriott, Disney, Hilton, Hyatt Corporation ("Hyatt"), and Four Seasons Resorts
("Four Seasons"), have entered the industry. Other companies in the timeshare
industry, including Signature Resorts, Inc. ("Signature"), Fairfield
Communities, Inc. ("Fairfield"), Vacation Break USA, Inc. ("Vacation Break"),
Vistana, Inc. ("Vistana"), Ramada Vacation Suites ("Ramada"), and TrendWest
Resorts, Inc. ("TrendWest"), are, or are subsidiaries of, public companies with
enhanced access to capital and other resources.
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Fairfield and Signature own timeshare resorts in or near Branson, Missouri,
which compete with the Company's Holiday Hills and Ozark Mountain Resorts and to
a lesser extent with the Company's newly-acquired Timber Creek Resort. Signature
also owns a resort which is located near and competes with the Company's Piney
Shores Resort. Based on published industry data and reports, except for
Fairfield and Signature, the Company does not believe that any of the
competitors named above own timeshare resorts in Illinois, Missouri or Texas.
The Company believes that many of the companies named in the preceding paragraph
operate timeshare resorts in Las Vegas, Nevada. Additionally, the Company
believes there are a number of privately-owned and operated timeshare resorts in
most states in which the Company owns resorts which will compete with the
Company's Existing Resorts and New Resorts. Finally, the proposed resort in Las
Vegas will compete with a large number and variety of hotels and other lodging
facilities in Las Vegas.
The Company believes Marriott, Disney, Hilton, Hyatt, and Four Seasons
generally target consumers with higher annual incomes than the Company's target
market. The Company believes the other competitors named above target consumers
with similar, but slightly higher, income levels than the Company's target
market. The Company's competitors may possess significantly greater financial,
marketing, personnel and other resources than the Company, and there can be no
assurance that such competitors will not significantly reduce the price of their
Vacation Intervals or offer greater convenience, services or amenities than the
Company.
While the Company's principal competitors are developers of timeshare
resorts, the Company is also subject to competition from other entities engaged
in the commercial lodging business, including condominiums, hotels and motels;
others engaged in the leisure business; and, to a lesser extent, from
campgrounds, recreational vehicles, tour packages and second home sales. A
reduction in the product costs associated with any of these competitors, or an
increase in the Company's costs relative to such competitors' costs, could have
a material adverse effect on the Company's results of operations, liquidity, and
financial position.
Numerous businesses, individuals and other entities compete with the
Company in seeking properties for development and acquisition of resorts. Some
of these competitors are larger and have greater financial and other resources
than the Company. Such competition may result in a higher cost for properties
the Company wishes to acquire or may cause the Company to be unable to acquire
suitable properties for the development of new resorts.
DEVELOPMENT, CONSTRUCTION AND PROPERTY ACQUISITION ACTIVITIES
The Company intends to develop and continue the expansion of the Existing
Resorts, to develop the New Resorts, and to selectively acquire and develop
other resorts. Acquiring and developing resorts places substantial demands on
the Company's liquidity and capital resources, as well as on its personnel and
administrative capabilities. Risks associated with the Company's development and
construction activities include the following: construction costs or delays at a
property may exceed original estimates, possibly making the expansion or
development uneconomical or unprofitable; sales of Vacation Intervals at a newly
completed property may not be sufficient to make the property profitable; the
Company has expanded and will continue to expand into new geographic areas in
which it has no operating history and there is no assurance the Company will be
successful in such locations; and financing may be unavailable or may not be
available on favorable terms for development of, or the continued sales of
Vacation Intervals at a property. There can be no assurance the Company will
develop and expand the Existing Resorts, develop the New Resorts, or acquire and
develop other resorts. The Company does not and upon the consummation of the
Equity Offering and the Note Offering will not have the financing available to
complete all of its planned expansion as set forth in "Business -- The Existing
Resorts" and "-- Growth Strategy".
In addition, the Company's development and construction activities, as well
as its ownership and management of real estate, are subject to comprehensive
federal, state and local laws regulating such matters as environmental and
health concerns, protection of endangered species, water supplies, zoning, land
development, land use, building design and construction, marketing and sales,
and other matters. Such laws and difficulties in obtaining, or failing to
obtain, the requisite licenses, permits, allocations, authorizations and other
entitlements pursuant to such laws could impact the development, completion, and
sale of the Company's projects. See "-- Regulation of Marketing and Sales of
Vacation Intervals and Related Laws". For instance, Silverleaf's land use plan
at its New Resort site in Galveston is currently being challenged in court. A
neighboring landowner has sued the city of Galveston and its zoning board to set
aside the Galveston planning commission's approval of
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Silverleaf's land use plan. Silverleaf believes the suit is without merit and
has filed a petition to intervene in the litigation to protect its interests.
The Company does not believe that this suit will materially affect its timetable
for development of its New Resort at Galveston; however, there can be no
assurance that Silverleaf's land use plan will withstand this challenge.
Furthermore, the litigation may delay the development of this property. The
enactment of "slow growth" or "no-growth" initiatives or changes in labor or
other laws in any area where the Company's projects are located could also
delay, affect the cost or feasibility of, or preclude entirely the expansion
planned at each of the Existing Resorts and New Resorts or the development of
other resorts.
Most of the Company's resorts are located in rustic areas, often requiring
the Company to provide public utility water and sanitation services in order to
proceed with development. Such activities are subject to permission and
regulation by governmental agencies, the denial or conditioning of which could
limit or preclude development. Operation of the utilities also subjects the
Company to risk of liability in connection with both the quality of fresh water
provided and the treatment and discharge of waste-water. See
"Business -- Governmental Regulation".
While the Company's construction activities typically are performed by
third-party contractors whose performance cannot be assured by the Company,
construction claims may be asserted against the Company for construction defects
and such claims may give rise to liabilities. Certain state and local laws may
impose liability on property developers with respect to construction defects
discovered or repairs made by future owners of such property.
See "Business -- Growth Strategy" and "-- Development and Acquisition
Process", and "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
PAYMENT UPON A CHANGE OF CONTROL AND CERTAIN ASSET SALES
Upon the occurrence of a Change of Control, each holder of Notes may
require the Company to repurchase all or a portion of such holder's Notes at
101% of the principal amount of the Notes together with accrued and unpaid
interest to the date of repurchase. See "Description of Notes -- Repurchase at
the Option of Holders -- Change of Control" for the definition of "Change of
Control". The Indenture also places certain limitations on an Asset Sale (as
defined) and the use of the proceeds therefrom. In the event of an Asset Sale,
each holder of Notes may require the Company in certain circumstances to
repurchase a portion of such holder's Notes at 100% of the principal amount of
the Notes together with accrued and unpaid interest to the date of repurchase.
See "Description of Notes -- Repurchase at the Option of Holders -- Asset Sales"
for a definition of "Asset Sale". There can be no assurance that the Company
would have the funds necessary to effect such a purchase if a Change of Control
or Asset Sale were to occur. In addition, certain of the credit facilities
prohibit the Company from prepaying any Notes and also provide that certain
changes in control of the Company or sales of assets would constitute a default
thereunder. Any future credit agreements or other agreement relating to Senior
Debt to which the Company becomes a party may contain similar restrictions and
provisions. In the event a Change of Control or Asset Sale occurs at a time when
the Company is prohibited from purchasing Notes, the Company could seek the
consent of its lenders to purchase the Notes or could attempt to refinance the
borrowings that contain prohibitions against the purchase of Notes. If the
Company does not repay or obtain consent to repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture. See "Description of Notes -- Repurchase at the Option of
Holders -- Change of Control" and "-- Asset Sales".
FRAUDULENT TRANSFER STATUTES
Under applicable provisions of federal bankruptcy law and comparable
provisions of state and federal fraudulent conveyance laws, if it were found
that the Company or any Guarantor (a) had incurred such indebtedness represented
by the Notes or any Subsidiary Guarantee with an intent to hinder, delay or
defraud creditors, or (b) had received less than reasonably equivalent value or
fair consideration for incurring such indebtedness and (i) was insolvent or was
rendered insolvent by reason of such transactions, (ii) was engaged or was about
to engage in a business transaction for which its remaining assets constituted
unreasonably small capital to carry on its business, or (iii) intended to incur,
or believed that it would incur, debts beyond its ability to
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pay such debts as they matured, the obligations of the Company or such Guarantor
under the Notes or any Subsidiary Guarantee could be avoided or claims in
respect of the Notes or any such Subsidiary Guarantee could be subordinated to
all other debts of the Company or of such Guarantor. A legal challenge of a
Subsidiary Guarantee on fraudulent conveyance grounds could, among other things,
focus on the benefits, if any, realized by a Guarantor as a result of the
issuance by the Company of the Notes. To the extent that a Subsidiary Guarantee
were held to be unenforceable as a fraudulent conveyance for any reason, the
holders of the Notes would cease to have any direct claim in respect of a
Guarantor and would be solely creditors of the Company. In the event a
Subsidiary Guarantee were held to be subordinated, the claims of the holders of
the Notes would be subordinated to claims of other creditors of such Guarantor.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction that is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the fair saleable value of the debtor's assets at
a fair valuation, or if the present fair saleable value of the debtor's assets
were less than the amount required to repay its probable liabilities on its
existing debts, including contingent liabilities, as they become absolute and
matured. There can be no assurance as to what standard a court would apply in
order to make such determination.
The Company believes that the indebtedness of the Company represented by
the Notes is being incurred for proper purposes and in good faith, and the
Company believes that it and each of its Restricted Subsidiaries guaranteeing
the Notes will be solvent, will have sufficient capital for carrying on its
business and will be able to pay its debts as they mature. See, however,
"-- Increased Leverage". These beliefs are based on the Company's operating
history and analysis of internal cash flow projections and estimated values of
assets and liabilities of the Company and the Guarantors at the time of the
offering of the Notes. Since each of the components of the question of whether
the incurrence of the debt represented by the Notes or any Subsidiary Guarantee
constitutes a fraudulent conveyance is inherently fact-based and fact-specific,
there can be no assurance that a court passing on such questions would agree
with the Company. Neither counsel for the Company nor counsel for the Initial
Purchasers will express any opinion as to federal or state laws relating to
fraudulent transfers. Further, the obligations of each Guarantor under its
Subsidiary Guarantee will be limited so as not to constitute a fraudulent
conveyance under applicable law, which may limit or obviate the effect of the
Subsidiary Guarantees.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a large extent upon the experience and
abilities of Robert E. Mead, Sharon K. Brayfield, and David T. O'Connor, the
Company's Chief Executive Officer, President, and Executive Vice
President -- Sales, respectively. The loss of the services of any one of these
key individuals could have a material adverse effect on the Company's results of
operations, liquidity or financial position. See "Management -- Employment and
Noncompetition Agreements". The Company's success is also dependent upon its
ability to attract and maintain qualified acquisition, development, marketing,
management, administrative and sales personnel. The ability to attract such
personnel will become particularly important as the Company grows and develops
additional resorts, and there can be no assurance that the Company will be
successful in attracting and/or retaining such personnel.
COSTS OF COMPLIANCE WITH LAWS GOVERNING ACCESSIBILITY OF FACILITIES TO DISABLED
PERSONS
A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act (the "ADA"), impose requirements related to
access and use by disabled persons of a variety of public accommodations and
facilities. The ADA requirements did not become effective until after January 1,
1991. Although the Company believes the Existing Resorts are substantially in
compliance with laws governing the accessibility of its facilities to disabled
persons, the Company will incur additional costs of complying with such laws.
Additional federal, state and local legislation may impose further burdens or
restrictions on the Company, the Clubs, or the Master Club at the Existing
Resorts, the New Resorts, or other resorts, with respect to access by disabled
persons. The ultimate cost of compliance with such legislation is not currently
ascertainable, and, while such costs are not expected to have a material effect
on the Company's results of operations, liquidity, and financial position, such
costs could be substantial.
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VULNERABILITY TO REGIONAL CONDITIONS
Prior to August 1997, all of the Company's operating resorts and
substantially all of the Company's customers and borrowers were located in Texas
and Missouri. Since August 1997, the Company has acquired resorts in Illinois
and Massachusetts as well as a site in Las Vegas, Nevada. The Company's
performance and the value of its properties is affected by regional factors,
including local economic conditions (which may be adversely impacted by business
layoffs or downsizing, industry slowdowns, changing demographics and other
factors) and the local regulatory climate. Even with the recent acquisitions,
the Company's current geographic concentration could make the Company more
susceptible to adverse events or conditions which affect these areas in
particular.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and regulations, as
well as common law, the owner or operator of real property generally is liable
for the costs of removal or remediation of certain hazardous or toxic substances
located on, in, or emanating from, such property, as well as related costs of
investigation and property damage. Such laws often impose liability without
regard to whether the owner knew of, or was responsible for, the presence of the
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner's ability
to sell or lease a property or to borrow money using such real property as
collateral. Other federal and state laws require the removal or encapsulation of
asbestos-containing material when such material is in poor condition or in the
event of construction, demolition, remodeling or renovation. Other statutes may
require the removal of underground storage tanks. Noncompliance with these and
other environmental, health or safety requirements may result in the need to
cease or alter operations at a property. Further, the owner or operator of a
site may be subject to common law claims by third parties based on damages and
costs resulting from violations of environmental regulations or from
contamination associated with the site. Phase I environmental reports (which
typically involve inspection without soil sampling or ground water analysis)
were prepared in 1994 by independent environmental consultants for several of
the Existing Resorts, and more recent Phase I environmental reports have been
obtained for each of the remaining resorts. The reports did not reveal, nor is
the Company aware of, any environmental liability that would have, a material
adverse effect on the Company's results of operations, liquidity or financial
position. No assurance, however, can be given that these reports reveal all
environmental liabilities or that no prior owner created any material
environmental condition not known to the Company.
Certain environmental laws impose liability on a previous owner of property
to the extent hazardous or toxic substances were present during the prior
ownership period. A transfer of the property may not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by it or by its predecessors.
The Company owns its own water supply facilities and waste-water treatment
plant at several of its resorts. The Texas Natural Resources Conservation
Commission ("TNRCC") is the primary state umbrella agency regulating the
utilities at the Drive-to Resorts in Texas, and the Department of Natural
Resources and the Public Service Commission of Missouri are the primary state
umbrella agencies regulating such utilities at the Destination Resorts in
Missouri. The Illinois Environmental Protection Agency, division of Water
Pollution Control, and the Illinois Commerce Commission are the primary state
agencies regulating water utilities at the Fox River Resort in Illinois. The
Holly Lake Resort's water supply facilities do not comply with certain TNRCC
rules regarding minimum water capacity; accordingly, the Company plans to build
an additional water storage facility at Holly Lake, with construction to begin
in the third quarter of 1998. See "Business -- Governmental Regulation".
The Company believes that it is in compliance in all material respects with
all federal, state and local ordinances and regulations regarding hazardous or
toxic substances. Other than in connection with the Holly Lake water supply
storage compliance issue mentioned above, the Company has not been notified by
any governmental authority or third party of any non-compliance, liability or
other claim in connection with any of its present or former properties. See
"Business -- Governmental Regulation -- Environmental Matters".
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DEPENDENCE ON VACATION INTERVAL EXCHANGE NETWORKS; POSSIBLE INABILITY TO QUALIFY
RESORTS
The attractiveness of Vacation Interval ownership is enhanced by the
availability of exchange networks that allow Silverleaf Owners to exchange in a
particular year the occupancy right in their Vacation Interval for an occupancy
right in another participating network resort. According to ARDA, the ability to
exchange Vacation Intervals was cited by many buyers as an important reason for
purchasing a Vacation Interval. Several companies, including RCI, provide
broad-based Vacation Interval exchange services, and the Existing Resorts,
except Oak N' Spruce, are currently qualified for participation in the RCI
exchange network. The Oak N' Spruce is currently under contract with another
exchange network provider, Interval International. However, no assurance can be
given that the Company will continue to be able to qualify such resorts or any
other future resorts for participation in these networks or any other exchange
network. If such exchange networks cease to function effectively, or if the
Company's resorts are not accepted as exchanges for other desirable resorts, the
Company's sales of Vacation Intervals could be materially adversely affected.
See "Business -- Participation in Vacation Interval Exchange Networks".
RESALE MARKET FOR VACATION INTERVALS
Based on its experience at the Existing Resorts, the Company believes the
market for resale of Vacation Intervals by the owners of such intervals is very
limited and that resale prices are substantially below their original purchase
price. This may make ownership of Vacation Intervals less attractive to
prospective buyers. Also, attempts by buyers to resell their Vacation Intervals
compete with sales of Vacation Intervals by the Company. While Vacation Interval
resale clearing houses or brokers do not currently have a material impact, if
the secondary market for Vacation Intervals were to become more organized and
liquid, the availability of resale intervals at lower prices could materially
adversely affect the prices and number of sales of new Vacation Intervals by the
Company.
SEASONALITY AND VARIABILITY OF QUARTERLY RESULTS
Sales of Vacation Intervals have generally been lower in the months of
November and December. Cash flow and earnings may be impacted by the timing of
development, the completion of future resorts, and the potential impact of
weather or other conditions in the regions where the Company operates. The above
may cause significant variations in quarterly operating results. See "-- Natural
Disasters; Uninsured Loss" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
NATURAL DISASTERS; UNINSURED LOSS
There are certain types of losses (such as losses arising from floods and
acts of war) that are not generally insured because they are either uninsurable
or not economically insurable and for which neither the Company nor the Clubs,
nor the Master Club has insurance coverage. Should an uninsured loss or a loss
in excess of insured limits occur, the Company could lose its capital invested
in a resort, as well as the anticipated future revenues from such resort and
would continue to be obligated on any mortgage indebtedness or other obligations
related to the property. Any such loss could have a material adverse effect on
the Company's results of operations, liquidity, and financial position. See
"Business -- Insurance".
ACCELERATION OF DEFERRED TAXES
While the Company reports sales of Vacation Intervals as income currently
for financial reporting purposes (see Note 2 of Notes to Consolidated Financial
Statements), for regular federal income tax purposes the Company reports
substantially all Vacation Interval sales on the installment method. Under the
installment method, the Company recognizes income for tax on the sale of the
Vacation Interval when cash is received in the form of a down payment and as
payments on customer loans are received. The Company's December 31, 1997
liability for deferred taxes (i.e., taxes owed to taxing authorities in the
future in consequence of income previously reported in the financial statements)
was $30.2 million, primarily attributable to this method of reporting Vacation
Interval sales, before utilization of any available deferred tax benefits (up to
$16.2 million at December 31, 1997), including net operating loss carryforwards.
See Note 6 of Notes to Consolidated Financial Statements. This
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amount does not include accrued interest on such deferred taxes which also will
be payable when the taxes are due, the amount of which is not now reasonably
ascertainable. If the Company should sell the installment notes or be required
to factor them or if the notes were foreclosed on by a lender of the Company or
otherwise disposed of, the deferred gain would be reportable for tax and the
deferred taxes, including interest on the taxes for the period the taxes were
deferred, as computed under Section 453 of the Internal Revenue Code of 1986, as
amended (the "Code"), would become due. There can be no assurance that the
Company would have sufficient cash resources to pay those taxes and interest.
Furthermore, if the Company's sales of Vacation Intervals should decrease in the
future, the Company's diminished operations may not generate either sufficient
tax losses to offset taxable income or funds to pay the deferred tax liability
from prior periods. See "-- Limitations on Use of Carryovers from Ownership
Change".
ALTERNATIVE MINIMUM TAXES
Prior to 1997 the Company used the installment method for the calculation
of adjusted current earnings for federal alternative minimum tax purposes,
although the accrual method is required under the Code. During 1997, the Company
submitted a request to the Internal Revenue Service for permission to change to
the accrual method for this computation. In January 1998, the Company received a
proposed ruling from the Internal Revenue Service granting the request effective
January 1, 1997. The Company plans to file a request with the Internal Revenue
Service to modify the proposed ruling to correct the amount of the proposed
accounting adjustment and to make the ruling effective January 1, 1998. The
Company believes the Internal Revenue Service will approve the correction of the
amount of the proposed accounting adjustment, but may refuse to change the
effective date of the ruling. If the Internal Revenue Service refuses to change
the effective date, estimated taxes of $1.5 million, which are included as
current liabilities on the Company's December 31, 1997 balance sheet, plus
interest and any applicable penalties, will be payable in 1998, and the
Company's alternative minimum taxable income for 1998 through 2000 will be
increased each year by an estimated amount of approximately $9.6 million per
year for the pre-1997 adjustment, which will result in the Company paying
substantial additional federal and state taxes in those years. If the Internal
Revenue Service agrees to change the effective date, then the preceding effects
of the accounting method change will be delayed by one year. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
LIMITATIONS ON USE OF CARRYOVERS FROM OWNERSHIP CHANGE
The Company estimates that it had net operating loss carryforwards of
approximately $39.2 million at December 31, 1997, for regular federal income tax
purposes related primarily to the deferral of installment sale gains. In
addition to the general limitations on the carryback and carryforward of net
operating losses under Section 172 of the Code, Section 382 of the Code imposes
additional limitations on the utilization of a net operating loss by a
corporation following various types of ownership changes which result in more
than a 50 percentage point change in ownership of a corporation within a three
year period. Mr. Mead owned 100% of the stock of the Company until December 29,
1995, at which time his ownership decreased to approximately 99% and Ms.
Brayfield acquired 1%. As a result of the IPO in June 1997, Mr. Mead's ownership
of the Company further decreased to approximately 67%. After the closing of the
Equity Offering and taking into account shares owned by his family, Mr. Mead
will own between 50.7% and 53.5% of the outstanding shares of Common Stock of
the Company, depending on the extent, if any, to which the underwriters exercise
their over-allotment option in the Equity Offering. Concurrently with this
offering or in the future, Mr. Mead, his family, or Ms. Brayfield, could
transfer their shares and/or the Company could issue additional shares,
including shares which it is required to issue under its 1997 Stock Option Plan,
which could result in more than a 50 percentage point change in ownership of the
Company. If such a change occurs within a three year period, the limitations of
Section 382 would apply. Although the Company does not believe that those
limitations would currently adversely affect the Company, there can be no
assurance that the limitations will not limit or deny the future utilization of
the net operating loss by the Company, resulting in the Company paying
substantial additional federal and state taxes and interest for any periods
following such change in ownership. See "-- Acceleration of Deferred Taxes".
When such a change in ownership occurs, Section 383 of the Code also limits or
denies the future utilization of certain carryover excess credits, including any
unused minimum tax credit attributable to payment of alternative minimum taxes.
Although the Company does not believe that these additional limitations would
currently
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adversely affect the Company, there can be no assurance that these additional
limitations will not limit or deny the future utilization of any excess tax
credits of the Company, resulting in the Company paying substantial additional
federal and state taxes and interest for any periods following such change in
ownership. See "--Alternative Minimum Taxes".
TAX RE-CLASSIFICATION OF INDEPENDENT CONTRACTORS AND RESULTING TAX LIABILITY
Although all on-site sales personnel are treated as employees of the
Company for payroll tax purposes, the Company does have independent contractor
agreements with certain sales, marketing, and architectural persons or entities.
The Company has not treated these independent contractors as employees;
accordingly, the Company does not withhold payroll taxes from the amounts paid
to such persons or entities. In the event the Internal Revenue Service or any
state or local taxing authority were to successfully classify such persons or
entities as employees of the Company, rather than as independent contractors,
and hold the Company liable for back payroll taxes, such action may have a
material adverse effect on the Company's results of operations, liquidity, and
financial position.
VOTING CONTROL BY EXISTING SHAREHOLDER
After the closing of the Equity Offering, Mr. Mead will own between 50.7%
and 53.5% of the outstanding shares of Common Stock of the Company, depending on
the extent, if any, to which the underwriters exercise their over-allotment
option. By holding a majority of shares of Common Stock, Mr. Mead can elect all
of the Company's directors and control the management and affairs of the
Company. See "Principal Shareholders". Such control may result in decisions
which are not in the best interests of the Company.
REPAYMENT OF INDEBTEDNESS OWED TO AFFILIATE OF UNDERWRITER
Credit Suisse First Boston Mortgage Capital, L.L.C., an affiliate of Credit
Suisse First Boston Corporation, the lead managing underwriter for the Equity
Offering and Note Offering, will receive approximately $13.0 million of the net
proceeds of the Equity Offering and Note Offering as repayment of indebtedness
and related interest expected to be outstanding upon consummation of the Equity
Offering. See "Underwriting".
YEAR 2000 COMPLIANCE
Because of two-digit year formats, computer systems may not properly
categorize and process date information for the year 2000 and subsequent years.
Systems that do not properly classify dates could generate erroneous data or
cause a system to fail. The Company is in the process of implementing an upgrade
to its accounting systems that the Company believes will be year 2000 compliant.
The Company continues to update its other computer systems to prepare for the
year 2000. Management anticipates that it will incur $250,000 of expenses to be
year 2000 compliant. However, significant uncertainty exists concerning the
potential costs and effects associated with any year 2000 compliance. Any year
2000 compliance problem could materially adversely affect the Company's results
of operations, liquidity, and financial position.
ABSENCE OF A PUBLIC MARKET
There is no existing trading market for the Notes and there can be no
assurance as to the liquidity of any markets that may develop for the Notes, the
ability of holders of the Notes to sell their Notes, or the prices at which
holders would be able to sell their Notes. Future trading prices of the Notes
will depend on many factors, including, among other things, prevailing interest
rates, the Company's operating results and the market for similar securities.
Credit Suisse First Boston Corporation has advised the Company that it currently
intends to make a market in the Notes offered hereby. However, Credit Suisse
First Boston Corporation is not obligated to do so and any market making may be
discontinued at any time without notice. The Company does not intend to apply
for listing or quotation of the Notes on any securities exchange or stock
market. Historically, the market for non-investment grade debt has been subject
to disruptions that have caused substantial volatility in the prices of
securities and greatly reduced liquidity. There can be no assurance that any
market for the Notes will not be subject to similar disruptions.
32
<PAGE> 35
SOURCES AND USES OF PROCEEDS
The net proceeds from the Note Offering are estimated to be $72.1 million.
The net proceeds from the Equity Offering are estimated to be $49.3 million. The
following table sets forth the estimated sources and uses of funds at December
31, 1997:
<TABLE>
<CAPTION>
AMOUNT
-------------
(DOLLARS IN
MILLIONS)
<S> <C>
Sources of Funds:
Senior Subordinated Notes due
2008........................ $ 75.0
Common Stock(a)................ 53.5
------
Total sources.................... $128.5
======
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
-------------
(DOLLARS IN
MILLIONS)
<S> <C>
Uses of Funds:
Pay existing debt(b)(c)(d)..... $ 48.9
Develop units, amenities, and
infrastructure at Existing
Resorts(e).................. 32.0
Develop units, amenities, and
infrastructure at New
Resorts(e).................. 6.0
Acquisitions, working capital
and general corporate
purposes(b)(e).............. 34.5
Fees, expenses, and other
costs....................... 7.1
------
Total uses....................... $128.5
======
</TABLE>
- ---------------
(a) The Company is offering 2,000,000 primary shares of Common Stock in the
Equity Offering. The assumed offering price of $26.75 was the closing price
of Silverleaf's Common Stock on February 27, 1998. The Company will not
receive any of the proceeds from the sale of the shares of Common Stock
offered by Silverleaf's Chief Executive Officer, Robert E. Mead.
(b) Indebtedness is projected to increase from $48.9 million at December 31,
1997, to approximately $68.6 million at the closing of the Equity Offering
and the Note Offering, substantially all of which will be paid from the
proceeds of the Equity Offering and the Note Offering. As a result, cash
available at closing for acquisitions, working capital, and general
corporate purposes will be reduced to approximately $14.8 million.
Additionally, after repayment of existing indebtedness, there will be $125.0
million of borrowing capacity available under the Company's credit
facilities. See "Description of Certain Indebtedness".
(c) This includes $5.6 million owing to Credit Suisse First Boston Mortgage
Capital, L.L.C., an affiliate of Credit Suisse First Boston Corporation, the
lead managing underwriter for the Equity Offering and the Note Offering.
This indebtedness is projected to increase to $13.0 million by the closing
of the Equity Offering and the Note Offering. See "Underwriting".
(d) At December 31, 1997, indebtedness to be repaid from the net proceeds of the
Equity Offering and Note Offering bears interest at variable rates currently
ranging from 4.2% to 14.0% per annum and matures between January 1998 and
October 2005. See "Description of Certain Indebtedness". Indebtedness is
projected to increase from $48.9 million to approximately $68.6 million at
the closing of the Equity Offering and the Note Offering. Approximately
$58.0 million of this indebtedness will have been incurred within one year
prior to the date of this Prospectus. Of this indebtedness, $2.9 million was
incurred to purchase the Fox River and Timber Creek resorts in St. Louis and
Chicago, respectively, $2.7 million was incurred to purchase the New Resort
in Las Vegas, $1.7 million was incurred to purchase the New Resort in
Galveston, $5.1 million was incurred to purchase the Oak 'N Spruce Resort in
the Berkshires, $2.9 million was incurred for capital leases of equipment,
and the balance was used for working capital and general corporate purposes.
(e) The Company currently anticipates investing these proceeds during 1998.
Pending the final application of these proceeds, the Company will invest
these proceeds in commercial paper, bankers' acceptances, other short-term
investment-grade securities, or money-market accounts, and may utilize the
proceeds for working capital purposes.
33
<PAGE> 36
CAPITALIZATION
The following table sets forth the consolidated cash and equivalents and
consolidated capitalization of the Company at December 31, 1997, on a historical
basis, and as adjusted for the Note Offering and the Equity Offering, and in
each case, the anticipated application of the aggregate net proceeds therefrom.
Consummation of the Note Offering is conditioned upon the Equity Offering. This
table should be read in conjunction with "Sources and Uses of Proceeds", the
Consolidated Financial Statements and Notes thereto, "Selected Consolidated
Historical Financial and Operating Information" and Notes thereto, "Unaudited
Pro Forma Condensed Consolidated Financial Information" and Notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and equivalents(a)..................................... $ 4,970 $ 77,499
======== ========
Debt:
Credit facilities and other notes payable(a).............. $ 46,239 $ --
Capital lease obligations................................. 2,632 --
Senior Subordinated Notes due 2008........................ -- 75,000
-------- --------
Total indebtedness........................................ 48,871 75,000
-------- --------
Shareholders' equity:
Common Stock, $0.01 par value; 11,311,517 shares issued
and outstanding, 13,311,517 shares as adjusted for the
Equity Offering(b)..................................... 113 133
Additional paid-in capital................................ 64,577 113,857
Retained earnings......................................... 19,075 19,075
-------- --------
Total shareholders' equity................................ 83,765 133,065
-------- --------
Total capitalization.............................. $132,636 $208,065
======== ========
</TABLE>
- ---------------
(a) Indebtedness is projected to increase from $48.9 million at December 31,
1997 to approximately $68.6 million at the closing of the Equity Offering
and Note Offering, substantially all of which will be paid from the
proceeds of the Equity Offering and Note Offering. Accordingly, at the
closing of the Note Offering and the Equity Offering, cash and equivalents
would be $57.8 million and indebtedness would be $75.0 million. After
repayment of the indebtedness under certain credit facilities, there will
be $125.0 million of borrowing capacity available under such facilities.
(b) Does not include an aggregate 1,100,000 shares of Common Stock currently
reserved for issuance pursuant to the Company's 1997 Stock Option Plan. In
February 1998, the Board of Directors approved an amendment to the plan
reserving an additional 500,000 shares of Common Stock for issuance under
the plan; however, this amendment will not become effective unless it is
approved by the shareholders. See "Management -- 1997 Stock Option Plan".
34
<PAGE> 37
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Consolidated Statement of
Income presents results of operations of the Company assuming the IPO, the
Equity Offering and the Note Offering occurred at the beginning of the period.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet presents the
financial position of the Company assuming the Equity Offering and the Note
Offering occurred on December 31, 1997. Adjustments necessary to reflect these
assumptions are presented in the Adjustments column and are further described in
the Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
During June 1997, the Company completed the IPO in which 3,600,000 primary
shares of Common Stock were sold at a price of $16 per share. The net proceeds,
after the deduction of the related issuance costs, amounted to approximately
$51.1 million and were used primarily to reduce indebtedness. The historical
financial information for the Company is derived from the consolidated financial
statements of the Company for the year ended December 31, 1997 which have been
audited by Deloitte & Touche LLP and are included elsewhere herein.
Consummation of the Note Offering is conditioned upon the consummation of
the Equity Offering, but the Equity Offering is not conditioned upon the
consummation of the Note Offering.
The pro forma financial information does not purport to present the actual
financial position or results of operations of the Company had the IPO, the
Equity Offering, the Note Offering and events associated therewith occurred on
the dates specified, nor are they necessarily indicative of the Company's future
results of operations or financial position. The pro forma financial information
is based on certain assumptions and adjustments described in the Notes and
should be read in conjunction therewith and with "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" and the audited
historical Consolidated Financial Statements and related Notes. The adjustments
are based upon preliminary estimates and certain assumptions that management of
the Company believes are reasonable in the circumstances. Final amounts could
differ from those set forth below. In the opinion of management, all adjustments
have been made that are necessary to present fairly the pro forma financial
information.
35
<PAGE> 38
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------------------------------------
PRO FORMA
FOR IPO,
EQUITY OFFERING
AND
HISTORICAL(A) ADJUSTMENTS NOTE OFFERING
------------- ----------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Vacation Interval sales................................... $ 68,682 $ $ 68,682
Interest income........................................... 9,396 (172)(b) 9,224
Other income.............................................. 6,980 6,980
---------- ------- -----------
Total revenues.................................... 85,058 (172) 84,886
---------- ------- -----------
Costs and Operating Expenses:
Cost of Vacation Interval sales........................... 6,600 (125)(c) 6,600
125(d)
Sales and marketing....................................... 30,559 30,559
Provision for uncollectible notes......................... 10,524 10,524
Operating, general and administrative..................... 12,230 188(e) 12,418
Depreciation and amortization............................. 1,497 1,497
Interest expense.......................................... 4,664 (4,664)(c) 6,686
6,686(d)
---------- ------- -----------
Total costs and operating expenses................ 66,074 2,210 68,284
---------- ------- -----------
Income from continuing operations before income taxes....... 18,984 (2,382) 16,602
Income tax expense.......................................... 7,024 (881)(f) 6,143
---------- ------- -----------
Income from continuing operations........................... $ 11,960 $(1,501) $ 10,459
========== ======= ===========
Income per share from continuing operations -- Basic........ $ 1.22 $ 0.87
========== ===========
Income per share from continuing operations -- Diluted...... $ 1.22 $ 0.87
========== ===========
Weighted average number of shares Outstanding -- Basic(g)... 9,767,407 12,029,918
========== ===========
Weighted average number of shares
Outstanding -- Diluted(g)................................. 9,816,819 12,079,330
========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
36
<PAGE> 39
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------
PRO FORMA
FOR
EQUITY
OFFERING
AND
HISTORICAL(h) ADJUSTMENTS NOTE OFFERING
------------- ----------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
ASSETS
Cash and equivalents........................................ $ 4,970 $ 429(i) $ 77,499
72,100(j)
Restricted cash............................................. 200 200
Notes receivable, net....................................... 92,036 92,036
Amounts due from affiliates................................. 1,389 1,389
Inventory................................................... 28,310 28,310
Land, equipment and utilities, net.......................... 21,629 21,629
Land held for sale.......................................... 466 466
Prepaid and other assets.................................... 7,401 2,900(j) 10,301
-------- --------- --------
Total Assets...................................... $156,401 $ 75,429 $231,830
======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses..................... $ 5,106 $ 5,106
Amounts due to affiliates................................. -- --
Unearned revenues......................................... 3,122 3,122
Income taxes payable...................................... 1,500 1,500
Deferred income taxes, net................................ 14,037 14,037
Notes payable and capital lease
obligations............................................ 48,871 (48,871)(i)
Senior Subordinated Notes due 2008........................ -- 75,000(j) 75,000
-------- --------- --------
Total Liabilities................................. 72,636 26,129 98,765
Shareholders' Equity:
Common stock, par value $0.01 per share................... 113 20(i) 133
Additional paid-in capital................................ 64,577 49,280(i) 113,857
Retained earnings......................................... 19,075 19,075
-------- --------- --------
Total Shareholders' Equity........................ 83,765 49,300 133,065
-------- --------- --------
Total Liabilities and Shareholders' Equity........ $156,401 $ 75,429 $231,830
======== ========= ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
37
<PAGE> 40
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Statement of Income Adjustments
(a) Represents the historical condensed consolidated statement of income of the
Company for 1997.
(b) Represents a reduction of interest income from affiliates (the Company used
IPO proceeds to repay indebtedness to affiliates, and affiliates used such
amounts to repay indebtedness to the Company). Additionally, does not
include interest income to the Company which would normally accrue to the
Company on cash balances resulting from the IPO, the Equity Offering and the
Note Offering.
(c) Represents the reduction of interest expense and capitalized interest
charged to cost of Vacation Interval sales as a result of the application of
the proceeds of the IPO, the Equity Offering and the Note Offering to the
repayment of indebtedness.
(d) Represents pro forma interest expense from the Note Offering, assuming an
interest rate of 9.625%, plus $290,000 associated with amortization of
capitalized Note Offering costs, less $823,000 of assumed capitalized
interest, and also represents capitalized interest charged to cost of
Vacation Interval sales.
(e) Represents additional costs incurred as a public company as a result of the
IPO.
(f) Represents the adjustment to income tax resulting from the above
adjustments.
(g) Gives retroactive pro forma effect to a 719.97205 for one stock split in May
1997 (the "Stock Split") and increase in the number of shares outstanding to
13,311,517 shares of Common Stock. As required by Staff Accounting Bulletin
No. 55, the weighted average number of shares outstanding utilized in the
pro forma earnings per share computations assumes (i) the historical shares
as adjusted for the Stock Split were outstanding for all periods presented,
and (ii) an additional number of shares were outstanding only in an amount
sufficient to retire the outstanding debt balances during the period
presented. The difference between pro forma weighted average number of
shares-basic and pro forma weighted average number of shares-diluted
represents the increase in the number of shares resulting from the assumed
exercise of stock options outstanding.
Balance Sheet Adjustments
(h) Represents the historical condensed consolidated balance sheet of the
Company as of December 31, 1997.
(i) Represents the proceeds of the Equity Offering, the repayment of
indebtedness, and the related adjustments to equity with the net proceeds
thereof.
(j) Represents the proceeds from the issuance of $75.0 million of Senior
Subordinated Notes, less offering expenses of $2.9 million.
38
<PAGE> 41
SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING INFORMATION
The selected consolidated historical financial and operating information
set forth below has been derived from the consolidated financial statements of
the Company which have been restated giving effect to the Consolidation
Transactions utilizing the historical cost basis of the combined entities since
these entities were under common ownership and control. The consolidated
financial statements of the Company for 1995, 1996 and 1997 included herein were
audited by Deloitte & Touche LLP. The data presented as of and for the year
ended December 31, 1994 has been derived from the Company's audited consolidated
financial statements which have not been included herein. Data presented as of
and for the year ended December 31, 1993 has been derived from the Company's
unaudited consolidated financial statements which in the opinion of management
of the Company reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial position at such
dates and results of operations for such periods.
During 1997, the Company began classifying the components of the previously
reported provision for uncollectible notes into three categories based on the
nature of the item -- credit losses, customer returns and customer releases. The
Company has reclassified these amounts within the previously reported financial
statements to conform to the classification for the year ended December 31,
1997. This reclassification has no balance sheet effect and has no effect on
previously reported net income. See Note 2 of Notes to Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview".
The Selected Consolidated Historical Financial and Operating Information
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
39
<PAGE> 42
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Vacation Interval sales................................. $ 18,627 $ 24,551 $ 34,091 $ 45,907 $ 68,682
Other income............................................ 7,188 7,348 9,981 12,018 16,376
--------- --------- --------- --------- ---------
Total revenues..................................... 25,815 31,899 44,072 57,925 85,058
Costs and Operating Expenses:
Cost of Vacation Interval sales......................... 2,094 2,648 3,280 2,805 6,600
Sales and marketing..................................... 10,219 12,929 17,850 21,839 30,559
Provisions for uncollectible notes...................... 1,877 4,205 6,632 8,733 10,524
Operating, general and administrative................... 6,501 5,853 8,780 10,116 12,230
Depreciation and amortization........................... 477 590 863 1,264 1,497
Interest expense........................................ 1,426 1,642 3,609 4,759 4,664
--------- --------- --------- --------- ---------
Total costs and operating expenses................. 22,594 27,867 41,014 49,516 66,074
--------- --------- --------- --------- ---------
Income from continuing operations before income taxes..... 3,221 4,032 3,058 8,409 18,984
Income tax expense........................................ 1,376 1,677 1,512 3,140 7,024
--------- --------- --------- --------- ---------
Income from continuing operations......................... 1,845 2,355 1,546 5,269 11,960
Income (loss) on discontinued operations.................. (286) 568 (1,484) (295) --
--------- --------- --------- --------- ---------
Net income................................................ $ 1,559 $ 2,923 $ 62 $ 4,974 $ 11,960
========= ========= ========= ========= =========
Income per share from continuing operations -- Basic and
Diluted(a)................................................ $ 0.24 $ 0.31 $ 0.20 $ 0.68 $ 1.22
========= ========= ========= ========= =========
Net income per share -- Basic and Diluted................... $ 0.21 $ 0.39 $ 0.01 $ 0.64 $ 1.22
========= ========= ========= ========= =========
Weighted average number of shares outstanding --Basic(b).... 7,588,952 7,588,952 7,590,295 7,711,517 9,767,407
========= ========= ========= ========= =========
Weighted average number of shares
outstanding -- Diluted(b)................................. 7,588,952 7,588,952 7,590,295 7,711,517 9,816,819
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE PRICE
OF VACATION INTERVALS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(c)................................................. $ 5,124 $ 6,264 $ 7,530 $ 14,432 $ 25,145
Cash flows provided by (used in):
Operating activities.................................... $ 5,711 $ 2,496 $ 3,713 $ 6,375 $ (3,392)
Investing activities.................................... (6,121) (12,189) (19,604) (23,996) (39,461)
Financing activities.................................... 378 10,424 18,674 14,882 46,850
Capital expenditures...................................... $ 2,986 $ 1,701 $ 4,497 $ 4,162 $ 8,692
Ratio of earnings to fixed charges(f)..................... 3.2x 3.4x 1.6x 2.5x 4.3x
OTHER OPERATING DATA:
Number of Existing Resorts at period end.................. 7 7 7 7 10
Number of Vacation Intervals sold (excluding
upgrades)(d)............................................ 2,386 3,423 4,464 5,634 6,592
Number of upgraded Vacation Intervals sold................ 1,378 1,290 1,921 1,914 3,908
Number of Vacation Intervals in inventory................. 5,615 5,943 6,580 6,746 10,930
Average price of Vacation Intervals sold (excluding
upgrades)(d)(e)......................................... $ 5,599 $ 5,821 $ 5,965 $ 6,751 $ 7,854
Average price of upgraded Vacation Intervals sold (net of
exchanged interval)..................................... $ 3,822 $ 3,585 $ 3,885 $ 4,113 $ 4,326
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents...................................... $ 197 $ 929 $ 3,712 $ 973 $ 4,970
Amounts due from affiliates............................... 2,391 4,559 4,342 6,237 1,389
Total assets.............................................. 25,301 39,463 62,687 90,852 156,401
Amounts due to affiliates................................. 8,704 14,613 14,263 14,765 --
Notes payable and capital lease obligations............... 2,741 6,061 23,363 41,986 48,871
Total liabilities......................................... 18,063 29,347 46,999 70,190 72,636
Shareholders' equity...................................... 7,238 10,116 15,688 20,662 83,765
</TABLE>
- ---------------
(a) Earnings per share amounts are based on the weighted average number of
shares outstanding.
(b) Gives retroactive effect to the Stock Split.
(c) EBITDA represents income from continuing operations before interest
expense, income taxes and depreciation and amortization. EBITDA is
presented because it is a widely accepted indicator of a company's
financial performance. However, EBITDA should not be construed as an
alternative to net income as a measure of the Company's operating results
or to cash flows from operating activities (determined in accordance with
generally accepted accounting principles) as a measure of liquidity. Since
revenues from Vacation Interval sales include promissory notes received by
the Company, EBITDA does not reflect cash flow available to the Company.
Additionally, due to varying methods of reporting EBITDA within the
timeshare industry, the computation of EBITDA for the Company may not be
comparable to other companies in the timeshare industry which compute
EBITDA in a different manner. The Company's management interprets trends in
EBITDA to be an indicator of the Company's financial performance, in
addition to net income and cash flows from operating activities (determined
in accordance with generally accepted accounting principles). The following
table reconciles EBITDA to income from continuing operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income, from continuing operations.................... $1,845 $2,355 $1,546 $ 5,269 $11,960
Interest expense...................................... 1,426 1,642 3,609 4,759 4,664
Income tax expense.................................... 1,376 1,677 1,512 3,140 7,024
Depreciation and amortization......................... 477 590 863 1,264 1,497
------ ------ ------ ------- -------
EBITDA from continuing operations..................... $5,124 $6,264 $7,530 $14,432 $25,145
====== ====== ====== ======= =======
</TABLE>
(d) The Vacation Intervals sold during the year ended December 31, 1997 include
1,517 biennial intervals (counted as 759 annual Vacation Intervals). The
Company did not begin selling biennial intervals until January 1997.
(e) Includes annual and biennial Vacation Interval sales for one and two
bedroom units.
(f) For purposes of determining the ratio of earnings to fixed charges,
earnings is defined as income from continuing operations before provision
for income taxes, plus interest on indebtedness, imputed interest on the
portion of rent expense (one-third) deemed to represent interest expense,
and amortization of previously capitalized interest. Fixed charges consist
of interest on indebtedness whether expensed or capitalized, imputed
interest on the portion of rent expense (one-third) deemed to represent
interest expense, amortization of debt expense, and discount or premium
relating to any indebtedness whether expensed or capitalized. For
information concerning the ratio of earnings to fixed charges adjusted for
the Pro Forma Adjustments, see "Summary Consolidated Historical Financial,
Operating and Pro Forma Information" and Notes thereto.
41
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Consolidated Historical Financial and Operating Information" and Notes thereto,
"Unaudited Pro Forma Condensed Consolidated Financial Information" and Notes
thereto, and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus.
OVERVIEW
Silverleaf Resorts, Inc. was formed in 1989 to acquire seven of the
Existing Resorts. Certain additional assets and liabilities were subsequently
acquired from the Affiliated Companies in 1995 pursuant to the Consolidation
Transactions. See "Summary -- Corporate Background", "Certain Relationships and
Related Transactions", and Notes 1 and 10 of Notes to Consolidated Financial
Statements. The Consolidated Financial Statements of the Company include the
accounts of Silverleaf Resorts, Inc. and its subsidiaries, all of which are
wholly-owned. One such subsidiary, CBI, is treated as a discontinued operation.
See Note 12 of Notes to Consolidated Financial Statements. The historical
consolidated financial statements have been restated utilizing the historical
cost basis of the Affiliated Companies since these entities were under common
ownership and control.
The Company generates revenues primarily from the sale and financing of
Vacation Intervals, including upgraded intervals. Additional revenues are
generated from management fees from the Master Club, lease income from Sampler
sales, and utility operations. The Company recognizes management fee income as
the lesser of 15% of revenue or 100% of net income of the Master Club; however,
if the Company does not receive 15% of the Master Club's gross revenues, such
deficiency is deferred for payment in succeeding years, subject again to the net
income limitation. See "Business -- Clubs/Master Club".
The Company recognizes Vacation Interval sales revenues on the accrual
basis. A sale is recognized 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 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. If a customer fails to make the
first installment payment, the Company reverses the sale and normally retains
any payments received. During 1997, approximately 3% of the Company's customers
failed to make the first installment payment. For further information concerning
accounting for Vacation Interval sales and accounting policies generally, see
Note 2 of Notes to Consolidated Financial Statements.
The Company accounts for uncollectible notes by recording a provision to
its allowance for uncollectible notes at the time revenue is recognized. During
1997 the Company began classifying the components of the previously reported
provision for uncollectible notes into the following three categories based on
the nature of the item -- credit losses, customer returns and customer releases
(customer releases represent voluntary cancellations of properly recorded sales
transactions which in the opinion of management are consistent with the
maintenance of overall customer goodwill). Provision pertaining to credit
losses, customer returns and customer releases are classified in provision for
uncollectible notes, Vacation Interval sales, and operating, general and
administrative, respectively. The Company has reclassified these amounts within
the previously reported financial statements to conform to the classification
for the year ended December 31, 1997. This reclassification has no balance sheet
effect and has no effect on previously reported net income. See Note 2 of Notes
to Consolidated Financial Statements. The Company sets the provision for
uncollectible notes at an amount sufficient to maintain the Allowance at a level
which management considers adequate to provide for anticipated losses from
customers' failure to fulfill their obligations under the notes. When inventory
is returned to the Company, any unpaid notes receivable balances are charged
against the previously established bad debt reserves net of the amount at which
the Vacation Interval is restored to inventory, which is the lower of the
historical cost basis or market value of the Vacation Interval.
42
<PAGE> 45
Costs associated with the acquisition and development of resorts and the
marketing and sale of Vacation Intervals (including land, construction costs,
furniture, interest, and taxes) are capitalized and included in inventory.
Vacation Interval inventory is segregated into three ratings based on customer
demand (see "Business -- Participation in Vacation Interval Exchange Networks"),
with greater costs apportioned to higher value ratings. As Vacation Intervals
are sold, these costs are deducted from inventory on a specific identification
basis.
Vacation Intervals may be reacquired as a result of (i) foreclosure (or
deed in lieu of foreclosure); (ii) trade-in associated with the purchase of an
upgraded Vacation Interval; or (iii) the Company's ongoing program to reacquire
Vacation Intervals owned but not actively used by Silverleaf Owners. Vacation
Intervals reacquired are recorded in inventory at the lower of their original
cost or market value. Vacation Intervals which have been reacquired are relieved
from inventory on a specific identification basis when resold. Inventory
obtained through the Consolidation Transactions and acquired through the
Company's program to reacquire Vacation Intervals owned but not actively used by
Silverleaf Owners has a significantly lower average cost basis than recently
constructed inventory, contributing significantly to historical operating
margins. New inventory added through the Company's construction and acquisition
programs has a higher average cost than the Company's inventory in prior years.
Accordingly, cost of goods sold has increased and will continue to increase as
sales of new inventory increase.
The Company recognizes interest income as earned. To the extent interest
payments become delinquent the Company ceases recognition of the interest income
until collection is probable.
The Company estimates that it will incur expenses of approximately $250,000
in 1998 and 1999 to make its computer systems "year 2000" compliant. See "Risk
Factors -- Year 2000 Compliance".
RESULTS OF OPERATIONS
The following table sets forth certain operating information for the
Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
As a percentage of Total Revenues:
Vacation Interval sales................................... 77.4% 79.3% 80.7%
Interest income........................................... 9.9 11.5 11.1
Management fee income..................................... 5.6 3.8 2.7
Lease income.............................................. 3.0 3.0 1.7
Other income.............................................. 4.1 2.4 3.8
----- ----- -----
Total Revenues.................................... 100.0% 100.0% 100.0%
As a percentage of gross Vacation Interval sales:
Provision for uncollectible notes......................... 19.5% 19.0% 15.3%
Cost of Vacation Interval sales........................... 9.6 6.1 9.6
Sales and marketing....................................... 52.4 47.6 44.5
As a percentage of Interest Income:
Interest expense.......................................... 82.8% 71.3% 49.6%
As a percentage of Total Revenues:
Operating, general and administrative..................... 19.9% 17.5% 14.4%
Depreciation and amortization............................. 2.0 2.2 1.8
Total costs and operating expenses........................ 93.1 85.5 77.7
</TABLE>
1997 VERSUS 1996. Revenues in 1997 were $85.1 million, representing a $27.1
million or 46.8% increase over revenues of $57.9 million for the year ended
December 31, 1996. The increase was primarily due to a $22.8 million increase in
sales of Vacation Intervals, a $2.7 million increase in interest income, and a
$1.8 million increase in other income. The strong increase in Vacation Interval
revenues resulted from sales of more Vacation Intervals at a higher average
price, driven by increased telemarketing capacity, increased sales force,
enhanced lead generation methods, and improved techniques of marketing upgraded
Vacation Intervals.
43
<PAGE> 46
In 1997, the number of Vacation Intervals sold, exclusive of upgraded
Vacation Intervals, increased 17% to 6,592 from 5,634 in 1996; the average price
per interval increased 16.3% to $7,854 from $6,751. Total interval sales for
1997 included 1,517 biennial intervals (counted as 759 Vacation Intervals)
compared to none in 1996. The increase in average price per interval resulted
from the Company's increased sales of higher priced, high-season intervals and
biennial intervals (whose sales price is more than half of an annual interval).
In addition, the Company has increased revenues generated from sales of upgraded
intervals at the Existing Resorts through the continued implementation of
marketing and sales programs focused on selling upgraded intervals to Silverleaf
Owners.
Interest income increased 40.8% to $9.4 million for the year ended December
31, 1997 from $6.7 million for the same period of 1996. This increase resulted
from a $36.2 million increase in notes receivable, net of allowance for
uncollectible notes, due to increased sales.
Management fee income increased 6.6% to $2.3 million for 1997 from $2.2
million for 1996. The increase in management fee income was primarily the result
of greater Master Club net income due to higher dues income from an increased
membership base.
Lease income, which relates to the Company's Sampler program, decreased to
$1.4 million for 1997 compared to $1.7 million for 1996. The decrease resulted
from the Company's marketing of lower cost biennial intervals as an alternative
to the Sampler program.
Other income increased 124.6% to $3.2 million for the year ended December
31, 1997 from $1.4 million for the year ended December 31, 1996. This increase
was due primarily to usage fees from the Company's new golf course at Holiday
Hills and higher water and sewer income due to the addition of two new utility
operations. Additionally, the Company recovered $219,000 from a lawsuit.
Cost of sales as a percentage of gross Vacation Interval sales increased to
9.6% in 1997 from 6.1% in 1996. Cost of sales for 1996 was lower primarily as a
result of the sale of low cost inventory acquired by the Company in 1995 and
1996 through its program to reacquire Vacation Intervals owned but not actively
used by Silverleaf owners. The number of intervals acquired from Silverleaf
owners in 1997 was 559 as compared to approximately 1,700 in 1996. Additionally,
the Company continues to deplete its inventory of low cost intervals. As a
result of these factors and the Company's construction program to build new
inventory, the cost of sales percentage has increased and will continue to
increase.
Sales and marketing costs as a percentage of gross Vacation Interval sales
declined to 44.5% for the year ended December 31, 1997 from 47.6% for the same
period of 1996. This decline is due mainly to efficiencies in the telemarketing
and sales functions and economies of scale and increased sales of upgraded
intervals.
The provision for uncollectible notes as a percentage of Vacation Interval
sales decreased to 15.3% for 1997 from 19.0% for 1996, reflecting an increased
focus on collection efforts for notes receivable. The improvement can also be
attributed to an increase in receivables relating to upgrade sales which
typically represent better performing accounts, resulting in fewer
delinquencies.
Operating, general and administrative expenses as a percentage of total
revenues declined to 14.4% during 1997 from 17.5% in 1996. The decrease was due
to efficiencies realized from higher sales volume. Overall, operating, general
and administrative expenses increased $2.1 million in 1997 as compared to the
prior year, primarily due to an increase in corporate salaries and additional
costs incurred as a public company.
In 1997, depreciation and amortization expense as a percentage of total
revenue declined to 1.8% from 2.2% in 1996. Overall, depreciation and
amortization expense increased $233,000 from 1996, primarily due to investments
in a new automated dialer, telephone system, and central marketing facility.
Interest expense as a percentage of interest income decreased to 49.6% for
the year ended December 31, 1997 from 71.3% for the same period of 1996. This
decrease was due to lower borrowing costs during the second half of 1997, mostly
as a result of payment of indebtedness with proceeds of the IPO in June 1997.
44
<PAGE> 47
Income from continuing operations before income taxes increased 125.8% to
$19.0 million for the year ended December 31, 1997 from $8.4 million for the
year ended December 31, 1996 as a result of the above mentioned operating
results.
Income tax expense as a percentage of income from continuing operations
before income taxes remained relatively unchanged at 37.0% in 1997 versus 37.3%
in 1996.
1996 VERSUS 1995. Revenues in 1996 were $57.9 million, representing a $13.8
million or 31.4% increase over revenues of $44.1 million in 1995. The increase
was primarily due to a $11.8 million increase in sales of Vacation Intervals and
a $2.3 million increase in interest income.
In 1996, the number of Vacation Intervals sold, exclusive of sales of
upgraded Vacation Intervals, increased 26.2% to 5,634 from 4,464 in 1995 and the
average price per unit increased 13.2% to $6,751 from $5,965. The increase in
Vacation Interval sales resulted from the Company's modernized electronic
telemarketing programs, increased sales force and enhanced lead generation
methods. The increase in average price per interval resulted from the Company's
increased sales of higher value rated intervals. In addition to increases in
sales of Vacation Intervals, the Company increased revenues generated from sales
of upgraded intervals at its Existing Resorts through the continued
implementation of marketing and sales programs focused on selling such intervals
to Silverleaf Owners. See "Business -- Growth Strategy".
Interest income increased 53.0% to $6.7 million in 1996 from $4.4 million
in 1995. This increase resulted from a $20.2 million increase in notes
receivable, net of allowance for uncollectible notes, due to increased sales.
Management fee income decreased 11.7% to $2.2 million in 1996 from $2.5
million in 1995. This decrease was primarily the result of the Master Club's net
income being reduced by significant non-capital maintenance and refurbishment
costs incurred as a part of the Company's continuing facility improvement
program and increased operating costs.
In 1996, lease income increased 31.1% to $1.7 million in 1996 from $1.3
million in 1995 due to increased sales under the Company's Sampler program. The
Company has generally been successful in converting such customers to purchasers
of Vacation Intervals.
Other income decreased 21.4% to $1.4 million in 1996 from $1.8 million in
1995. This decrease was primarily due to a significant reduction in servicing
fee income due to discontinuation of factoring notes receivables, and, to a
lesser extent, the temporary closing of the Holiday Hills golf course for
remodeling.
Cost of sales as a percentage of gross Vacation Interval sales declined to
6.1% in 1996 from 9.6% in 1995. This decrease was due to a greater volume of
sales of Vacation Intervals with a low cost basis, and to a lesser extent, price
increases of Vacation Intervals sold. The Company obtained a significant amount
of low cost inventory in 1996 (approximately 1,700 intervals) through its
program to reacquire Vacation Intervals owned but not actively used by
Silverleaf Owners. These Vacation Intervals were acquired at a nominal cost to
the Company (typically $200 per interval). The 1,700 intervals acquired in 1996
represented approximately 5.5% of all intervals owned by Silverleaf Owners at
December 31, 1996.
Sales and marketing costs as a percentage of gross Vacation Interval sales
declined to 47.6% in 1996 from 52.4% in 1995. This decline is due primarily to
the efficiencies resulting from the Company's telemarketing and sales force
areas and economies of scale.
The provision for uncollectible notes as a percentage of Vacation Interval
sales remained relatively unchanged at 19.0% in 1996 versus 19.5% in 1995.
Operating, general and administrative expenses as a percentage of total
revenues declined to 17.5% in 1996 from 19.9% in 1995 due to realization of
economies of scale and elimination of non-recurring expenses incurred in 1995.
Depreciation and amortization expense as a percentage of total revenue
increased to 2.2% in 1996 from 2.0% in 1995 primarily due to an increase in
property, plant and equipment in 1996.
45
<PAGE> 48
Interest expense as a percentage of interest income declined to 71.3% in
1996 from 82.8% in 1995. This decrease was due to lower borrowing cost during
the period.
Income from continuing operations before income taxes increased 175.0% to
$8.4 million in 1996 from $3.1 million in 1995 as a result of the above
mentioned operating activities.
Income tax expense as a percentage of income from continuing operations
before income taxes declined to 37.3% in 1996 from 49.4% in 1995 due to
recognition of certain losses of CBI for financial statement purposes which were
not deductible by the Company in 1995 for income tax purposes. CBI operated as a
Subchapter S Corporation wholly-owned by the principal shareholder; accordingly,
the cumulative losses of CBI incurred prior to the transfer of the stock of CBI
to the Company were not available for utilization by the Company as an offset to
taxable income. Effective January 1, 1996, the Company converted CBI to a C
corporation and included it in the consolidated income tax return of the
Company.
LIQUIDITY AND CAPITAL RESOURCES
THE EQUITY OFFERING AND THE NOTE OFFERING. After consummation of the Equity
Offering and the Note Offering and the repayment of indebtedness with the
proceeds therefrom, the Company estimates that it will have approximately $57.8
million in cash and equivalents and $125.0 million of borrowing capacity
available under its revolving credit facilities. See "Description of Certain
Indebtedness".
SOURCES OF CASH. The Company generates cash primarily from the sale of
Vacation Intervals, the financing of customer notes receivables from Silverleaf
Owners, management fees, Sampler sales, and resort and utility operations.
During the years ended December 31, 1995 and 1996, net cash provided by
operating activities was $3.7 million and $6.4 million, respectively. During the
year ended December 31, 1997, the Company's operating activities reflected a use
of cash of $3.4 million, reflecting a one-time cash use of approximately $6.2
million for the repayment of accrued but previously unpaid interest payable to
affiliates in connection with the IPO. The Company typically receives a 10% down
payment on sales of Vacation Intervals and finances the remainder by receipt of
a seven year customer promissory note. The Company generates cash from the
financing of customer notes receivable (i) by borrowing at an advance rate of
70% of eligible customer notes receivable and (ii) 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 period, borrowing against receivables has
historically been a necessary part of normal operations. See "Risk
Factors -- Financing Customer Borrowings" and "Risk Factors -- Borrower
Defaults".
Net cash provided by financing activities for the years ended December 31,
1995, 1996 and 1997 was $18.7 million, $14.9 million and $46.9 million,
respectively. During 1997, compared to 1996, the $32.0 million increase in cash
flow provided by financing activities was due to net proceeds from the IPO of
$51.1 million and increased borrowings, substantially offset by repayment of
$45.7 million of debt from the IPO proceeds. The Company's revolving credit
facilities provide for loans of up to $125.0 million. At December 31, 1997,
approximately $44.4 million of principal and interest related to advances under
the credit facilities was outstanding. Of this amount, $0, $1.5 million, $4.1
million, $0, $12.6 million, and $26.2 million, matures in 1998, 1999, 2000,
2001, 2002, and subsequent years, respectively. For the year ended December 31,
1997, the weighted average cost of funds for these borrowings was 10.1%.
Customer defaults have 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 in effect must repay
borrowings against such notes. See "Risk Factors -- Borrower Defaults", "Risk
Factors -- Financing Customer Borrowings" and "Risk Factors -- Development,
Construction and Property Acquisition Activities". The Company intends to pay
substantially all of its indebtedness under its credit facilities with the
proceeds of the Equity Offering and the Note Offering. However, the Company
intends to maintain the facilities and may utilize them to finance its
operations after the Equity Offering and the Note Offering. See "Description of
Certain Indebtedness", Note 7 of Notes to Consolidated Financial Statements,
"Capitalization", and "Sources and Uses of Proceeds".
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
46
<PAGE> 49
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 will be 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 related tax is
paid. 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 which 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 which results from the installment sales treatment. Payment of
AMT reduces the future regular tax liability attributable to Vacation Interval
sales, and creates a deferred tax asset. The Company plans to file a request
with the Internal Revenue Service to modify a proposed ruling from the Internal
Revenue Service regarding a proposed AMT accounting adjustment to make the
ruling effective January 1, 1998. The Company believes the Internal Revenue
Service may refuse to change the effective date of the ruling. If the Internal
Revenue Service refuses to change the effective date, estimated taxes of $1.5
million, which are included as current liabilities on the Company's December 31,
1997 balance sheet, plus interest and any applicable penalties, will be payable
in 1998, and the Company's alternative minimum taxable income for 1998 through
2000 will be increased each year by an estimated amount of approximately $9.6
million per year for the pre-1997 adjustment, which will result in the Company
paying substantial additional federal and state taxes in those years. If the
Internal Revenue Service agrees to change the effective date, then the preceding
effects of the accounting method change will be delayed by one year. See "Risk
Factors -- Acceleration of Deferred Taxes", "Risk Factors -- Alternative Minimum
Taxes" and Note 6 of Notes to Consolidated Financial Statements. The Company's
net operating loss carryforwards, which also may be used to offset installment
sales income, expire beginning in 2007 through 2012. Realization of the deferred
tax asset arising from net operating losses is dependent on generating
sufficient taxable income prior to the expiration of the loss carryforwards and
other factors. See "Risk Factors -- Limitations on Use of Net Operating Loss
from Ownership Change" and Note 6 of Notes to Consolidated Financial Statements.
USES OF CASH. Investing activities typically reflect a net use of cash
because of loans to customers in connection with the Company's Vacation Interval
sales, capital additions, and property acquisitions. Net cash used in investing
activities for the years ended December 31, 1995, 1996 and 1997 was $19.6
million, $24.0 million and $39.5 million, respectively. Cash used in investing
activities increased significantly in each period primarily due to significant
increases in customer notes receivable and the acquisition of the Fox River,
Timber Creek, and Oak N' Spruce resorts and the Las Vegas and Galveston sites.
The Company acquired the Fox River and Timber Creek resorts in August 1997 for
$2.9 million, the site in Las Vegas, Nevada in November 1997 for $2.7 million,
one tract of the Galveston property in December 1997 for $485,000, and the Oak
N' Spruce Resort in Massachusetts in December 1997 for $5.1 million. Operating
and investing activities also use cash because the Company requires funds to
construct infrastructure, amenities, and additional units at the Existing
Resorts and New Resorts, to acquire property for future resort development, and
to support current operations.
The Company has budgeted $13.1 million and $3.1 million for 1998 and 1999,
respectively, for the development of additional roads, utilities and amenities
at the Existing Resorts and New Resorts. To construct new units at the Existing
Resorts and the New Resorts, $39.6 million and $36.3 million is budgeted for
1998 and 1999, respectively. Additionally, the Company may purchase management
rights to eight resorts for $3.8 million, a golf course and land for $3.5
million, and other land for $1.6 million. See "Business -- Recent Developments".
Furthermore, the Company is actively seeking sites for additional new resorts or
acquisitions.
The foregoing capital expenditures, development costs, and acquisitions
will be financed through a combination of the proceeds of the Equity Offering
and the Note Offering, cash flow from operations, and proceeds from anticipated
borrowings under existing or future credit facilities. See "Business -- Growth
Strategy", "Description of Certain Indebtedness", and "Sources and Uses of
Proceeds".
CBI, which has historically required funding from the Company, was engaged
in the development and sale of full ownership condominiums, the investment in,
holding and sale of both real and personal properties, principally in Missouri,
and holding land in Mississippi. Subsequent to the acquisition of CBI, the
Company determined that CBI's condominium development and sale line of business
was not fully compatible with the
47
<PAGE> 50
Company's timeshare operations. Consequently, CBI ceased all development
operations and adopted a plan of dissolution effective December 31, 1996, to
sell its remaining full ownership condominiums by December 31, 1997.
Accordingly, the condominium development and sales operation of CBI is treated
as a discontinued operation for financial reporting purposes. The income (loss),
net of income taxes, from the discontinued operations was ($1.5) million,
($295,000), and $0 for the years ended December 31, 1995, 1996, and 1997,
respectively. Anticipated future costs of carrying and selling the remaining
inventory of CBI were accrued as of December 31, 1996, in the amount of
$201,000. Based on the formal plan adopted by the Company, substantially all
assets were sold and liabilities repaid by December 31, 1997 and no additional
accrual for the loss was reserved.
Giving effect to the Equity Offering and the application of the proceeds
therefrom, the Company believes the available borrowing capacity under its
credit facilities, together with cash generated by operations, will be
sufficient to fund operations in the ordinary course of business for at least
the next 12 months. With the additional net proceeds from the Note Offering, the
Company believes it will have sufficient cash to fund operations in the ordinary
course of business through December 1998, without drawing upon its existing
credit facilities. If the Equity Offering and the Note Offering are consummated,
the Company will have $125.0 million of borrowing capacity under such credit
facilities, which will offer the Company the additional flexibility to acquire
new timeshare resorts which are currently in operation, land upon which new
timeshare resorts may be constructed, or other companies which operate
resort-type properties. The Company does not have sufficient capital to fully
implement its master plan for the total development of the Existing Resorts and
New Resorts. See "Risk Factors -- Development, Construction and Property
Acquisition Activities". To completely finance such master plan development and
fund additional acquisitions, the Company will likely be required to raise
additional capital through additional credit facilities, debt offerings,
additional public offerings of its Common Stock, or any combination of the
above. Any debt incurred or issued by the Company may be secured or unsecured,
may bear interest at fixed or variable rates of interest, and may be subject to
such terms as management deems prudent. Any failure to renew existing credit
facilities, obtain adequate financing under new facilities, or raise capital
through other debt or equity offerings, could have a material adverse effect on
the Company's financial position, results of operations or liquidity, and could
significantly reduce the Company's plans to acquire new properties, develop the
New Resorts, and expand the Existing Resorts. See "Risk Factors -- Increased
Leverage".
INFLATION
Inflation and changing prices have not had a material impact on the
Company's revenues, operating income and net income during any of the Company's
three most recent fiscal years. However, to the extent inflationary trends
affect short-term interest rates, a portion of the Company's debt service costs
may be affected as well as the rates the Company charges on its customer notes
receivable.
48
<PAGE> 51
THE TIMESHARE INDUSTRY
THE MARKET
The resort component of the leisure industry is serviced primarily by two
alternatives for overnight accommodations: commercial lodging establishments and
timeshare resorts. Commercial lodging consists of (i) hotels and motels in which
a room is rented on a nightly, weekly or monthly basis for the duration of the
visit, and (ii) rentals of privately-owned condominium units or homes. For many
vacationers, particularly those with families, a lengthy stay at a quality
commercial lodging establishment is not economical. In addition, room rates and
availability at such establishments are subject to change periodically.
Timeshare ownership presents an economical alternative to commercial lodging for
vacationers.
WORLDWIDE MARKET
In 1995 (the most recent year for which statistics are available), the
worldwide timeshare industry experienced 206,000 first-time buyers, sales of
600,000 Vacation Intervals, and sales volume of $5 billion. First introduced in
Europe in the mid-1960s, ownership of Vacation Intervals has been one of the
fastest growing segments of the hospitality industry over the past two decades.
As shown in the following charts, the worldwide timeshare industry has expanded
significantly since 1980 both in Vacation Interval sales volume and number of
Vacation Interval owners.
DOLLAR VOLUME OF VACATION INTERVAL SALES
(IN BILLIONS)
[CHART]
49
<PAGE> 52
NUMBER OF VACATION INTERVAL OWNERS
(IN MILLIONS)
[CHART]
UNITED STATES MARKET
In 1996, 218,000 intervals in U.S. properties were sold at an average price
of $10,000 per interval, resulting in total sales volume of $2.2 billion. By
comparison, total sales volume in 1992 was $1.3 billion. A total of 1,767,000
households owned intervals in U.S. timeshare properties at January 1, 1997.
REASONS FOR GROWTH
The following factors have contributed to increased acceptance of the
timeshare concept among the general public and the substantial growth of the
timeshare industry over the past 15 years:
- higher quality accommodations and services;
- involvement of well-recognized hotel companies in the industry;
- improved availability of financing for purchasers of Vacation Intervals;
- increased flexibility of timeshare use;
- increased regulation of the timeshare industry; and
- improved overall image of the timeshare industry.
Despite the growth in the timeshare industry, Vacation Interval ownership
had achieved only an approximate 1.77% market penetration of all U.S. households
at January 1, 1997 (based on a U.S. Census Bureau estimate of U.S. households in
1995).
The timeshare industry is highly fragmented, engaged in by a large number
of local and regional resort developers and operators. However, there is a trend
towards consolidation of timeshare properties among fewer owners. The Company
believes that one of the most significant factors contributing to the current
awareness of the timeshare industry is the entry into the market of some of the
world's major lodging, hospitality and entertainment companies, including
Marriott, Disney, Hilton, Hyatt, and Ramada.
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<PAGE> 53
THE CONSUMER
The median age of a Vacation Interval owner in the United States who
purchased an interval in 1995 or 1996 was 48 years. The following table shows
the estimated household incomes of (i) all timeshare owners in the United
States, (ii) U.S. timeshare owners who purchased an interval during the period
from October 1996 through February 1997, and (iii) all timeshare owners in the
Central Region of the United States (which consists of 20 states including
Illinois, Missouri, and Texas):
<TABLE>
<CAPTION>
UNITED '96/'97 CENTRAL
STATES BUYERS REGION
------- ------- -------
<S> <C> <C> <C>
HOUSEHOLD INCOME BEFORE TAXES
Under $30,000......................................... 3.7% 2.3% 4.6%
$30,000 to $39,999.................................... 6.9% 6.3% 7.5%
$40,000 to $49,999.................................... 12.2% 13.3% 12.5%
$50,000 to $59,999.................................... 14.3% 16.3% 15.1%
$60,000 to $74,999.................................... 18.0% 15.7% 18.6%
$75,000 to $99,999.................................... 21.2% 22.7% 25.3%
$100,000 to $124,999.................................. 12.1% 13.1% 6.2%
$125,000 to $149,999.................................. 4.2% 2.0% 4.6%
$150,000 or more...................................... 7.4% 8.4% 5.5%
Approximate Median.................................... $71,000 $71,000 $68,000
</TABLE>
The U.S. Census Bureau has estimated that 29.9% of all U.S. households in
1996 had a household income between $25,000 and $50,000, which represents
approximately one-half of the Company's customer base. The U.S. Census Bureau
figures represent household incomes throughout the United States, whereas the
Company's target customers currently live primarily in Texas, Missouri,
Illinois, Massachusetts, New York, and Connecticut; accordingly, the estimates
prepared by the U.S. Census Bureau may not accurately reflect the annual incomes
of the Company's target customers. Based upon a sampling of approximately 7% of
the Company's customers who purchased a Vacation Interval in 1997, approximately
18% of such customers had an annual income less than $25,000, approximately 49%
of such customers had an income of $25,000 to $50,000, and approximately 33% of
such customers had an annual income greater than $50,000.
51
<PAGE> 54
BUSINESS
OVERVIEW
Silverleaf is a leading developer, marketer, and operator of "drive-to"
timeshare resorts. The Company currently owns and operates eight "drive-to"
resorts in Texas, Missouri, Illinois, and Massachusetts (the "Drive-to Resorts")
and two "destination" resorts in Missouri (the "Destination Resorts", and
together with the Drive-to Resorts, the "Existing Resorts"). The Company has
recently acquired sites in Las Vegas, Nevada and Galveston, Texas to be
developed as new Destination Resorts (the "New Resorts"). The number of annual
one-week Vacation Intervals sold by the Company increased at an annual
compounded growth rate of 29.2% from 1992 to 1997. At December 31, 1997, the
Company had an inventory of 10,930 Vacation Intervals, was constructing 120 new
units (6,192 new Vacation Intervals), and had plans to construct 2,670
additional units (137,728 new Vacation Intervals) at the Existing Resorts. The
Company plans to construct 557 new units (28,964 Vacation Intervals) at the New
Resorts. Due to standardized architectural designs and procedures, new units can
typically be constructed at the Existing Resorts within 150 days, weather
permitting. Silverleaf generally starts construction of new units after sales of
Vacation Intervals for those units have occurred.
The Company markets Vacation Intervals to value-conscious customers and has
advanced proprietary computer systems to track and identify potential timeshare
owners. Through exclusive marketing arrangements with race tracks, amusement
parks, and other event sponsors, the Company identifies a substantial number of
prospects in its target markets. As a result of these and other activities, more
than 1,500 potential customers currently tour the resorts each week. During
1997, approximately 12.7% of the Company's visitors purchased Vacation Intervals
from the Company. Management anticipates the pool of potential customers will
remain strong due to expansion into new geographic regions and growth in major
Texas metropolitan areas, population turnover in such metropolitan areas, and
further penetration of the target markets.
The Drive-to Resorts are designed to appeal to value-conscious vacationers
seeking comfortable and affordable accommodations in locations convenient to
their residences. These resorts are located proximate to major metropolitan
areas (currently Dallas-Ft. Worth, Houston, San Antonio/Austin, St. Louis,
Chicago, Boston and the greater New York City area), facilitating more frequent
"short stay" getaways, which the Company believes is a growing vacation trend.
The Destination Resorts, which are located in the popular country and western
music entertainment resort area of Branson, Missouri, offer Silverleaf customers
the opportunity to upgrade into higher quality resorts as their lifestyles and
travel budgets permit. Both the Drive-to Resorts and the Destination Resorts are
in rustic areas which provide a quiet, relaxing vacation environment and offer
an economical alternative to commercial vacation lodging. Consistent with
Silverleaf's strategy of targeting value-conscious customers, the average price
of a Vacation Interval for a two-bedroom unit at the Existing Resorts was $7,834
for 1997 and $6,922 for 1996, as compared to the industry average price of
$10,790 for 1996.
The Company offers benefits to Silverleaf Owners which are uncommon in the
timeshare industry. These benefits include (i) use of vacant lodging facilities
at no extra cost through Silverleaf's Endless Escape program; (ii) year-round
access to non-lodging amenities such as fishing, boating, horseback riding,
tennis or golf on a "country-club" basis for little or no additional charge; and
(iii) the right to exchange a Vacation Interval for a different time period or
different Existing Resort through Silverleaf's internal exchange program. These
benefits are subject to availability and other limitations. Most Silverleaf
Owners may also enroll in the world's largest Vacation Interval exchange network
operated by RCI.
The Company's 1997 pro forma revenues and EBITDA were $84.9 million and
$24.8 million, respectively. The Company's Common Stock is listed on the NYSE
under the symbol "SVR", and based on a closing price of $26.75 per share on
February 27, 1998, the Company had a market capitalization of approximately
$300.0 million.
OPERATIONS
Silverleaf's operations include (i) developing and acquiring timeshare
resorts; (ii) marketing and selling Vacation Intervals to prospective first-time
owners; (iii) marketing and selling upgraded Vacation Intervals to existing
Silverleaf Owners; (iv) providing financing for the purchase of Vacation
Intervals; and (v) operating timeshare resorts. The Company has substantial
in-house capabilities which enable it to coordinate all aspects of
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<PAGE> 55
development and expansion of the Existing Resorts and the development of the New
Resorts, including site selection, design, and construction pursuant to
standardized plans and specifications. The Company also performs substantially
all marketing and sales functions internally and has made a significant
investment in operating technology, including sophisticated telemarketing and
computer systems and proprietary software applications. The Company identifies
potential purchasers through internally developed marketing techniques, and
sells Vacation Intervals through on-site sales offices located at certain
Drive-to Resorts. This practice allows the Company to avoid the more expensive
marketing costs of subsidized airfare and lodging which are typically associated
with the timeshare industry. The Company believes its marketing program and
operating and computer systems enable it to market and sell Vacation Intervals
at a lower cost than its competitors in the timeshare industry. The costs of
maintaining and operating the Existing Resorts are paid from Silverleaf Owners'
monthly ownership dues.
As part of the Vacation Interval sales process, the Company offers customer
financing of up to 90% of the purchase price to be paid over a seven year
period. At December 31, 1997, the Company had a portfolio of approximately
21,320 Vacation Interval customer notes receivable totalling approximately
$104.4 million with an average yield of 14.5% per annum. The Company has
typically financed its operations by pledging eligible customer notes to lending
institutions who make loans secured by such notes. The Company has three
revolving credit facilities providing for loans up to an aggregate of $115.0
million to finance customer notes receivable. See "Description of Certain
Indebtedness".
COMPETITIVE ADVANTAGES
Silverleaf believes the following characteristics afford it certain
competitive advantages:
LOWER MARKETING, SALES, AND ADMINISTRATIVE COSTS. With resorts and on-site
sales offices within a two-hour drive of its targeted customers, Silverleaf can
invite potential customers to tour the Drive-to Resorts without offering
subsidized airline tickets and lodging, a significant marketing expense
typically incurred by competitors in the industry. Silverleaf has also reduced
marketing, operating, and administrative costs through centralization and
automation of many functions. While marketing and sales costs as a percentage of
revenue will increase for newly acquired resorts, the Company believes that
these costs will, over time, return to historical levels.
CONVENIENT DRIVE-TO LOCATIONS. Silverleaf's Drive-to Resorts are located
within a two-hour drive of a majority of the target customers' residences, which
accommodates the growing demand for shorter, more frequent, close to home
vacations. This proximity facilitates use of Silverleaf's Endless Escape
program, which allows Silverleaf Owners to use vacant units for no additional
charge, subject to availability and certain limitations. Silverleaf believes it
is the only timeshare operator in the industry which offers its customers these
benefits. Silverleaf Owners can also conveniently enjoy non-lodging resort
amenities year-round on a "country-club" basis.
SUBSTANTIAL INTERNAL GROWTH CAPACITY. At December 31, 1997, Silverleaf had
an inventory of 10,930 Vacation Intervals, and a master plan to construct new
units which will result in up to 143,920 additional Vacation Intervals at the
Existing Resorts and 28,964 Vacation Intervals at the New Resorts. Silverleaf's
master plan for construction of new units is contingent upon future sales at the
Existing Resorts and New Resorts and the availability of financing, grant of
government permits, and future land-planning and site-layout considerations. See
"Risk Factors -- Development, Construction and Property Acquisition Activities".
IN-HOUSE OPERATIONS. Silverleaf has in-house marketing, sales, financing,
development, and property management capabilities. While Silverleaf utilizes
outside contractors to supplement internal resources, when appropriate, the
breadth of Silverleaf's internal capabilities allows greater control over all
phases of its operations and helps maintain operating standards and reduce
overall costs.
LOWER CONSTRUCTION AND OPERATING COSTS. Silverleaf has developed and
generally employs standard architectural designs and operating procedures which
it believes significantly reduce construction and operating expenses.
Standardization and integration also allow Silverleaf to rapidly develop new
inventory in response to demand. Weather permitting, new units at Existing
Resorts can normally be constructed on an "as needed" basis within 150 days.
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<PAGE> 56
CENTRALIZED PROPERTY MANAGEMENT. Silverleaf operates all of the Existing
Resorts on a centralized and collective basis, with operating and maintenance
costs paid from Silverleaf Owners' monthly dues. Silverleaf believes that
consolidation of resort operations benefits Silverleaf Owners by providing them
with a uniform level of service, accommodations and amenities on a standardized,
cost-effective basis. Such standardization also facilitates Silverleaf's
internal exchange program, the Endless Escape program, and external Vacation
Interval exchange programs.
EXPERIENCED MANAGEMENT. The Company's senior management has extensive
experience in the acquisition, development, and operation of timeshare resorts.
Robert E. Mead, Chairman of the Board and Chief Executive Officer, has more than
18 years of experience in the timeshare industry and since 1995 has served as a
director of ARDA, the primary trade association for the timeshare industry. Pro
forma for the Equity Offering (assuming no exercise of the Underwriters'
over-allotment option granted by Mr. Mead), Mr. Mead will own 53.5% of the
Common Stock of the Company. The Company's senior officers have an average of
ten years of experience in the timeshare industry.
GROWTH STRATEGY
Silverleaf intends to grow through the following strategies:
INCREASING DEVELOPMENT AND SALES OF VACATION INTERVALS. Silverleaf intends
to capitalize on its significant expansion capacity at the Existing Resorts and
the New Resorts by increasing marketing, sales and development activities. At
December 31, 1997, Silverleaf owned approximately 930 acres of land that were
available for further development of timeshare units and amenities under
Silverleaf's master plan. The master plan forecasts development of 3,347
additional units, which would result in 172,884 additional Vacation Intervals.
During 1997, Silverleaf enhanced its marketing efforts, including increased
telemarketing capacity arising from investments in computer and automated
dialing technology, increased its sales force, enhanced its lead generation
methods, completed the construction of new sales offices and other amenities,
and commenced the development of newer lodging facilities. Furthermore,
Silverleaf continues to emphasize its Endless Escape program designed to
accommodate shorter, "getaway" vacations and has broadened its product offerings
to include biennial (alternate year) intervals and Samplers which are designed
to accommodate more cost-conscious customers.
INCREASING SALES OF UPGRADED INTERVALS. Silverleaf believes it can continue
to improve operating margins by increasing sales of upgraded Vacation Intervals
to existing Silverleaf Owners since these sales have significantly lower sales
and marketing costs. Upgrades by a Silverleaf Owner include the purchase of (i)
an interval in a newly designed and constructed standard unit; (ii) an interval
in a larger or higher quality unit; (iii) an interval during a more desirable
time period; (iv) an interval at a different Drive-to Resort; or (v) an interval
at a Destination Resort. Silverleaf has designed specific marketing and sales
programs to sell upgraded Vacation Intervals to Silverleaf Owners. Silverleaf
continues to construct higher quality, larger units for sale as upgraded
intervals, as well as developing new sites such as Las Vegas and Galveston as
new upgrade locations. For example, at Ozark Mountain Resort in Branson,
Missouri, luxury "President's View" units are offered for sale at prices ranging
from $8,000 to $17,500 per Vacation Interval. Intervals exchanged for upgraded
intervals are added back to inventory at historical cost for resale at the
current offering price. Sales of upgrades increased to $16.9 million in 1997,
from $7.9 million in 1996 (upgrade sales represented 24.6% of Silverleaf's
Vacation Interval sales in 1997 as compared to 17.1% for 1996). Silverleaf
incurs additional sales commissions upon the resale of Vacation Intervals
reconveyed to Silverleaf by purchasers of upgraded intervals, and such sales
absorb their proportionate share of marketing costs to the extent they displace
the sale of another interval, although they do not directly result in
incremental marketing costs.
DEVELOPMENT OF ADDITIONAL RESORTS AND ACQUISITIONS. In 1997, Silverleaf
purchased four sites for development as Drive-to and Destination Resorts and
acquired an existing timeshare resort which it markets as a Drive-to Resort.
Additionally, in 1998, Silverleaf entered into agreements to acquire property
with a golf course near Atlanta, undeveloped land near Kansas City, and the
right to manage eight timeshare resorts in seven states. Silverleaf continues to
seek new properties for Drive-to Resorts in scenic wooded areas on lakes or
waterways that are near major metropolitan areas that have favorable demographic
characteristics. For Destination Resorts, Silverleaf seeks popular destination
resort areas that are easily accessible to Silverleaf Owners. Silverleaf is
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<PAGE> 57
currently exploring a number of other property acquisition opportunities, and
intends to continue acquiring and/or developing additional resorts.
RECENT DEVELOPMENTS
Since the IPO, Silverleaf has taken actions which it believes will enhance
its growth and competitive position within the U.S. timeshare industry. These
actions are summarized below and discussed in greater detail elsewhere in this
Prospectus.
- DEVELOPMENT OF TIMBER CREEK PROPERTY. In August 1997, Silverleaf
purchased the Timber Creek Resort for $1.2 million for development as a
Drive-to Resort. Timber Creek is located approximately 50 miles south of
St. Louis, Missouri. Silverleaf intends to develop approximately 600 units
(31,200 Vacation Intervals) at the Timber Creek Resort and has begun
construction of 24 units to be completed in May 1998. Sales of Vacation
Intervals at Timber Creek began in October 1997.
- DEVELOPMENT OF FOX RIVER PROPERTY. In August 1997, Silverleaf purchased
the Fox River Resort for $1.7 million for development as a Drive-to Resort.
Fox River is located approximately 70 miles southwest of Chicago.
Silverleaf intends to develop approximately 492 (25,584 Vacation Intervals)
units on this property, and has begun construction on 36 units to be
completed in May 1998. Sales of Vacation Intervals at Fox River began in
November 1997.
- ACQUISITION OF OAK N' SPRUCE RESORT. In December 1997, Silverleaf
acquired the Oak N' Spruce Resort, an existing 55 room hotel and 132 unit
timeshare resort, in the Berkshire Mountains of western Massachusetts for
$5.1 million. This new Drive-to Resort serves Boston and the greater New
York City market and Silverleaf plans to develop approximately 420 new
units (21,840 Vacation Intervals) at this resort. At December 31, 1997,
there were 1,629 unsold Vacation Intervals at the resort. Silverleaf's
sales of Vacation Intervals at Oak N' Spruce began in January 1998.
- PURCHASE OF LAS VEGAS SITE. In November 1997, Silverleaf acquired a two
acre parcel near the "strip" in Las Vegas, Nevada, for $2.7 million.
Silverleaf intends to develop this property as a new Destination Resort
which will contain approximately 157 units (8,164 Vacation Intervals).
- PURCHASE OF GULF COAST SITE. In December 1997 and February 1998,
Silverleaf acquired two adjoining tracts of land in Galveston, Texas, for
approximately $1.7 million, to be developed as a new beach-front Gulf Coast
Destination Resort. Silverleaf intends to develop approximately 400 units
(20,800 Vacation Intervals) at this resort.
- INCREASED SALES OF VACATION INTERVALS AT EXISTING RESORTS. In addition to
the acquisitions described above, Silverleaf has also worked since the IPO
to improve internal sales growth at the Existing Resorts. During 1997,
Silverleaf sold 6,592 Vacation Intervals (excluding upgrades), compared to
5,634 and 4,464 during 1996 and 1995, respectively. Total revenues
increased to $85.1 million in 1997 from $57.9 million and $44.1 million in
1996 and 1995, respectively.
- ENHANCED CREDIT FACILITIES. Silverleaf has improved its borrowing
capacity by increasing its revolving credit facilities from $80.0 million
to $115.0 million and by acquiring a construction line of credit in the
amount of $10.0 million. Additionally, Silverleaf has been able to
negotiate lower interest rates and extensions of maturity of certain loan
facilities.
- INVESTMENTS IN OPERATING AND TELEMARKETING SYSTEMS. Silverleaf has
invested approximately $2.1 million in a new automated dialer, telephone
system, and a new central marketing facility to improve Silverleaf's
operating and telemarketing systems.
- ADDITIONS TO MANAGEMENT TEAM. Silverleaf formed a new acquisition
subsidiary, Silverleaf Resort Acquisitions, Inc., and hired Thomas G.
Franks as President of the new subsidiary. Mr. Franks is a former President
of ARDA, the primary trade association for the timeshare industry, and has
more than 15 years of experience in the timeshare industry. Silverleaf has
also added marketing and operational personnel to its management team.
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<PAGE> 58
- PROPOSED ACQUISITION OF MANAGEMENT RIGHTS. In January 1998, Silverleaf
entered into an agreement with Crown Resort Co., LLC to acquire management
rights to eight timeshare resorts in Alabama, Mississippi, North Carolina,
Pennsylvania, South Carolina, Tennessee, and Texas for $3.8 million. At
December 31, 1997 these eight resorts had approximately 21,500 timeshare
owners. As part of this agreement, Silverleaf will also receive
approximately 1,800 unsold Vacation Intervals and certain equipment at
these eight resorts. This proposed acquisition is subject to completion of
customary due diligence investigations and there is no assurance that it
will be consummated. See "Possible Acquisition of Management Rights to
Crown Resorts".
- PROPOSED PURCHASE OF ATLANTA AND KANSAS CITY SITES. In February 1998,
Silverleaf entered into two agreements, one to acquire a 220 acre property,
including a 160 acre golf course, 72 miles north of Atlanta, Georgia for
$3.5 million, and another to acquire 260 acres of undeveloped land near
Kansas City, Missouri for $1.6 million. If acquired, each property will be
developed as a Drive-to Resort. Each contract may be cancelled by
Silverleaf if it is not satisfied with each property after conducting its
due diligence investigation. Accordingly, there is no assurance that either
of these contracts will be closed.
RESORTS SUMMARY
The following tables set forth certain information regarding each of the
Existing Resorts and New Resorts at December 31, 1997, unless otherwise
indicated.
EXISTING RESORTS
<TABLE>
<CAPTION>
VACATION
VACATION INTERVALS INTERVALS
UNITS AT RESORTS AT RESORTS SOLD(A)
------------------------ ------------------------ ---------
PRIMARY INVENTORY INVENTORY DATE IN
MARKET AT PLANNED AT PLANNED SALES THROUGH 1997
RESORT/LOCATION SERVED 12/31/97 EXPANSION(b) 12/31/97 EXPANSION COMMENCED 12/31/97 ONLY
--------------- ------------- --------- ------------ --------- ------------ --------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DRIVE-TO RESORTS
Holly Lake Dallas- 130 108 1,129 5,400(d) 1982 5,371 539
Hawkins, TX Ft. Worth, TX
The Villages Dallas- 240 352 2,440 18,304(e) 1980 10,040 1,679
Flint, TX Ft. Worth, TX
Lake O' The Woods Dallas- 64 16 412 800(d) 1987 2,788 332
Flint, TX Ft. Worth, TX
Piney Shores Houston, TX 132 268 2,516 13,936(e) 1988 4,348 1,359
Conroe, TX
Hill Country Austin-San 153(g) 254 1,886 12,700(d) 1984 5,764 1,391
Canyon Lake, TX Antonio, TX
Timber Creek St. Louis, -- 600(h) -- 31,200(e)(h) 1997 32 32
DeSoto, MO MO
Fox River Chicago, IL -- 492(h) -- 25,584(e)(h) 1997 49 49
Sheridan, IL
Oak N' Spruce Boston, MA 132 420 1,629 21,840(e) 1998 -- --
South Lee, MA New York,
NY(i)
DESTINATION RESORTS
Ozark Mountain Branson, 124 78 783 4,056(e) 1982 5,665 994
Kimberling City, MO MO
Holiday Hills Branson, 24 202 135 10,100(d) 1984 1,065 217
Branson, MO MO
--- ----- ------ ------- ------ -----
Total 999 2,790 10,930 143,920 35,122 6,592
=== ===== ====== ======= ====== =====
<CAPTION>
AVERAGE
SALES
PRICE AMENITIES/
RESORT/LOCATION IN 1997 ACTIVITIES(c)
--------------- ------- -------------
<S> <C> <C>
DRIVE-TO RESORTS
Holly Lake $7,062 B,F,G,H,
Hawkins, TX M,S,T
The Villages 7,640 B,F,H,
Flint, TX M,S,T
Lake O' The Woods 6,743 F,M,S,T(f)
Flint, TX
Piney Shores 8,518 B,F,H,
Conroe, TX M,S,T
Hill Country 8,552 M,S,T(f)
Canyon Lake, TX
Timber Creek 5,599 B,F,G,M,S,T
DeSoto, MO
Fox River 5,465 G,M,S,T
Sheridan, IL
Oak N' Spruce -- F,G,S,T
South Lee, MA
DESTINATION RESORTS
Ozark Mountain 7,282 B,F,H,
Kimberling City, MO M,S,T
Holiday Hills 8,046 G,M,S,T(f)
Branson, MO
------
Total $7,854
======
</TABLE>
(Table continued on following page)
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<PAGE> 59
NEW RESORTS
<TABLE>
<CAPTION>
EXISTING AND
PRIMARY DATE PLANNED PLANNED PLANNED
RESORT/LOCATION MARKET SERVED ACQUIRED UNITS(h) INTERVALS(h) AMENITIES/ACTIVITIES
--------------- -------------- -------- -------- ------------ --------------------
<S> <C> <C> <C> <C> <C>
Galveston, TX.................................. Houston, TX 1997(j) 400(k) 20,800(e)(k) B,F,S,T
Las Vegas, NV.................................. Las Vegas, NV 1997 157(l) 8,164(e)(l) S
----- ------
Total.................................. 557 28,964
===== ======
</TABLE>
- ---------------
(a) These totals do not reflect sales of upgraded Vacation Intervals to
Silverleaf Owners. For the year ended December 31, 1997, upgrade sales at
the Existing Resorts were as follows:
<TABLE>
<CAPTION>
AVERAGE SALES PRICE
FOR THE YEAR
ENDED 12/31/97
UPGRADED VACATION -- NET OF
RESORT INTERVALS SOLD EXCHANGED INTERVAL
------ ----------------- ----------------------
<S> <C> <C>
Holly Lake................................. 187 $3,809
The Villages............................... 642 4,871
Lake O' The Woods.......................... 79 3,630
Piney Shores............................... 671 3,850
Hill Country............................... 648 3,928
Timber Creek............................... 2 945
Fox River.................................. 1 2,780
Ozark Mountain............................. 1,468 4,645
Holiday Hills.............................. 210 3,938
----- ------
3,908 $4,326
===== ======
</TABLE>
(b) Represents units included in the Company's master plan. This plan is
subject to change based upon various factors, including consumer demand,
the availability of financing, grant of governmental land-use permits, and
future land-planning and site layout considerations. The following chart
reflects the status of certain planned units at December 31, 1997:
<TABLE>
<CAPTION>
LAND-USE LAND-USE LAND-USE
PROCESS PROCESS PROCESS CURRENTLY IN SHELL
NOT STARTED PENDING COMPLETE CONSTRUCTION COMPLETE TOTAL
----------- -------- -------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Holly Lake............ 54 -- 50 -- 4 108
The Villages.......... 110 152 78 12 -- 352
Lake O' The Woods..... -- -- 16 -- -- 16
Piney Shores.......... 108 120 16 24 -- 268
Hill Country.......... 153 47 54 -- -- 254
Timber Creek.......... 576 -- -- 24 -- 600
Fox River............. 456 -- -- 36 -- 492
Oak N' Spruce......... 420 -- -- -- -- 420
Ozark Mountain........ 36 -- 30 -- 12 78
Holiday Hills......... 70 -- 94 24 14 202
----- --- --- --- --- -----
1,983 319 338 120 30 2,790
===== === === === === =====
</TABLE>
"Land-Use Process Pending" means that the Company has commenced the
process which the Company believes is required under current law in order
to obtain the necessary land-use authorizations from the applicable local
governmental authority with jurisdiction, including submitting for approval
any architectural drawings, preliminary plats or other attendant items as
may be required.
"Land-Use Process Complete" means either that (i) the Company believes
that it has obtained all necessary land-use authorizations under current
law from the applicable local governmental authority with jurisdiction,
including the approval and filing of any required preliminary or final plat
and the issuance of building permit(s), in each case to the extent
applicable, or (ii) upon payment of any required filing or other fees, the
Company believes that it will under current law obtain such necessary
authorizations without further process. See "Risk Factors -- Development,
Construction and Property Acquisition Activities".
The 30 "Shell Complete" units are currently devoted to such uses as a
general store, registration office, sales office, activity center,
construction office, or pro shop. The Company anticipates that these units
will continue to be used for such purposes during 1998.
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<PAGE> 60
(c) Principal amenities available to Silverleaf Owners at each resort are
indicated by the following symbols: B -- boating; F -- fishing; G -- golf
course; H -- horseback riding; M -- miniature golf; S -- swimming pool; and
T -- tennis.
(d) These figures are based on 50 one-week intervals per unit. In some
instances, the Company may be able to market 52 one-week intervals per
unit.
(e) These figures are based on 52 one-week intervals per unit.
(f) Boating is available near the resort.
(g) Includes three units which have not been finished-out for accommodations
and which are currently used for other purposes.
(h) Engineering, architectural and construction estimates have not been
completed by the Company, and there can be no assurance that the Company
will develop these properties at the unit numbers currently projected.
(i) The Company has commenced the timeshare permit process in New York, but has
not yet received a permit. (The Company has a timeshare permit in
Massachusetts.)
(j) One portion of this tract was acquired in February 1998.
(k) The Company has not commenced the timeshare permit process. The Company has
commenced the land use permit process. See "Risk Factors -- Development,
Construction and Property Acquisition Activities", "-- Description of New
Resorts -- Gulf Coast Resort".
(l) The Company has commenced the timeshare permit application process, but has
not received a permit. The Company has not commenced the land use permit
process. See "Risk Factors -- Regulation of Marketing and Sales of Vacation
Intervals and Related Laws".
FEATURES COMMON TO EXISTING RESORTS
The Existing Resorts are located in rustic areas offering Silverleaf Owners
a quiet, relaxing vacation environment. Furthermore, the resorts offer different
vacation activities, including golf, fishing, boating, swimming, horseback
riding, tennis and archery. Features common to the Existing Resorts include the
following:
ENDLESS ESCAPE PROGRAM. The Company's Endless Escape program offers
Silverleaf Owners a substantial benefit not typically enjoyed by many other
timeshare owners. In addition to the right to use his unit one week per year,
the Endless Escape program allows a Silverleaf Owner to also use vacant units at
any of the Existing Resorts, except Oak N' Spruce, for no additional charge. The
Endless Escape program is limited based on the availability of units which
include unused intervals and unsold inventory. The Company believes this program
is important as many vacationers prefer shorter two to three day vacations.
Silverleaf Owners who have utilized the resort less frequently are given
priority to use the program and may only use an interval with an equal or lower
rating than his Vacation Interval. See "-- Participation in Vacation Interval
Exchange Networks".
Silverleaf Owners who purchase a Vacation Interval at the existing units at
Oak N' Spruce are not entitled to use Silverleaf's Endless Escape program for
other resorts. Furthermore, only those Silverleaf Owners who purchase a Vacation
Interval at the existing units at Oak N' Spruce may use the Endless Escape
program at such Oak N' Spruce units.
The Company is planning to change the Endless Escape program for customers
who purchase a Vacation Interval after approximately June 1998. Customers who
purchase a Vacation Interval at a Drive-to Resort after such date will not be
able to use the Endless Escape program at the Company's Destination Resorts,
including the New Resorts in Galveston and Las Vegas. However, customers who are
or become Silverleaf Owners before such date will be able to use the Endless
Escape program at all Destination Resorts, including the Galveston and Las Vegas
resorts. Silverleaf Owners who purchase a Vacation Interval at any Destination
Resort after such date will be able to use the Endless Escape program at any of
Silverleaf's resorts, including the New Resorts at Galveston and Las Vegas.
YEAR-ROUND USE OF AMENITIES. Even when not using the lodging facilities,
Silverleaf Owners have unlimited year-round use of the amenities located at the
Existing Resorts, such as boating, fishing, miniature golf, tennis, swimming, or
hiking, for little or no additional cost. Certain amenities, however, such as
golf, horseback riding or watercraft rentals, may require a usage fee.
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EXCHANGE PRIVILEGES. Each Silverleaf Owner has certain exchange privileges
which entitle him on an annual basis to (i) exchange his interval for a
different interval (week) at the same resort so long as the different interval
is of an equal or lower rating; and (ii) exchange his interval for the same
interval (week) at any other of the Existing Resorts. These intra-company
exchange rights require an exchange fee, which is currently $50, and are
conditioned upon availability of the desired interval or resort. The Company
executed approximately 884 intra-company exchanges in 1997. In addition, for an
additional annual fee of approximately $74, most Silverleaf Owners may join the
exchange program administered by RCI. See "-- Participation in Vacation Interval
Exchange Networks".
DEEDED OWNERSHIP. The Company typically sells a Vacation Interval which
entitles the owner to use a specific unit for a designated one-week interval
each year. The Vacation Interval purchaser receives a recorded deed which grants
the purchaser a percentage interest in a specific unit for a designated week.
The Company also sells a biennial (alternate year) Vacation Interval which
allows the owner to use a unit for a one-week interval every other year with
reduced dues.
MASTER CLUB. Each of the Existing Resorts has a Club for the benefit of the
Silverleaf Owners. The Clubs have an agreement with the Master Club to manage
the Existing Resorts on a centralized and collective basis. The Master Club has
contracted with the Company to perform the supervisory, management and
maintenance functions granted by the Clubs to the Master Club. Costs of these
operations are covered by monthly dues paid by Silverleaf Owners to their
respective Clubs together with income generated by the operation of certain
amenities at the Existing Resorts. See "-- Clubs/Master Club".
ON-SITE SECURITY. The Existing Resorts are patrolled by security personnel
who are either employees of the Master Club or personnel of independent security
service companies which have contracted with the Clubs.
The new Galveston resort is expected to have the features set forth above.
Due to Nevada timeshare laws, the proposed resort in Las Vegas will not be
managed by the Master Club. See "-- Clubs/Master Club".
DESCRIPTION OF EXISTING RESORTS
HOLLY LAKE RESORT. Holly Lake is a family-oriented golf resort located in
the Piney Woods of East Texas, approximately 105 miles east of Dallas. The
timeshare portion of Holly Lake is part of a 4,300 acre mixed-use development of
single-family lots and timeshare units with other third-party developers. The
Company owns approximately 2,740 acres within Holly Lake, of which approximately
2,667 may not be developed due to deed restrictions. At December 31, 1997,
approximately 27 acres were developed and approximately 45 remaining acres are
currently planned by the Company to be used for future development.
At December 31, 1997, 130 units were completed, and an additional 108 units
are planned for development. Three different types of units are offered at the
resort: (i) two bedroom, two bath, wood siding and stucco fourplexes; (ii) one
bedroom, one bath, one sleeping loft, log construction duplexes; and (iii) two
bedroom, two bath, log construction fourplexes. Each unit has a living room with
sleeper sofa and full kitchen. Other amenities within each unit include
whirlpool tub, color television, and vaulted ceilings. Certain units include
interior ceiling fans, imported ceramic tile, over-sized sliding glass doors,
and rattan and pine furnishings.
Amenities at the resort include an 18-hole golf course with pro shop;
19th-hole private club and restaurant; Holly Lake Restaurant; Country Store;
indoor rodeo arena and stables; six tennis courts (four lighted); four different
lakes (one with sandy swimming beach and swimming dock, one with boat launch for
water skiing); two swimming pools with bathhouses; children's pool and pavilion;
recently completed hiking/nature trail; children's playground area; two
miniature golf courses; three picnic areas; activity center with big screen
television; gameroom with arcade games and pool tables; horseback trails;
activity areas for basketball, horseshoes, volleyball, shuffleboard, and
archery; and camp sites with electrical and water hookups. Silverleaf Owners can
also rent canoes, bicycles, and water trikes. Homeowners in neighboring
subdivisions are entitled to use the amenities at Holly Lake pursuant to
easements or use agreements.
At December 31, 1997, the resort contained 6,500 Vacation Intervals, of
which 1,129 intervals remained available for sale. The Company plans to build an
additional 108 units, which would yield an additional 5,400 Vacation Intervals
available for sale. Vacation Intervals at the resort are currently priced from
$6,000 to $12,500
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for one-week stays. During 1997, 539 Vacation Intervals were sold. See
"-- Resorts Summary" and "Risk Factors -- Development, Construction and Property
Acquisition Activities".
THE VILLAGES AND LAKE O' THE WOODS RESORTS. The Villages and Lake O' The
Woods are sister resorts located on the shores of Lake Palestine, approximately
100 miles east of Dallas, Texas. The Villages, located approximately five miles
northwest of Lake O' The Woods, is an active sport resort popular for
water-skiing and boating. Lake O' The Woods is a quiet wooded resort where
Silverleaf Owners can enjoy the seclusion of dense pine forests less than two
hours from the Dallas-Fort Worth metroplex. The Villages is a mixed-use
development of single-family lots and timeshare units, while Lake O' The Woods
has been developed solely as a timeshare resort. The two resorts contain
approximately 615 acres, of which approximately 379 may not be developed due to
deed restrictions. At December 31, 1997, approximately 47 acres were developed
such that approximately 189 remaining acres are currently planned by the Company
to be used for future development.
At December 31, 1997, 240 units were completed at The Villages and 64 units
were completed at Lake O' The Woods. An additional 352 units and 16 units are
planned for development at The Villages and Lake O' The Woods, respectively.
There are four different types of units at these resorts: (i) three bedroom, two
and one-half bath, wood siding exterior duplexes and fourplexes (two units);
(ii) two bedroom, two bath, brick and siding exterior fourplexes; (iii) two
bedroom, two bath, siding exterior fourplexes; and (iv) one bedroom, one bath
with two-bed loft sleeping area, log construction duplexes. Amenities within
each unit include full kitchen, whirlpool tub, and color television. Certain
units include interior ceiling fans, ceramic tile, and/or a fireplace.
Both resorts are situated on Lake Palestine, a 27,000 acre public lake.
Recreational facilities and improvements at The Villages include a full service
marina with convenience store, boat launch, water-craft rentals, and covered and
locked rental boat stalls; two swimming pools; lighted tennis court; miniature
golf course; nature trails; camp sites; riding stables; soccer/softball field;
children's playground; RV sites; an activity center with reading room,
wide-screen television and pool table; and competitive sports facilities which
include horseshoe pits, archery range, and shuffleboard, volleyball, and
basketball courts. Silverleaf Owners at The Villages can also rent or use
bicycles, jet skis, motor boats, paddle boats, pontoon boats, and water trikes.
Neighboring homeowners are also entitled to use these amenities pursuant to a
use agreement.
Recreational facilities at Lake O' The Woods include swimming pool,
bathhouse, lighted tennis court, a recreational beach area with picnic areas, a
fishing pier on Lake Palestine, nature trails, soccer/softball field, children's
playground, RV sites, an activity center with wide-screen television and pool
table, horseshoe pits, archery range, putting green, miniature golf course, and
shuffleboard, volleyball, and basketball courts. Guests can also ride horses or
rent bicycles.
At December 31, 1997, the Villages contained 12,430 total Vacation
Intervals, of which 2,440 remained available for sale. The Company plans to
build 352 additional units at the Villages, which would yield an additional
18,304 Vacation Intervals available for sale. At December 31, 1997, Lake O' The
Woods contained 3,200 total Vacation Intervals, of which 412 remained available
for sale. The Company plans to build 16 additional units at Lake O' The Woods,
which would yield 800 additional Vacation Intervals available for sale. Vacation
Intervals at The Villages and Lake O' The Woods are currently priced from $5,500
to $14,500 for one-week stays (and start at $3,500 for biennial intervals).
During 1997, 1,679 Vacation Intervals were sold at The Villages and 332 Vacation
Intervals were sold at Lake O' The Woods. See "-- Resorts Summary" and "Risk
Factors -- Development, Construction and Property Acquisition Activities".
PINEY SHORES RESORT. Piney Shores is a quiet, wooded resort ideally located
for day-trips from metropolitan areas in the southeastern Gulf Coast area of
Texas. Piney Shores is located on the shores of Lake Conroe, approximately 40
miles north of Houston, Texas. At December 31, 1997, the resort contained
approximately 116 acres, of which approximately 73 acres are planned by the
Company for future development.
At December 31, 1997, 132 units were completed, and an additional 268 units
are planned for development. All units are two bedroom, two bath units and will
comfortably accommodate up to six people. Amenities include a living room with
sleeper, full kitchen, whirlpool tub, color television, and interior ceiling
fans. The Company has recently completed 24 new "lodge-style" units which
feature stone fireplaces, white-washed pine wall coverings, "age-worn" paint
finishes, and antique furnishings.
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The primary recreational amenity at the resort is Lake Conroe, a 21,000
acre public lake. Other recreational facilities and improvements available at
the resort include a swimming pool with spa, a new bathhouse complete with
showers and restrooms, lighted tennis court, miniature golf course, stables,
horseback riding trails, children's playground, picnic areas, boat launch, beach
area for swimming, 1,500-square foot activity center with big-screen television,
covered wagon rides, and facilities for horseshoes, archery, shuffleboard, and
basketball. The resort also has a vintage moored paddle-wheeled riverboat which
is available for parties and receptions.
At December 31, 1997, the resort contained 6,864 Vacation Intervals, of
which approximately 2,516 remained available for sale. The Company intends to
build 268 additional units, which would yield an additional 13,936 Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $6,000 to $14,500 for one-week stays (and start at $3,500 for
biennial intervals). During 1997, 1,359 Vacation Intervals were sold. See
"-- Resorts Summary" and "Risk Factors -- Development, Construction and Property
Acquisition Activities".
HILL COUNTRY RESORT. Hill Country Resort is located near Canyon Lake in the
hill country of central Texas between Austin and San Antonio. At December 31,
1997, Hill Country Resort contained approximately 60 acres, of which
approximately 13 acres are currently planned by the Company to be used for
future development. In February 1998, the Company entered into an agreement to
acquire an additional 46 acres for $218,000. Silverleaf may cancel this
agreement if it is not satisfied with the property after its due diligence
investigation, and there is no assurance that this contract will be consummated.
At December 31, 1997, 153 units were completed, and an additional 254 units
are planned for development. Twenty units are single story, while all other
units are two-story structures in which the bedrooms and baths are located on
the second story. Each unit contains two bedrooms, two bathrooms, living room
with sleeper sofa, and full kitchen. Other amenities within each unit include
whirlpool tub, color television, and interior design details such as vaulted
ceilings. Certain units include interior ceiling fans, imported ceramic tile,
over-sized sliding glass doors, rattan and pine furnishings, and/or a fireplace.
Twelve units feature the Company's new "lodge style".
Amenities at the resort include a registration center; an 1,150-square foot
activity center with electronic games, pool table, and wide-screen television;
miniature golf course; a children's playground area; barbecue and picnic areas;
enclosed swimming pool and heated spa; children's wading pool; newly-constructed
tennis court; archery range; and activity areas for shuffleboard, basketball,
horseshoes, and volleyball. The Company plans to expand the existing clubhouse
at the resort with construction projected to begin in November 1998. The Company
estimates that the addition will cost approximately $680,000 and will take six
months to complete. Area sights and activities include water-tubing on the
nearby Guadalupe River, and visiting the River Walk or the Alamo in San Antonio.
At December 31, 1997, the resort contained 6,250 Vacation Intervals, of
which 1,886 remained available for sale. The Company plans to build 254
additional units, which collectively would yield 12,700 additional Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $6,000 to $14,500 for one-week stays (and start at $3,500 for
biennial alternate year intervals). During 1997, 1,391 Vacation Intervals were
sold. See "-- Resorts Summary" and "Risk Factors -- Development, Construction
and Property Acquisition Activities".
OZARK MOUNTAIN RESORT. Ozark Mountain Resort is a family-oriented resort
located on the shores of Table Rock Lake which features bass fishing. The resort
is located approximately 15 miles from Branson, Missouri, a country music
entertainment center, 233 miles from Kansas City, and 276 miles from St. Louis.
Ozark Mountain Resort is a mixed-use development of timeshare and condominium
units. At December 31, 1997, the resort contained approximately 116 acres, of
which approximately 82 acres are currently planned by the Company to be used for
future development.
At December 31, 1997, 124 units were completed, and an additional 78
additional units are planned for development. There are two types of units: (i)
two bedroom, two bath, one-story fourplexes; and (ii) two bedroom, two bath,
three-story sixplexes. Each standard unit includes two large bedrooms, two
bathrooms, living room with sleeper sofa, and full kitchen. Other amenities
within each unit include whirlpool tub, color television, and vaulted ceilings.
Certain units contain interior ceiling fans, imported ceramic tile, over-sized
sliding glass
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doors, rattan or pine furnishings, or fireplace. "President's View" units
feature a panoramic view of Table Rock Lake, a larger, more spacious floor plan
(1,210 square feet), front and back screened verandas, washer and dryer, and a
more elegant decor.
The primary recreational amenity available at the resort is Table Rock
Lake, a 43,100 acre public lake. Other recreational facilities and improvements
at the resort include a swimming beach with dock, an activities center with pool
table, covered boat dock and launch ramp, olympic-sized swimming pool,
concession area with dressing facilities, lighted tennis court, nature trails,
horseback riding trails, two picnic areas, two playgrounds, miniature golf
course, and a competitive sports area accommodating volleyball, basketball,
tetherball, horseshoes, shuffleboard, and archery. Guests can also rent or use
canoes, paddle boats, or rowboats. Owners of neighboring condominium units
developed by the Company in the past are also entitled to use these amenities
pursuant to use agreements with the Company. Similarly, owners of Vacation
Intervals are entitled to use certain amenities of these condominium
developments, including a wellness center featuring a jacuzzi and exercise
equipment.
At December 31, 1997, the resort contained 6,224 Vacation Intervals, of
which approximately 783 remained available for sale. The Company plans to build
78 additional units which would yield an additional 4,056 Vacation Intervals
available for sale. Vacation Intervals at the resort are currently priced from
$8,000 to $14,500 for one-week stays, while one-week "President's View"
intervals are priced at $8,000 to $17,500 depending on the value rating of the
interval. During 1997, 994 Vacation Intervals were sold. See "-- Resorts
Summary" and "Risk Factors -- Development, Construction and Property Acquisition
Activities".
HOLIDAY HILLS RESORT. Holiday Hills is a resort community located in Taney
County, Missouri, two miles east of Branson, Missouri. The resort is 224 miles
from Kansas City and 267 miles from St. Louis. The resort is heavily wooded by
cedar, pine, and hardwood trees, and is favored by Silverleaf Owners seeking
quality golf and nightly entertainment in nearby Branson. Holiday Hills is a
mixed-use development of single-family lots, condominiums and timeshare units.
At December 31, 1997, the resort contained approximately 338 acres, of which
approximately 177 acres are currently planned by the Company to be used for
future development.
At December 31, 1997, 24 units were completed, and an additional 202 units
are planned for future development. There are two types of timeshare units: (i)
two bedroom, two bath, one-story fourplexes; and (ii) one bedroom, one bath,
with upstairs loft, log construction duplexes. Each unit includes a living room
with sleeper sofa, full kitchen, whirlpool tub, color television, vaulted
ceilings, and interior ceiling fans.
Taneycomo Lake, a popular lake for trout fishing, is three miles away, and
Table Rock Lake is approximately ten miles away. Amenities at the resort include
a newly renovated 18-hole golf course, pro shop, swimming pool, miniature golf
course, tennis court, picnic area, camp sites, archery range, basketball court,
and an activity area which includes shuffleboard and horseshoes. Lot and
condominium unit owners are also entitled to use these amenities pursuant to use
agreements between the Company and certain homeowner associations.
At December 31, 1997, the resort contained 1,200 Vacation Intervals, of
which 135 remained available for sale. The Company plans to build 202 additional
units, which would yield an additional 10,100 Vacation Intervals available for
sale. Vacation Intervals at the resort are currently priced from $8,000 to
$14,500 for one-week stays. During 1997, 217 Vacation Intervals were sold. See
"-- Resorts Summary" and "Risk Factors -- Development, Construction and Property
Acquisition Activities".
TIMBER CREEK RESORT. In August 1997, the Company acquired the Timber Creek
Resort in Desoto, Missouri. The resort is located approximately 50 miles south
of St. Louis. Prior to its acquisition by the Company, the Timber Creek Resort
was operated as a campground by a nationwide campground operator. At December
31, 1997, the resort contained approximately 308 acres, of which approximately
142 acres are currently planned by the Company to be used for future
development.
The Company plans to build 600 new units. The planned units will be two
bedroom, two bath units. Amenities within each new unit will include a living
room with sleeper sofa, full kitchen, whirlpool tub, and color television.
Certain units will include a fireplace, ceiling fans, imported ceramic tile,
oversized sliding glass doors, and rattan or pine furniture.
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The primary recreational amenity available at the resort is a 40-acre
fishing lake. Other amenities include a clubhouse; outdoor pavilion; swimming
pool; two tennis courts; miniature golf course; shuffleboard/multi-use sports
court; and hook-ups for recreational vehicles. The Company plans to construct a
new par three executive golf course; clubhouse; stable and corral; lake
pavilion; and welcome station. Other planned improvements by the Company include
conversion of the existing sales and registration buildings and renovation of
the clubhouse and clubhouse pool. The Company is obligated to maintain and
provide campground facilities for members of the previous owner's campground
system.
At December 31, 1997, construction had begun on 24 units which are expected
to be completed by May 1998. The Company plans to build 576 additional units
which collectively would yield 31,200 Vacation Intervals available for sale.
Vacation Intervals at the resort are currently priced from $6,000 to $12,500 for
one-week stays. Sales efforts commenced in October 1997, and 32 Vacation
Intervals were sold in the last quarter of 1997. See "-- Resorts Summary" and
"Risk Factors -- Development, Construction and Property Acquisition Activities".
FOX RIVER RESORT. In August 1997, the Company acquired the Fox River Resort
in Sheridan, Illinois. The resort is located approximately 70 miles southwest of
Chicago. Prior to its acquisition by the Company, the Fox River Resort was
operated as a campground by a nationwide campground operator . At December 31,
1997, the resort contained approximately 180 acres, of which approximately 87
acres are currently planned by the Company to be used for future development.
The Company plans to build 492 new units. All units will be two bedroom,
two bath units. Amenities within each unit will include a living room with
sleeper sofa, full kitchen, whirlpool tub, and color television. Certain units
will include a fireplace, ceiling fans, imported ceramic tile, oversized sliding
glass doors, and rattan or pine furniture.
Amenities available at the resort include a tennis court; sports court;
shuffleboard courts; outdoor pavilion; swimming pool; miniature golf course; and
hook-ups for recreational vehicles. The Company plans to construct a new par
three executive golf course; sales and registration buildings; clubhouse;
covered pool; playground; children's movie theater; stable and corral; and
welcome station. The Company also plans to offer winter recreational activities
at this resort, including ice-skating, snowmobiling, and cross-country skiing.
The Company is obligated to maintain and provide campground facilities for
members of the previous owner's campground system.
At December 31, 1997, construction had begun on 36 units which are expected
to be completed by May 1998. The Company plans to build 456 additional units
which collectively would yield 25,584 Vacation Intervals available for sale.
Vacation Intervals at the resort are currently priced from $6,000 to $12,500 for
one-week stays. Sales efforts commenced in November 1997, and 49 Vacation
Intervals were sold in the last quarter of 1997. See "-- Resorts Summary" and
"Risk Factors -- Development, Construction and Property Acquisition Activities".
OAK N' SPRUCE RESORT. In December 1997, the Company acquired the Oak N'
Spruce Resort in the Berkshire mountains of western Massachusetts. The resort is
located approximately 134 miles west of Boston and 114 miles north of New York
City. Oak N' Spruce is a mixed-use development which includes a hotel and
timeshare units. At December 31, 1997, the resort contained approximately 240
acres, of which approximately 120 acres are currently planned by the Company to
be used for future development.
At December 31, 1997, the resort had 132 units, and an additional 420 units
are planned for development. There are seven types of existing units: (i) studio
flat; (ii) one-bedroom flat; (iii) one-bedroom townhouse; (iv) two-bedroom flat;
(v) two-bedroom townhouse; (vi) two-bedroom, flex-time; and (vii) two-bedroom,
lockout. There is also a 55-room hotel at the resort which may be converted to
timeshare use. The hotel will initially be used primarily to provide
accommodations for potential timeshare customers who tour the resort. Amenities
within each new unit will include a living room with sleeper sofa, full kitchen,
whirlpool tub, and color television. Certain units will include a fireplace,
ceiling fans, imported ceramic tile, oversized sliding glass doors, and rattan
or pine furniture.
Amenities at the resort include a restaurant and lounge with banquet
facility; two indoor heated swimming pools with hot tubs; one outdoor
olympic-sized, spring fed pool with bar and snack bar; sauna; health club; nine-
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hole golf course; ski rentals; shuffleboard, basketball and tennis courts;
horseshoe pits; hiking and ski trails; and activity areas for sledding and
badminton. The resort is also near Beartown State Forest.
At December 31, 1997, the resort contained 6,864 Vacation Intervals, of
which 1,629 remained available for sale. The Company plans to build 420
additional "lodge-style" units, which would yield an additional 21,840 Vacation
Intervals available for sale. Construction of units is slated to begin in the
second quarter of 1998, and sales efforts began in January 1998. Vacation
Intervals at the resort are currently priced from $6,000 to $12,500 for one-week
stays. Since the Oak N' Spruce Resort was acquired on December 31, 1997, the
Company did not sell any Vacation Intervals at this resort during 1997. See
"-- Resorts Summary" and "Risk Factors -- Development, Construction and Property
Acquisition Activities".
DESCRIPTION OF NEW RESORTS
LAS VEGAS RESORT. In November 1997, the Company acquired a two acre parcel
of land two blocks off the "strip" in Las Vegas, Nevada, for development as a
new Destination Resort.
The Company plans to build a five-story tower and a nine-story tower which
will include approximately 157 units, including 83 one-bedroom and 74
two-bedroom units. Construction of the units is slated to begin in June 1998.
This resort will feature the Company's larger President's View units which offer
1,210 square feet of floor space, front and back balconies, washer and dryer,
whirlpool tubs, living room with sleeper sofa, full kitchen, and color
television.
Amenities at the resort will include a restaurant and lounge on the top
floor. Other planned amenities include a swimming pool, health spa with sauna,
exercise facilities, children's theatre, and video arcade. The resort will also
feature a waterfall cascading down the front of one tower.
The Company plans to build 157 units which would yield 8,164 Vacation
Intervals for sale. The Company anticipates that sales efforts will begin in the
third quarter of 1998. Vacation Intervals at the resort will be priced from
$9,500 to $13,500 for one-week stays. See "-- Resorts Summary" and "Risk
Factors -- Development, Construction and Property Acquisition Activities".
GULF COAST RESORT. In December 1997 and February 1998, the Company acquired
over 83 acres of land, including beachfront, in Galveston, Texas. These tracts
are located approximately 50 miles south of Houston, Texas, and were acquired
for development as a new Destination Resort. Prior to its acquisition by the
Company, one tract was operated by a nationwide campground operator.
The Company plans to build 400 new units situated in three-story 12-plex
buildings, with construction of 12 units slated to begin in June 1998. All units
will be two bedroom, two bath units. Amenities within each unit will include two
large bedrooms, two bathrooms (one with a whirlpool tub), living room with
sleeper sofa, full kitchen, color television, and vaulted ceilings. This resort
will also include the Company's upscale President's View units which will
overlook the Gulf of Mexico and offer 1,210 square feet of floor space, front
and back screened verandas, washer and dryer, and a more elegant decor.
The primary amenity at the resort is the Gulf of Mexico. This site has 635
feet of beachfront. Other currently existing amenities include a lodge with
kitchen, sports court, and swimming pool. The Company is obligated to maintain
and provide campground facilities for members of the previous owner's campground
system.
The Company plans to build 400 units which would yield 20,800 Vacation
Intervals for sale. The Company anticipates that sales efforts will begin in the
third quarter of 1998. Vacation Intervals at the resort will be priced from
$8,000 to $14,500 for one-week stays. Silverleaf's land use plan at Galveston is
currently being challenged in court. A neighboring landowner has sued the city
of Galveston and its zoning board to set aside the Galveston planning
commission's approval of Silverleaf's land use plan. Silverleaf believes the
suit is without merit and has filed a petition to intervene in the litigation to
protect its interests. The Company does not believe that this suit will
materially affect its timetable for development of its New Resort at Galveston;
however, there can be no assurance that Silverleaf's land use plan will
withstand this challenge. Furthermore, this litigation may delay the development
of this property. See "-- Resorts Summary" and "Risk Factors -- Development,
Construction and Property Acquisition Activities".
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MARKETING AND SALES
Marketing is the process by which the Company attracts potential customers
to visit and tour an Existing Resort or attend a sales presentation. Sales is
the process by which the Company seeks to sell a Vacation Interval to a
potential customer once he arrives for a tour at an Existing Resort or attends a
sales presentation. The Company believes it has the marketing and sales systems
necessary to sell Vacation Intervals on a low-cost basis. The Company also
believes it is strategically positioned to enter new markets and develop
marketing programs for additional resorts it may develop in the future at a
lower cost than its competitors.
MARKETING. The Company's in-house marketing staff develops prospects
through a variety of marketing programs specifically designed to attract the
Company's target customers. Databases of new prospects are principally developed
through cooperative arrangements between Database Research, Inc., a subsidiary
of the Company, and other local businesses and special event sponsors. Under
these cooperative marketing programs, basic demographic information of potential
customers is solicited on a voluntary basis from individuals who patronize these
businesses or events. After entering this demographic information into its
permanent database, the Company utilizes its systems to identify prospects who
meet the Company's marketing criteria. Using the Company's automated dialing and
bulk mailing equipment, in-house marketing specialists conduct coordinated
telemarketing and direct mail procedures which invite prospects to tour one of
the Company's resorts and receive an incentive, such as a free gift.
SALES. The Company actively sells its Vacation Intervals primarily through
on-site salespersons at certain Existing Resorts. Upon arrival at an Existing
Resort for a scheduled tour, the prospect is met by a member of the Company's
on-site salesforce who conducts the prospect on a one to two hour tour of the
resort and its related amenities. At the conclusion of the tour, the sales
representative explains the benefits and costs of becoming a Silverleaf Owner.
The presentation also includes a description of the financing alternatives
offered by the Company. Prior to the closing of any sale, a verification officer
(a salaried employee of the Company) interviews each prospect to ensure
compliance with Company sales policies and regulatory agency requirements. No
sale becomes final until a statutory waiting period (which varies from state to
state) of up to five days has passed.
Sales representatives receive commissions ranging from 5-14% of the sales
price depending on established guidelines. Sales managers also receive
commissions of 4% and are subject to commission chargebacks in the event the
purchaser fails to make his first required payment. Sales directors also receive
commissions of 2%, which are also subject to chargebacks.
Prospects who are interested in a lower priced product are offered biennial
(alternate year) intervals or Samplers, which entitle the prospect to sample a
resort for a specified number of nights. The prospect may apply the cost of a
Sampler against the down-payment on a Vacation Interval if purchased at a later
date. In addition, the Company actively markets upgraded Vacation Intervals to
existing Silverleaf Owners. See "-- Growth Strategy". Although most upgrades are
sold by the Company's in-house sales staff, the Company has contracted with a
third party to assist in offsite marketing of upgrades at the Destination
Resorts. These upgrade programs have been well received by Silverleaf Owners and
accounted for approximately 17.1% and 24.6%, respectively, of the Company's
gross revenues from Vacation Interval sales for 1996 and 1997. By offering
Samplers and upgraded Vacation Intervals, the Company believes it offers an
affordable product for all prospects in its target market. Also, by offering
products with a range of prices, the Company attempts to attract younger
purchasers with its lower-priced products and gradually upgrade such purchasers
over time as their earnings increase.
Because the Company's sales representatives are a critical component of the
sales and marketing effort, the Company continually strives to attract, train
and retain a dedicated salesforce. The Company provides intensive sales
instruction and training which, coupled with the representative's valuable local
knowledge, assist the sales representatives in acquainting prospects with the
resort's benefits. Each sales representative is an employee of the Company and
receives some employment benefits. At December 31, 1997, the Company employed
more than 300 sales representatives at its Existing Resorts.
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CUSTOMER FINANCING
The Company offers financing to the buyers of Vacation Intervals at the
Company's resorts. These buyers 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 period, and are secured by a first mortgage on the Vacation Interval.
The Company bears the risk of defaults on these promissory notes, and this risk
is heightened inasmuch as the Company generally does not verify the credit
history of its customers and will provide financing if the customer is presently
employed and meets certain household income criteria.
The Company's credit experience is such that in 1997 it allocated 15.3% of
the purchase price of each Vacation Interval to a bad debt reserve. 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 (approximately 40% of sales price) 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, Illinois, Texas, and
certain other states have laws which limit or hinder the Company's ability to
recover personal judgments against customers who have defaulted on their loans.
For example, under Texas law, if the Company were to pursue a post-foreclosure
deficiency claim against a customer, the customer may file a court proceeding to
determine the fair market value of the property foreclosed upon. In such event,
the Company may not recover a personal judgment against the customer for the
full amount of the deficiency, but may recover only to the extent that the
indebtedness owed to the Company exceeds the fair market value of the property.
Accordingly, the Company has generally not pursued this remedy.
Prior to 1996, the Company sold customer promissory notes and mortgages to
third parties, generally with recourse, as a means of financing its operations.
As a result, the Company may be required to repurchase customer promissory notes
previously sold which become delinquent. The Company takes these contingent
obligations into account in establishing its allowance for uncollectible notes.
At December 31, 1997, the Company had customer notes receivable in the
approximate principal amount of $104.4 million, was contingently liable with
respect to approximately $7.4 million principal amount of customer notes sold
with recourse and had an allowance for doubtful notes and sales returns of
approximately $15.5 million. See Note 4 of Notes to Consolidated Financial
Statements.
The Company recognizes interest income as earned. If interest payments on
customer notes become delinquent, the Company ceases recognition of the interest
income until collection is assured. When inventory is returned to the Company,
any unpaid note receivable balances are charged against the allowance for
uncollectible notes net of the amount at which the Vacation Interval is being
restored to inventory.
While the Company intends to use the proceeds of the Equity Offering and
the Note Offering to pay indebtedness under its existing revolving credit
facilities, it may borrow additional funds under such facilities in the future
to finance its operations. Under its existing revolving credit facilities, the
Company may borrow up to $115.0 million collateralized by customer promissory
notes and mortgages. At December 31, 1997, the Company had borrowings under such
revolving credit facilities in the approximate principal amount of $40.4
million. These facilities permit borrowings up to 70% of the principal amount of
performing notes, and payments from Silverleaf Owners on such notes are credited
directly to the lender and applied against the Company's loan balance. At
December 31, 1997, the Company had a portfolio of approximately 21,320 Vacation
Interval customer promissory notes in the approximate principal amount of $104.4
million, of which approximately $14.4 million in principal amount were 61 days
or more past due and therefore ineligible as collateral.
At December 31, 1997, the Company's portfolio of customer notes receivable
had an average yield of 14.5%. At such date, the Company's borrowings, which
bear interest at variable rates, had a weighted average cost of 10.1%. 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 existing indebtedness currently bears
interest at variable rates and the Company's customer notes receivable bear
interest at fixed rates, increases in interest rates would erode the spread in
interest rates that the Company has historically enjoyed and could cause the
interest expense on the Company's borrowings to exceed its interest income on
its portfolio of customer loans. The Company has
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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, liquidity and financial position. If the
Note Offering is consummated, the Notes will bear interest at a fixed rate of
interest for a ten year period, which would lessen this risk initially.
Limitations on availability of financing would inhibit sales of Vacation
Intervals due to (i) the lack of funds to finance the initial negative cash flow
that results from sales that are financed by the Company, and (ii) reduced
demand if the Company is unable to provide financing to purchasers of Vacation
Intervals. The Company ordinarily receives only 10% of the purchase price on the
sale of a Vacation Interval but must pay in full the costs of development,
marketing, and sale of the Interval. Maximum borrowings available under the
Company's current credit agreements may not be sufficient to cover these costs,
thereby straining capital resources, liquidity, and capacity to grow. In
addition, to the extent interest rates decrease generally on loans available to
the Company's customers, the Company faces an increased risk that customers will
pre-pay their loans and reduce the Company's income from financing activities.
The Company typically provides financing to customers over a seven year
period, and customer notes had an average maturity of 5.5 years at December 31,
1997. The Company's revolving credit facilities mature between December 1999 and
October 2005, with up to $60.0 million of borrowings under such facilities
maturing in December 1999. Accordingly, there could be a mismatch between the
Company's cash receipts and the Company's cash disbursement obligations in
December 1999 and subsequent periods. Although the Company has historically been
able to secure financing sufficient to fund its operations, it does not
presently have agreements with its lenders to extend the term of its existing
funding commitments or to replace such commitments upon their expiration.
Failure to obtain such refinancing facilities could require the Company to sell
its portfolio of customer notes receivable, probably at a substantial discount,
or to seek other alternatives to enable it to continue in business. While the
Company has been successful in obtaining financing to date, there is no
assurance it will be able to do so in the future. See "Risk
Factors -- Acceleration of Deferred Taxes" and "Risk Factors -- Alternative
Minimum Taxes". However, if the Equity Offering is consummated, a substantial
portion of the Company's indebtedness under the credit facilities will be
repaid, which would lessen this risk initially.
DEVELOPMENT AND ACQUISITION PROCESS
The Company believes there is substantial opportunity to develop and
acquire resorts. As part of its current growth strategy, the Company intends to
develop and selectively acquire new resorts with characteristics similar to the
Existing Resorts and New Resorts. See "Risk Factors -- Development,
Construction, and Property Acquisition Activities".
In evaluating a potential site for a Drive-to Resort, the Company generally
seeks locations within 100 miles of large metropolitan areas that have favorable
demographic characteristics. For both Drive-to Resorts and Destination Resorts,
the Company generally seeks wooded rustic settings with amenities such as golf
courses or water frontage. For Destination Resorts, the Company seeks popular
destination resort areas that are easily accessible to Silverleaf Owners. The
Las Vegas, Nevada site was recently acquired in response to a survey in which
Silverleaf Owners expressed a strong interest in a "destination" resort in Las
Vegas. The Company also seeks locations offering an absence of competing
properties near the target location, ease of development with respect to zoning
and land-use issues, and ease of compliance with governmental regulations
concerning timeshare sales and operations.
Before committing capital to a site, the Company tests the market using
certain marketing techniques developed by the Company. The Company also explores
the zoning and land-use laws applicable to the potential site and the regulatory
issues pertaining to licenses and permits for timeshare sales and operations.
The Company will also contact various governmental entities and review
applications for necessary governmental permits and approvals. If the Company is
satisfied with its market and regulatory review, it will prepare a conceptual
layout of the resort, including building site plans and resort amenities. After
the Company applies its standard lodging unit design and amenity package, the
Company prepares a budget which estimates the cost of developing the resort,
including costs of lodging facilities, infrastructure and amenities, as well as
projected sales, marketing, and general and administrative costs. Purchase
contracts typically provide for additional due diligence by the Company,
including obtaining an environmental report by an environmental consulting firm,
a survey of the
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property, and a title commitment. The Company employs legal counsel to review
such documents and to also review pertinent legal issues. If the Company
continues to be satisfied with the site after the environmental and legal
review, the Company will complete the purchase of the property.
The Company has a contract with an outside architectural firm which
supervises construction of new units. All construction activities are contracted
out to third parties, subject to completion guarantees. The Company seeks
initial completion of the development of a new resort's basic infrastructure and
models within one year, with additional units to be added within 150 days based
on demand, weather permitting. See "Risk Factors -- Development, Construction
and Property Acquisition Activities". A normal part of the development process
is the establishment of a functional sales office at the new resort.
CLUBS/MASTER CLUB
Upon purchasing a Vacation Interval at a resort, the purchaser
automatically becomes a member of a homeowner's association ("Club") for that
particular resort. The Company has the right to appoint the directors of the
Clubs. The Silverleaf Owners are obligated to pay monthly dues to their
respective Clubs, which obligation is secured by a lien on their Vacation
Interval in favor of the Club. If a Silverleaf Owner fails to pay his monthly
dues, the Club may foreclose on the delinquent Silverleaf Owner's Vacation
Interval. During 1996 and 1997, approximately 396 and 228 foreclosures,
respectively, resulted from Silverleaf Owners' failure to pay monthly dues.
Each Existing Resort has a Club which has entered into a Master Club
Agreement with the Master Club. The Master Club, a non-profit corporation, has
no shareholders or members, and its directors are elected by a majority vote of
the directors of the Clubs. The Master Club Agreement authorizes the Master Club
to manage the Existing Resorts on a centralized and collective basis. The
consolidation of resort operations through the Master Club permits: (i) a
centralized reservation system for all resorts; (ii) substantial cost savings by
purchasing goods and services for all resorts on a group basis, which generally
results in a lower cost of goods and services than if such goods and services
were purchased by each resort on an individual basis; (iii) centralized
management for the entire resort system; (iv) centralized legal, accounting and
administrative services for the entire resort system; and (v) uniform
implementation of various rules and regulations governing all resorts. All
furniture, furnishings, recreational equipment and other personal property used
in connection with the operation of the Existing Resorts are owned by the Master
Club, rather than the Company.
At December 31, 1997, the Master Club had 418 full-time employees and is
solely responsible for their salaries. The Master Club is also responsible for
the direct expenses of operating the Existing Resorts, while the Company is
responsible for the direct expenses of new development and all marketing and
sales activities. To the extent the Master Club provides payroll, administrative
and other services that directly benefit the Company, the Company reimburses the
Master Club for such services. See "Certain Relationships and Related
Transactions -- Transactions with the Master Club" and Note 10 of Notes to
Consolidated Financial Statements.
The Master Club collects dues, currently $49.98 per month ($24.99 for
biennial (alternate year) Vacation Intervals) from Silverleaf Owners, plus
certain other amounts assessed against the Silverleaf Owners from time to time,
together with all income generated by the operation of certain amenities at the
Existing Resorts. Such amounts are placed in a common account and are used by
the Master Club to pay the costs of operating the Existing Resorts and the
management fees owing to the Company pursuant to a Management Agreement between
the Company and the Master Club. This Management Agreement authorizes the
Company to manage and operate the resorts and provides for a management fee
equal to 15% of Master Club gross revenues, but the Company's right to receive
such fee on an annual basis is limited to the amount of the Master Club's net
income; however, if the Company does not receive 15% of the Master Club's gross
revenues, such deficiency is deferred for payment to succeeding year(s), subject
again to the net income limitation. Due to anticipated refurbishment of units at
the Existing Resorts, together with the operational and maintenance expenses
associated with the Company's current expansion and development plans, the
Company believes its 1998 management fee will be subject to the net income
limitation. For financial reporting purposes, management fees from the Master
Club are recognized based on the lower of (i) 15% of Master Club's gross
revenues, or (ii) Master Club net income. See Note 10 of Notes to Consolidated
Financial Statements. The Management Agreement was entered into in March 1990,
has a ten year
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term, and will continue year-to-year thereafter unless cancelled by either
party. At December 31, 1997, there were approximately 34,700 Silverleaf Owners
who pay dues to the Master Club.
As the Company develops new resorts, their respective clubs are expected to
be added to the Master Club Agreement. However, the timeshare laws of some
states, including Nevada, prohibit the collective dues/expense arrangement used
by the Master Club. Accordingly, the Club for the New Resort in Las Vegas will
not be managed by the Master Club and will be managed directly by Silverleaf.
Oak N' Spruce has two Clubs -- one for Silverleaf Owners who purchase an
interval in the new units to be constructed by Silverleaf, and another Club for
timeshare owners who purchase an interval in an existing Oak N' Spruce unit. The
latter Club, which had approximately 5,300 members at December 31, 1997, has no
management agreement with the Master Club.
OTHER OPERATIONS
OPERATION OF AMENITIES. The Company owns, operates, and receives the
revenues from the marina at The Villages and the golf course and pro shop at
Holiday Hills. Although the Company owns the golf course at Holly Lake, a
homeowners association in the development operates the golf course. In general,
the Master Club receives revenues from the various amenities which require a
usage fee, such as watercraft rentals, horseback rides, and restaurants.
UNIT LEASING. The Company also realizes revenues from sales of Samplers
which allow prospective Vacation Interval purchasers to sample a resort for a
specified number of nights. A five night Sampler package currently sells for
$595. For the years ended December 31, 1996 and 1997, the Company realized $1.7
million and $1.4 million, respectively, in revenues from Sampler sales. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation".
UTILITY SERVICES. The Company owns its own water supply facilities at Piney
Shores, The Villages, Hill Country, Holly Lake, Ozark Mountain, Holiday Hills,
Timber Creek, and Fox River resorts. The Company also currently owns its own
waste-water treatment facilities at Piney Shores, Ozark Mountain, Holly Lake,
Timber Creek, and Fox River resorts. The Company recently transferred the
waste-water treatment facilities at the Holiday Hills Resort to a local public
utility district. The Company is in the process of applying for permits to build
expanded water supply and waste-water facilities at the Timber Creek and Fox
River resorts. The Company has permits to supply and charge third parties for
the water supply facilities at The Villages, Holly Lake, Holiday Hills, Ozark
Mountain, Hill Country, and Piney Shores resorts, and the waste-water facilities
at the Ozark Mountain, Holly Lake, Piney Shores, Hill Country, and Villages
resorts. The Company has applied for permits which would allow it to charge
third-parties for water supply and waste-water service at the Timber Creek
resort. The Company is currently building a waste-water facility at The Villages
which should be completed by mid-1998. TNRCC notified the Company that Holly
Lake's water supply facilities do not meet TNRCC rules regarding minimum water
storage capacity. To comply, the Company intends to build a new water supply
facility at Holly Lake, with construction slated to begin in the third quarter
of 1998. The Company also anticipates developing or augmenting utility service
capacity at the Timber Creek and Fox River resorts and the new resort in
Galveston.
OTHER PROPERTY. The Company owns an undeveloped five-acre tract of land in
Pass Christian, Mississippi, which has been listed with a broker for sale. The
Company had planned to develop this property as a Destination Resort. However,
in a recent survey, the Silverleaf Owners expressed a strong interest in a Texas
resort on the Gulf of Mexico. In response, the Company acquired the parcels in
Galveston, Texas, which will supplant development of the Pass Christian
property. At December 31, 1997, the Company also owned 18 lots at Holiday Hills
Resort and 404 lots at The Villages. At December 31, 1997, the Company also
owned 9 condominium units which are in the process of being sold. See Note 12 of
Notes to Consolidated Financial Statements. Additionally, the Company owns
approximately 45 acres in Mississippi, and the Company is entitled to 85% of any
profits from this land. An affiliate of a director of the Company owns a 10% net
profits interest in this land. See "Certain Relationships and Related
Transactions -- Transactions with Related Individuals".
OTHER OPERATIONS. The Company provides management services for certain
condominium homeowners' associations at the Existing Resorts. The Company will
receive fees from campground members at the Timber
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Creek, Fox River, and Galveston resorts. The Company also receives revenues from
room charges at hotel at the Oak N' Spruce Resort.
POSSIBLE ACQUISITION OF MANAGEMENT RIGHTS TO CROWN RESORTS
In January 1998, the Company entered into an agreement with Crown to
acquire management rights of eight timeshare resorts in Alabama, Mississippi,
North Carolina, Pennsylvania, South Carolina, Tennessee, and Texas for $3.8
million. Under the agreement, the Company will receive all existing equipment
and furniture and fixtures in place for the management and operation of these
eight resorts which is not owned by the resort homeowners' associations. The
Company will also receive approximately 1,800 unsold Vacation Intervals. At
December 31, 1997, the eight resorts had approximately 21,500 Vacation Interval
owners. These resorts, if acquired, will not be operated under Silverleaf's name
and will not be managed by the Master Club, and their interval owners will not
participate in the Endless Escape program. Silverleaf would receive management
fees from the homeowners' associations of these eight resorts in exchange for
maintenance and cleaning of the units, management of the resorts' reservation
systems, and operation of a proposed Crown Resorts exchange program. This
acquisition would also provide an opportunity to market and sell Vacation
Intervals at the Existing Resorts and the New Resorts as upgrades to interval
owners of Crown Resorts. This acquisition is currently in the due diligence
stage, and there is no assurance that it will be consummated.
The eight Crown Resorts are described as follows:
- The Alpine Bay Resort is located in Talledega County, Alabama, near Lake
Logan Martin and is approximately 50 miles east of Birmingham. The resort
contains 54 units and includes a golf course, pro shop lounge, outdoor
pool and tennis courts. There are no remaining unsold Vacation Intervals
at this resort.
- The Hickory Hill Resort is located in Jackson County, Mississippi, near
the Pascagoula River and is approximately 20 miles east of Biloxi. The
resort contains 80 units and has a golf course, restaurant/lounge,
outdoor pool, clubhouse, fitness center, miniature golf course, tennis
courts, and playground. There are approximately 155 unsold Vacation
Intervals at this resort.
- The Lake Royale Resort is located in Franklin County, North Carolina, and
is approximately 50 miles east of Raleigh/Durham. The resort contains ten
units and has a golf course, pro shop lounge, outdoor pool, clubhouse,
miniature golf course, tennis courts, and playground. There are
approximately 14 unsold Vacation Intervals at this resort.
- The Beech Mountain Lake Resort is located in Butler Township, Luzerne
County, Pennsylvania, and is approximately 30 miles south of Wilkes
Barre-Scranton. The resort contains 54 units and has a restaurant/lounge,
indoor pool/sauna, clubhouse, fitness center, tennis courts, and pontoon
boat. There are approximately 116 unsold Vacation Intervals at this
resort.
- The Treasure Lake Resort is located in Sandy Township, Clearfield County,
Pennsylvania, and is approximately 160 miles northeast of Pittsburgh. The
resort contains 145 units and has two golf courses, a restaurant/lounge,
indoor pool/sauna, outdoor pool, clubhouse, tennis courts, and pontoon
boat. There are approximately 468 unsold Vacation Intervals at this
resort.
- The Foxwood Hills Resort is located in Oconee County, South Carolina,
near Lake Hartwell and is approximately 100 miles northeast of Atlanta.
The resort contains 113 units and has a golf course, restaurant/lounge,
indoor pool/sauna, outdoor pool, clubhouse, miniature golf course, tennis
courts, pontoon boat, and playground. There are approximately 483 unsold
Vacation Intervals at this resort.
- The Lake Tansi Village Resort is located in Cumberland County,
Mississippi, and is approximately 75 miles west of Knoxville. The resort
contains 124 units and has a golf course, restaurant/lounge, indoor
pool/sauna, outdoor pool, clubhouse, fitness center, miniature golf
course, tennis courts, and playground. There are approximately 275 unsold
Vacation Intervals at this resort.
- The Westwind Manor Resort is located in Wise County, Texas, on Lake
Bridgeport and is approximately 65 miles northwest of the Dallas-Ft.
Worth metroplex. The resort contains 37 units and has a golf course,
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restaurant/lounge, outdoor pool, clubhouse, miniature golf course, tennis
courts, and playground. There are approximately 333 unsold Vacation
Intervals at this resort.
The Company will not own, operate, or receive revenues from the
above-described recreational amenities, which are generally owned and operated
by various homeowner's associations or unrelated third parties. Neither will the
Company acquire any land or development rights for the construction of
additional timeshare units at these eight resorts, although it may consider such
acquisitions in the future.
PARTICIPATION IN VACATION INTERVAL EXCHANGE NETWORKS
INTERNAL EXCHANGES. Each purchaser of a Vacation Interval from the Company
has certain exchange privileges which entitle such purchaser to: (i) exchange
his interval for a different interval (week) at the same resort so long as the
different interval is of an equal or lower rating; and (ii) exchange his
interval for the same interval at any other of the Existing Resorts. These
intra-company exchange rights require an exchange fee, which is currently $50,
and are conditioned upon availability of the desired interval or resort.
RCI EXCHANGES. The Company believes that its Vacation Intervals are made
more attractive by the Company's participation in Vacation Interval exchange
networks operated by RCI. The Existing Resorts, except Oak N' Spruce, are
registered with RCI, and approximately one-third of Silverleaf Owners
participate in RCI's exchange network. The Oak N' Spruce Resort is currently
under contract with a different network exchange company, Interval
International. Membership in RCI allows participating Silverleaf Owners to
exchange their occupancy right in a unit in a particular year for an occupancy
right at the same time or a different time of the same or lower color rating in
another participating resort, based upon availability and the payment of a
variable exchange fee. A member may exchange his Vacation Interval for an
occupancy right in another participating resort by listing his Vacation Interval
as available with the exchange organization and by requesting occupancy at
another participating resort, indicating the particular resort or geographic
area to which the member desires to travel, the size of the unit desired and the
period during which occupancy is desired.
RCI assigns a rating of "red", "white", or "blue" to each Vacation Interval
for participating resorts based upon a number of factors, including the location
and size of the unit, the quality of the resort and the period during which the
Vacation Interval is available, and attempts to satisfy exchange requests by
providing an occupancy right in another Vacation Interval with a similar rating.
An owner of a red Vacation Interval may exchange his interval for a red, white,
or blue interval. An owner of a white Vacation Interval may exchange only for a
white or blue interval, and an owner of a blue interval may exchange only for a
blue interval. If RCI is unable to meet the member's initial request, it
suggests alternative resorts based on availability. RCI has assigned either red
or white ratings to all Vacation Intervals at the Company's Ozark Mountain and
Holiday Hills resorts.
RCI has more than 3,200 participating resort facilities and over 2.3
million members worldwide. During 1997 RCI processed over 1.8 million Vacation
Interval exchanges. The cost of the annual membership fee in RCI, which is at
the option and expense of the owner of the Vacation Interval, is currently $74
per year. Exchange rights require an additional fee of approximately $103 for
domestic exchanges and $133 for foreign exchanges.
COMPETITION
The timeshare industry is highly fragmented and includes a large number of
local and regional resort developers and operators. However, some of the world's
most recognized lodging, hospitality and entertainment companies, such as
Marriott, Disney, Hilton, Hyatt, and Four Seasons have recently entered the
industry. Other companies in the timeshare industry, including Signature,
Fairfield, Vacation Break, Vistana, Ramada, and TrendWest, are, or are
subsidiaries of, public companies, with the enhanced access to capital and other
resources that public ownership implies.
Fairfield and Signature own timeshare resorts in or near Branson, Missouri,
which compete with the Company's Holiday Hills and Ozark Mountain Resorts, and
to a lesser extent with the Company's newly-acquired Timber Creek Resort.
Signature also owns a resort which is located near and competes with the
Company's Piney Shores Resort. Based on published industry data and reports,
except for Fairfield and Signature, the Company does not believe that any of the
competitors named above own timeshare resorts in Illinois,
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Missouri, or Texas. The Company believes that many of the companies named in the
preceding paragraph operate timeshare resorts in Las Vegas, Nevada.
Additionally, the Company believes there are a number of privately-owned and
operated timeshare resorts in most states in which the Company owns resorts
which will compete with the Company's Existing Resorts and New Resorts. Finally,
the proposed resort in Las Vegas will compete with a large number and variety of
hotels and other lodging facilities in Las Vegas.
The Company believes Marriott, Disney, Hilton, Hyatt, and Four Seasons
generally target consumers with higher annual incomes than the Company's target
market. The Company believes the other competitors named above target consumers
with similar, but slightly higher, income levels than the Company's target
market. The Company's competitors may possess significantly greater financial,
marketing, personnel and other resources than the Company, and there can be no
assurance that such competitors will not significantly reduce the price of their
Vacation Intervals or offer greater convenience, services or amenities than the
Company.
While the Company's principal competitors are developers of timeshare
resorts, the Company is also subject to competition from other entities engaged
in the commercial lodging business, including condominiums, hotels and motels;
others engaged in the leisure business; and, to a lesser extent, from
campgrounds, recreational vehicles, tour packages and second home sales. A
reduction in the product costs associated with any of these competitors, or an
increase in the Company's (or its customers') costs relative to such
competitors' (or their customers') costs, could have a material adverse effect
on the Company's results of operations, liquidity and financial position.
Numerous businesses, individuals and other entities compete with the
Company in seeking properties for acquisition and development and new resorts.
Some of these competitors are larger and have greater financial and other
resources than the Company. Such competition may result in a higher cost for
properties the Company wishes to acquire or may cause the Company to be unable
to acquire suitable properties for the development of new resorts.
GOVERNMENTAL REGULATION
GENERAL. The Company's marketing and sales of Vacation Intervals and other
operations are subject to extensive regulation by the federal government and the
states and jurisdictions in which the Existing Resorts and New Resorts are
located and in which Vacation Intervals are marketed and sold. On a federal
level, the Federal Trade Commission has taken the most active regulatory role
through the Federal Trade Commission Act, which prohibits unfair or deceptive
acts or competition in interstate commerce. Other federal legislation to which
the Company is or may be subject includes the Truth-in-Lending Act and
Regulation Z, the Equal Opportunity Credit Act and Regulation B, the Interstate
Land Sales Full Disclosure Act, the Real Estate Settlement Procedures Act, the
Consumer Credit Protection Act, the Telephone Consumer Protection Act, the
Telemarketing and Consumer Fraud and Abuse Prevention Act, the Fair Housing Act
and the Civil Rights Acts of 1964 and 1968.
In response to certain fraudulent marketing practices in the timeshare
industry in the 1980's, various states enacted legislation aimed at curbing such
abuses. Texas, Missouri, Illinois, Massachusetts and Nevada, the states in which
the Company owns Existing Resorts or New Resorts, as well as other states in
which the Company markets its Vacation Intervals, have adopted specific laws and
regulations regarding the marketing and sale of Vacation Intervals. The laws of
most states, including Texas, Illinois, Massachusetts and Nevada, require the
Company to file a detailed offering statement and supporting documents with a
designated state authority, which describe the Company, the project, and the
promotion and sale of Vacation Intervals. The offering statement must be
approved by the appropriate state agency before the Company may solicit
residents of such state. The laws of Texas, Illinois, Massachusetts and Nevada,
respectively, require the Company to deliver an offering statement (or public
report), together with certain additional information concerning the terms of
the purchase, to prospective purchasers of Vacation Intervals who are residents
of such state, even if the resort is not located in such state. The laws of
Missouri generally only require certain disclosures in sales documents for
prospective purchasers. There are also laws in each state where the Company
currently sells Vacation Intervals which grant the purchaser of a Vacation
Interval the right to cancel a contract of purchase at any time within three to
five calendar days following the date the contract was signed by the purchaser.
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The Company qualifies each resort under the laws of the state where it is
located. The Company has recently filed a timeshare application in Nevada with
respect to the New Resort in Las Vegas. There can be no assurance that the
Company will obtain the requisite approval to sell Vacation Intervals for this
resort, and the Company has not commenced marketing or sales activities for this
report.
The Company also markets and sells its Vacation Intervals to residents of
certain states which are near the states where the Company's resorts are
located. Many of these neighboring states also regulate the marketing and sale
of Vacation Intervals to their residents. The Company is currently in various
stages of obtaining permits to sell Vacation Intervals to residents of New York
and certain other states proximate to the Oak N' Spruce Resort in Massachusetts.
There can be no assurance that the Company will obtain the requisite approvals
to sell Vacation Intervals to residents of such states. The Company does not
register all of its resorts in each of the states where its resorts are located.
Most states have additional laws which regulate the Company's activities
and protect purchasers, such as real estate licensure laws; travel sales
licensure laws; anti-fraud laws; consumer protection laws; telemarketing laws;
prize, gift and sweepstakes laws; and other related laws.
The Company believes it is in material compliance with federal, Texas,
Missouri, Illinois, and Massachusetts laws and regulations to which it is
currently subject relating to the sale and marketing of Vacation Intervals.
However, the Company is normally and currently the subject of a number of
consumer complaints generally relating to marketing or sales practices filed
with relevant authorities, and there can be no assurance that all of these
complaints can be resolved without adverse regulatory actions or other
consequences. The Company expects some level of consumer complaints in the
ordinary course of its business as the Company aggressively markets and sells
Vacation Intervals in the value segment of the timeshare industry, which may
include individuals who are less financially sophisticated than more affluent
customers. There can be no assurance that the costs of resolving consumer
complaints or of qualifying under Vacation Interval ownership regulations in all
jurisdictions in which the Company desires to conduct sales will not be
significant, that the Company is in material compliance with applicable federal,
Texas, Missouri, Illinois, Massachusetts, or other laws and regulations, or that
violations of law will not have adverse implications for the Company, including
negative public relations, potential litigation, and regulatory sanctions. The
expense, negative publicity, and potential sanctions associated with the failure
to comply with applicable laws or regulations could have a material adverse
effect on the Company's results of operations, liquidity, or financial position.
Further, there can be no assurance that either the federal government or states
having jurisdiction over the Company's business will not adopt additional
regulations or take other actions which would adversely affect the Company's
results of operations, liquidity, and financial position.
During the 1980's and continuing through the present, the timeshare
industry has been and continues to be afflicted with negative publicity and
prosecutorial attention due, among other things, to marketing practices which
were widely viewed as deceptive or fraudulent. Among the many timeshare
companies which have been the subject of federal, state and local enforcement
actions and investigations in the past were certain of the Affiliated Companies
and their affiliates. Some of the settlements, injunctions and decrees resulting
from litigation and enforcement actions (the "Orders") to which certain of the
Affiliated Companies consented purport to bind all successors and assigns, and
accordingly bind the Company. In addition, at that time the Company was directly
a party to one such Order issued in Missouri. No past or present officers,
directors or employees of the Company or any Affiliated Company were named as
subjects or respondents in any of these Orders; however, each Order purports to
bind generically unnamed "officers, directors and employees" of certain
Affiliated Companies. Therefore, certain of these Orders may be interpreted to
be enforceable against the present officers, directors and employees of the
Company even though they were not individually named as subjects of the
enforcement actions which resulted in these Orders. These Orders require, among
other things, that all parties bound by the Orders, including the Company,
refrain from engaging in deceptive sales practices in connection with the offer
and sale of Vacation Intervals. In one case in 1988, an Affiliated Company pled
guilty to deceptive uses of the mails in connection with promotional sales
literature mailed to prospective timeshare purchasers and agreed to pay a
judicially imposed fine of $1.5 million and restitution of $100,000. The
requirements of the Orders are substantially what applicable state and federal
laws and regulations mandate, but the consequence of violating the Orders may be
that sanctions (including possible financial penalties and suspension or loss of
licensure) may be imposed more summarily and may be harsher than would be the
case if the Orders did not bind the Company. In
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addition, the existence of the Orders may be viewed negatively by prospective
regulators in jurisdictions where the Company does not now do business, with
attendant risks of increased costs and reduced opportunities.
In early 1997, the Company was the subject of some consumer complaints
which triggered governmental investigations into the Company's affairs. In March
1997, the Company entered into an Assurance of Voluntary Compliance with the
Texas Attorney General, in which the Company agreed to make additional
disclosure to purchasers of Vacation Intervals regarding the limited
availability of its Endless Escape program during certain periods. The Company
paid $15,200 for investigatory costs and attorneys' fees of the Attorney General
in connection with this matter. Also, in March 1997, the Company entered into an
agreed order (the "Agreed Order") with the Texas Real Estate Commission
requiring the Company to comply with certain aspects of the Texas Timeshare Act,
Texas Real Estate License Act and Rules of the Texas Real Estate Commission,
with which it had allegedly been in non-compliance until mid-1995. The
allegations included (i) the Company's admitted failure to register the Missouri
Destination Resorts in Texas (due to its misunderstanding of the reach of the
Texas Timeshare Act); (ii) payment of referral fees for Vacation Interval sales,
the receipt of which was improper on the part of the recipients; and (iii)
miscellaneous other actions alleged to violate the Texas Timeshare Act, which
the Company denied. While the Agreed Order acknowledged that Silverleaf
independently resolved ten consumer complaints referenced in the Agreed Order,
discontinued the practices complained of, and registered the Destination Resorts
during 1995 and 1996, the Texas Real Estate Commission ordered Silverleaf to
cease its discontinued practices and enhance its disclosure to purchasers of
Vacation Intervals. In the Agreed Order, Silverleaf agreed to make a voluntary
donation of $30,000 to the State of Texas. The Agreed Order also directed
Silverleaf to revise its training manual for timeshare salespersons and
verification officers. While the Agreed Order resolved all of the alleged
violations contained in complaints received by the Texas Real Estate Commission
through December 31, 1996, the Company has encountered and expects to encounter
some level of additional consumer complaints in the ordinary course of its
business.
The Company employs the following methods in training sales and marketing
personnel as to legal requirements. With regard to direct mailings, a designated
compliance employee of the Company reviews all mailings to determine if they
comply with applicable state legal requirements. With regard to telemarketing,
the Company's Vice President -- Marketing prepares a script for telemarketers
based upon applicable state legal requirements. All telemarketers receive
training which includes, among other things, directions to adhere strictly to
the Company approved script. Telemarketers are also monitored by their
supervisors to ensure that they do not deviate from the Company approved script.
With regard to sales functions, the Company distributes sales manuals which
summarize applicable state legal requirements. Additionally, such sales
personnel receive training as to such applicable legal requirements. The Company
has a salaried employee at each sales office who reviews the sales documents
prior to closing a sale to review compliance with legal requirements.
Additionally, a member of the corporate office staff calls each purchaser within
48 hours after the sale to verify information. Periodically, the Company is
notified by regulatory agencies to revise its disclosures to consumers and to
remedy other alleged inadequacies regarding the sales and marketing process. In
such cases, the Company revises its direct mailings, telemarketing scripts, or
sales disclosure documents, as appropriate, in an attempt to comply with such
requests.
ENVIRONMENTAL MATTERS. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up hazardous or toxic
substances or petroleum product releases at such property, and may be held
liable to a governmental entity or to third parties for property damage and tort
liability and for investigation and clean-up costs incurred by such parties in
connection with the contamination. Such laws typically impose clean-up
responsibility and liability without regard to whether the owner or operator
knew of or caused the presence of the contaminants, and the liability under such
laws has been interpreted to be joint and several unless the harm is divisible
and there is a reasonable basis for allocation of responsibility. The cost of
investigation, remediation or removal of such substances may be substantial, and
the presence of such substances, or the failure to properly remediate the
contamination on such property, may adversely affect the owner's ability to sell
such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances at a
disposal or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in
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favor of the government for damages and costs it incurs in connection with the
contamination. Finally, the owner or operator of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site or from environmental
regulatory violations. In connection with its ownership and operation of its
properties, the Company may be potentially liable for such claims.
Certain Federal, state and local laws, regulations and ordinances govern
the removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") when such materials are in poor condition or in the event of
construction, remodeling, renovation or demolition of a building. Such laws may
impose liability for release of ACMs and may provide for third parties to seek
recovery from owners or operators of real properties for personal injury
associated with ACMs. In connection with its ownership and operation of its
properties, the Company may be potentially liable for such costs. In 1994, the
Company conducted a limited asbestos survey at each of the Existing Resorts,
which surveys did not reveal material potential losses associated with ACM's at
certain of the Existing Resorts.
In addition, recent studies have linked radon, a naturally-occurring
substance, to increased risks of lung cancer. While there are currently no state
or federal requirements regarding the monitoring for, presence of, or exposure
to, radon in indoor air, the EPA and the Surgeon General recommend testing
residences for the presence of radon in indoor air, and the EPA further
recommends that concentrations of radon in indoor air be limited to less than 4
picocuries per liter of air (Pci/L) (the "Recommended Action Level"). The
presence of radon in concentrations equal to or greater than the Recommended
Action Level in one or more of the Company's properties may adversely affect the
Company's ability to sell Vacation Intervals at such properties and the market
value of such property. The Company has not tested its properties for radon.
Recently-enacted federal legislation will eventually require the Company to
disclose to potential purchasers of Vacation Intervals at the Company's resorts
that were constructed prior to 1978 any known lead-paint hazards and will impose
treble damages for failure to so notify.
Electric transmission lines are located in the vicinity of the Company's
properties. Electric transmission lines are one of many sources of
electromagnetic fields ("EMFs") to which people may be exposed. Research into
potential health impacts associated with exposure to EMFs has produced
inconclusive results. Notwithstanding the lack of conclusive scientific
evidence, some states now regulate the strength of electric and magnetic fields
emanating from electric transmission lines, while others have required
transmission facilities to measure for levels of EMFs. In addition, the Company
understands that lawsuits have, on occasion, been filed (primarily against
electric utilities) alleging personal injuries resulting from exposure as well
as fear of adverse health effects. In addition, fear of adverse health effects
from transmission lines has been a factor considered in determining property
value in obtaining financing and in condemnation and eminent domain proceedings
brought by power companies seeking to construct transmission lines. Therefore,
there is a potential for the value of a property to be adversely affected as a
result of its proximity to a transmission line and for the Company to be exposed
to damage claims by persons exposed to EMFs.
In 1994, the Company conducted Phase I environmental assessments at several
of its Existing Resorts in order to identify potential environmental concerns.
Also, the Company has obtained more recent Phase I environmental assessments for
each of the remaining Existing Resorts and New Resorts. These Phase I
assessments were carried out in accordance with accepted industry practices and
consisted of non-invasive investigations of environmental conditions at the
properties, including a preliminary investigation of the sites and
identification of publicly known conditions concerning properties in the
vicinity of the sites, physical site inspections, review of aerial photographs
and relevant governmental records where readily available, interviews with
knowledgeable parties, investigation for the presence of above ground and
underground storage tanks presently or formerly at the sites, and the
preparation and issuance of written reports. The Company's Phase I assessments
of the properties have not revealed any environmental liability that the Company
believes would have a material adverse effect on the Company's business, assets
or results of operations taken as a whole; nor is the Company aware of any such
material environmental liability. Nevertheless, it is possible that the
Company's Phase I assessments do not reveal all environmental liabilities or
that there are material environmental liabilities of which the Company is
unaware. Moreover, there can be no assurance that (i) future laws, ordinances or
regulations will not impose any material environmental liability or (ii) the
current environmental condition of the
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properties will not be affected by the condition of land or operations in the
vicinity of the properties (such as the presence of underground storage tanks)
or by third parties unrelated to the Company. The Company does not believe that
compliance with applicable environmental laws or regulations will have a
material adverse effect on the Company's results of operations, liquidity, or
financial position.
The Company believes that its properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances. The Company has not been notified by
any governmental authority or any third party, and is not otherwise aware, of
any material noncompliance, liability or claim relating to hazardous or toxic
substances or petroleum products in connection with any of its present
properties. See "Risk Factors -- Possible Environmental Liabilities".
UTILITY REGULATION. The Company owns its own water supply and waste-water
treatment facilities at several of the Existing Resorts, which are regulated by
various governmental agencies. See "-- Other Operations". TNRCC is the primary
state umbrella agency regulating utilities at the resorts in Texas, and the
Missouri Department of Natural Resources and Public Service Commission of
Missouri are the primary state umbrella agencies regulating utilities at the
resorts in Missouri. The Environmental Protection Agency, division of Water
Pollution Control, and the Illinois Commerce Commission are the primary state
agencies regulating water utilities in Illinois. These agencies regulate the
rates and charges for the services (allowing a reasonable rate of return in
relation to invested capital and other factors), the size and quality of the
plants, the quality of water supplied, the efficacy of waste-water treatment,
and many other aspects of the utilities' operations. The agencies have approval
rights regarding the entity owning the utilities (including its financial
strength) and the right to approve a transfer of the applicable permits upon any
change in control of the entity holding the permits. Other federal, state,
regional and local environmental, health and other agencies also regulate
various aspects of the provision of water and waste-water treatment services.
OTHER REGULATION. Under various state and federal laws governing housing
and places of public accommodation, the Company is required to meet certain
requirements related to access and use by disabled persons. Many of these
requirements did not take effect until after January 1, 1991. Although
management of the Company believes that its facilities are substantially in
compliance with present requirements of such laws, the Company will incur
additional costs of compliance. Additional legislation may impose further
burdens or restrictions on owners with respect to access by disabled persons.
The ultimate amount of the cost of compliance with such legislation is not
currently ascertainable, and, while such costs are not expected to have a
material effect on the Company, such costs could be substantial. Limitations or
restrictions on the completion of certain renovations may limit application of
the Company's growth strategy in certain instances or reduce profit margins on
the Company's operations. See "Risk Factors -- Cost of Compliance with Laws
Governing Accessibility of Facilities to Disabled Persons".
EMPLOYEES
At December 31, 1997, the Company employed 1,602 persons. The Company
believes employee relations are good. None of the employees are represented by a
labor union.
INSURANCE
The Company carries comprehensive liability, fire, hurricane and storm
insurance with respect to the Company's resorts, with policy specifications,
insured limits and deductibles customarily carried for similar properties which
the Company believes are adequate. There are, however, certain types of losses
(such as losses arising from floods and acts of war) that are not generally
insured because they are either uninsurable or not economically insurable.
Should an uninsured loss or a loss in excess of insured limits occur, the
Company could lose its capital invested in a resort, as well as the anticipated
future revenues from such resort and would continue to be obligated on any
mortgage indebtedness or other obligations related to the property. Any such
loss could have a material adverse effect on the Company's results of operation,
liquidity or financial position. The Company self-insures for property damage to
certain vehicles and heavy equipment. See "Risk Factors -- Natural Disasters;
Uninsured Loss".
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LEGAL PROCEEDINGS
The Company is a party to litigation and is subject to claims respecting
tort, contract, and consumer disputes, among others. In the judgment of
management, none of such pending lawsuits or claims against the Company, either
individually or in the aggregate, is likely to have a material adverse effect on
the Company or its business. See "-- Description of New Resorts -- Gulf Coast
Resort", "Risk Factors -- Regulation of Marketing and Sales of Vacation
Intervals and Related Laws" and "Risk Factors -- Development, Construction, and
Property Acquisition Activities".
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each person
who is a director or executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert E. Mead........................ 51 Chairman of the Board and Chief
Executive Officer
Sharon K. Brayfield................... 37 Director and President
David T. O'Connor..................... 56 Executive Vice President -- Sales
Joe W. Conner......................... 41 Chief Financial Officer, Treasurer
Thomas C. Franks...................... 44 Vice President -- Investor Relations
and Governmental Affairs, President of
Silverleaf Resort Acquisitions, Inc.
Larry H. Fritz........................ 45 Vice President -- Marketing
Ioannis N. Gioldasis.................. 47 Vice President -- Promotions
Robert G. Levy........................ 49 Vice President -- Resort Operations
James J. Oestreich.................... 57 Vice President -- Marketing
Development
Sandra G. Cearley..................... 36 Secretary
Stuart Marshall Bloch................. 55 Director
James B. Francis, Jr. ................ 48 Director
Michael A. Jenkins.................... 55 Director
</TABLE>
ROBERT E. MEAD founded the Company, has served as its Chairman of the Board
since its inception, and has served as its Chief Executive Officer since May
1990. Mr. Mead began his career in hotel and motel management and also operated
his own construction company. Mr. Mead currently serves as a trustee on the
Board of Directors of ARDA and has over 18 years of experience in the timeshare
industry, with special expertise in the areas of consumer finance, hospitality
management and real estate development.
SHARON K. BRAYFIELD has served as the President of the Company since 1992
and manages all of the Company's day to day activities. Ms. Brayfield began her
career with an Affiliated Company in 1982 as the Public Relations Director of
Ozark Mountain Resort. In 1989, she was promoted to Executive Vice President of
Resort Operations for an Affiliated Company and in 1991 was named Chief
Operations Officer of the Company. For the past five years and through April
1997, Ms. Brayfield was also the President of the Master Club.
DAVID T. O'CONNOR has over 20 years of experience in real estate and
timeshare sales and has worked periodically with Mr. Mead over the past 14
years. Since 1991, Mr. O'Connor has served as the Company's Executive Vice
President -- Sales, directing all field sales, including the design and
preparation of all training materials, incentive programs, and follow-up sales
procedures. For the five year period ended May 12, 1997, Mr. O'Connor was an
employee of Recreational Consultants, Inc., which was an independent contractor
of the Company. See "Certain Relationships and Related Transactions".
JOE W. CONNER joined the Company in February 1997 as Chief Financial
Officer and has responsibility for all accounting, financial reporting and
taxation issues. From 1995 to 1997, Mr. Conner served as Vice President of
Finance and Administration and Chief Financial Officer of the Jacobsen Division
of Textron, Inc. From 1993 to 1995, Mr. Conner was Executive Vice President and
Chief Financial Officer for Furr's/Bishop's, Inc. Mr. Conner worked for Club
Corporation of America from 1985 to 1993, and last served as Sr. Vice President,
Chief Financial Officer and Director. Mr. Conner is a certified public
accountant.
THOMAS C. FRANKS was hired in August 1997 as President of a newly-formed,
wholly-owned subsidiary of the Company, Silverleaf Resort Acquisitions, Inc. In
February 1998, Mr. Franks was also named as Vice President -- Investor Relations
and Governmental Affairs for the Company. Mr. Franks has more than 15 years of
experience in the timeshare industry and is responsible for acquisitions and
industry and governmental relations. Mr. Franks served as the President of ARDA
from February 1991 through July 1997.
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LARRY H. FRITZ has been employed by the Company (or an Affiliated Company)
periodically over the past nine years and has served in various marketing
management positions. Since 1991, Mr. Fritz has served as the Company's chief
marketing officer, with responsibility for daily marketing operations, and
currently serves as the Company's Vice President -- Marketing.
IOANNIS N. GIOLDASIS has been with the Company since May 1993 and currently
serves as Vice President -- Promotions. Mr. Gioldasis is responsible for the
design and implementation of marketing strategies and promotional concepts for
lead generation in Texas and other markets. Prior to joining the Company, Mr.
Gioldasis was a national field director for Resort Property Consultants, Inc.
ROBERT G. LEVY was appointed Vice President -- Resort Operations in March
1997 and administers the Company's Management Agreement with the Master Club.
Since 1990, Mr. Levy has held a variety of managerial positions with the Master
Club including Project Manager, General Manager, Texas Regional Manager, and
Director of Operations. Prior thereto, Mr. Levy spent 18 years in hotel, motel,
and resort management, and was associated with the Sheraton, Ramada Inn, and
Holiday Inn hotel chains.
JAMES J. OESTREICH joined the Company in February 1998 as Vice
President -- Marketing Development. A company owned by Mr. Oestreich, Bull's Eye
Marketing, Inc. ("Bull's Eye"), has served as a marketing consultant to the
Company since August 1995. From January 1991 to August 1995, Mr. Oestreich
served as Vice President of Sales and Marketing for Casablanca Express, Inc.
From August 1995 until joining the Company, Mr. Oestreich served as President of
Bull's Eye, a provider of marketing services to the resort and direct sales
industries.
SANDRA G. CEARLEY has served as Secretary of the Company since its
inception. Ms. Cearley maintains corporate minute books, oversees regulatory
filings, and coordinates legal matters with the Company's attorneys.
STUART MARSHALL BLOCH was elected as a Director of the Company in July
1997. Since 1972, Mr. Bloch has been a partner in the law firm of Ingersoll &
Bloch, in Washington, D.C. Ingersoll & Bloch has served as general counsel to
ARDA since 1972. Mr. Bloch is also currently serving as counsel to the law firm
of Holland & Knight, LLC. Mr. Bloch is the founding director and a past
president of the International Foundation for Timesharing. Mr. Bloch has
authored numerous articles dealing with real estate law and the timeshare
industry.
JAMES B. FRANCIS, JR. was elected as a Director of the Company in July
1997. During 1996, Mr. Francis' company, Francis Enterprises, Inc., served as a
consultant to the Company in connection with governmental and public affairs.
From 1980 to 1996, Mr. Francis was a partner in the firm of Bright & Co., which
managed various business investments, including the Dallas Cowboys Football
Club.
MICHAEL A. JENKINS was elected as a Director of the Company in July 1997.
In 1971, Mr. Jenkins founded and became the President of Leisure and Recreation
Concepts, Inc., which has planned and designed over 850 theme parks, resorts,
retail areas, and major attractions worldwide. Mr. Jenkins has more than 35
years in the leisure industry and serves on the Board of Directors of Leisure
and Recreational Concepts, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently has five members and three committees
which were formed after the IPO: (i) an Executive Committee, (ii) an Audit
Committee, and (iii) a Compensation Committee. Members of these committees serve
until the next annual meeting of Directors and until their successors are
elected and qualified.
EXECUTIVE COMMITTEE. In July 1997, the Board of Directors established an
executive committee (the "Executive Committee"), which is authorized in the
intervals between meetings of the Board of Directors to perform all of the
rights and duties of the Board of Directors, except the power to declare
dividends or distributions on stock, approve any merger or share exchange which
does not require shareholder approval, amend the Bylaws, issue stock other than
as permitted by statute, recommend to the shareholders any action that requires
shareholder approval, or exercise rights delegated to the Audit Committee or
Compensation Committee. The current members of the Executive Committee are Ms.
Brayfield and Messrs. Francis and Mead.
AUDIT COMMITTEE. In July 1997, the Board of Directors established an audit
committee (the "Audit Committee"), which consists of two or more directors who
meet the independence requirements imposed by the
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NYSE's Audit Committee Policy. The Audit Committee makes recommendations
concerning the engagement of independent public accountants, reviews the plans
and results of the audit engagement, approves professional services provided by
the independent public accountants, reviews the independence of the independent
public accountants and the adequacy of the Company's internal accounting
controls, and considers the range of audit and non-audit fees. The current
members of the Audit Committee are Messrs. Bloch and Jenkins.
COMPENSATION COMMITTEE. In July 1997, the Board of Directors established a
compensation committee (the "Compensation Committee"), which at all times will
consist of two or more directors, a majority of whom are non-employee directors
(an "Independent Director") within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), to determine compensation
for the Company's senior executive officers and to administer the Company's 1997
Stock Option Plan. The current members of the Compensation Committee are Messrs.
Francis and Jenkins.
The Board of Directors of the Company does not have a nominating committee
or any other committee except as set forth above.
CLASSIFIED BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes serving
staggered terms. The Board of Directors consists of one Class I director (Mr.
Bloch), two Class II directors (Ms. Brayfield and Mr. Jenkins), and two Class
III directors (Mr. Mead and Mr. Francis). At each annual meeting of
shareholders, a class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then expiring. The terms
of the initial Class I director, the Class II directors and the Class III
directors will expire upon the election and qualification of successor directors
at the annual meeting of shareholders to be held in calendar years 1998, 1999
and 2000, respectively. The classification of directors makes it more difficult
for a significant shareholder to change the composition of the Board of
Directors in a relatively short period of time. The term of the Company's sole
Class I director (Mr. Bloch) is scheduled to expire at the Company's May 1998
annual shareholders meeting; however, in February 1998 the Board of Directors
nominated Mr. Bloch for a second term. If elected by the shareholders at the May
1998 annual meeting, Mr. Bloch will continue to serve until the Company's 2001
annual shareholders meeting.
DIRECTOR COMPENSATION
The Company has granted to each Independent Director (Messrs. Bloch,
Francis, and Jenkins), as directors' fees, options to purchase 40,000 shares of
Common Stock at $16 per share. Such options vest in three equal portions over a
term of three years, with the first vesting period occurring in May 1998. The
options expire in June 2007. In addition to such option grants, each of the
Independent Directors receive a stipend (currently $1,000) for attending
meetings of the Board of Directors. Officers of the Company who are directors
will not be paid any director fees but will be reimbursed for expenses of
attending meetings of the Board of Directors.
DIRECTORS AND OFFICERS INSURANCE
The Company has purchased a directors and officers liability insurance
policy with coverage typical for a public company. The directors and officers
liability insurance policy insures (i) the officers and directors of the Company
from any claim arising out of an alleged wrongful act by such person while
acting as an officer or director of the Company, (ii) the Company to the extent
it has indemnified an officer and director for such loss, and (iii) the Company
for losses incurred in connection with claims made against the Company for
covered wrongful acts.
INDEMNIFICATION
The Company's articles of incorporation ("Charter") provide for the
indemnification of the Company's officers and directors against certain
liabilities to the fullest extent permitted under applicable law. The Charter
also provides that the directors and officers of the Company be exculpated from
monetary damages to the fullest extent permitted under applicable law.
Additionally, the Company has entered into written Indemnification Agreements
with its directors and officers. It is the position of the Securities and
Exchange Commission (the
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"Commission") that indemnification of directors and officers for liabilities
arising under the Securities Act is against public policy and unenforceable
under the Securities Act of 1933, as amended (the "Securities Act").
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the annual base
salary and other annual compensation that the Company paid in 1997 to the
Company's Chief Executive Officer and each of the other four most highly
compensated executive officers whose cash compensation (salary and bonus) on an
annualized basis exceeded $100,000 (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------- SECURITIES
ANNUAL COMPENSATION UNDERLYING
-------------------- OPTIONS/SARS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(a) (#)
- --------------------------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Robert E. Mead,.............................. 1997 $464,427 $ -- --
Chief Executive Officer
Sharon K. Brayfield,......................... 1997 133,101 303,133 --
President
David T. O'Connor,........................... 1997 -- 733,210(b) 200,000
Executive Vice President -- Sales
Joe W. Conner,............................... 1997 160,219 20,000 35,000
Chief Financial Officer
Larry H. Fritz,.............................. 1997 98,801 56,920 25,000
Vice President -- Marketing
</TABLE>
- ---------------
(a) See "-- Employment and Noncompetition Agreements" for a discussion of
certain bonuses.
(b) Through May 11, 1997, these amounts were paid as sales commissions to
Recreational Consultants, Inc., a corporation of which Mr. O'Connor is the
principal. See "Certain Relationships and Related Transactions --
Transactions with Related Individuals".
1997 STOCK OPTION PLAN. The Company has established a stock option plan
(the "1997 Stock Option Plan" or "Plan") to attract and retain directors,
officers, and key employees of the Company and to provide them incentives to
maximize the Company's performance. The 1997 Stock Option Plan provides for the
award to directors, officers, and key employees of nonqualified stock options
and provides for the grant to salaried key employees of options intended to
qualify as "incentive stock options" under Section 422 of the Code.
The 1997 Stock Option Plan is administered by the Compensation Committee,
which selects the individuals to whom options are to be granted and determines
the number of shares to be subject thereto and the terms and conditions thereof.
The Compensation Committee is also authorized to adopt, amend and rescind rules
relating to the administration of the 1997 Stock Option Plan. Presently, a
maximum of 1,100,000 shares are reserved for issuance under the Plan and options
for 827,000 shares have been granted. The Company will file a Registration
Statement to register such shares.
Nonqualified stock options provide for the right to purchase common stock
at a specified price which may be less than fair market value on the date of
grant (but not less than par value). Nonqualified stock options may be granted
for any term and upon such conditions determined by the Compensation Committee.
Incentive stock options are designed to comply with the provisions of the
Code and are subject to restrictions contained therein, including exercise
prices equal to at least 100% of fair market value of common stock on the grant
date and a ten year restriction on their term; however, incentive stock options
granted to any person owning more than 10% of the voting power of the stock of
the Company shall have exercise prices equal to at least 110% of the fair market
value of the common stock on the grant date and shall not be exercisable after
five years from the date the option is granted.
Under the 1997 Stock Option Plan, the Board of Directors of the Company
reserves the right to exercise the powers and functions of the Compensation
Committee. Also, the Board of Directors reserves the right to amend the Plan at
any time; however, the Board of Directors may not without the approval of the
shareholders of the
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Company (i) increase the total number of shares reserved for options under the
Plan (other than for certain changes in the capital structure of the Company),
(ii) reduce the required exercise price of any incentive stock options, or (iii)
modify the provisions of the Plan regarding eligibility. In February 1998, the
Board of Directors approved an amendment to the Plan reserving an additional
500,000 shares of Common Stock for issuance under the Plan; however, this
amendment will not become effective unless it is approved by the shareholders.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1997. The following table
contains information concerning the grant of stock options under the Company's
1997 Stock Option Plan made during the year ended December 31, 1997 to the Named
Executive Officers. The table also lists potential realizable values of such
options on the basis of assumed annual compounded stock appreciation rates of 5%
and 10% over the life of the options which are set for a maximum of ten years.
No options were exercised during 1997 by any of the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF TOTAL EXERCISE ANNUAL RATE OF SHARE
SECURITIES OPTIONS GRANTED TO OR BASE PRICE APPRECIATION(b)
UNDERLYING EMPLOYEES IN PRICE PER EXPIRATION ----------------------
NAME OPTIONS GRANTED(a) FISCAL YEAR SHARE DATE 5% ($) 10% ($)
---- ------------------ ------------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Mead............... -- -- -- -- -- --
Sharon K. Brayfield.......... -- -- -- -- -- --
David T. O'Connor............ 200,000 22.8 $16.00 6/5/07 $2,012 $5,100
Joe W. Conner................ 35,000 4.0 $16.00 6/5/07 $ 352 $ 892
Larry N. Fritz............... 25,000 2.9 $16.00 6/5/07 $ 252 $ 637
</TABLE>
- ---------------
(a) These options will vest in four equal increments on the first, second,
third and fourth anniversaries of the date of the grant.
(b) The potential realizable value (in thousands of dollars) is reported net of
the option price, but before income taxes associated with exercise. These
amounts represent assumed annual compounded rates of appreciation at 5% and
10% only from the date of grant to the expiration date of the option. The
rates of appreciation shown in this table are required by the Commission and
are not intended to forecast or be indicative of possible future performance
of the Common Stock.
OPTIONS/SAR EXERCISES AND YEAR-END VALUE TABLE.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS/SAR AT MONEY OPTIONS/ SARS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END ($)(a)
ACQUIRED ON VALUE --------------------------- -----------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Robert G. Mead................ -- -- -- -- -- --
Sharon K. Brayfield........... -- -- -- -- -- --
David T. O'Connor............. -- -- -- -- -- $1,300
Joe W. Conner................. -- -- -- -- -- $ 298
Larry N. Fritz................ -- -- -- -- -- $ 213
</TABLE>
- ---------------
(a) The value at year end (in thousands of dollars) is reported net of the
option price.
SECTION 162(m) LIMITATION. In general, under Section 162(m) of the Code,
income tax deductions of publicly-held corporations may be limited to the extent
total compensation (including base salary, annual bonus, stock option exercises
and non-qualified benefits paid) for certain executive officers exceeds $1
million (less the amount of any "excess parachute payments" as defined in
Section 280G of the Code) in any one year. However, under Section 162(m), the
deduction limit does not apply to certain "performance-based compensation"
established by an independent compensation committee which is adequately
disclosed to, and approved by, the shareholders.
DISCRETIONARY PERFORMANCE AWARDS. Performance awards, including bonuses, may
be granted by the Compensation Committee on an individual or group basis.
Generally, these awards will be based upon specific agreements or performance
criteria and will be paid in cash.
82
<PAGE> 85
EMPLOYMENT AND NONCOMPETITION AGREEMENTS
Effective January 1, 1997, Mr. Mead entered into a three year employment
agreement with the Company which provides for an annual base salary of $500,000,
use of a company vehicle, and other fringe benefits such as health insurance,
vacation, and sick leave as determined by the Board of Directors of the Company
from time to time. Either party may terminate the agreement upon 30 days notice
to the other.
Effective January 1, 1997, Ms. Brayfield entered into a three year
employment agreement with the Company which provides for an annual base salary
of $133,101, use of a company vehicle, and other fringe benefits such as health
insurance, vacation, and sick leave as determined by the Board of Directors of
the Company from time to time. Ms. Brayfield's agreement with the Company also
provides for an incentive bonus equal to .35% of the Company's net sales from
Vacation Intervals. Either party may terminate the agreement upon 30 days notice
to the other.
Effective May 12, 1997, Mr. O'Connor entered into an employment agreement
with the Company with a term through December 31, 1999. Pursuant to the
agreement, Mr. O'Connor will receive commissions equal to 1.35% of the Company's
net sales from Vacation Intervals, plus additional commissions based on weekly
sales of upgrades and revenue per guest. The Company will also provide Mr.
O'Connor with use of a company vehicle and other fringe benefits such as health
insurance, vacation, and sick leave as determined by the Board of Directors of
the Company from time to time. Either party may terminate the agreement upon 30
days notice to the other. See "Certain Relationships and Related Transactions".
In July 1997, Mr. Franks entered into an employment agreement with the
Company which provides for an annual base salary of $325,000, use of a company
vehicle, and other fringe benefits such as health insurance, vacation, and sick
leave as determined by the Board of Directors of the Company from time to time.
Either party may terminate the agreement upon 30 days notice to the other;
however, if the Company terminates Mr. Franks for other than "good cause", the
Company shall be obligated to make a severance payment to him in an amount equal
to his annual base salary. In connection with Mr. Franks employment, in August
1997, the Company purchased a house for $531,000 and leased the house to Mr.
Franks for 13 months at a rental equal to (i) the Company's interest on a
$418,000 mortgage loan incurred in connection with the purchase, plus (ii)
insurance and taxes, which amount is currently $3,124 per month. Mr. Franks has
the option to purchase the house at the end of the 13-month term for $531,000,
plus 8% per annum on the Company's down payment for the house ($113,000). The
Company also granted him nonqualified options to purchase 100,000 shares of
Common Stock pursuant to the 1997 Stock Option Plan at $16.00 per share, which
options will vest in equal installments over a four-year period beginning August
1998.
In January 1998, Mr. Oestreich entered into an employment agreement with
the Company which provides for an annual base salary of $300,000, use of a
company vehicle, and other fringe benefits such as health insurance, vacations
and sick leave as determined by the Board of Directors of the Company from time
to time. Mr. Oestreich will also receive additional compensation equal to .5% of
Vacation Interval sales directly attributable to his efforts. The Company also
granted him nonqualified and incentive stock options to purchase 100,000 shares
of Common Stock pursuant to the 1997 Stock Option Plan at $22.84 per share,
which options will vest in equal installments over a four-year period beginning
December 1998.
In January 1998, Allen Hudson entered into an employment agreement with the
Company, contingent upon his commencement of full-time services no later than
July 1, 1998. Mr. Hudson will serve as Executive Vice President of Architecture
and Engineering Services for a term of four years from the date he commences
work. Mr. Hudson's agreement provides for an annual base salary of $350,000, use
of a company vehicle, and other fringe benefits such as health insurance,
vacations and sick leave as determined by the Board of Directors of the Company
from time to time. Mr. Hudson will also receive $500,000 to be paid over a three
year period as compensation for and in consideration of the exclusivity of his
services. The Company also granted him nonqualified options to purchase 25,000
shares of Common Stock pursuant to the 1997 Stock Option Plan at an exercise
price equal to the average of the high and low trading prices of the Common
Stock on the effective date of his employment agreement. The options will vest
in equal installments over a four-year period beginning one year after he
commences work. The agreement provides that upon Mr. Hudson's relocation to the
Dallas/Ft. Worth area, the Company will purchase his Branson, Missouri
condominium for $108,000.
83
<PAGE> 86
Each of the employment agreements discussed above provides that such persons
will not (i) influence any employee or independent contractor to terminate its
relationship with the Company, or (ii) disclose any confidential information of
the Company. The agreements with Mr. Mead, Ms. Brayfield, and Mr. O'Connor
provide that such persons will not directly or indirectly compete with the
Company in any county in which it conducts its business or markets its products
for a period of two years following the termination of the agreement. The
agreements with Messrs. Oestreich and Hudson contain substantially similar
restrictions which will be effective for a period of one year following
termination of the agreement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REPAYMENT OF AFFILIATED DEBT
Approximately $9.9 million of the net proceeds from the IPO in June 1997
were used to repay outstanding debt to Mr. Mead and affiliated persons or
entities. The Company repaid the affiliated debt of the Company set forth below,
and Mr. Mead, Chairman of the Board and Chief Executive Officer of the Company,
and certain entities affiliated with Mr. Mead, simultaneously repaid their debt
to the Company. Such affiliated debt is explained below:
<TABLE>
<CAPTION>
COMPONENTS OF AMOUNT PAID
AFFILIATED DEBT OF THE COMPANY IN JUNE 1997
------------------------------ --------------
(IN THOUSANDS)
<S> <C>
Debt of CBI to Mr. Mead(a).................................. $ 6,101
Debt of Silverleaf to Mr. Mead and affiliates(b)............ 8,298
Debt of Silverleaf to Pace, STG and Ralph
Brotherton(c)(d)(e)....................................... 563
-------
Total............................................. 14,962
Less:
Receivable from Mr. Mead(a)............................... (4,727)
Receivable from STG and Pace(f)........................... (363)
-------
Net Affiliated Party Debt of Silverleaf........... $ 9,872
=======
</TABLE>
- ---------------
(a) Prior to the Consolidation Transactions, Mr. Mead owned 100% of the stock of
CBI. During this period, Silverleaf made loans to Mr. Mead who
simultaneously made loans of similar amounts to CBI to finance its
operations. The Silverleaf loans to Mr. Mead bore interest at 8% per annum,
and the loans by Mr. Mead to CBI bore interest at 9% per annum. As a result
of the Consolidation Transactions, the debt of Mr. Mead to CBI and of CBI to
Mr. Mead has been consolidated on the Company's financial statements. The
above table reflects, on a consolidated basis, the remaining debt paid to
Mr. Mead from the Company and the remaining receivable paid by Mr. Mead to
the Company in June 1997.
(b) Mr. Mead owned 100% of the stock of Freedom Financial Corporation ("FFC")
prior to the Consolidation Transactions. As a part of the Consolidation
Transactions, the Company acquired certain assets held by FFC and the
Company assumed certain liabilities associated with these assets. See Note 9
of Notes to Consolidated Financial Statements. Liabilities assumed were
approximately $8.9 million consisting primarily of notes payable to Mr. Mead
and his affiliates of $7.6 million. The affiliates of Mr. Mead include
certain family partnerships and trusts. The notes payable to Mr. Mead and
his affiliates originated from loans of $1.1 million and asset sales of $1.6
million made by Mr. Mead and his affiliates to FFC during 1987 and 1988.
(c) Includes approximately $417,000 paid to Pace Finance Company ("Pace"), a
Texas corporation wholly owned by Mr. Mead. Pace loaned the Company
approximately $541,000, $655,000 and $0, in 1995, 1996 and 1997,
respectively. The Company secured such loans by pledging notes secured by
Vacation Intervals with an aggregate principal balance of approximately
$901,000, $1.1 million and $0 million, in 1995, 1996 and 1997, respectively.
The Company made payments to Pace of approximately $636,000, $863,000 and
$275,000, in 1995, 1996 and 1997, respectively.
(d) Includes approximately $96,000 paid to STG Investments ("STG"), a Texas
general partnership owned by trusts beneficially owned by Mr. Mead's
children.
84
<PAGE> 87
(e) Includes approximately $50,000 owing to Ralph Brotherton, who serves as a
trustee of trusts for the children of Mr. Mead. This debt arose from the
1995 redemption of Mr. Brotherton's equity interest in Equal Investment
Company ("EIC") in exchange for a $100,000 note from EIC. Subsequently, EIC
was merged into the Company and the Company became liable for the note to
Mr. Brotherton. The note to Mr. Brotherton did not bear interest.
(f) In June 1997, STG and Pace paid Silverleaf approximately $221,000 and
$142,000, respectively, relating to cash payments on notes receivable of
Silverleaf collected and held by STG and Pace on behalf of Silverleaf.
TRANSACTIONS WITH RELATED ENTITIES
FFC loaned the Company approximately $555,000 in 1995. To secure such
loans, in 1995 the Company pledged to FFC notes secured by Vacation Intervals
with an aggregate principal balance of approximately $740,000. The Company made
principal and interest payments to FFC of approximately $871,000 in 1995.
Prior to the Consolidation Transactions in December, 1995, Silverleaf
engaged in various transactions with entities affiliated with Mr. Mead. As a
result of the Consolidation Transactions, all transactions between Silverleaf
and the entities which were parties to the Consolidation Transactions were
eliminated through consolidation and restatement of the Company's financial
statements, and are therefore not specifically discussed herein. See Note 1 of
Notes to Consolidated Financial Statements.
Prior to the Consolidation Transactions, Pace purchased delinquent notes
secured by Vacation Intervals from an Affiliated Company. From time to time,
Pace sold these delinquent notes to the Company, generally at a price of $200
per note. The Company then reacquired through foreclosure the underlying
Vacation Intervals for resale. Pace's note sales to the Company equaled $24,200
in 1996. In February 1997, Pace sold its remaining inventory of notes to the
Company for a consideration of $16,400.
STG loaned the Company approximately $272,000 in 1995. As security, the
Company pledged to STG notes secured by Vacation Intervals with an aggregate
principal balance of approximately $454,000 in 1995. The Company made principal
and interest payments to STG of approximately $533,000 and $247,000, in 1995 and
1996, respectively. These loans were repaid in full by the Company in 1996.
The Company paid Mr. Hudson's architectural firm Hudson & Company, Inc.
approximately $338,000, $421,000, and $401,000, during 1995, 1996, and 1997,
respectively, for architectural services rendered to the Company.
TRANSACTIONS WITH RELATED INDIVIDUALS
In March 1997, Mr. Mead entered into a lease agreement with the Company
which granted him the exclusive right to use approximately 500 acres adjoining
an Existing Resort for hunting purposes. This land is subject to deed
restrictions which prohibit the construction of new units, and most of this land
is located in a flood plain. The land will remain available to Silverleaf Owners
for hiking and nature trails. In exchange for these lease rights, Mr. Mead
agreed to pay the annual property taxes on this land which are estimated at
approximately $5,000. This lease agreement has a ten-year term and may be
renewed by Mr. Mead for four additional ten-year terms.
Mr. Mead agreed to purchase a condominium in Mexico and a residential
property in Texas from the Company. The Company's acquisition cost of these
properties in 1995 was approximately $420,000. Mr. Mead agreed to pay the
Company the higher of (i) its acquisition cost plus an additional 15% per annum
(approximately $464,000), or (ii) the appraised fair market value of these
properties. In September 1997, Mr. Mead reimbursed the Company for its cost
(plus 15%) of the condominium in Mexico and the residential property in Texas.
Pending the receipt of an appraisal on the condominium in Mexico, Mr. Mead has
agreed to pay an additional sum to the Company to the extent the appraised fair
market value of the properties exceeds the amount paid by Mr. Mead.
In connection with the IPO in June 1997, the Company entered into a
Registration Rights Agreement with Mr. Mead with respect to 7,625,000 of his
shares of Common Stock. The Company has agreed to pay all expenses associated
with the registration of Mr. Mead's shares offered for sale in this Prospectus
(500,000 shares plus any shares subject to the Underwriters' over-allotment
option).
85
<PAGE> 88
During 1995, the Company loaned $15,000 to Ms. Brayfield at 8.0% interest
per annum. Due to a previous loan balance and the accrual of interest, her
aggregate debt to the Company was $71,000 at December 31, 1995. Her largest
outstanding loan balances in 1995 and 1996 were approximately $71,000 and
$77,000, respectively. The Company forgave this loan effective December 31,
1996.
During 1996, the Company was a party to a consulting agreement with Francis
Enterprises, Inc. ("FEI"), a Texas corporation which is wholly owned by Mr.
Francis, a director of the Company. FEI received approximately $201,000 (and the
Company expensed approximately $208,000) in 1996 under this agreement. FEI
provided advice to the Company in connection with governmental and public
affairs. This consulting agreement was terminated in February 1997. An affiliate
of Mr. Francis owns a 10% net profits interest in a 45 acre tract of land in
Mississippi owned by the Company. See "Management -- Directors and Executive
Officers" and "Business -- Other Operations".
The Company paid Recreational Consultants, Inc., an entity of which Mr.
O'Connor is the principal, approximately $430,000, $539,000, and $302,000 in
sales commissions in 1995, 1996, and 1997, respectively. See
"Management -- Executive Compensation".
Mr. O'Connor was indebted to the Company during 1995 for advances by the
Company on his behalf, which debt bore interest at approximately 8% per annum.
The largest outstanding balance during 1995 was approximately $156,000. This
debt was satisfied at the end of 1995.
Mr. Bloch serves as counsel to the law firm of Holland & Knight, LLC. The
Company has retained the services of Holland & Knight for limited purposes.
In February 1998, the Company purchased the stock of Bull's Eye Marketing,
Inc. ("Bull's Eye") for $250,000 from Mr. Oestreich, the sole shareholder of
Bull's Eye.
Mr. Hudson's employment agreement provides that upon his relocation to
Dallas, the Company will be obligated to purchase his Branson, Missouri
condominium for $108,000 in cash. In addition to his salary, Mr. Hudson will
also receive $500,000 to be paid over a three-year period as compensation for
and in consideration of the exclusivity of his services.
For information concerning employment agreements with certain officers see
"Management -- Employment and Noncompetition Agreements".
TRANSACTIONS WITH THE MASTER CLUB
Prior to May 1997, Ms. Brayfield, an officer and director of the Company,
was the principal executive officer of the Master Club. In May 1997, Robert G.
Levy, an officer of the Company, was elected as President of the Master Club.
The Company manages the Existing Resorts under a management agreement with the
Master Club. The Company is entitled to a management fee equal to 15% of the
Master Club's gross revenues, but the Company's right to receive such fee on an
annual basis is limited to the amount of the Master Club's net income. If the
management fee is limited due to the Master Club's net income in a given year,
such deficiency may be recovered from the Master Club in subsequent years,
subject to the net income limitation. Accordingly, receivables for unpaid
management fee deficiencies from the Master Club due to the net income
limitation are not accrued on the books of the Company. In 1995, 1996 and 1997,
the Company reported management fees from the Master Club of approximately $2.5
million, $2.2 million, and $2.3 million, respectively. The Master Club bears and
pays all expenses of operating the Existing Resorts, while the Company bears the
expense of new development and all marketing and sales activities. To the extent
the Master Club pays for payroll or other general and administrative expenses
that relate to the Company's development, marketing, or sales activities, the
Master Club allocates and charges such expenses to the Company. During 1995,
1996 and 1997, the Master Club charged the Company approximately $1.9 million,
$2.1 million, and $2.6 million, respectively, for expenses attributable to the
Company. Also, during 1996, the Company advanced on behalf of the Master Club
approximately $940,000 for expenditures related to refurbishment of the Existing
Resorts. After netting management fees earned, expenses charged back, and the
advance for refurbishment expenditures, the Company owed the Master Club
approximately $429,000 at the end of 1995, and the Master Club owed the Company
approximately $1.1 million and $1.3 million at the end of 1996 and 1997,
respectively. See "Business -- Clubs/Master Club".
86
<PAGE> 89
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of December 31, 1997, and as
adjusted to reflect the sale of 2,000,000 shares of Common Stock by the Company
and 500,000 shares of Common Stock by Robert E. Mead, with respect to (i) each
person known by the Company to beneficially own 5% or more of the outstanding
shares of Common Stock, (ii) each person who is a director or Named Executive
Officer of the Company, and (iii) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO THE BENEFICIAL OWNERSHIP
EQUITY OFFERING AFTER THE EQUITY OFFERING(b)
NAME AND ADDRESS OF ----------------------- NUMBER OF SHARES -----------------------------
BENEFICIAL OWNER(a) SHARES PERCENTAGE BEING OFFERED(b) SHARES PERCENTAGE
------------------- --------- ---------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Robert E. Mead(c)...... 7,625,100 67.4% 500,000 7,125,100 53.5%
Sharon K.
Brayfield(c)......... 86,517 * -- 86,517 *
David T. O'Connor(c)... -- -- -- -- --
Joe W. Conner(c)....... -- -- -- -- --
Larry H. Fritz(c)...... -- -- -- -- --
Stuart Marshall
Bloch(d)............. -- -- -- -- --
James B. Francis,
Jr.(e)............... 2,000 * -- 2,000 *
Michael A.
Jenkins(f)........... -- -- -- -- --
--------- ---- ------- --------- ----
All directors and
executive officers as
a group (8
persons)............. 7,713,617 68.2% 500,000 7,213,617 54.2%
========= ==== ======= ========= ====
</TABLE>
- ---------------
* Less than 1%.
(a) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Common Stock owned by
such beneficial owner. None of such persons has the right, pursuant to stock
options or otherwise, to acquire shares of the Company's Common Stock within
60 days.
(b) Does not reflect the possible sale of up to an additional 375,000 shares of
Common Stock by Mr. Mead upon the exercise of the underwriters'
over-allotment option.
(c) The address of such person is 1221 Riverbend Drive, Suite 120, Dallas, Texas
75247.
(d) The address of such person is 1401 16th St., N.W., Washington, D.C. 20036.
(e) The address of such person is 8300 Douglas Avenue, Suite 800, Dallas, Texas
75225.
(f) The address of such person is 2151 Fort Worth Avenue, Dallas, Texas
75211-1812.
87
<PAGE> 90
DESCRIPTION OF CERTAIN INDEBTEDNESS
EXISTING INDEBTEDNESS. The Company has revolving credit agreements with
three lenders providing for loans up to an aggregate of $115.0 million, which
the Company uses to finance the sale of Vacation Intervals and for working
capital needs. The Company also has a $12.0 million facility for such purpose
which will be paid from proceeds of the Note Offering and the Equity Offering
and not renewed. Additionally, the Company has a revolving credit agreement with
one of its lenders providing for loans up to $10.0 million to finance
construction, which facility was not utilized in 1997. The Company has a $10.0
million non-revolving line of credit which has been used to finance development
of units at the Fox River and Timber Creek resorts and the acquisition of the
Oak N' Spruce Resort, the two Galveston sites, and the Las Vegas site. The
foregoing loans mature between December 1999 and October 2005, and are
collateralized (or cross-collateralized) by customer notes receivable (as
defined in "Description of Notes -- Certain Definitions"), construction in
process, land, improvements, and related equipment of certain of the Existing
Resorts and New Resorts. Additionally, the $10.0 million non-revolving line of
credit will become due upon the closing of the Equity Offering. These credit
facilities bear interest at variable rates tied to the prime rate, LIBOR or the
corporate rate charged by certain banks. The credit facilities secured by
customer notes receivable limit advances to 70% of the unpaid balance of certain
eligible customer notes receivable.
The Company's credit facilities contain restrictive and financial
covenants, including covenants relating to (i) the maintenance of a minimum net
worth ranging up to $67 million, minimum liquidity, including a debt to equity
ratio of not greater than 2.5 to 1 and a senior debt to equity ratio of not
greater than 2.0 to 1, (ii) restrictions on liens against and dispositions of
collateral, (iii) restrictions on distributions to affiliates and prepayments of
loans from affiliates, (iv) restrictions on changes in control and management of
the Company, (v) restrictions on sales of substantially all of the assets of the
Company, and (vi) restrictions on mergers, consolidations or other
reorganizations of the Company. Under certain credit facilities, a sale of all
or substantially all of the assets of the Company, a merger, consolidation or
reorganization of the Company, or other changes of control of the ownership of
the Company would constitute an event of default and permit the lenders to
accelerate the maturity thereof. The credit facilities also include customary
events of default, including, without limitation, (i) failure to pay principal,
interest or fees when due, (ii) untruth of any representation of warranty, (iii)
failure to perform or timely observe covenants, (iv) defaults under other
indebtedness, and (v) bankruptcy.
88
<PAGE> 91
The following table summarizes the Company's loans, other notes payable and
capital lease obligations at December 31, 1997:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
$60 million revolving loan due December 1999, extendable for
a period of one year, with drawings permitted until
maturity, at an interest rate of LIBOR plus 2.55%, secured
by customer notes receivable.............................. $ 1,529
$40 million revolving loan due October 2005 with drawings
permitted until October 31, 2000, at a variable rate of
LIBOR plus 2.5%, secured by customer notes receivable..... 22,137
$15 million revolving loan due November 2002 with drawings
permitted until November 30, 1998, at an interest rate of
Prime plus 2%, secured by customer notes receivable....... 12,596
$12 million loan due May 2003, at a variable rate of 2.75%
plus a Base Rate (11.25% at December 31, 1997), secured by
customer notes receivable................................. 4,122
$10 million revolving construction loan due October 2000
with drawings permitted until April 30, 1999 at a variable
rate of LIBOR plus 3.5%, secured by land, construction in
process and customer notes receivable..................... 0
$10 million non-revolving line of credit due upon the
earlier of the Equity Offering or January 2000 with
drawings permitted until December 1998 at a variable rate
of LIBOR plus 3%, secured by land, improvements, and
equipment of various Existing Resorts and New Resorts..... 4,070
Various notes, due from January 1998 through October 2002,
collateralized by various assets with interest rates
ranging from 4.2% to 14.0%................................ 1,785
-------
Total notes payable............................... 46,239
Capital lease obligations................................... 2,632
-------
Total notes payable and capital lease
obligations...................................... $48,871
=======
</TABLE>
At December 31, 1997, the prime rate was 8.5% and LIBOR rates were from
5.72% to 5.81%.
Substantially all notes payable will be repaid from the proceeds of the
Equity Offering and the Note Offering. See "Sources and Uses of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
Credit Suisse First Boston Mortgage Capital, L.L.C. ("CSFBMC"), an
affiliate of Credit Suisse First Boston Corporation, is the lender under the
$60.0 million revolving loan and $10.0 million non-revolving line of credit. As
of December 31, 1997, the Company was indebted to CSFBMC in the amount of $5.6
million.
The Company's future lending and development activities will likely be
financed with indebtedness under the existing revolving credit facilities or
under credit facilities to be obtained by the Company in the future. Such new
credit facilities would likely be collateralized by the Company's assets and
contain restrictive covenants. However, the Company does not presently have
binding agreements to extend the terms of its existing financing arrangements or
for any replacement financing arrangements upon the expiration of such funding
commitments, and there can be no assurance that alternative or additional
arrangements can be made on terms that are satisfactory to the Company.
Accordingly, future sales of Vacation Intervals may be limited by both the
availability of funds to finance customer purchases of Vacation Intervals and by
reduced demand which may result if the Company is unable to provide financing to
purchasers of Vacation Intervals. In addition, if the Company were to incur
additional indebtedness, this could increase its vulnerability to adverse
general economic and timeshare industry conditions and to increased competitive
pressures.
The foregoing summary of certain provisions of the Company's credit
facilities is subject to and qualified in its entirety by reference to the terms
of the credit facilities.
89
<PAGE> 92
DESCRIPTION OF NOTES
GENERAL
The Notes will be issued pursuant to an Indenture (the "Indenture") among
the Company, each Subsidiary of the Company, as guarantors, and Norwest Bank
Minnesota, N.A., as trustee (the "Trustee"). The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
Notes are subject to all such terms, and prospective investors are referred to
the Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. A copy of the
proposed form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The definitions of certain
terms used in the following summary are set forth below under "-- Certain
Definitions". For purposes of this summary, the term "Company" refers only to
Silverleaf Resorts, Inc. and not to any of its Subsidiaries.
The Notes will be general unsecured obligations of the Company and the
Guarantors and will be subordinated in right of payment to all existing and
future Senior Debt. The Notes will rank pari passu with any future senior
subordinated indebtedness of the Company and will rank senior to all
subordinated indebtedness of the Company. In addition, and subject to the
Subsidiary Guarantees, the Notes will be structurally subordinated to all
existing and future liabilities of the Guarantors. As of December 31, 1997, on a
pro forma basis giving effect to the consummation of the Note Offering and the
Equity Offering and the application of proceeds thereof, the Company would have
had no Senior Debt. However, the Company would have had $125.0 million of unused
commitments under the credit facilities, all of which would have been secured
Senior Debt. At such date, the Subsidiaries had no material liabilities (other
than intercompany payables). The Indenture will permit the incurrence of
additional Senior Debt and other indebtedness in the future, including secured
indebtedness, subject to certain restrictions. See "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" and
"-- Liens".
The Company's payment obligations under the Notes will be guaranteed by all
of the Company's present and future Domestic Restricted Subsidiaries. See
"Subsidiary Guarantees". As of the date of the Indenture, all of the Company's
Subsidiaries will be Restricted Subsidiaries. However, under certain
circumstances, the Company will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not
guarantee the Notes or be subject to the restrictive covenants set forth in the
Indenture. See "Subsidiary Guarantees" and "Designation of Restricted Subsidiary
as Unrestricted or Unrestricted Subsidiary as Restricted" and "Risk
Factors -- Fraudulent Transfer Statutes".
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $200.0 million,
of which $75.0 million will be issued in the Note Offering, and will mature on
, 2008. Interest on the Notes will accrue at the rate of % per annum
and will be payable semi-annually in arrears on and , commencing on
, 1998, to holders of record of Notes ("Holders") on the immediately
preceding and . Additional Notes may be issued from time to
time after the Note Offering, subject to the provisions of the Indenture
described below under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock". Interest on the Notes will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of original issuance. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal of,
interest and premium, if any, on the Notes will be payable at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, at the option of the Company, payment of interest and premium, if
any, may be made by check mailed to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes; provided that all
payments of principal, interest and premium, if any, with respect to Notes the
Holders of which have given wire transfer instructions to the Company will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose. The Notes
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will be issued in denominations of $1,000 and integral multiples thereof. All
payments will be in immediately available funds.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be jointly and
severally guaranteed, on a senior subordinated basis, by each of the Company's
present and future Domestic Restricted Subsidiaries. The Notes will not be
guaranteed by any present or future foreign subsidiary or any Unrestricted
Subsidiary. As of December 31, 1997, the total assets of and investment by the
Company in the Guarantors was approximately $2.8 million. See Note 14 of Notes
to Consolidated Financial Statements. The Subsidiary Guarantee of each Guarantor
will be subordinated to the prior payment in full of all Senior Debt of such
Guarantor (none was outstanding as of December 31, 1997) and any amounts for
which the Guarantors become liable under guarantees issued from time to time
with respect to Senior Debt, both subject to the limitations described under the
caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock". The obligations of each Guarantor under its Subsidiary
Guarantee will be limited so as not to constitute a fraudulent conveyance under
applicable law, which may limit or obviate the effect of such Subsidiary
Guarantees. See "Risk Factors -- Fraudulent Transfer Statutes".
The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person) another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee; (ii) immediately after giving effect to such transaction, no Default or
Event of Default exists; (iii) such Guarantor, or any Person formed by or
surviving any such consolidation or merger, would have Consolidated Net Worth
(immediately after giving effect to such transaction) equal to or greater than
the Consolidated Net Worth of such Guarantor immediately preceding the
transaction; and (iv) the Company would be permitted by virtue of the Company's
pro forma Consolidated Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Coverage Ratio test set forth in the first paragraph of the
covenant described under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock".
The Indenture will provide that in the event of a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "-- Repurchase
at the Option of Holders -- Asset Sales".
Additional Subsidiary Guarantees. The Indenture will provide that if the
Company or any of its Restricted Subsidiaries shall acquire or create another
Domestic Restricted Subsidiary after the date of the Indenture, then such newly
acquired or created Domestic Restricted Subsidiary shall execute a Subsidiary
Guarantee and deliver an opinion of counsel, in accordance with the terms of the
Indenture.
SUBORDINATION
The payment of principal of, interest and premium, if any, on the Notes
will be subordinated in right of payment, as set forth in the Indenture, to the
prior payment in full of all Senior Debt, whether outstanding on the date of the
Indenture or thereafter incurred. See "Risk Factors -- Subordination".
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified in
the applicable
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Senior Debt) before the Holders of Notes will be entitled to receive any payment
with respect to the Notes, and until all Obligations with respect to Senior Debt
are paid in full, any distribution to which the Holders of Notes would be
entitled shall be made to the holders of Senior Debt (except that Holders of
Notes may receive Permitted Junior Securities and payments made from the trust
described under "Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under
"-- Legal Defeasance and Covenant Defeasance") if (i) a default in the payment
of the principal of, premium, if any, or interest on Designated Senior Debt
occurs and is continuing beyond any applicable period of grace or (ii) any other
default occurs and is continuing with respect to Designated Senior Debt that
permits holders of the Designated Senior Debt as to which such default relates
to accelerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from the Company or the holders of any Designated
Senior Debt. Payments on the Notes may and shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and (b)
in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been accelerated. No new period of payment blockage
may be commenced unless and until (i) 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, and interest and Liquidated
Damages, if any, on the Notes that have come due have been paid in full in cash.
No nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice unless such default shall have been waived
for a period of not less than 180 days.
The Indenture will further require that the Company promptly notify holders
of Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
The Obligations of a Guarantor under its Subsidiary Guarantee are senior
subordinated obligations. Therefore, the rights of the Holders of the Notes to
receive payment by a Guarantor pursuant to a Subsidiary Guarantee will be
subordinated in right of payment to the rights of holders of Senior Debt of such
Guarantor. The terms of the subordination provisions described above with
respect to the Company's Obligations under the Notes apply equally to a
Guarantor and the Obligations of such Guarantor under the Subsidiary Guarantee.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency of the Company, Holders of Notes may recover less
ratably than creditors of the Company and the Guarantors who are holders of
Senior Debt. The Indenture will limit, subject to certain financial tests, the
amount of additional Indebtedness, including Senior Debt, that the Company and
its Restricted Subsidiaries can incur. See "-- Certain Covenants -- Incurrence
of Indebtedness and Issuance of Preferred Stock".
No Senior Subordinated Debt. The Indenture will provide that (i) the
Company will not incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment to
any Senior Debt and senior in any respect in right of payment to the Notes, and
(ii) no Guarantor will incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt and senior in any respect in right of payment to the
Subsidiary Guarantees. No Indebtedness shall be deemed to be Senior Debt solely
because it is secured and no Indebtedness shall be deemed to be subordinated
solely because it is convertible into Equity Interests.
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OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to
, 2003. Thereafter, the Notes will be subject to redemption at any
time at the option of the Company, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon, if any, to the applicable redemption date, if redeemed during
the twelve-month period beginning on of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003...................................................... %
2004...................................................... %
2005...................................................... %
2006 and thereafter....................................... 100%
</TABLE>
Notwithstanding the foregoing, on or prior to , 2001, the
Company may redeem up to 33 1/3% of the aggregate principal amount of the Notes
at a redemption price of % of the principal amount thereof, plus accrued and
unpaid interest thereon to the redemption date, with the net cash proceeds of
one or more public offerings of Common Stock of the Company, provided that at
least 66 2/3% of the initially outstanding aggregate principal amount of Notes
remain outstanding immediately after the occurrence of such redemption; and
provided, further, that such redemption shall occur within 60 days of the date
of the closing of such offering.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption.
Mandatory Redemption
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon, to the date of purchase (the "Change of Control Payment").
Within ten days following any Change of Control, the Company will mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase Notes on the date specified in such
notice, which date shall be no earlier than 30 days and no later than 60 days
from the date such notice is mailed (the "Change of Control Payment Date"),
pursuant to the procedures required by the Indenture and described in such
notice. The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
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On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture will provide
that, prior to complying with the provisions of this covenant, but in any event
within 90 days following a Change of Control, the Company will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of Notes
required by this covenant. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The existence of a Holder's right to require the Company to repurchase such
Holder's Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company in a transaction that would constitute
a Change of Control.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Restricted Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all", there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Restricted Subsidiaries taken as a whole to another Person or group may
be uncertain.
Asset Sales
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash; provided that the amount of (x) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet) of
the Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability and (y) any securities, notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds at its option, (a) to repay Senior Debt
of the Company or a Guarantor, or (b) to the acquisition of a controlling
interest in another business, the making of a capital expenditure or the
acquisition of other long-term
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assets, in each case, in the same line of business as the Company and its
Restricted Subsidiaries were engaged on the date of the Indenture or in a
Related Business. Pending the final application of any such Net Proceeds, the
Company may temporarily reduce revolving Senior Debt or otherwise invest such
Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds".
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company
will be required to make an offer to all Holders of Notes (an "Asset Sale
Offer") to purchase the maximum principal amount of Notes that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to 100%
of the principal amount thereof plus accrued and unpaid interest thereon to the
date of purchase, in accordance with the procedures set forth in the Indenture.
To the extent that the aggregate amount of Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If
the aggregate principal amount of Notes surrendered by Holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
Repurchase Limitations
The Company's credit facilities variously prohibit the Company from
prepaying any Notes and provide that certain change of control events with
respect to the Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. In the event a
Change of Control or Asset Sale occurs at a time when the Company is prohibited
from purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or repay the restrictive Indebtedness. If the Company does not
obtain such a consent or repay such borrowings, the Company will continue to be
prohibited from purchasing Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the Indenture
which would, in turn, constitute a default under the Company's credit
facilities. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the Holders of Notes. Finally, the Company's
ability to repurchase Notes may be limited by the Company's then existing
financial resources. See "Risk Factors -- Payment Upon a Change of Control and
Certain Asset Sales" and "Description of Certain Indebtedness".
CERTAIN COVENANTS
Restricted Payments
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of the Company's or
any of its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company and dividends and distributions payable
solely to the Company or to a Guarantor); (ii) purchase, redeem or otherwise
acquire or retire for value (including without limitation, in connection with
any merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company; (iii) make any payment
on or with respect to, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinate to the Notes or the
Subsidiary Guarantees, except a payment of interest or principal at Stated
Maturity; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Consolidated Coverage
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Ratio test set forth in the first paragraph of the covenant described below
under the caption "-- Incurrence of Indebtedness and Issuance of Preferred
Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clause (ii) of the next succeeding paragraph), is less than
the sum of (i) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds received
by the Company from the issue or sale since the date of the Indenture of
Equity Interests of the Company (other than Disqualified Stock) or of
Disqualified Stock or debt securities of the Company that have been
converted into or exchanged for such Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible debt securities) sold to a
Restricted Subsidiary of the Company and other than Disqualified Stock or
convertible debt securities that have been converted into or exchanged for
Disqualified Stock), plus (iii) to the extent that any Unrestricted
Subsidiary is redesignated as a Restricted Subsidiary after the date of the
Indenture, the fair market value of the Company's Investment in such
Subsidiary as of the date of such redesignation; provided, however, that
the foregoing amount shall not exceed the amount of Investments made (and
treated as a Restricted Investment) by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, plus (iv) an amount equal to
the net reduction in Investments (other than Permitted Investments) made by
the Company or any Restricted Subsidiaries in any Person resulting from
dividends or distributions on, or repurchases or redemptions of, such
Investments by such Person, net cash proceeds realized upon the sale of
such Investment to an unaffiliated purchaser, reductions in obligations of
such Person guaranteed by, and repayments of loans or advances or other
transfers of assets by such Person to, the Company or a Restricted
Subsidiary, provided, however, that no amount shall be included under this
clause (iv) to the extent it is already included in Consolidated Net
Income.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption,
repurchase or other acquisition of subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness with Excess Proceeds remaining after an Asset Sale Offer; (v) the
payment of any dividend by a Restricted Subsidiary of the Company to the holders
of its respective Equity Interests on a pro rata basis; (vi) repurchases of
Equity Interests of the Company deemed to occur upon exercise of employee
options, warrants or rights if such Equity Interests represent a portion of the
exercise price of or withholding tax due upon exercise of such options, warrants
or rights; (vii) the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Company or any Restricted Subsidiary
held by any employee or former employee pursuant to the terms of any of the
Company's or such Restricted Subsidiaries' benefit plans or arrangements;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $1.0 million in any
twelve-month period and $5.0 million in the aggregate and no Default or Event of
Default shall have occurred and be continuing immediately after such
transaction; and (viii) additional Restricted Payments in an amount not to
exceed $5.0 million.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
of Directors whose resolution with respect thereto
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shall be delivered to the Trustee, such determination to be based upon an
opinion or appraisal issued by an accounting, appraisal or investment banking
firm of national standing if such fair market value exceeds $1.0 million. Not
later than the date of making any Restricted Payment, the Company shall deliver
to the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed, together with a copy of any
fairness opinion or appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company and the Guarantors
will not issue any Disqualified Stock and the Company will not permit any of its
Restricted Subsidiaries which are not Guarantors to issue any shares of
preferred stock other than to the Company or to a Wholly Owned Restricted
Subsidiary which is a Guarantor, provided that any subsequent issuance or
transfer of Capital Stock that results in such Guarantor ceasing to be a Wholly
Owned Restricted Subsidiary or any subsequent transfer of such preferred stock
(other than to the Company or another Wholly Owned Restricted Subsidiary which
is a Guarantor) will be deemed, in each case, to be the issuance of such
preferred stock by the issuer thereof; provided, however, that the Company and
any Guarantor may incur Indebtedness (including Acquired Debt) or issue shares
of Disqualified Stock if the Consolidated Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 2.0 to 1.0, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness secured by Mortgages Receivable (including pursuant to the
Company's credit facilities) in an aggregate principal amount (with letters
of credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Restricted Subsidiaries
thereunder) outstanding after giving effect to such incurrence not to
exceed 70% of the Mortgages Receivable of the Company and its Restricted
Subsidiaries at the date of incurrence;
(ii) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant, equipment, land or inventory used or held
for sale in the business of the Company or any Restricted Subsidiary, in an
aggregate principal amount not to exceed $5.0 million at any time
outstanding;
(iii) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in connection with the acquisition of assets
or a new Restricted Subsidiary; provided that such Indebtedness was
incurred by the prior owner of such assets or such Restricted Subsidiary
prior to such acquisition by the Company or one of its Restricted
Subsidiaries and was not incurred in connection with, or in contemplation
of, such acquisition by the Company or one of it Restricted Subsidiaries;
and provided further that the principal amount (or accreted value, as
applicable) of such Indebtedness, together with any other outstanding
Indebtedness incurred pursuant to this clause (iii), does not exceed $5.0
million;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Existing
Indebtedness or Indebtedness that was permitted by the Indenture to be
incurred;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Restricted Subsidiaries; provided, however, that (A) if the
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Company or a Guarantor is the obligor on such Indebtedness, such
Indebtedness is expressly subordinated to the prior payment in full in cash
of all Obligations with respect to the Notes and the Subsidiary Guarantees
and (B)(i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the
Company or a Restricted Subsidiary and (ii) any sale or other transfer of
any such Indebtedness to a Person that is not either the Company or a
Restricted Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be;
(vi) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of fixing or hedging interest rate risk with
respect to any floating rate Indebtedness that is permitted by the terms of
this Indenture to be outstanding;
(vii) the guarantee by the Company or any Restricted Subsidiary of
Indebtedness of the Company or a Restricted Subsidiary that was permitted
to be incurred by another provision of this covenant;
(viii) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed an incurrence of Indebtedness by a Restricted Subsidiary of the
Company;
(ix) the incurrence by the Company and the Guarantors of Indebtedness
represented by $75.0 million of Notes offered hereby, the Subsidiary
Guarantees thereof, and the Indenture;
(x) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(xi) the incurrence by the Company and its Restricted Subsidiaries in
the ordinary course of business of Indebtedness (A) in respect of
performance, completion, surety or similar bonds or guarantees (including
pursuant to letters of credit) in connection with new construction,
development, leasing of billboards, or compliance with federal, state or
local law, or (B) in respect of bankers acceptances, letters of credit,
appeal or similar bonds other than pursuant to clause (A) in an aggregate
amount at any time not to exceed $5.0 million;
(xii) the incurrence of Indebtedness of the Company or any Restricted
Subsidiary arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations in connection with the
disposition of any assets of the Company or any such Restricted Subsidiary
(other than Guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such assets for the purpose of financing such
acquisition), in principal amount not to exceed the gross proceeds actually
received by the Company or any Restricted Subsidiary in connection with
such disposition; and
(xiii) the incurrence by the Company and its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding (including all indebtedness
incurred to replace, refund or refinance any such indebtedness) not to
exceed $7.5 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiii) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest, the accretion of accreted
value and the payment of interest in the form of additional Indebtedness will
not be deemed to be an incurrence of Indebtedness for purposes of this covenant.
Designation of Restricted Subsidiary as Unrestricted or Unrestricted
Subsidiary as Restricted.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if at the time of such designation: (a) all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated are deemed to be a Restricted
Payment at the time of such designation (all such outstanding Investments will
be deemed to constitute an amount equal to the greatest of (i) the net book
value of such Investments at the time of such designation, (ii) the fair market
value of such
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Investments at the time of such designation and (iii) the original fair market
value of such Investments at the time they were made), and such Restricted
Payment is permitted at such time under the covenant described under the caption
"Restricted Payments"; (b) giving pro forma effect thereto as if such
designation had occurred at the beginning of the Company's most recently
completed four fiscal quarters for which internal financial statements are
available preceding the date of such designation, the pro forma Consolidated
Coverage Ratio for such period is greater than the historical Consolidated
Coverage Ratio for such period; (c) no Default or Event of Default shall have
occurred and be continuing immediately preceding such designation and giving pro
forma effect thereto or would occur as a consequence thereof; and (d) such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The Board of Directors may redesignate any Unrestricted Subsidiary to be
Restricted Subsidiary if at the time of such redesignation: (x) giving pro forma
effect to the redesignation and incurrence of Indebtedness of the Unrestricted
Subsidiary (if any) as if they occurred at the beginning of the Company's most
recently completed four fiscal quarters for which internal financial statements
are available preceding the date of such redesignation, (i) any Indebtedness of
such Unrestricted Subsidiary (including any Non-Recourse Debt) could be incurred
pursuant to the Consolidated Coverage Ratio test set forth in the first
paragraph of the covenant described under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock", and (ii) the pro forma
Consolidated Coverage Ratio for such period is greater than the historical
Consolidated Coverage Ratio for such period; (y) the newly redesignated Domestic
Restricted Subsidiary executes and delivers a Subsidiary Guarantee and an
opinion of counsel as required by the Indenture; and (z) no Default or Event of
Default shall have occurred and be continuing immediately preceding such
redesignation and giving pro forma effect thereto or would occur as a
consequence thereof.
Any such designation or redesignation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation or redesignation and an
Officers' Certificate certifying that such designation or redesignation complied
with the foregoing conditions.
If, at any time, any Unrestricted Subsidiary would fail to meet the
definition of an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture. If the Unrestricted
Subsidiary at such time would not be permitted to be redesignated a Restricted
Subsidiary, the Company shall be in default of the above covenant.
Liens
The Indenture will provide that the Company will not and will not permit
any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause
or suffer to exist or become effective any Lien of any kind (other than
Permitted Liens) upon any of their property or assets, now owned or hereafter
acquired, or any income or profits therefrom (or assign or convey any right to
receive income therefrom), which secures Indebtedness or trade payables that
rank pari passu with or are subordinated to the Notes or the Subsidiary
Guarantees, as applicable, unless (i) if such Lien secures Indebtedness or trade
payables that rank pari passu with the Notes or Subsidiary Guarantees, as
applicable, the Notes and such Subsidiary Guarantees are secured on an equal and
ratable basis with the obligation so secured until such time as such obligation
is no longer secured by a Lien or (ii) if such Lien secures Indebtedness or
trade payables that are subordinated to the Notes or Subsidiary Guarantees, as
applicable, such Lien shall be subordinated to a Lien granted to the Holders of
Notes and Subsidiary Guarantees on the same collateral as that securing such
Lien to the same extent as such Indebtedness, as applicable, until such
obligation is no longer secured by a lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest
or participation in, or measured by, its profits, or (b) pay any Indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or
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(iii) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the Indenture and the Notes, (c) applicable law, (d) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of the Indenture to be incurred, (e) by reason of customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (f) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (iii) above on the property so acquired, (g)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced, (h) restrictions contained in security agreements or mortgages
to the extent such restrictions restrict the transfer of the property or assets
subject to such security agreements or mortgages, (i) any restriction with
respect to a Restricted Subsidiary imposed pursuant to an agreement entered into
for the sale or disposition of all or substantially all of the capital stock or
assets of such Restricted Subsidiary pending the closing of the sale of such
sale or disposition, or (j) any restriction in any agreement that is not more
restrictive than the restrictions in the Company's credit facilities as in
effect on the date of the Indenture.
Merger, Consolidation, or Sale of Assets
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Notes and the Indenture pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of
the Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Consolidated Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock".
Transactions with Affiliates
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers'
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Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing; provided that (x) any employment, compensation or indemnity agreement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of the Company
or such Restricted Subsidiary, (y) transactions between or among the Company
and/or its Restricted Subsidiaries and (z) Restricted Payments that are
permitted by the provisions of the Indenture described above under the caption
"-- Restricted Payments", in each case, shall not be deemed Affiliate
Transactions, and provided further that transactions between the Company or a
Restricted Subsidiary and any Club in the ordinary course of business shall not
be subject to clause (ii)(b) above.
Sale and Leaseback Transactions
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company may enter into a sale and leaseback
transaction if (i) the Company could have (a) incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to the Consolidated Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "-- Incurrence of
Additional Indebtedness and Issuance of Preferred Stock", and (b) incurred a
Lien to secure such Indebtedness pursuant to the covenant described above under
the caption "-- Liens", (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee) of the property that is the subject of such sale and
leaseback transaction, and (iii) the transfer of assets in such sale and
leaseback transaction is permitted by, and the Company applies the proceeds of
such transaction in compliance with, the covenant described above under the
caption "-- Repurchase at the Option of Holders -- Asset Sales".
Limitation on Issuances and Sales of Capital Stock of Wholly Owned Restricted
Subsidiaries
The Indenture will provide that the Company (i) will not, and will not
permit any Wholly Owned Restricted Subsidiary of the Company to, transfer,
convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly
Owned Restricted Subsidiary of the Company to any Person (other than to the
Company or a Wholly Owned Restricted Subsidiary that is a Guarantor), unless (a)
such transfer, conveyance, sale, lease or other disposition is of all the
Capital Stock of such Wholly Owned Restricted Subsidiary and (b) the cash Net
Proceeds from such transfer, conveyance, sale, lease or other disposition are
applied in accordance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales", and (ii) will not
permit any Wholly Owned Restricted Subsidiary of the Company to issue any of its
Equity Interests (other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly Owned Restricted Subsidiary of the Company that is a
Guarantor.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than the same line of business as the Company and
its Restricted Subsidiaries were engaged in on the date of the Indenture or a
Related Business, except to such extent as would not be material to the Company
and its Restricted Subsidiaries taken as a whole.
Limitation on Status as an Investment Company
The Indenture will prohibit the Company and its Restricted Subsidiaries
from being required to register as an "investment company" (as defined in the
Investment Company Act of 1940, as amended), or from otherwise becoming subject
to regulation under the Investment Company Act.
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Payments for Consent
The Indenture will provide that neither the Company nor any of its
Restricted Subsidiaries will, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
of any Notes for or as an inducement to any consent, waiver or amendment of any
of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid or is paid to all Holders of the Notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Reports
The Indenture will provide that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
and the Guarantors will furnish to the Holders of Notes (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition and
results of operations of the Company and its consolidated Subsidiaries (showing
in reasonable detail, either on the face of the financial statements or in the
footnotes thereto and in Management's Discussion and Analysis of Financial
Condition and Results of Operations, the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
of the Company), and, with respect to the annual information only, a report
thereon by the Company's independent certified public accountants, and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, the Company will
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due of the principal of or premium, if
any, on the Notes (whether or not prohibited by the subordination provisions of
the Indenture); (iii) failure by the Company to comply for 30 days after notice
from the Trustee or the Holders of at least 25% in principal amount of their
outstanding Notes with the provisions described under the captions
"-- Repurchase at the Option of Holders -- Change of Control", "-- Repurchase at
the Option of Holders -- Asset Sales", "-- Certain Covenants -- Restricted
Payments", "Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock", and "-- Certain Covenants -- Merger, Consolidation or Sale of
Assets"; (iv) failure by the Company to comply with any of its other agreements
in the Indenture or the Notes for 60 days after notice from the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the date
of the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; provided, that in the case of
any such Payment Default under clause (a) such default continues beyond the
lesser of 30 days or the longest period for cure provided in any such
Indebtedness as to which a Payment Default exists, or in the case of any
acceleration of Indebtedness described in clause (b), such Indebtedness is not
discharged or such acceleration cured, waived, rescinded or annulled within the
lesser of 30 days after acceleration or the longest period for cure provided in
any such Indebtedness which has been accelerated; (vi) failure by the Company or
any of its Restricted Subsidiaries to pay
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final judgments aggregating in excess of $5.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days; (viii) except as permitted
by the Indenture, any Subsidiary Guarantee shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be in
full force and effect or any Guarantor, or any Person acting on behalf of any
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; and (ix) certain events of bankruptcy or insolvency with respect to
the Company or any of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately, provided, however, that
so long as any Designated Senior Debt is outstanding, no such acceleration shall
be effective until five business days after the giving of written notice to the
Company and the representatives under the Designated Senior Debt of such
acceleration. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, with respect to the
Company, any Significant Restricted Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant Restricted
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company or any
Guarantor with the intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the Notes
pursuant to the optional redemption provisions of the Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Notes . If an Event of Default
occurs prior to , 2003 by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company or any Guarantor with the
intention of avoiding the prohibition on redemption of the Notes prior to such
date, then the Make-Whole Price shall become immediately due and payable to the
extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or any Guarantor under the Notes, the Subsidiary Guarantees, the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
and the Guarantors' obligations discharged with respect to the outstanding Notes
("Legal Defeasance") except for (i) the rights of Holders of outstanding Notes
to receive payments in respect of the principal of, interest and premium, if
any, on such Notes when such payments are due from the trust referred to below,
(ii) the Company's obligations with respect to the Notes concerning issuing
temporary Notes, mutilated, destroyed, lost or stolen Notes and the maintenance
of an
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office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company and its Subsidiaries
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, interest and premium, if any, on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
Notes over the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and (viii)
the Company must deliver to the Trustee an Officers' Certificate and an opinion
of counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes ), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for Notes ).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter
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the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(subject to the last sentence of this paragraph, other than a payment required
by one of the covenants described above under the caption "Repurchase at the
Option of Holders") or (viii) make any change in the foregoing amendment and
waiver provisions. In addition, any amendment to the provisions of Article 10 of
the Indenture (which relate to subordination) will require the consent of the
Holders of at least 75% in aggregate principal amount of the Notes then
outstanding if such amendment would adversely affect the rights of Holders of
Notes. In addition, without the consent of the holders of 66 2/3% in principal
amount of the Notes then outstanding (including consents obtained in connection
with a tender offer or exchange offer for Notes), no waiver or amendment to the
Indenture may make any change in the provisions described above under the
caption "Repurchase at the Option of Holders -- Change of Control" that
adversely affect the rights of any Holder of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company, the Guarantors and the Trustee may amend or supplement the
Indenture, the Subsidiary Guarantees, or the Notes to cure any ambiguity, defect
or inconsistency, to provide for uncertificated Notes in addition to or in place
of certificated Notes, to provide for the assumption of the Company's or the
Subsidiary Guarantors' obligations to Holders of Notes in the case of a merger
or consolidation, to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with requirements of
the Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
GOVERNING LAW
The Indenture, the Subsidiary Guarantees and the Notes will be, subject to
certain exceptions, governed by and construed in accordance with the internal
laws of the State of New York, without regard to the choice of law rules
thereof.
GLOBAL NOTE AND DEFINITIVE NOTES
The Notes will initially be issued in the form of one Global Note (the
"Global Note"). The Global Note will be deposited on the date of the closing of
the sale of the Notes with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Note Holder").
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Underwriters,
banks and trust companies, clearing corporations and certain other
organizations). Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary, (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Underwriters with portions of the
principal amount of the Global Note and (ii) ownership of the Notes evidenced by
the Global Note will be
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shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depositary (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the Depositary's
Indirect Participants. Prospective purchasers are advised that the laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Notes evidenced
by the Global Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Notes. Beneficial owners of Notes evidenced by the
Global Note will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note Holder in its capacity as the registered Holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names Notes, including the Global Note, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes. The Company believes,
however, that it is currently the policy of the Depositary to immediately credit
the accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
Global Notes may be exchanged for registered definitive certificates
("Definitive Notes") if (i) the Depository notifies the Company that it is
unwilling or unable to continue as depositary for the Global Notes and the
Company thereupon fails to appoint a successor depositary within 90 days, (ii)
the Company, in its sole discretion, determines that the Global Notes (in whole
but not in part) should be exchanged for Definitive Notes and delivers a written
notice to such effect to the Trustee or (iii) there shall have occurred and be
continuing a Default or an Event of Default with respect to the Notes. Upon the
occurrence of any of the preceding events in (i), (ii) or (iii) above,
Definitive Notes shall be issued in such names and issued in any approved
denominations as the Depositary shall instruct the Trustee.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for purposes.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it
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acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its powers, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Notes, unless such Holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Silverleaf Resorts, Inc., 1221 Riverbend Drive,
Suite 120, Dallas, Texas 75247, Attention: Corporate Secretary.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business consistent with past
practices (provided that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "-- Repurchase at the Option of
Holders -- Change of Control" and/or the provisions described above under the
caption "-- Merger, Consolidation or Sale of Assets" and not by the provisions
of the Asset Sale covenant), and (ii) the issue or sale by the Company or any of
its Restricted Subsidiaries of Equity Interests of any of the Company's
Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions (a) that have a fair
market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Wholly-Owned Restricted Subsidiary that is a Guarantor or by a Restricted
Subsidiary to the Company or to another Wholly-Owned Restricted Subsidiary that
is a Guarantor, (ii) an issuance of Equity Interests by a Wholly-Owned
Restricted Subsidiary to the Company or to another Wholly-Owned Restricted
Subsidiary that is a Guarantor, (iii) a Restricted Payment that is permitted by
the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments" will not be deemed to be Asset Sales, and (iv)
sales, leases or contracts for deed in the ordinary course of business of
Vacation Intervals or Mortgages Receivable, will not be deemed to be Asset
Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in
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such sale and leaseback transaction (including any period for which such lease
has been extended or may, at the option of the lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the full faith and credit of the
United States government or any agency or instrumentality thereof having
maturities of not more than six months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii) above
and (v) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within six months after the date of acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act), (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any "person" (as defined above), other than the Principal and his
Related Parties, becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition), directly or indirectly, of
more than 50% of the Voting Stock of the Company (measured by voting power
rather than number of shares), (iv) the Company consolidates with, or merges
with or into, any Person, or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any Person, or
any Person consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which any of the outstanding Voting Stock of
the Company is converted into or exchanged for cash, securities or other
property, other than any such transaction where the Voting Stock of the Company
outstanding immediately prior to such transaction is converted into or exchanged
for Voting Stock of the surviving or transferee Person constituting a majority
of the outstanding shares of such Voting Stock of such surviving or transferee
Person (immediately after giving effect to such issuance), or (v) the first day
on which a majority of the members of the Board of Directors of the Company are
not Continuing Directors.
"Club" means the owners' associations for any of the Company's resorts or
developments, or of nearby residential or condominium tracts developed by the
Company or its predecessors, and the Master Club.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such Consolidated
Net Income, plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt issuance
costs
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and original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash expenses (excluding any such non-cash expense to the
extent that it represents an accrual of or reserve for cash expenses in any
future period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, minus (v) non-cash items
increasing such Consolidated Net Income for such period (excluding any such
non-cash items to the extent they represent a reversal of amounts that were
accrued in prior periods and were then excluded from Consolidated Cash Flow as a
result of the second parenthetical in clause (iv)), plus, (vi) non-cash items
increasing Consolidated Net Income for a prior period which were excluded from
Consolidated Cash Flow in such period due to the application of clause (v), to
the extent such non-cash item is collected in cash in a subsequent period, in
each case, on a consolidated basis and determined in accordance with GAAP. The
recognition of revenue on the accrual basis in accordance with GAAP upon the
sale, lease, or sale by contract for deed of Vacation Intervals shall not be
deemed a non-cash item increasing Consolidated Net Income. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Restricted
Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in the same proportion)
that the Net Income of such Person was included in calculating Consolidated Net
Income.
"Consolidated Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Consolidated Interest Expense of
such Person and its Restricted Subsidiaries for such period. In the event that
the Company or any of its Restricted Subsidiaries incurs, assumes, issues,
guarantees, repays, redeems, retires, repurchases or defeases any Indebtedness
or Disqualified Stock (other than revolving credit borrowings) subsequent to the
commencement of the period for which the Consolidated Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation of
the Consolidated Coverage Ratio is made (the "Calculation Date"), then the
Consolidated Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, issuance, Guarantee, repayment, redemption, retirement,
repurchase, or defeasance of Indebtedness or Disqualified Stock (and in the case
of incurrence or issuance, the pro forma application of the net proceeds
thereof) as if the same had occurred at the beginning of the applicable
four-quarter reference period. In addition, for purposes of making the
computation referred to above, (i) acquisitions that have been made by the
Company or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Consolidated Interest Expense
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such
Consolidated Interest Expense will not be obligations of the referent Person or
any of its Restricted Subsidiaries following the Calculation Date. For purposes
of this definition, whenever pro forma effect is given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness incurred in
connection therewith shall be determined in good faith by a responsible
financial or accounting officer of the Company.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of original issue discount,
non-cash interest
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payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period, and (iii) any
interest expense on Indebtedness of another Person that is guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its Restricted Subsidiaries (whether or not such Guarantee
or Lien is called upon), and (iv) the product of (a) all dividend payments,
whether or not in cash, on any series of Disqualified Stock of such Person or
any of its Restricted Subsidiaries, other than dividend payments on Equity
Interests payable solely in Equity Interests of the Company, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case on a consolidated basis and in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash by the referent Person to the Company or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Restricted Subsidiary of such
Person, (y) all investments as of such date in unconsolidated Subsidiaries and
in Persons that are not Restricted Subsidiaries (except, in each case, Permitted
Investments), and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Company's credit facilities and (ii) any other Senior Debt permitted under the
Indenture, in either case in which the principal amount of which is $25 million
or more and that has been designated by the Company as "Designated Senior Debt."
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
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redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 360 days after the date on which the Notes mature.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary that is not
formed, incorporated or organized in a jurisdiction outside the United States.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means up to $10.0 million in aggregate principal
amount of Indebtedness of the Company and its Restricted Subsidiaries (other
than Indebtedness under the Company's credit facilities) in existence on the
date of the Indenture, until such amounts are repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means each of (i) the Company's subsidiaries and (ii) any
other Subsidiary that executes a Subsidiary Guarantee in accordance with the
provisions of the Indenture, and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness that does not require current payments
of interest, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP,
in each case excluding (i) Mortgages Receivable and (ii) receivables from
"Sampler" contracts or lot or condominium sales. If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Restricted Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Restricted Subsidiary of the Company, the Company shall be deemed to
have made an Investment on the date of any such sale or disposition equal to the
fair market value of the Equity Interests of such Restricted Subsidiary not sold
or disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "-- Restricted Payments".
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"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Make-Whole Amount" means, with respect to any Note, an amount equal to the
excess, if any, of (a) the present value of the remaining principal, premium and
interest payments that would be payable with respect to such Note if such Note
were redeemed on , 2003, computed using a discount rate equal to the
Treasury Rate plus 75 basis points, over (b) the outstanding principal amount of
such Note.
"Make-Whole Average Life" means, with respect to any date of acceleration
of Notes, the number of years (calculated to the nearest one-twelfth) from such
date to , 2003.
"Make-Whole Price" means, with respect to any Note, the greater of (a) the
sum of the principal amount of and Make-Whole Amount with respect to such Note,
and (b) the redemption price of such Note on , 2003.
"Mortgages Receivable" means the gross principal amount of notes receivable
of the Company and its Restricted Subsidiaries secured by Liens on Vacation
Intervals (including notes receivable secured by Vacation Intervals or other
comparable timeshare interests acquired by the Company and its Restricted
Subsidiaries), determined in accordance with GAAP.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or loss,
together with any related provision for taxes on (or tax benefit from) such gain
or loss, realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain or
loss, together with any related provision for taxes on (or tax benefit from)
such extraordinary or nonrecurring gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than the Company's credit facilities or other revolving Indebtedness if
there is no corresponding permanent reduction in commitments with respect
thereto) secured by a Lien on the asset or assets that were the subject of such
Asset Sale and any reserve for adjustment in respect of the sale price of such
asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Restricted
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Subsidiary of the Company in a Person, if as a result of such Investment (i)
such Person becomes a Wholly Owned Restricted Subsidiary of the Company and a
Guarantor that is engaged in the same business as the Company and its Restricted
Subsidiaries were engaged in on the date of the Indenture or a Related Business,
or (ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Wholly Owned Restricted Subsidiary of the Company that is a
Guarantor and that is engaged in the same line of business as the Company and
its Restricted Subsidiaries were engaged in on the date of the Indenture or a
Related Business; (d) any Restricted Investment made as a result of the receipt
of non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "-- Repurchase at
the Option of Holders -- Asset Sales"; (e) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock) of
the Company; (f) payroll, travel, and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business; (g)
loans or advances to employees made in the ordinary course of business
consistent with past practices in an aggregate amount outstanding at any one
time not to exceed $500,000; (h) stock, obligations, or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or a Restricted Subsidiary; (i) any Investment acquired by the Company
or any of its Restricted Subsidiaries (1) in exchange for any other Investment
or receivable held by the Company of any such Restricted Subsidiary in
connection with or as a result of any bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or receivable or (2) as
a result of a foreclosure (or deed in lieu of) by the Company or any of its
Restricted Subsidiaries with respect to any secured Investment or other transfer
of title with respect to any secured Investment in default; (i) Hedging
Obligations permitted under the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock"; (j)
all Investments existing on the date of the Indenture; (k) Investments by the
Company or a Restricted Subsidiary in a Club in an aggregate amount outstanding
at any one time not to exceed $2.0 million; and (l) other Investments in any
Person having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (l)
that are at the time outstanding, not to exceed $5.0 million.
"Permitted Liens" means (i) Liens existing on the date of the Indenture to
the extent and in the manner such Liens are in effect on such date; (ii) Liens
securing Senior Debt and Liens on assets securing Guarantees of Senior Debt, in
each case permitted to be incurred under the Indenture; (iii) Liens (if any)
securing the Notes and the Subsidiary Guarantees; (iv) Liens securing Permitted
Refinancing Indebtedness which is incurred to refinance any Indebtedness which
has been secured by a Lien permitted under the Indenture and which has been
incurred in accordance with the provisions of the Indenture, provided, however,
that such Liens are not materially less favorable to the Holders and are not
materially more favorable to the Lien Holder with respect to such Liens than the
Liens in respect of the Indebtedness being refinanced; (v) Liens in favor of the
Company or any Wholly-Owned Restricted Subsidiary; (vi) Liens on property of a
Person existing at the time such Person is merged into or consolidated with the
Company or any Restricted Subsidiary of the Company; provided that such Liens
were in existence prior to the contemplation of such merger or consolidation and
do not extend to any assets other than those of the Person merged into or
consolidated with the Company; (vii) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of such
acquisition; (viii) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (ix) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (x)
Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of
Unrestricted Subsidiaries; and (xi) Liens incurred in the ordinary course of
business of the Company or any Restricted Subsidiary of the Company with respect
to obligations that do not exceed $1.0 million at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary course
of business) and (b) do not in the aggregate materially detract from the value
of the property or materially impair the use thereof in the operation of
business by the Company or such Restricted Subsidiary.
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<PAGE> 116
"Permitted Refinancing Indebtedness" means any Indebtedness or Disqualified
Stock of the Company or any of its Restricted Subsidiaries issued in exchange
for, or the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund other Indebtedness of the Company or any of its Restricted
Subsidiaries; provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus accrued interest
on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date the same as or later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes or the Subsidiary Guarantees, as applicable, such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and is subordinated in right of payment to, the Notes and the
Subsidiary Guarantees, as applicable, on terms at least as favorable to the
Holders of Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Principal" means Robert E. Mead.
"Related Business" means, at any time, any business related, ancillary or
complementary (as determined in good faith by the Board of Directors) to the
business conducted by the Company and its Restricted Subsidiaries on the date of
the Indenture.
"Related Party" with respect to the Principal means (A) a spouse or any
immediate family member of the Principal or (B) or trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding an 80% or more controlling interest of which
consist of the Principal and/or such other Persons referred to in the
immediately preceding clause (A).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Significant Restricted Subsidiary" of a Person means any Significant
Subsidiary that is a "Restricted Subsidiary".
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" means (i) all Indebtedness outstanding under the Company's
credit facilities, (ii) any other Indebtedness permitted to be incurred by the
Company or a Restricted Subsidiary under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is on a parity with or subordinated in right of payment to the Notes or
Subsidiary Guarantees, as applicable, and (iii) all Obligations with respect to
the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt will not include (w) any liability for federal, state, local or other taxes
owed or owing by the Company, (x) any Indebtedness of the Company or any
Guarantor to the Company or any of their respective Subsidiaries or other
Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in
violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
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"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Treasury Rate" means, at any time of computation, the yield to maturity at
such time (as compiled by and published in the most recent Federal Reserve
Statistical Release H.15(519), which has become publicly available at least two
business days prior to the date of acceleration of the Notes, or if such
Statistical Release is no longer published, any publicly available source of
similar market data) of United States Treasury securities with a constant
maturity most nearly equal to the Make-Whole Average Life; provided, however,
that if the Make-Whole Average Life is not equal to the constant maturity of the
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the
Make-Whole Average Life is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
"Unrestricted Subsidiary" means (ii) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries; and (e) has at least one director
on its board of directors that is not a director or executive officer of the
Company or any of its Restricted Subsidiaries and has at least one executive
officer that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries.
"Vacation Interval" means an interest entitling the holder to use, for a
limited period on an annual or other recurrent basis, a lodging unit, together
with associated privileges and rights, at a Company resort, including, without
limitation, a fee interest, a leasehold, a vendee's interest under a contract of
deed, or other interest based on a floating period or points based system.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated , 1998 (the "Underwriting Agreement") by and among Credit
Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette Securities
Corporation (the "Underwriters"), the Company, and the Subsidiary Guarantors,
the Company has agreed to sell to the Underwriters, and the Underwriters have
severally agreed to purchase from the Company the respective principal amount of
Notes set forth opposite their names below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITERS NOTES
------------ -----------
<S> <C>
Credit Suisse First Boston Corporation...................... $
Donaldson, Lufkin & Jenrette Securities Corporation.........
-----------
$75,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all the Notes, if any are purchased.
The Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances the purchase commitments of non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Notes to investors initially at the offering price to
investors set forth on the cover page of this Prospectus, and to certain dealers
at such price less a concession of % of the principal amount per Note.
After the public offering, the public offering price and concession may be
changed by the Underwriters.
The Underwriters have informed the Company that they will not confirm sales
of the Notes to any accounts over which they exercise discretionary authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriters may be required to make in respect
thereof.
The Notes are a new issue of securities with no established trading market.
Credit Suisse First Boston Corporation has advised the Company that it presently
intends to make a market in the Notes. The Underwriters are not obligated,
however, to make a market in the Notes and may discontinue any market making at
any time without notice. Accordingly, no assurance can be given as to the
development or liquidity of any trading market for the Notes.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Notes in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Underwriters to reclaim a selling concession when the
Notes are purchased to cover syndicate short positions. Such stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
price of the Notes to be higher than it would otherwise be in the absence of
such transactions. These transactions may be effected in the over-the-counter
market or otherwise and, if commenced, may be discontinued at any time.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above might have on the price of the Notes. In addition, neither the
Company nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Company intends to use more than 10% of the net proceeds from the sale
of the Notes to repay indebtedness owed by it to CSFBMC, an affiliate of Credit
Suisse First Boston Corporation, the lead managing Underwriter. To the best of
its knowledge, the Company is currently in compliance with the terms of its
credit
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facilities with CSFBMC. The decision of Credit Suisse First Boston Corporation
to distribute the Notes was made independently of CSFBMC which had no
involvement in determining whether or when to distribute the Notes under the
Note Offering or the terms of the Note Offering. Credit Suisse First Boston
Corporation will not receive any benefit from the Note Offering other than its
respective portion of the underwriting commissions and discounts.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Notes in Canada is being made only on a private
placement basis exempt from the requirement that the Company prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of Notes are effected. Accordingly, any resale of the Notes in Canada
must be made in accordance with applicable securities laws which will vary
depending on the relevant jurisdiction, and which may require resales to be made
in accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the Notes.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Notes in Canada who receives a purchase confirmation will
be deemed to represent to the Company and the dealer from whom such purchase
confirmation is received that (i) such purchaser is entitled under applicable
provincial securities laws to purchase such Notes without the benefit of a
prospectus qualified under such securities laws, (ii) where required by law,
such purchaser is purchasing as principal and not as agent, and (iii) such
purchaser has reviewed the text above under "Resale Restrictions".
RIGHT OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws. Following a
decision of the U.S. Supreme Court, it is possible that Ontario purchasers will
not be able to rely upon the remedies set out in Section 12(2) of the United
States Securities Act of 1933 where securities are being offered under a U.S.
private placement memorandum such as this document.
ENFORCEMENT OF LEGAL RIGHTS
All of the Company's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
Company or such persons. All or a substantial portion of the assets of the
Company and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the Company or such persons in
Canada or to enforce a judgment obtained in Canadian courts against the Company
or such persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Notes to whom the Securities Act (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any Notes acquired
by such purchaser pursuant to this Equity Offering. Such report must be in the
form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from the Company. Only one such report
must be filed in respect of Notes acquired on the same date and under the same
prospectus exemption.
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TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Notes should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the Notes in
their particular circumstances and with respect to the eligibility of the Notes
for investment by the purchaser under relevant Canadian legislation.
LEGAL MATTERS
Certain legal matters with respect to the Notes offered hereby will be
passed upon for the Company by Meadows, Owens, Collier, Reed, Cousins & Blau,
L.L.P., Dallas, Texas. Latham & Watkins, Los Angeles, California, is acting as
counsel for the Underwriters in connection with the Note Offering.
EXPERTS
The consolidated financial statements of Silverleaf Resorts, Inc. at
December 31, 1995, 1996, and 1997 and for the years then ended included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports and
other information with the Commission. The Company has filed with the Commission
a Registration Statement on Form S-1 (together with all amendments, exhibits and
schedules thereto, the "Registration Statement") under the Securities Act with
respect to the Senior Subordinated Notes offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement. For
further information with respect to the Company and the Notes offered hereby,
reference is hereby made to such Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete and in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of the Registration Statement may be
obtained from the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
Seven World Trade Center, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained
from the public reference section of the Commission at its Washington address
upon payment of the fees prescribed by the Commission or may be examined without
charge at the offices of the Commission. The Commission maintains a web site
that contains reports, proxy statements and other information filed with the
Commission; the address of this site is http://www.sec.gov. Copies of such
material may also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
118
<PAGE> 121
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Financial Statements
Consolidated Balance Sheets at December 31, 1996 and
1997................................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1995, 1996, and 1997...................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1995, 1996, and 1997.......... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996, and 1997...................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 122
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Silverleaf Resorts, Inc.
We have audited the accompanying consolidated balance sheets of Silverleaf
Resorts, Inc. and subsidiaries (the "Company") as of December 31, 1996 and 1997
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Silverleaf Resorts, Inc. and
subsidiaries as of December 31, 1996 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
February 24, 1998 (March 6, 1998 as to the
last two paragraphs of Note 15)
F-2
<PAGE> 123
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- --------
<S> <C> <C>
Cash and equivalents........................................ $ 973 $ 4,970
Restricted cash............................................. -- 200
Notes receivable, net....................................... 55,794 92,036
Amounts due from affiliates................................. 6,237 1,389
Inventory................................................... 10,300 28,310
Land, equipment, building and utilities, net................ 12,633 21,629
Land held for sale.......................................... 466 466
Prepaid and other assets.................................... 2,860 7,401
Net assets of discontinued operations....................... 1,589 --
------- --------
TOTAL ASSETS...................................... $90,852 $156,401
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses..................... $ 3,156 $ 5,106
Amounts due to affiliates................................. 14,765 --
Unearned revenues......................................... 1,790 3,122
Income taxes payable...................................... 3,650 1,500
Deferred income taxes, net................................ 4,843 14,037
Notes payable and capital lease obligations............... 41,986 48,871
------- --------
Total Liabilities................................. 70,190 72,636
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, par value $0.01 per share, 100,000,000
shares authorized, 7,711,517 shares issued and
outstanding at December 31, 1996 and 11,311,517 shares
issued and outstanding at December 31, 1997............ 77 113
Additional paid-in capital................................ 13,470 64,577
Retained earnings......................................... 7,115 19,075
------- --------
Total Shareholders' Equity........................ 20,662 83,765
------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $90,852 $156,401
======= ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 124
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Vacation Interval sales................................ $ 34,091 $ 45,907 $ 68,682
Interest income........................................ 3,968 6,297 9,149
Interest income from affiliates........................ 393 377 247
Management fee income.................................. 2,478 2,187 2,331
Lease income........................................... 1,310 1,717 1,415
Other income........................................... 1,832 1,440 3,234
--------- ---------- ----------
Total revenues................................. 44,072 57,925 85,058
--------- ---------- ----------
COSTS AND OPERATING EXPENSES:
Cost of Vacation Interval sales........................ 3,280 2,805 6,600
Sales and marketing.................................... 17,850 21,839 30,559
Provision for uncollectible notes...................... 6,632 8,733 10,524
Operating, general and administrative.................. 8,780 10,116 12,230
Depreciation and amortization.......................... 863 1,264 1,497
Interest expense to affiliates......................... 1,403 880 422
Interest expense to unaffiliated entities.............. 2,206 3,879 4,242
--------- ---------- ----------
Total costs and operating expenses............. 41,014 49,516 66,074
--------- ---------- ----------
Income from continuing operations before income taxes.... 3,058 8,409 18,984
Income tax expense....................................... 1,512 3,140 7,024
--------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS........................ 1,546 5,269 11,960
DISCONTINUED OPERATIONS:
Income (loss) from operations (less applicable income
taxes of $0 in 1995 and a benefit of $99 in 1996.... (1,484) (168) --
Loss on disposal including provision for operating
Losses during the phase out period (plus applicable
income tax benefit of $74 in 1996).................. -- (127) --
--------- ---------- ----------
Total loss from discontinued operations........ (1,484) (295) --
--------- ---------- ----------
NET INCOME..................................... $ 62 $ 4,974 $ 11,960
========= ========== ==========
INCOME PER SHARE FROM CONTINUING OPERATIONS -- Basic and
Diluted................................................ $ 0.20 $ 0.68 $ 1.22
========= ========== ==========
NET INCOME PER SHARE -- Basic and Diluted................ $ .01 $ .64 $ 1.22
========= ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -- Basic... 7,590,295 7,711,517 9,767,407
========= ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING -- Diluted................................. 7,590,295 7,711,517 9,816,819
========= ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 125
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- NET
NUMBER OF $0.01 UNREALIZED ADDITIONAL
SHARES PAR GAINS PAID-IN RETAINED
ISSUED VALUE (LOSSES) CAPITAL EARNINGS TOTAL
----------- ----- ---------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1995...................... 7,588,952 $ 76 $(45) $ 8,006 $ 2,079 $10,116
Contributions...................... 209,082 2 -- 5,563 -- 5,565
Repurchase and retirement of Common
Stock........................... (86,517) (1) -- (99) -- (100)
Realized loss on investments
available for sale.............. -- -- 45 -- -- 45
Net income......................... -- -- -- -- 62 62
----------- ---- ---- ------- ------- -------
DECEMBER 31, 1995.................... 7,711,517 77 -- 13,470 2,141 15,688
Net income......................... -- -- -- -- 4,974 4,974
----------- ---- ---- ------- ------- -------
DECEMBER 31, 1996.................... 7,711,517 77 -- 13,470 7,115 20,662
Issuance of Common Stock........... 3,600,000 36 -- 51,107 -- 51,143
Net income......................... -- -- -- -- 11,960 11,960
----------- ---- ---- ------- ------- -------
DECEMBER 31, 1997.................... 11,311,517 $113 $ -- $64,577 $19,075 $83,765
=========== ==== ==== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 126
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 62 $ 4,974 $ 11,960
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 863 1,264 1,497
Discontinued operations................................ 1,476 3,794 1,589
Loss on investment in joint venture.................... 151 -- --
(Gain) Loss on disposal of land, equipment, building
and utilities......................................... 116 64 (34)
Loss on sale of marketable securities.................. 9 -- --
Deferred tax provision................................. 871 1,975 9,194
Increase (decrease) in cash from changes in assets and
liabilities (exclusive of amounts contributed):
Restricted cash...................................... -- -- (200)
Amounts due from affiliates.......................... 452 (1,734) 551
Inventory............................................ (380) (5,846) (18,010)
Prepaid and other assets............................. 42 (1,559) (4,541)
Accounts payable and accrued expenses................ 161 394 1,950
Amounts due to affiliates............................ (711) 114 (286)
Interest payable to affiliates....................... (41) 1,238 (6,244)
Unearned revenues.................................... 23 701 1,332
Income taxes payable................................. 619 996 (2,150)
-------- -------- --------
Net cash provided by (used in) operating
activities...................................... 3,713 6,375 (3,392)
-------- -------- --------
INVESTING ACTIVITIES:
Proceeds from sale of marketable securities............... 59 -- --
Issuance of notes receivable from affiliates.............. (237) (208) --
Collections of notes receivable from affiliates........... -- -- 4,297
Proceeds from sales of land, equipment, building and
utilities.............................................. -- -- 1,176
Proceeds from sales of land held for sale................. 733 600 --
Purchases of land, equipment, building and utilities...... (4,497) (4,162) (8,692)
Notes receivable, net..................................... (15,662) (20,226) (36,242)
-------- -------- --------
Net cash used in investing activities............. (19,604) (23,996) (39,461)
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from borrowings from unaffiliated entities....... 22,668 26,648 54,069
Payments on borrowings to unaffiliated entities........... (4,005) (8,939) (50,127)
Proceeds from borrowings from affiliates.................. 2,468 619 68
Payments on borrowings to affiliates...................... (1,117) (1,112) (8,303)
Net proceeds from initial public offering................. -- -- 51,143
Discontinued operations................................... (1,340) (2,334) --
-------- -------- --------
Net cash provided by financing activities......... 18,674 14,882 46,850
-------- -------- --------
NET INCREASE (DECREASE) IN CASH............................. 2,783 (2,739) 3,997
CASH AND EQUIVALENTS
BEGINNING OF PERIOD....................................... 929 3,712 973
-------- -------- --------
END OF PERIOD............................................. $ 3,712 $ 973 $ 4,970
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Interest paid, net of amounts capitalized................. $ 1,946 $ 3,003 $ 10,007
Income taxes paid......................................... 17 -- --
Assets contributed........................................ 14,489 -- --
Liabilities assumed with contributed assets............... 8,924 -- --
Land and equipment acquired under capital leases.......... 409 814 2,943
Repurchase of Common Stock through issuance of debt....... 100 -- --
Costs incurred in connection with initial public
offering............................................... -- -- 6,457
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 127
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. NATURE OF BUSINESS
Silverleaf Resorts, Inc., a Texas Corporation (the "Company" or "Silverleaf"),
formerly known as Ascension Capital Corporation ("ACC"), operates as Silverleaf
Vacation Club, Inc. Silverleaf's principal activities consist of (i) developing
and acquiring timeshare resorts; (ii) marketing and selling one-week annual and
biennial vacation intervals ("Vacation Intervals") to new prospective owners;
(iii) marketing and selling upgraded Vacation Intervals to existing Silverleaf
Owners; (iv) providing financing for the purchase of Vacation Intervals; and (v)
operating timeshare resorts. The Company has in-house sales, marketing,
financing, and property management capabilities and coordinates all aspects of
expansion of its ten existing resorts (the "Existing Resorts") and the
development of any new timeshare resort, including site selection, design, and
construction. The Company operates its Existing Resorts under a management
agreement with a non-profit corporation, Master Club ("Master Club"), which
bears the costs of operating, maintaining, and refurbishing the resorts from
monthly dues paid by the Vacation Interval owners. The Company receives a
management fee from Master Club to compensate it for the services provided. In
addition to Vacation Interval sales revenues, interest income derived from its
financing activities and the management fee received from Master Club, the
Company generates additional revenue from leasing of unsold intervals, utility
operations related to the resorts and other sources. All of the operations are
directly related to the resort real estate development industry. Sales of
Vacation Intervals are marketed to individuals primarily through direct mail and
telephone solicitation.
The consolidated financial statements of the Company as of and for the
years ended December 31, 1996 and 1997, reflect the operations of the Company
and its wholly owned subsidiaries, Condominium Builders, Inc. ("CBI"), Villages
Land, Inc. ("VLI"), Silverleaf Travel, Inc. ("STI"), Database Research, Inc.
("DRI"), and Silverleaf Acquisitions, Inc. ("SAI"), a wholly owned subsidiary
formed in July 1997 for the purpose of acquiring additional timeshare
operations.
The Company was formed as a result of the combination of ACC, Equal
Investment Corporation ("EIC"), CBI, and Holly Ranch Water Company, Inc.
("HRWCI") on December 29, 1995 (HRWCI was liquidated in 1995). ACC and EIC were
the 99% general partner and 1% limited partner, respectively, of Ascension
Resorts, Ltd. ("ARL"). The historical consolidated financial statements have
been restated utilizing the historical cost basis of the combined entities so as
to present the consolidated financial condition, operations, equity and cash
flows since these entities were under common ownership and control.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. 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. Revenues are
recognized after a binding sales contract has been executed, a 10% minimum down
payment has been received, and the statutory rescission period has expired. If
all 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. If a customer fails to make the first installment payment
when due, the Company reverses the sale and the recovered property is placed
back into inventory at the lower of its original historical cost basis or market
value and any payments made by the customer during the period which are not
refunded are recorded as other revenues. In addition to sales of Vacation
Intervals to new prospective owners the Company sells upgraded Vacation
Intervals to existing Silverleaf Owners.
F-7
<PAGE> 128
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 (customer returns represent cancellations of
properly recorded sales transactions which occur within one year after the sale)
is reported net against Vacation Interval sales.
The Company recognizes interest income as earned. To the extent interest
payments become delinquent the Company ceases recognition of the interest income
until collection is probable. When inventory is returned to the Company any
unpaid note receivable balances, net of the lower of historical cost or market
of the Vacation Interval which is the amount at which the Vacation Interval is
being restored to inventory, are charged against the previously established
allowance for uncollectible notes.
Revenues related to one-time Sampler contracts, which entitles the
prospective owner to sample a resort for various periods, are recorded as
earned.
The Company receives fees for management services provided to Master Club.
These revenues are recognized on an accrual basis in the period the services are
provided.
Utilities, services and other income is recognized on an accrual basis in
the period service is provided.
Sales and marketing costs are expensed in the period the corresponding
revenue is recognized.
Cash and Equivalents -- Cash and 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 consist of cash, certificates of deposit and
money market funds.
Restricted cash -- Restricted cash consists of a certificate of deposit
which serves as collateral for a construction bond.
Provision for Uncollectible Notes -- The Company records a provision for
uncollectible notes at the time revenue is recognized. Such provision is
recorded in an amount sufficient to maintain the allowance at a level considered
adequate to provide for anticipated losses resulting from customers' failure to
fulfill their obligations under the terms of their notes. The allowance for
doubtful notes takes into consideration both notes held by the Company and those
sold with recourse. Such allowance for uncollectible notes is adjusted based
upon periodic analysis of the portfolio, historical credit loss experience and
current economic factors. The allowance for uncollectible notes is reduced by
actual cancellations (which occur more than one year after the sale) and losses
experienced, including losses related to previously sold notes receivable which
became delinquent and were reacquired pursuant to the recourse obligations
discussed herein. Recourse to the Company on sales of customer notes receivable
is governed by the agreements between the purchasers and the Company.
Inventory -- Inventory is stated at the lower of cost or market. Cost
includes amounts for land, construction materials, direct labor and overhead,
taxes and capitalized interest incurred in the construction or through the
acquisition by purchase of resort dwellings held for timeshare sale. These 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 its original
historical cost basis or market value. Company management routinely reviews the
carrying value of its inventory on an individual project basis to determine that
the carrying value does not exceed market.
Land Held for Sale -- Land held for sale represents undeveloped land and is
recorded at the lower of cost or fair value less costs to sell.
Impairment -- Company management routinely 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.
F-8
<PAGE> 129
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Land, Equipment, Building and Utilities -- Land, equipment (including
equipment under capital lease), building 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
operations as incurred; significant betterments and renewals are capitalized.
Depreciation is calculated for all fixed assets, other than land, using the
straight-line method over the estimated useful life of the asset, ranging from 3
to 20 years.
Discontinued Operations -- During 1996, the Company adopted a plan to
discontinue its development and sale of condominiums by CBI. Those operations
have been reported as a separate component of operations and the assets and
liabilities have been combined and included in net assets of discontinued
operations on the balance sheet.
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 financial statements. Provision
is made or benefit recognized for deferred taxes relating to temporary
differences in the recognition of expense and income 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 per Share -- The Company has adopted the new computation and
disclosure requirements of Statement of Financial Accounting Standards ("SFAS")
No. 128 -- "Earnings Per Share." Basic earnings per share is computed by
dividing net income 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 equivalent shares outstanding. The number of
equivalent 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 described in Note 9 is reduced by the number of shares which could have
been repurchased by Silverleaf with the proceeds from the exercise of the
options. In 1997, the weighted average shares outstanding was calculated by
increasing the average weighted average shares outstanding by the assumed
issuance of 321,737 shares upon exercise of the options and the repurchase of
272,325 shares with the proceeds of the exercise of such options.
No options were granted or outstanding prior to 1997.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from such
estimates.
Environmental Remediation Costs -- The Company accrues for losses
associated with environmental remediation obligations when such losses are
probable and reasonably estimable. Accruals for estimated losses from
environmental remediation obligations generally are recognized no later than
completion of the remedial feasibility study. Such accruals are adjusted as
further information develops or circumstances change. Recoveries of
environmental remediation costs from other parties are recorded as assets when
their receipt is deemed probable. Company management is not aware of any
environmental remediation obligations which would materially affect the
operations, financial position or cash flow of the Company.
F-9
<PAGE> 130
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassification -- During 1997 the Company began classifying the
components of the previously reported provision for uncollectible notes into the
following three categories based on the nature of the item; credit losses,
customer returns and customer releases (customer releases represent voluntary
cancellations of properly recorded sales transactions which in the opinion of
management is consistent with the maintenance of overall customer goodwill).
Provision pertaining to credit losses, customer returns and customer releases
are classified in Provision for uncollectible notes, Vacation Interval sales,
and Operating, general and administrative, respectively. The Company has
reclassified these amounts within the previously reported financial statements
to conform to the classification for the year ended December 31, 1997. The
reclassification has no balance sheet effect and has no effect on previously
reported net income. The reclassification had the effect of decreasing Vacation
Interval sales, decreasing the Provision for uncollectible notes, and increasing
Operating, general and administrative for the years ended December 31, 1995,
1996 and 1997 as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Vacation Interval sales................................ $ 1,794 $ 2,196 $ 2,829
Provision for uncollectible notes...................... (2,512) (3,342) (4,044)
Operating, general and administrative.................. 718 1,146 1,215
------- ------- -------
Net.......................................... $ -- $ -- $ --
======= ======= =======
</TABLE>
Information affected by this reclassification contained elsewhere in the notes
to consolidated financial statements has also been updated.
In addition, certain other reclassifications have been made to the 1995 and 1996
financial statements to conform to 1997 presentation. These reclassifications
had no effect on net income.
SFAS No. 130 -- SFAS No. 130, "Reporting on Comprehensive Income",
establishes standards for reporting and presenting comprehensive income in the
financial statements and will be effective for Silverleaf beginning in 1998. At
present, Management believes that the adoption of this statement will not have a
material impact on the Company's financial statements.
SFAS No. 131 -- SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about a
company's operating segments. SFAS No. 131 may require additional disclosures
and will be effective for Silverleaf beginning in 1998.
3. CONCENTRATIONS OF RISK
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 loans sold under recourse provisions.
The Company offers financing to the buyers of Vacation Intervals at the
Company's resorts. These buyers 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 period and are secured by a first mortgage on the Vacation Interval.
The Company bears the risk of defaults on these promissory notes, and this risk
is heightened inasmuch as the Company generally does not verify the credit
history of its customers and will provide financing if the customer is presently
employed and meets certain household income criteria.
If a buyer of a Vacation Interval defaults, the Company generally must
foreclose on the Vacation Interval and attempt to resell it; the associated
marketing, selling, and administrative costs from the original sale are not
recovered; and such costs must be incurred again to resell the Vacation
Interval. Although the Company in many cases may have recourse against a
Vacation Interval buyer for the unpaid price, Texas and certain other states
F-10
<PAGE> 131
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
have laws which 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. (See Note 4)
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 inventory and land inventory which it originates
or purchases with borrowings through its financing facilities, internally
generated funds and proceeds from the IPO. 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 and Illinois. 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 and Missouri
with construction occurring in other markets including Illinois and Nevada. 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.
4. NOTES RECEIVABLE
The Company provides financing to the purchasers of Vacation Intervals
which are collateralized by their interest in such Vacation Intervals. The notes
receivable generally have initial terms of up to seven years. The average yield
on outstanding notes receivable at December 31, 1997 was approximately 14.5%.
In connection with the Sampler program the Company routinely enters into
notes receivable with terms of 10 months. These notes receivable totaled $1,568
at December 31, 1996 and $1,523 at December 31, 1997, and are typically
non-interest bearing. These notes receivable have not been discounted as
management has determined the effects would not be material to the consolidated
financial statements of the Company.
Notes receivable are scheduled to mature as follows at December 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $ 12,868
1999........................................................ 13,872
2000........................................................ 16,018
2001........................................................ 18,497
2002........................................................ 21,359
Thereafter.................................................. 22,043
--------
104,657
Less allowance for uncollectible notes...................... (12,621)
--------
Notes receivable, net............................. $ 92,036
========
</TABLE>
Estimated customer returns of $2,829 have been excluded from the above
schedule.
F-11
<PAGE> 132
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following schedule summarizes the original principal amount of notes
receivable sold with recourse to third parties and affiliates during the years
ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Unaffiliated third parties.............................. $565 $ -- $ --
Affiliates.............................................. -- -- --
---- ---- ----
Total notes receivable sold................... $565 $ -- $ --
==== ==== ====
</TABLE>
The following schedule summarizes outstanding principal maturities of notes
receivable sold with recourse as of December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- ------
<S> <C> <C>
Unaffiliated third parties.................................. $ 9,693 $6,550
Affiliates.................................................. 1,355 841
------- ------
Total outstanding notes receivable sold with
recourse........................................ $11,048 $7,391
======= ======
</TABLE>
Management considers both pledged and sold-with-recourse notes receivable
in the Company's allowance for uncollectible notes. The activity in the
allowance for uncollectible notes is as follows for the years ended December 31,
1995, 1996, and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of period......................... $ 8,102 $ 8,067 $ 9,698
Provision for credit losses and other items.......... 7,350 9,879 11,739
Receivables charged off.............................. (7,385) (8,248) (8,816)
------- ------- -------
Balance, end of period............................... $ 8,067 $ 9,698 $12,621
======= ======= =======
</TABLE>
Provision for credit losses for the years ended December 31, 1995, 1996,
and 1997, was $6,632, $8,733, and $10,524, respectively.
5. LAND, EQUIPMENT, BUILDING AND UTILITIES
The Company's land, equipment, building and utilities consist of the
following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1997
------- -------
<S> <C> <C>
Land........................................................ $ 1,346 $ 4,727
Vehicles and equipment...................................... 2,066 1,808
Utility plant, building and facilities...................... 3,398 4,930
Office furniture and equipment.............................. 4,013 8,066
Improvements................................................ 5,551 7,006
------- -------
16,374 26,537
Less accumulated depreciation............................... (3,741) (4,908)
------- -------
Net land, equipment, building and utilities................. $12,633 $21,629
======= =======
</TABLE>
F-12
<PAGE> 133
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and amortization expense for the years ended December 31,
1995, 1996, and 1997, was $863, $1,264, and $1,497, respectively.
6. INCOME TAXES
Prior to December 29, 1995, CBI operated as a Subchapter S Corporation
wholly-owned by the principal shareholder of the Company. The cumulative losses
of CBI incurred prior to the transfer of the stock of CBI to the Company have
been reported on the individual income tax return of its then sole shareholder.
Upon transfer the Company recorded deferred taxes for the difference between the
tax and book basis of the assets, which was not material. Effective January 1,
1996, the Company converted CBI to a C corporation and, accordingly, CBI is
included in the consolidated income tax return of the Company (See Note 12).
Income tax expense consists of the following components for the years ended
December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current:
Federal............................................ $ 618 $ 992 $1,500
State.............................................. 17 -- --
------ ------ ------
Total current tax expense.................. 635 992 1,500
Deferred tax expense................................. 877 1,975 5,524
------ ------ ------
Total income tax expense................... $1,512 $2,967 $7,024
====== ====== ======
</TABLE>
A reconciliation of income taxes on reported pretax income at statutory
rates to actual income tax expense for the years ended December 31, 1995, 1996
and 1997, is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------------- -------------- --------------
DOLLARS RATE DOLLARS RATE DOLLARS RATE
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Income tax at statutory rates................ $1,040 34% $2,700 34% $6,454 34%
State income taxes, net of Federal Tax
benefit.................................... 92 3% 238 3% 570 3%
Other........................................ 380 12% 29 1% -- --
------ -- ------ -- ------ --
Total income tax expense........... $1,512 49% $2,967 38% $7,024 37%
====== == ====== == ====== ==
Income tax expense attributable to:
Continuing operations...................... $1,512 $3,140 $7,024
Discontinued operations.................... -- (173) --
------ ------ ------
Total income tax expense........... $1,512 $2,967 $7,024
====== ====== ======
</TABLE>
F-13
<PAGE> 134
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts for deferred tax assets and liabilities as of December 31, 1996 and
1997, are as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Deferred tax liabilities:
Installment sales income.................................. $16,056 $30,207
Other..................................................... 34 --
------- -------
Total deferred tax liabilities.................... 16,090 30,207
------- -------
Deferred tax assets:
Other..................................................... 2,287 162
Alternative minimum tax credit............................ 3,650 1,500
Net operating loss carryforward........................... 5,310 14,508
------- -------
Total deferred tax assets......................... 11,247 16,170
------- -------
Net deferred tax liability........................ $ 4,843 $14,037
======= =======
</TABLE>
The Company reports substantially all Vacation Interval sales which it
finances on the installment method for federal income tax purposes. Under the
installment method, the Company does not recognize income on sales of Vacation
Intervals until the installment payments on customer receivables are received by
the Company. Interest will be 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 related tax is paid. 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 which
would be paid on the deferred taxes related to the installment method. The
amount of interest expense is not estimable as of December 31, 1997.
The Company is subject to Alternative Minimum Tax ("AMT") as a result of
the deferred income which results from the installment sales treatment of
Vacation Interval sales for regular tax purpose. The current AMT payable balance
was adjusted in 1997 to reflect the change in method of accounting for
installment sales under AMT granted by the Internal Revenue Service effective as
of January 1, 1997. The AMT liability creates a deferred tax asset which can be
used to offset any future tax liability from regular Federal income tax. This
deferred tax asset has an unlimited carryover period.
The net operating losses expire beginning in 2007 through 2012. Realization
of the deferred tax assets arising from net operating losses is dependent on
generating sufficient taxable income prior to the expiration of the loss
carryforwards. Management believes that it will be able to utilize its net
operating losses from normal operations or in the event an ownership change
should occur which could limit the utilization of the NOL; the Company 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.
The following are the expiration dates and the approximate net operating
loss carryforwards at December 31, 1997:
<TABLE>
<CAPTION>
EXPIRATION DATES
----------------
<S> <C>
2007................................................... $ 315
2008................................................... --
2009................................................... 1,385
2010................................................... 5,353
2011................................................... 4,239
2012................................................... 27,919
-------
$39,211
=======
</TABLE>
F-14
<PAGE> 135
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable and capital lease obligations related to continuing
operations at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
$40 million revolving loan agreement ($25 million at
December 31, 1996), which contains certain financial
covenants, due October 2005, principal and interest
payable from the proceeds obtained from customer notes
receivable which are pledged as collateral for the note,
at an interest rate of LIBOR plus 2.5%.................... $20,139 $22,137
$12 million revolving loan agreement which contains certain
financial covenants, due May 2003, principal and interest
payable from the proceeds obtained from customer notes
receivable which are pledged as collateral for the note,
at an interest rate of Base plus 2.75% (11.25% at December
31, 1997)................................................. 6,004 4,122
$7.5 million revolving line of credit, which contains
certain financial covenants, retired during 1997, with
monthly interest payments at Base plus 2.75%.............. 4,000 --
$60 million revolving loan agreement ($40 million at
December 31, 1996), which contains certain financial
covenants, due December 1999, 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 2.55%......................... 278 1,529
$15 million revolving loan agreement which contains certain
financial covenants, due November 2002, principal and
interest payable from the proceeds obtained from customer
notes receivable which are pledged as collateral for the
note, at an interest rate of Prime plus 2%................ 4,278 12,596
$5.4 million note payable, which contains certain financial
covenants, due October 1999, secured by certain assets of
the Company, interest only payments due through April
1998, with payments of principal and interest due monthly
thereafter until maturity on October 9, 1999, at an
interest rate of Prime plus 2%............................ 5,201 --
$10 million line of credit due January 2000, with drawings
permitted until December 1998, at a variable rate of LIBOR
plus 3%, secured by land, improvements, and equipment of
various Existing Resorts and New Resorts.................. -- 4,070
$10 million revolving construction loan due October 2000,
with drawings permitted until April 1999, a variable rate
of LIBOR plus 3.5% secured by land, construction in
process and customer notes receivable..................... -- --
Various notes, due from January 1998, through October 2002,
collateralized by various assets with interest rates
ranging from 4.2% to 14.0%................................ 1,022 1,785
------- -------
Total notes payable............................... 40,922 46,239
Capital lease obligations................................... 1,064 2,632
------- -------
Total notes payable and capital lease
obligations...................................... $41,986 $48,871
======= =======
</TABLE>
Prime rate at December 31, 1997, was 8.5%.
Applicable LIBOR rates at December 31, 1997, ranged from 5.72% to 5.81%.
Certain of the above debt agreements include restrictions on the Company's
ability to pay dividends based on minimum levels of net income and cash flow.
The debt agreements contain additional covenants including requirements that the
Company (i) preserve and maintain the collateral securing the loans; (ii) pay
all taxes and other obligations relating to the collateral; and (iii) refrain
from selling or transferring the collateral or permitting any encumbrances on
the collateral. Such credit facilities also contain operating covenants
requiring the Company
F-15
<PAGE> 136
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to (i) maintain an aggregate minimum tangible net worth ranging from $12 million
to $67 million; (ii) maintain its legal existence and be in good standing in any
jurisdiction where it conducts business; (iii) remain in the active management
of the Resorts; (iv) ensure that sales and marketing expenses incurred in
connection with marketing the Vacation Intervals do not exceed 50% of the net
sales revenue realized from the sale of the Vacation Intervals, and (v) refrain
from modifying or terminating certain timeshare documents.
Principal maturities of notes payable and capital lease obligations are as
follows at December 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $ 7,626
1999........................................................ 11,231
2000........................................................ 6,604
2001........................................................ 6,541
2002........................................................ 6,791
Thereafter.................................................. 10,078
-------
Total............................................. $48,871
=======
</TABLE>
Total interest expense for the years ended December 31, 1995, 1996 and 1997
was $3,609, $4,759 and $4,664, respectively. Interest of $516, $711 and $823 was
capitalized during the years ended 1995, 1996 and 1997, respectively.
As of December 31, 1997 approximately $75,000 of assets of the Company were
pledged as collateral.
8. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business the Company has been named a defendant
in certain lawsuits. It is the opinion of the Company's management that the
outcome of the suits now pending will not have a material, adverse effect on the
operations, cash flows or the consolidated financial position of the Company.
Prior to 1996, the Company sold certain of its notes receivable with
recourse to third parities and affiliated parties. The Company has a contingent
liability for the notes receivable sold with recourse. The total amount of the
contingent liability was equal to the uncollected balance of the notes as of
December 31, 1997. The Company's management considers both pledged and sold with
recourse notes receivable in the Company's allowance for doubtful notes. (see
Note 4)
The Company has entered into noncancelable operating leases covering office
and storage facilities and small equipment which will expire at various dates
through 2001. The total rental expense incurred during the years ended December
31, 1995, 1996 and 1997, was $310, $481 and $886, respectively. The Company has
also acquired equipment by entering into capital leases. The future minimum
annual commitments for the noncancelable lease agreements are as follows at
December 31, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1998........................................................ $1,096 $1,081
1999........................................................ 900 990
2000........................................................ 651 937
2001........................................................ 177 883
2002........................................................ 100 620
------ ------
Total minimum future lease payments......................... 2,924 $4,511
======
Less amounts representing interest.......................... (292)
------
Present value of future minimum lease payments.............. $2,632
======
</TABLE>
F-16
<PAGE> 137
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Equipment acquired under capital leases consists of the following at
December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Amount of equipment under capital leases.................... $2,240 $4,743
Less accumulated depreciation............................... (599) (861)
------ ------
$1,641 $3,882
====== ======
</TABLE>
Effective January 1, 1997, the Company entered into three year employment
agreements with two executive officers which provide for minimum annual base
salaries, bonuses based on the operating results of the Company and other fringe
benefits as determined by the Board of Directors of the Company from time to
time. Either party may terminate the agreement upon 30 days notice to the other.
In May 1997 the Company entered into an employment agreement with an
executive officer of the Company with a term through December 31, 1999. Pursuant
to the agreement, such officer will receive commissions equal to 1.35% of the
Company's net sales from Vacation Intervals, plus additional commissions based
on weekly sales volume and revenue per guest. Either party may terminate the
agreement upon 30 days notice to the other.
In July 1997, the Company entered into an employment agreement with an
executive officer of the Company. Either party may terminate the agreement upon
30 days notice to the other. The agreement provides for an annual base salary,
options for the purchase of Common Stock, and other fringe benefits.
Additionally, if the officer is terminated without "good cause", the Company
shall be obligated to make severance payments in an amount equal to the
officer's annual base salary. In connection with this officer's employment, in
August 1997, the Company purchased a house for $531 and leased the house to the
officer for 13 months at a rental rate equal to the Company's interest,
insurance and taxes, currently approximately $3 per month. The officer has the
option to purchase the home at the end of the 13 month term for $531 plus 8% per
annum on the Company's down payment for the house.
Each of the employment agreements provide that such person will not
directly or indirectly compete with the Company in any county in which it
conducts its business or markets its products for a period of two years
following the termination of the agreement. The agreements also provide that
such persons will not influence any employee or independent contractor to
terminate its relationship with the Company, or disclose any confidential
information of the Company.
9. EQUITY
The Company completed its initial public offering in June 1997 of 3,600,000
shares of Common Stock at $16.00 per share (the "IPO"). Costs incurred in
connection with the IPO were approximately $6.5 million. Net proceeds were used
primarily for the repayment of amounts owed to affiliates and notes payable to
third parties.
On March 27, 1997 the Board of Directors of the Company increased the
number of common shares authorized to 100,000,000 shares and in May 1997 the
Board of Directors declared a Common Stock dividend to existing shareholders
which resulted in an increase in the number of shares of Common Stock
outstanding. The weighted average shares outstanding for all periods presented
give retroactive effect to the split of common shares.
On December 27, 1995, the principal shareholder contributed certain assets
and the Company assumed certain liabilities associated with these assets which
had been held in a dormant entity. These assets and liabilities were recorded by
the Company at their historical cost basis at the date of the transaction. The
historical cost basis of the assets contributed was approximately $14,489 which
included a note receivable from the Company of $10,869. Upon receipt of this
asset, the Company retired the corresponding obligation which had been recorded
in the Company's financial statements. Liabilities assumed had a historical cost
basis of approximately $8,924 consisting primarily of notes payable to
affiliates of $7,631. These amounts were included within the financial
F-17
<PAGE> 138
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements of the Company until their repayment during 1997. The net excess of
assets contributed over liabilities assumed is reflected as an equity
contribution to the Company.
During December 1995, the Company re-acquired a former officers equity
interest in EIC in exchange for a $100 promissory note. As of December 31, 1996
the amount owed under this agreement was $67 and is included in amounts due to
affiliates. This note was paid in full in June 1997.
During 1997, the Company established a stock option plan (the "1997 Stock
Option Plan" or "Plan"). The 1997 Stock Option Plan provides for the award of
nonqualified stock options to directors, officers, and key employees, and the
grant of incentive stock options to salaried key employees. Nonqualified stock
options will provide for the right to purchase Common stock at a specified price
which may be less than or equal to fair market value on the date of grant (but
not less than par value). Nonqualified stock options may be granted for any term
and upon such conditions determined by the board of directors of the Company.
The Company has reserved 1,100,000 shares of Common stock for issuance pursuant
to the Company's 1997 Stock Option Plan. In February 1998, the Board of
Directors approved an amendment to the plan reserving an additional 500,000
shares of Common Stock for issuance under the plan; however, this amendment will
not become effective unless it is approved by the shareholders.
Outstanding options have a graded vesting schedule, with equal installments
of shares exercisable up through four years of the original grant date. These
options are exercisable at prices ranging from $16.00 to $24.50 per share and
expire 10 years from the date of grant.
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Options outstanding, beginning of year...................... -- --
Granted..................................................... 877,000 $17.90
Exercised................................................... -- --
Forfeited................................................... (15,000) $16.00
------- ------
Options outstanding, end of year............................ 862,000 $17.93
======= ======
Exercisable, end of year.................................... -- --
======= ======
</TABLE>
For shares outstanding at December 31,1997:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE
NUMBER FAIR VALUE AVERAGE REMAINING
RANGE OF EXERCISE PRICES OF SHARES OF OPTIONS EXERCISE PRICE LIFE IN YEARS
- ------------------------ --------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
$16.00-$24.50.............................. 862,000 $11.51 $17.93 10
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Standards No. 123 -- Accounting for Stock Based Compensation ("SFAS
No. 123"). The Company applies the accounting methods of Accounting Principles
Board Opinion No. 25 ("APB No. 25") and related Interpretations in accounting
for its stock options. Accordingly, no compensation cost has been recognized for
the options. Had compensation costs for the options been determined based on the
fair value at the grant date for the awards in 1997 consistent with the
provisions of SFAS No. 123, the Company's net income and net income per share
would have been the pro forma amounts indicated below (in thousands, except per
share amounts):
F-18
<PAGE> 139
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Net income -- as reported............................... $11,960
Net income -- pro forma................................. 11,404
Net income per share -- as reported:
Basic and diluted..................................... 1.22
Net income per share -- pro forma:
Basic................................................. 1.17
Diluted............................................... 1.16
</TABLE>
The fair value of the options granted are estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
expected volatility of 56.5%, risk-free interest rate of 6.625% expected life of
7 years and no distribution yield.
10. RELATED PARTY TRANSACTIONS
The Company has entered into certain financing and operating transactions
with affiliate entities of the Company or its shareholders and officers. Pace
Finance Company ("Pace") and Capital Ventures I are entities owned or controlled
by the Company's principal shareholder; STG Investments is a partnership, the
partners of which include certain trusts which benefit the family of the
Company's principal shareholder.
Each timeshare owners association has entered into an agreement with Master
Club, formerly Master Endless Escape Club, a Texas nonprofit corporation which
authorizes Master Club to manage the resorts on a centralized and collective
basis. Master Club, in turn, has entered into a management agreement with the
Company whereby the Company manages the operations of the resorts. Pursuant to
the management agreement, the Company receives a management fee equal to the
lesser of 15% of Master Club's gross revenues, or the net income of Master Club;
however, if the Company does not receive 15% of Master Club's gross revenues,
such deficiency is deferred for payment in succeeding year(s), subject again to
the net income limitation. The management agreement expires in March, 2000, but
will continue year-to-year thereafter unless canceled by either party. During
the years ending December 31, 1995, 1996 and 1997, the Company recorded
management fees from Master Club of $2,478, $2,187, and $2,296, respectively, in
management fee income.
The direct expenses of operating the resorts are paid by Master Club. To
the extent Master Club provides payroll, administrative and other services that
directly benefit the Company, a separate allocation charge is generated and paid
by the Company to Master Club. During the years ended December 31, 1995, 1996
and 1997, the Company incurred $1,911, $2,108, and $2,617, respectively, of
expenses under this agreement.
At December 31, 1996 the net amount receivable from Master Club totaled
$1,133 and at December 31, 1997 the net receivable from Master Club totaled
$1,282. The amounts are included in amounts due to/from affiliates.
The Company incurred and made payments to Recreational Consultants, Inc.,
an entity of which an officer of the Company is the principal. Amounts paid
under this agreement totaled $430, $539, and $302 during the years ended
December 31, 1995, 1996, and 1997, respectively.
Prior to 1995, Pace purchased from an affiliate of the Company certain
delinquent notes receivable executed by purchasers of Vacation Intervals. During
1996, the Company purchased notes from Pace for $24. During 1997 the Company and
subsidiaries purchased the remainder of Pace's inventory of notes receivable at
a cash price of $16.
F-19
<PAGE> 140
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following schedule represents amounts due from affiliates at December
31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Notes receivable from the principal shareholder, due
December 31, 1997, bearing interest at rates ranging from
8.0%-9.0%................................................. $4,128 $ --
Notes receivable from the other shareholder, which bore
interest at 8%, such Note being forgiven and included in
compensation expense during 1996.......................... -- --
Receivables from other affiliated parties................... 169 --
Interest on shareholders notes receivables.................. 371 --
------ ------
4,668 --
Timeshare owners associations and other, net................ 436 107
Amount due from Master Club................................. 1,133 1,282
------ ------
Total amounts due from affiliates................. $6,237 $1,389
====== ======
</TABLE>
The following schedule represents outstanding amounts due to affiliates at
December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Note payable to Capital Venture I, due December 31, 1997,
bearing interest at 12.0%................................. $ 1,570 $ --
Note payable to principal shareholder, due December 31,
1997, bearing interest at 9.0%............................ 810 --
Note payable to Pace Finance Company due December 31, 1997,
bearing interest at prime plus 3.5% (11.75% at December
31, 1996)................................................. 362 --
Notes payable to principal shareholder, due December 31,
1997, bearing interest at 8.0%............................ 5,153 --
Other affiliated entities (see below), bearing interest at
9.0%...................................................... 340 --
Accrued interest payable to Capital Venture I............... 2,671 --
Accrued interest payable to principal Shareholder........... 3,179 --
Accrued interest payable to other affiliated entities (see
below).................................................... 394 --
Accounts payable to other affiliated Entities............... 286 --
------- -------
Total notes payable to Affiliates................. $14,765 $ --
======= =======
</TABLE>
Notes payable and interest payable to other affiliated entities represent
amounts payable to entities owned or controlled by the Company's principal
shareholder.
During 1997, the Company paid off affiliate debt and accrued interest
totaling approximately $15.0 million and received payments of approximately $5.0
million of affiliate notes receivable and accrued interest. The payment to
affiliates was made with funds from the IPO. On the consolidated balance sheet
dated December 31, 1997, the remaining due from affiliates relates to the Master
Club and the various homeowners' associations.
The Company had a consulting agreement with a director of the Company.
During 1996, $208 was expensed by the Company under this agreement. This
agreement was canceled during 1997.
The Company agreed to sell to the principal shareholder the Company's
interest in a condominium and a residential dwelling at a price in excess of the
Company's carrying value. As of December 31, 1996, the carrying value of these
assets totaled approximately $450. In September 1997, the principal shareholder
paid the Company $508 for these assets, subject to adjustment for an appraisal
of the condominium.
F-20
<PAGE> 141
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has entered into a ten year lease agreement with the principal
shareholder for personal use of flood plain land adjacent to one of the
Company's resorts in exchange for an annual payment equal to the property taxes
attributable to the land.
The Company paid an employee's architectural firm the amounts of $338, $421
and $401, during 1995, 1996 and 1997, respectively, for architectural services
rendered to the Company.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The carrying value of cash and cash equivalents, other receivables, amounts
due from or to affiliates, and accounts payable and accrued expenses
approximates fair value due to the relatively short term nature of the financial
instruments. The carrying value of the notes receivable approximates fair value
because the weighted average interest rate on the portfolio of notes receivable
approximates current interest rates to be received on similar current notes
receivable. The carrying amount reported on the balance sheet of notes
receivable and payable to affiliates and notes payable and capital lease
obligations approximates their fair value because the interest rates on these
instruments are adjustable or approximate current interest rates charged on
similar current borrowings.
12. DISCONTINUED OPERATIONS
The Company adopted a plan on December 31, 1996 to discontinue its
development and sale of condominiums by CBI. All anticipated future costs of
carrying and selling the remaining inventory of CBI were accrued as of December
31, 1996. Based on the formal plan adopted by the Company, substantially all
assets were sold and liabilities repaid by December 31, 1997 and no accrual for
losses was required. The net assets of the subsidiary as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
Inventory of unsold condominiums............................ $1,939
Other Assets................................................ 50
Accounts payable and accrued expenses....................... (199)
Net reserve for gain (loss) on discontinued operations...... (201)
------
Net assets of discontinued operations............. $1,589
======
</TABLE>
The loss from discontinued operations was $1,484, $295 and $0 for the years
ended December 31, 1995, 1996, and 1997 respectively, net of income tax benefits
of $173 for the year ended December 31, 1996. There was no tax effect applicable
to the year ended December 31, 1995, since the discontinued operations were
contained in an S-Corporation, and taxable losses were passed directly through
to its shareholder.
Basic and diluted earnings per share from discontinued operations are as
follows for the years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- ----
<S> <C> <C> <C>
Loss per share from discontinued operations................. $(.19) $(.04) --
===== ===== ==
</TABLE>
F-21
<PAGE> 142
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. ACQUISITIONS
In August 1997, the Company acquired certain land and amenities located
near St. Louis, Missouri and Chicago, Illinois for $2.9 million. The Company is
developing these properties as Drive-to Resorts.
In August 1997, the Company acquired certain land adjacent to the Hill
Country Resort located in Comal County, Texas, for $394. The Company intends to
develop this land as an expansion to the Hill Country Resort.
In November 1997, the Company acquired a parcel of land near the "strip" in
Las Vegas, Nevada, for $2.7 million. This property is intended for development
as a new Destination Resort.
In December 1997, the Company acquired the Oak N' Spruce Resort in the
Berkshire Mountains of western Massachusetts for $5.1 million as a new Drive-to
Resort to serve the greater New York City market. The Company intends additional
development at Oak N' Spruce.
Also in December 1997, the Company acquired a tract of land in Galveston,
Texas for approximately $485. The Company intends to develop this land as a new
beach-front Gulf Coast Destination Resort.
14. SUBSIDIARY GUARANTEES
All subsidiaries of the Company will guarantee the Notes (as defined in
Note 15) which would be issued in the proposed offering of $75.0 million of
Senior Subordinated Notes. The separate financial statements of each
guaranteeing subsidiary (each, a "Guarantor Subsidiary") are not presented
because the Company's management has concluded that such financial statements
are not material to investors. 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.
Combined summarized operating results of the Guarantor Subsidiaries are as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ----- -------
<S> <C> <C> <C>
Revenues................................................. $ 433 $ 761 $ 407
======= ===== =======
Loss from continuing operations, before income taxes..... $ (179) $ (91) $ (88)
======= ===== =======
Net loss from discontinued operations, net of a benefit
of $257 in 1996........................................ $(1,990) $(438) $ --
======= ===== =======
Net loss................................................. $(1,433) $(656) $ (88)
======= ===== =======
</TABLE>
Combined summarized balance sheet information of the Guarantor Subsidiaries
is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Land, equipment, inventory and utilities, net............... $1,288 $1,985
Net assets of discontinued operations....................... 1,589 --
Other assets................................................ 1,107 825
------ ------
Total assets...................................... $3,984 $2,810
====== ======
Investment by parent (includes equity and amounts due to
parent)................................................... $3,633 $2,810
Other liabilities........................................... 351 --
------ ------
Total liabilities and equity...................... $3,984 $2,810
====== ======
</TABLE>
At December 31, 1997, there is no subsidiary of the Company the capital
stock of which will comprise a substantial portion of the collateral for the
Notes within the meaning of Rule 3-10 of Regulation S-X.
F-22
<PAGE> 143
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SUBSEQUENT EVENTS
In January 1998, the Company entered into an agreement with Crown Resort
Co., LLC ("Crown") to acquire timeshare management rights at eight resorts in
Alabama, Mississippi, North Carolina, Pennsylvania, South Carolina, Tennessee,
and Texas for $3.8 million. As part of this arrangement, Silverleaf will also
acquire any unsold Vacation Intervals at the eight resorts. This proposed
acquisition is subject to satisfactory completion of customary due-diligence
procedures; accordingly, there is no assurance that the proposed acquisition
will be completed.
In January 1998, the Company entered into an employment agreement proposing
to make an individual an executive officer of the Company. The agreement does
not become effective until the individual relocates to Dallas, Texas, which must
occur before July 1, 1998. The agreement provides for an annual base salary,
options for the purchase of Common Stock, and other fringe benefits. The
agreement also provides for the purchase of the employee's condominium, upon the
individual's relocation to Dallas, for $108. Additionally, if the officer is
terminated without "good cause", the Company shall be obligated to make
severance payments in an amount equal to the officer's base annual salary.
Also, in January 1998, the Company entered into an agreement for the
purchase of all issued and outstanding shares of a California marketing
corporation for $250. This purchase agreement was entered into in conjunction
with a December 1997 employment agreement entered into with an executive
officer.
In February 1998, the Company acquired a parcel of land in Galveston,
Texas, for approximately $1.2 million. The Company intends to develop this
parcel, along with an adjoining parcel acquired in December 1997 as a new
beach-front Destination Resort.
In February 1998, the Company entered into two agreements, one to acquire a
golf course and undeveloped land, near Atlanta, Georgia for $3.5 million, and
another to acquire undeveloped land near Kansas City, Missouri for $1.6 million.
The proposed acquisitions are subject to satisfactory completion of customary
due diligence procedures; accordingly, there is no assurance that either
proposed acquisitions will be completed.
The Company is proposing to sell 2,000,000 shares of Company Common Stock
(the "Equity Offering"). In addition to the 2,000,000 shares being offered for
sale by the Company, the majority shareholder of the Company is offering to sell
500,000 additional shares of the Company.
The Company is also proposing to offer $75.0 million aggregate principal
amount of Senior Subordinated Notes due 2008 (the "Notes"). If issued, the Notes
will be general unsecured obligations of the Company, ranking subordinate in
right of payment to all senior indebtedness of the Company, including
indebtedness under the Company's revolving credit facilities (the "Note
Offering"). The consummation of the Equity Offering is not conditioned upon the
Note Offering; however, the consummation of the Note Offering is conditioned
upon the Equity Offering.
F-23
<PAGE> 144
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INSIDE BACK COVER
CAPTION: "Silverleaf's Operations are Vertically Integrated -- Centralized
Operations."
1. First Picture -- photo of exterior of Silverleaf's offices. Caption:
"Centralized Marketing -- Silverleaf Resorts, Inc. Corporate
Headquarters -- Dallas, Texas."
2. Second Picture -- photo of interior of Silverleaf's offices. Caption:
"Sophisticated Telemarketing Technology at Corporate
Headquarters -- Dallas, Texas."
3. Third Picture -- photo of covered wagon drawn by mules accompanied by
three horseback riders. Caption: "Resort Operations -- Resort Management
of Member Activities -- Covered Wagon Rides -- Piney Shores Resort,
Conroe, Texas -- Lodge Getaway."
4. Fourth Picture -- photo of exterior of timeshare units. Caption:
"Standardized design, engineering and construction procedures ensure
uniform quality."
<PAGE> 145
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 5
Risk Factors.......................... 19
Sources and Uses of Proceeds.......... 33
Capitalization........................ 34
Unaudited Pro Forma Condensed
Consolidated Financial
Information......................... 35
Selected Consolidated Historical
Financial and Operating
Information......................... 39
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 42
The Timeshare Industry................ 49
Business.............................. 52
Management............................ 78
Certain Relationships and Related
Transactions........................ 84
Principal Shareholders................ 87
Description of Certain Indebtedness... 88
Description of Notes.................. 90
Underwriting.......................... 116
Notice to Canadian Residents.......... 117
Legal Matters......................... 118
Experts............................... 118
Additional Information................ 118
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
SILVERLEAF RESORTS LOGO
SILVERLEAF RESORTS, INC.
$75,000,000
% Senior Subordinated
Notes due 2008
P R O S P E C T U S
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
------------------------------------------------------
------------------------------------------------------
<PAGE> 146
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, in connection with the sale and
distribution of the Notes being registered hereby.
<TABLE>
<S> <C>
Commission Registration Fee................................. $22,125
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. *
Legal fees and expenses..................................... *
Printing and engraving expenses............................. *
Transfer Agent fees......................................... *
Trustee Fees................................................ *
Rating Agency Fees.......................................... *
Miscellaneous expenses...................................... *
-------
TOTAL............................................. $ *
=======
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant is a Texas corporation. Article 2.02-1 of the Texas Business
Corporation Act empowers the Registrant to indemnify, subject to the standards
set forth therein, any person who is a party in any action in connection with
any action, suit or proceeding brought or threatened by reason of the fact that
the person was a director, officer, employee or agent of such company, or is or
was serving as such with respect to another entity at the request of such
company. The Texas Business Corporation Act also provides that the Registrant
may purchase insurance on behalf of any such director, officer, employee or
agent and the Registrant will maintain liability insurance for the benefit of
its directors and officers.
The Registrant's Charter and Bylaws provide in effect for the
indemnification by the Registrant of each director and officer of the Registrant
to the fullest extent permitted by applicable law.
The Registrant has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Registrant's
Articles of Incorporation and By-Laws. These agreements provide, among other
things, that the Registrant will indemnify its directors and officers for all
direct and indirect expenses and costs (including, without limitation, all
reasonable attorneys' fees and related disbursements, other out-of-pocket costs
and reasonable compensation for time spent by such persons for which they are
not otherwise compensated by the Registrant or any third person) and liabilities
of any type whatsoever (including, but not limited to, judgments, fines and
settlement fees) actually and reasonably incurred by such person in connection
with either the investigation, defense, settlement or appeal of any threatened,
pending, or completed action, suit or other proceeding, including the
corporation, arising out of such person's services as a director, employee or
other agent of the Registrant, any subsidiary of the Registrant or any other
company or enterprise to which the person provides services at the request of
the Registrant. The Registrant believes that these provisions and agreements are
necessary to attract and retain talented and experienced directors and officers.
The Registrant has directors' and officers' insurance which insures them against
certain acts and omissions in the course of their duties.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
II-1
<PAGE> 147
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+1.1 -- Form of Underwriting Agreement between Registrant,
Co-Registrants and Credit Suisse First Boston Corporation
et al.
3.1 -- Charter of Silverleaf Resorts, Inc. (incorporated by
reference to Exhibit 3.1 to Amendment No. 1 dated May 16,
1997 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
3.2 -- Bylaws of Silverleaf Resorts, Inc. (incorporated by
reference to Exhibit 3.2 to Registrants Annual Report on
Form 10-K for year ended December 31, 1997).
+4.1 -- Form of Indenture for Senior Subordinated Notes due 2008.
+5.1 -- Form of Opinion of Meadows, Owens, Collier, Reed, Cousins
& Blau LLP regarding the validity and enforceability of
Senior Subordinated Notes being registered (including
consent).
10.1 -- Form of Registration Rights Agreement between Registrant
and Robert E. Mead (incorporated by reference to Exhibit
10.1 to Amendment No. 1 dated May 16, 1997 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.2.1 -- Employment Agreement between Registrant and Robert E.
Mead (incorporated by reference to Exhibit 10.2.1 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.2.2 -- Employment Agreement between Registrant and David T.
O'Connor (incorporated by reference to Exhibit 10.2.2 to
Amendment No. 1 dated May 16, 1997 to Registrant's
Registration Statement on Form S-1, File No. 333-24273).
10.2.3 -- Employment Agreement between Registrant and Sharon K.
Brayfield (incorporated by reference to Exhibit 10.2.3 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.2.4 -- Employment Agreement between Registrant and Thomas Franks
(incorporated by reference to Exhibit 10.6 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.2.5 -- Memorandum Agreement, dated August 21, 1997, between
Registrant and Thomas C. Franks (incorporated by
reference to Exhibit 10.7 to Registrant's Form 10-Q for
quarter ended September 30, 1997).
10.2.6 -- Employment Agreement, dated January 16, 1998, between
Registrant and Allen L. Hudson (incorporated by reference
to Exhibit 10.2.6 to Registrant's Annual Report on Form
10-K for year ended December 31, 1997).
10.2.7 -- Employment Agreement, dated January 20, 1998, between
Registrant and Jim Oestreich (incorporated by reference
to Exhibit 10.2.7 to Registrant's Annual Report on Form
10-K for year ended December 31, 1997).
10.3 -- 1997 Stock Option Plan of Registrant (incorporated by
reference to Exhibit 10.3 to Amendment No. 1 dated May
16, 1997 to Registrant's Registration Statement on Form
S-1, File No. 333-24273).
10.3.1 -- Nonqualified Stock Option Agreement (David T. O'Connor)
(incorporated by reference to Exhibit 10.1 to
Registrant's Form 10-Q for quarter ended June 30, 1997).
10.3.2 -- Incentive Stock Option Agreement (Joe W. Conner)
(incorporated by reference to Exhibit 10.2 to
Registrant's Form 10-Q for quarter ended June 30, 1997).
</TABLE>
II-2
<PAGE> 148
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.3.3 -- Incentive Stock Option Agreement (Larry H. Fritz)
(incorporated by reference to Exhibit 10.3 to
Registrant's Form 10-Q for quarter ended June 30, 1997).
10.3.4 -- Non-Qualified Stock Option Agreement (Thomas Franks)
(incorporated by reference to Exhibit 10.8 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.3.5 -- Non-Qualified Stock Option Agreement (Stuart M. Bloch)
(incorporated by reference to Exhibit 10.9 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.3.6 -- Non-Qualified Stock Option Agreement (James B. Francis,
Jr.) (incorporated by reference to Exhibit 10.10 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.3.7 -- Non-Qualified Stock Option Agreement (Michael A. Jenkins)
(incorporated by reference to Exhibit 10.11 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.3.8 -- Non-Qualified Stock Option Agreement, dated January 21,
1998, between Registrant and Joe W. Conner (incorporated
by reference to Exhibit 10.3.8 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1997).
10.3.9 -- Non-Qualified Stock Option Agreement, dated January 20,
1998, between Registrant and Jim Oestreich (incorporated
by reference to Exhibit 10.3.9 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1997).
10.4 -- Master Club Agreement between the Master Club and the
resort clubs named therein (incorporated by reference to
Exhibit 10.4 to Registrant's Registration Statement on
Form S-1, File No. 333-24273).
10.5 -- Management Agreement between Registrant and the Master
Club (incorporated by reference to Exhibit 10.5 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.6 -- Revolving Loan and Security Agreement, dated October
1996, by CS First Boston Mortgage Capital Corp.
("CSFBMCC") and Silverleaf Vacation Club, Inc.
(incorporated by reference to Exhibit 10.6 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.7 -- Amendment No. 1 to Revolving Loan and Security Agreement,
dated November 8, 1996, between CSFBMCC and Silverleaf
Vacation Club, Inc. (incorporated by reference to Exhibit
10.7 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
10.8 -- Loan and Security Agreement among Textron Financial
Corporation ("Textron"), Ascension Resorts, Ltd. and
Ascension Capital Corporation, dated August 15, 1995
(incorporated by reference to Exhibit 10.9 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.9 -- First Amendment to Loan and Security Agreement, dated
December 28, 1995, between Textron and Silverleaf
Vacation Club, Inc. (incorporated by reference to Exhibit
10.10 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
10.10 -- Second Amendment to Loan and Security Agreement, dated
October 31, 1996, executed by Textron and Silverleaf
Vacation Club, Inc. (incorporated by reference to Exhibit
10.11 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
</TABLE>
II-3
<PAGE> 149
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.11 -- Restated and Amended Loan and Security Agreement, dated
December 27, 1995, between Heller Financial, Inc.
("Heller") and Ascension Resorts, Ltd. (incorporated by
reference to Exhibit 10.12 to Registrant's Registration
Statement on Form S-1, File No. 333-24273).
10.12 -- Loan and Security Agreement, dated December 27, 1995,
executed by Ascension Resorts, Ltd. and Heller
(incorporated by reference to Exhibit 10.13 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.13 -- Amendment to Restated and Amended Loan and Security
Agreement, dated August 15, 1996, between Heller and
Silverleaf Vacation Club, Inc. (incorporated by reference
to Exhibit 10.14 to Registrant's Registration Statement
on Form S-1, File No. 333-24273).
10.14 -- Loan and Security Agreement, between Greyhound Financial
Corporation and Ascension Resorts, Ltd., dated August 12,
1994 (incorporated by reference to Exhibit 10.5 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.15 -- Amendment No. 1 to Loan and Security Agreement between
Finova Capital Corporation and Ascension Resorts, Ltd.,
dated July 24, 1995 (incorporated by reference to Exhibit
10.16 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
10.16 -- Amendment No. 2 to Loan and Security Agreement among
Ascension Resorts, Ltd., Ascension Capital Corporation,
and Finova Capital Corporation, dated December 13, 1995
(incorporated by reference to Exhibit 10.17 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.17 -- Form of Indemnification Agreement (between Registrant and
all officers, directors, and proposed directors)
(incorporated by reference to Exhibit 10.18 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.18 -- Resort Affiliation and Owners Association Agreement
between Resort Condominiums International, Inc.,
Ascension Resorts, Ltd., and Hill Country Resort
Condoshare Club, dated July 29, 1995 (similar agreements
for all other Existing Resorts) (incorporated by
reference to Exhibit 10.19 to Registrant's Registration
Statement on Form S-1, File No. 333-24273).
10.19 -- Agreement for Professional Services between Silverleaf
Vacation Club, Inc. and Hudson and Company, Inc., dated
November 12, 1996 (incorporated by reference to Exhibit
10.20 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
10.20 -- First Amendment to Master Club Agreement, dated March 28,
1990, among Master Club, Ozark Mountain Resort Club,
Holiday Hills Resort Club, the Holly Lake Club, The
Villages Condoshare Association, The Villages Club, Piney
Shores Club, and Hill Country Resort Condoshare Club
(incorporated by reference to Exhibit 10.22 to Amendment
No. 1 dated May 16, 1997 to Registrant's Registration
Statement on Form S-1, File No. 333-24273).
10.21 -- First Amendment to Management Agreement, dated January 1,
1993, between Master Endless Escape Club and Ascension
Resorts, Ltd. (incorporated by reference to Exhibit 10.23
to Amendment No. 1 dated May 16, 1997 to Registrant's
Registration Statement on Form S-1, File No. 333-24273).
10.22 -- Contract of Sale, dated May 2, 1997, between Registrant
and third-party (incorporated by reference to Exhibit
10.24 to Amendment No. 1 dated May 16, 1997 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
</TABLE>
II-4
<PAGE> 150
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.23 -- Amendment to Loan Documents, dated December 27, 1996,
among Silverleaf Vacation Club, Inc., Ascension Resorts,
Ltd., and Heller Financial, Inc. (incorporated by
reference to Exhibit 10.25 to Amendment No. 1 dated May
16, 1997 to Registrant's Registration Statement on Form
S-1, File No. 333-24273).
10.24 -- Contract of Sale between Thousand Trails, Inc. and
Registrant (approximately 98.475 acres, Galveston County,
Texas) (incorporated by reference to Exhibit 10.1 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.25 -- Contract of Sale between R.J. Novelli, Sr., et al and
Registrant (approximately 21.5 acres, Galveston County,
Texas) (incorporated by reference to Exhibit 10.2 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.26 -- Contract of Sale between Harmon/Koval Limited Liability
Company and Registrant (2.1 acres, Clark County, Nevada)
(incorporated by reference to Exhibit 10.3 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.27 -- Second Amendment to Restated and Amended Loan and
Security Agreement between Heller Financial, Inc. and
Registrant ($40 million revolving credit facility)
(incorporated by reference to Exhibit 10.4 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.28 -- Construction Loan Agreement between Heller Financial Inc.
and Registrant ($10 million revolving construction loan
facility) (incorporated by reference to Exhibit 10.5 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.29 -- Real Estate Contract of Sale dated September 30, 1997,
between Registrant and Robert E. Mead (incorporated by
reference to Exhibit 10.12 to Registrant's Form 10-Q for
quarter ended September 30, 1997).
10.30 -- Master Club Agreement dated September 25, 1997 between
Registrant and Timber Creek Resort Club (incorporated by
reference to Exhibit 10.13 to Registrant's Form 10-Q for
quarter ended September 30, 1997).
10.31 -- Loan Agreement, dated December 19, 1997, between Credit
Suisse First Boston Mortgage Capital, L.L.C. and
Registrant (incorporated by reference to Exhibit 10.31 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1997).
10.32 -- Amendment to Loan Documents, dated December 22, 1997,
between Registrant and Credit Suisse First Boston
Mortgage Capital, L.L.C. (incorporated by reference to
Exhibit 10.32 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1997).
10.33 -- Second Amendment to Management Agreement, dated December
31, 1997, between Master Club and Registrant
(incorporated by reference to Exhibit 10.33 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1997).
10.34 -- Master Club Agreement, dated January 5, 1998, between
Master Club and Oak N' Spruce Resort Club (incorporated
by reference to Exhibit 10.34 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1997).
10.35 -- Contract of Sale, dated November 13, 1997, between Oak N'
Spruce Management, Inc., Beartown Development, Inc.,
Bruce Hagedorn and Doug Richie, and Registrant
(incorporated by reference to Exhibit 10.35 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1997).
10.36 -- Contract of Sale, dated January 12, 1998, between Crown
Resort Co. L.L.C., Richard W. Dickson and Robert G.
Garner, and Registrant (incorporated by reference to
Exhibit 10.36 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1997).
</TABLE>
II-5
<PAGE> 151
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.37 -- Contract of Sale, dated February 18, 1998, between
Registrant and Michael J. McDermott (incorporated by
reference to Exhibit 10.37 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1997).
10.38 -- Contract of Sale, dated February 19, 1998, between
Registrant and Lee R. Roper (incorporated by reference to
Exhibit 10.38 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1997).
10.39 -- Contract of Sale, dated February 19, 1998, between
Registrant and J. Phillip Ballard, Jr., and Eagle Greens
Ltd. (incorporated by reference to Exhibit 10.39 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1997).
10.40 -- Stock Purchase Agreement, dated January 15, 1998, between
Silverleaf Resorts, Inc. and Jim Oestreich (incorporated
by reference to Exhibit 10.40 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1997).
10.41 -- Contract of Sale, dated May 2, 1997, between Registrant
and Thousand Trails, Inc. (incorporated by reference to
Exhibit 10.41 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1997).
10.42 -- First Amendment to Contract of Sale, dated July 25, 1997,
between Registrant and Thousand Trails, Inc.
(incorporated by reference to Exhibit 10.42 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1997).
10.43 -- Master Club Agreement, dated November 13, 1997, between
Master Club and Fox River Resort Club (incorporated by
reference to Exhibit 10.43 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1997).
+12.1 -- Statement Concerning Computation of Ratios of Earnings to
Fixed Charges.
+21.1 -- Subsidiaries of Silverleaf Resorts, Inc.
+23.1 -- Consent of Meadows, Owens, Collier, Reed, Cousins & Blau,
L.L.P. (included as a part of Exhibit 5.1)
+23.2 -- Consent of Deloitte & Touche LLP.
+24.1 -- Power of Attorney (included as part of page II-7 of this
Registration Statement).
+25.1 -- Form T-1 Statement of Eligibility of Norwest Bank
Minnesota N.A. to Serve as Trustee dated February 24,
1998.
+27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Filed herewith
(b) Financial Statement Schedules
None. Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the financial statements or the notes thereto.
II-6
<PAGE> 152
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by registrant is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 153
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Silverleaf Resorts, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Dallas, State of Texas, on March 6, 1998.
SILVERLEAF RESORTS, INC.
By: /s/ ROBERT E. MEAD
----------------------------------
Name: Robert E. Mead
Title: Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert
E. Mead, Sharon K. Brayfield and Joe W. Conner, and each of them, with full
power to act without the other, such person's true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign this Registration
Statement, and any and all amendments thereto (including pre- and post-effective
amendments) or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on behalf of Silverleaf Resorts,
Inc. by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT E. MEAD Chairman of the Board and Chief March 6, 1998
- ----------------------------------------------------- Executive Officer (Principal
Robert E. Mead Executive Officer)
/s/ SHARON K. BRAYFIELD Director and President March 6, 1998
- -----------------------------------------------------
Sharon K. Brayfield
/s/ JOE W. CONNER Chief Financial Officer and March 6, 1998
- ----------------------------------------------------- Treasurer (Principal Financial
Joe W. Conner and Accounting Officer)
/s/ STUART MARSHALL BLOCH Director March 6, 1998
- -----------------------------------------------------
Stuart Marshall Bloch
/s/ JAMES B. FRANCIS, JR. Director March 6, 1998
- -----------------------------------------------------
James B. Francis, Jr.
/s/ MICHAEL A. JENKINS Director March 6, 1998
- -----------------------------------------------------
Michael A. Jenkins
</TABLE>
II-8
<PAGE> 154
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrants set forth on the facing page have duly caused this Registration
Statement to be signed on their behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on March 6, 1998.
For the Co-Registrants Set Forth on
the Facing Page*
By: /s/ ROBERT E. MEAD
----------------------------------
Name: Robert E. Mead
Title: Chairman of the Board and
Chief Executive Officer of
Co-Registrants
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on behalf of the Co-Registrants set
forth on the Facing Page by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT E. MEAD Director and Chief Executive March 6, 1998
- ----------------------------------------------------- Officer of Each Co-Registrant
Robert E. Mead (Principal Executive Officer)
/s/ SHARON K. BRAYFIELD Director of Each Co-Registrant March 6, 1998
- -----------------------------------------------------
Sharon K. Brayfield
/s/ JOE W. CONNER Chief Financial Officer and March 6, 1998
- ----------------------------------------------------- Treasurer of Each Co-Registrant
Joe W. Conner (Principal Financial and
Accounting Officer)
</TABLE>
- ---------------
* The Co-Registrants are: (1) Condominium Builders, Inc., a Texas corporation;
(2) Database Research, Inc., a Texas corporation; (3) Bull's Eye Marketing,
Inc. (Del), a Delaware corporation; (4) Silverleaf Berkshires, Inc., a Texas
corporation; (5) Silverleaf Hotels, Inc., a Texas corporation; (6) Silverleaf
Resort Acquisitions, Inc., a Texas corporation; (7) Silverleaf Travel, Inc., a
Texas corporation; (8) Villages Land, Inc., a Texas corporation; and (9)
Bull's Eye Marketing, Inc. (Calif), a California corporation.
II-9
<PAGE> 155
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+1.1 -- Form of Underwriting Agreement between Registrant,
Co-Registrants and Credit Suisse First Boston Corporation
et al.
3.1 -- Charter of Silverleaf Resorts, Inc. (incorporated by
reference to Exhibit 3.1 to Amendment No. 1 dated May 16,
1997 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
3.2 -- Bylaws of Silverleaf Resorts, Inc. (incorporated by
reference to Exhibit 3.2 to Registrants Annual Report on
Form 10-K for year ended December 31, 1997).
+4.1 -- Form of Indenture for Senior Subordinated Notes due 2008.
+5.1 -- Form of Opinion of Meadows, Owens, Collier, Reed, Cousins
& Blau LLP regarding the validity and enforceability of
Senior Subordinated Notes being registered (including
consent).
10.1 -- Form of Registration Rights Agreement between Registrant
and Robert E. Mead (incorporated by reference to Exhibit
10.1 to Amendment No. 1 dated May 16, 1997 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.2.1 -- Employment Agreement between Registrant and Robert E.
Mead (incorporated by reference to Exhibit 10.2.1 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.2.2 -- Employment Agreement between Registrant and David T.
O'Connor (incorporated by reference to Exhibit 10.2.2 to
Amendment No. 1 dated May 16, 1997 to Registrant's
Registration Statement on Form S-1, File No. 333-24273).
10.2.3 -- Employment Agreement between Registrant and Sharon K.
Brayfield (incorporated by reference to Exhibit 10.2.3 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.2.4 -- Employment Agreement between Registrant and Thomas Franks
(incorporated by reference to Exhibit 10.6 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.2.5 -- Memorandum Agreement, dated August 21, 1997, between
Registrant and Thomas C. Franks (incorporated by
reference to Exhibit 10.7 to Registrant's Form 10-Q for
quarter ended September 30, 1997).
10.2.6 -- Employment Agreement, dated January 16, 1998, between
Registrant and Allen L. Hudson (incorporated by reference
to Exhibit 10.2.6 to Registrant's Annual Report on Form
10-K for year ended December 31, 1997).
10.2.7 -- Employment Agreement, dated January 20, 1998, between
Registrant and Jim Oestreich (incorporated by reference
to Exhibit 10.2.7 to Registrant's Annual Report on Form
10-K for year ended December 31, 1997).
10.3 -- 1997 Stock Option Plan of Registrant (incorporated by
reference to Exhibit 10.3 to Amendment No. 1 dated May
16, 1997 to Registrant's Registration Statement on Form
S-1, File No. 333-24273).
10.3.1 -- Nonqualified Stock Option Agreement (David T. O'Connor)
(incorporated by reference to Exhibit 10.1 to
Registrant's Form 10-Q for quarter ended June 30, 1997).
10.3.2 -- Incentive Stock Option Agreement (Joe W. Conner)
(incorporated by reference to Exhibit 10.2 to
Registrant's Form 10-Q for quarter ended June 30, 1997).
10.3.3 -- Incentive Stock Option Agreement (Larry H. Fritz)
(incorporated by reference to Exhibit 10.3 to
Registrant's Form 10-Q for quarter ended June 30, 1997).
10.3.4 -- Non-Qualified Stock Option Agreement (Thomas Franks)
(incorporated by reference to Exhibit 10.8 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
</TABLE>
<PAGE> 156
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.3.5 -- Non-Qualified Stock Option Agreement (Stuart M. Bloch)
(incorporated by reference to Exhibit 10.9 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.3.6 -- Non-Qualified Stock Option Agreement (James B. Francis,
Jr.) (incorporated by reference to Exhibit 10.10 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.3.7 -- Non-Qualified Stock Option Agreement (Michael A. Jenkins)
(incorporated by reference to Exhibit 10.11 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.3.8 -- Non-Qualified Stock Option Agreement, dated January 21,
1998, between Registrant and Joe W. Conner (incorporated
by reference to Exhibit 10.3.8 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1997).
10.3.9 -- Non-Qualified Stock Option Agreement, dated January 20,
1998, between Registrant and Jim Oestreich (incorporated
by reference to Exhibit 10.3.9 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1997).
10.4 -- Master Club Agreement between the Master Club and the
resort clubs named therein (incorporated by reference to
Exhibit 10.4 to Registrant's Registration Statement on
Form S-1, File No. 333-24273).
10.5 -- Management Agreement between Registrant and the Master
Club (incorporated by reference to Exhibit 10.5 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.6 -- Revolving Loan and Security Agreement, dated October
1996, by CS First Boston Mortgage Capital Corp.
("CSFBMCC") and Silverleaf Vacation Club, Inc.
(incorporated by reference to Exhibit 10.6 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.7 -- Amendment No. 1 to Revolving Loan and Security Agreement,
dated November 8, 1996, between CSFBMCC and Silverleaf
Vacation Club, Inc. (incorporated by reference to Exhibit
10.7 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
10.8 -- Loan and Security Agreement among Textron Financial
Corporation ("Textron"), Ascension Resorts, Ltd. and
Ascension Capital Corporation, dated August 15, 1995
(incorporated by reference to Exhibit 10.9 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.9 -- First Amendment to Loan and Security Agreement, dated
December 28, 1995, between Textron and Silverleaf
Vacation Club, Inc. (incorporated by reference to Exhibit
10.10 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
10.10 -- Second Amendment to Loan and Security Agreement, dated
October 31, 1996, executed by Textron and Silverleaf
Vacation Club, Inc. (incorporated by reference to Exhibit
10.11 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
10.11 -- Restated and Amended Loan and Security Agreement, dated
December 27, 1995, between Heller Financial, Inc.
("Heller") and Ascension Resorts, Ltd. (incorporated by
reference to Exhibit 10.12 to Registrant's Registration
Statement on Form S-1, File No. 333-24273).
10.12 -- Loan and Security Agreement, dated December 27, 1995,
executed by Ascension Resorts, Ltd. and Heller
(incorporated by reference to Exhibit 10.13 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
</TABLE>
<PAGE> 157
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.13 -- Amendment to Restated and Amended Loan and Security
Agreement, dated August 15, 1996, between Heller and
Silverleaf Vacation Club, Inc. (incorporated by reference
to Exhibit 10.14 to Registrant's Registration Statement
on Form S-1, File No. 333-24273).
10.14 -- Loan and Security Agreement, between Greyhound Financial
Corporation and Ascension Resorts, Ltd., dated August 12,
1994 (incorporated by reference to Exhibit 10.5 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.15 -- Amendment No. 1 to Loan and Security Agreement between
Finova Capital Corporation and Ascension Resorts, Ltd.,
dated July 24, 1995 (incorporated by reference to Exhibit
10.16 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
10.16 -- Amendment No. 2 to Loan and Security Agreement among
Ascension Resorts, Ltd., Ascension Capital Corporation,
and Finova Capital Corporation, dated December 13, 1995
(incorporated by reference to Exhibit 10.17 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.17 -- Form of Indemnification Agreement (between Registrant and
all officers, directors, and proposed directors)
(incorporated by reference to Exhibit 10.18 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.18 -- Resort Affiliation and Owners Association Agreement
between Resort Condominiums International, Inc.,
Ascension Resorts, Ltd., and Hill Country Resort
Condoshare Club, dated July 29, 1995 (similar agreements
for all other Existing Resorts) (incorporated by
reference to Exhibit 10.19 to Registrant's Registration
Statement on Form S-1, File No. 333-24273).
10.19 -- Agreement for Professional Services between Silverleaf
Vacation Club, Inc. and Hudson and Company, Inc., dated
November 12, 1996 (incorporated by reference to Exhibit
10.20 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
10.20 -- First Amendment to Master Club Agreement, dated March 28,
1990, among Master Club, Ozark Mountain Resort Club,
Holiday Hills Resort Club, the Holly Lake Club, The
Villages Condoshare Association, The Villages Club, Piney
Shores Club, and Hill Country Resort Condoshare Club
(incorporated by reference to Exhibit 10.22 to Amendment
No. 1 dated May 16, 1997 to Registrant's Registration
Statement on Form S-1, File No. 333-24273).
10.21 -- First Amendment to Management Agreement, dated January 1,
1993, between Master Endless Escape Club and Ascension
Resorts, Ltd. (incorporated by reference to Exhibit 10.23
to Amendment No. 1 dated May 16, 1997 to Registrant's
Registration Statement on Form S-1, File No. 333-24273).
10.22 -- Contract of Sale, dated May 2, 1997, between Registrant
and third-party (incorporated by reference to Exhibit
10.24 to Amendment No. 1 dated May 16, 1997 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
10.23 -- Amendment to Loan Documents, dated December 27, 1996,
among Silverleaf Vacation Club, Inc., Ascension Resorts,
Ltd., and Heller Financial, Inc. (incorporated by
reference to Exhibit 10.25 to Amendment No. 1 dated May
16, 1997 to Registrant's Registration Statement on Form
S-1, File No. 333-24273).
10.24 -- Contract of Sale between Thousand Trails, Inc. and
Registrant (approximately 98.475 acres, Galveston County,
Texas) (incorporated by reference to Exhibit 10.1 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.25 -- Contract of Sale between R.J. Novelli, Sr., et al and
Registrant (approximately 21.5 acres, Galveston County,
Texas) (incorporated by reference to Exhibit 10.2 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
</TABLE>
<PAGE> 158
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.26 -- Contract of Sale between Harmon/Koval Limited Liability
Company and Registrant (2.1 acres, Clark County, Nevada)
(incorporated by reference to Exhibit 10.3 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.27 -- Second Amendment to Restated and Amended Loan and
Security Agreement between Heller Financial, Inc. and
Registrant ($40 million revolving credit facility)
(incorporated by reference to Exhibit 10.4 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.28 -- Construction Loan Agreement between Heller Financial Inc.
and Registrant ($10 million revolving construction loan
facility) (incorporated by reference to Exhibit 10.5 to
Registrant's Form 10-Q for quarter ended September 30,
1997).
10.29 -- Real Estate Contract of Sale dated September 30, 1997,
between Registrant and Robert E. Mead (incorporated by
reference to Exhibit 10.12 to Registrant's Form 10-Q for
quarter ended September 30, 1997).
10.30 -- Master Club Agreement dated September 25, 1997 between
Registrant and Timber Creek Resort Club (incorporated by
reference to Exhibit 10.13 to Registrant's Form 10-Q for
quarter ended September 30, 1997).
10.31 -- Loan Agreement, dated December 19, 1997, between Credit
Suisse First Boston Mortgage Capital, L.L.C. and
Registrant (incorporated by reference to Exhibit 10.31 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1997).
10.32 -- Amendment to Loan Documents, dated December 22, 1997,
between Registrant and Credit Suisse First Boston
Mortgage Capital, L.L.C. (incorporated by reference to
Exhibit 10.32 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1997).
10.33 -- Second Amendment to Management Agreement, dated December
31, 1997, between Master Club and Registrant
(incorporated by reference to Exhibit 10.33 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1997).
10.34 -- Master Club Agreement, dated January 5, 1998, between
Master Club and Oak N' Spruce Resort Club (incorporated
by reference to Exhibit 10.34 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1997).
10.35 -- Contract of Sale, dated November 13, 1997, between Oak N'
Spruce Management, Inc., Beartown Development, Inc.,
Bruce Hagedorn and Doug Richie, and Registrant
(incorporated by reference to Exhibit 10.35 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1997).
10.36 -- Contract of Sale, dated January 12, 1998, between Crown
Resort Co. L.L.C., Richard W. Dickson and Robert G.
Garner, and Registrant (incorporated by reference to
Exhibit 10.36 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1997).
10.37 -- Contract of Sale, dated February 18, 1998, between
Registrant and Michael J. McDermott (incorporated by
reference to Exhibit 10.37 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1997).
10.38 -- Contract of Sale, dated February 19, 1998, between
Registrant and Lee R. Roper (incorporated by reference to
Exhibit 10.38 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1997).
10.39 -- Contract of Sale, dated February 19, 1998, between
Registrant and J. Phillip Ballard, Jr., and Eagle Greens
Ltd. (incorporated by reference to Exhibit 10.39 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1997).
10.40 -- Stock Purchase Agreement, dated January 15, 1998, between
Silverleaf Resorts, Inc. and Jim Oestreich (incorporated
by reference to Exhibit 10.40 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1997).
</TABLE>
<PAGE> 159
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.41 -- Contract of Sale, dated May 2, 1997, between Registrant
and Thousand Trails, Inc. (incorporated by reference to
Exhibit 10.41 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1997).
10.42 -- First Amendment to Contract of Sale, dated July 25, 1997,
between Registrant and Thousand Trails, Inc.
(incorporated by reference to Exhibit 10.42 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1997).
10.43 -- Master Club Agreement, dated November 13, 1997, between
Master Club and Fox River Resort Club (incorporated by
reference to Exhibit 10.43 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1997).
+12.1 -- Statement Concerning Computation of Ratios of Earnings to
Fixed Charges.
+21.1 -- Subsidiaries of Silverleaf Resorts, Inc.
+23.1 -- Consent of Meadows, Owens, Collier, Reed, Cousins & Blau,
L.L.P. (included as a part of Exhibit 5.1)
+23.2 -- Consent of Deloitte & Touche LLP.
+24.1 -- Power of Attorney (included as part of page II-7 of this
Registration Statement).
+25.1 -- Form T-1 Statement of Eligibility of Norwest Bank
Minnesota N.A. to Serve as Trustee dated February 24,
1998.
+27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Filed herewith
<PAGE> 1
EXHIBIT 1.1
DRAFT OF MARCH 5, 1998
$75,000,000
SILVERLEAF RESORTS, INC.
____% SENIOR SUBORDINATED NOTES DUE 2008
UNDERWRITING AGREEMENT
__________, 1998
CREDIT SUISSE FIRST BOSTON CORPORATION
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Silverleaf Resorts, Inc., a Texas corporation
(the "Company"), proposes, subject to the terms and conditions stated herein,
to issue and sell to Credit Suisse First Boston Corporation and Donaldson,
Lufkin & Jenrette Securities Corporation (the "Underwriters") U.S. $75,000,000
principal amount of its ___% Senior Subordinated Notes due 2008 ("Offered
Securities") to be issued under an indenture, dated as of _______________ 1998
(the "Indenture"), among the Company, the Subsidiary Guarantors (as defined
below) and Norwest Bank Minnesota, N.A., as Trustee (the "Trustee"). The
Company's obligations under the Offered Securities will be fully and
unconditionally guaranteed on a joint and several senior basis by all of the
existing subsidiaries of the Company listed on the signature page hereto (each
such subsidiary being a "Subsidiary Guarantor" and all such subsidiaries being,
collectively, the "Subsidiary Guarantors"), pursuant to and to the extent set
forth in the Indenture (the "Subsidiary Guarantees"). The Company and the
Subsidiary Guarantors hereby agree with the several Underwriters as follows:
2. Representations and Warranties of the Company and the
Subsidiary Guarantors. Each of the Company and each Subsidiary Guarantor
jointly and severally represents and warrants to, and agrees with, the several
Underwriters that:
(a) A registration statement (No. 333- ) relating
to the Offered Securities, including a form of prospectus, has been
filed with the Securities and Exchange Commission ("Commission") and
either (i) has been declared effective under the Securities Act of
1933, as amended ("Act"), and is not proposed to be amended or (ii) is
proposed to be amended by amendment or post-effective amendment. If
such registration statement ("initial registration statement") has
been declared effective, either (i) an additional registration
statement ("additional
<PAGE> 2
registration statement") relating to the Offered Securities may have
been filed with the Commission pursuant to Rule 462(b) ("Rule 462(b)")
under the Act and, if so filed, has become effective upon filing
pursuant to such Rule and the Offered Securities all have been duly
registered under the Act pursuant to the initial registration
statement and, if applicable, the additional registration statement or
(ii) such an additional registration statement is proposed to be filed
with the Commission pursuant to Rule 462(b) and will become effective
upon filing pursuant to such Rule and upon such filing the Offered
Securities will all have been duly registered under the Act pursuant
to the initial registration statement and such additional registration
statement. If the Company does not propose to amend the initial
registration statement or if an additional registration statement has
been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has
been filed with the Commission prior to the execution and delivery of
this Agreement, the most recent amendment (if any) to each such
registration statement has been declared effective by the Commission
or has become effective upon filing pursuant to Rule 462(c) ("Rule
462(c)") under the Act or, in the case of the additional registration
statement, Rule 462(b). For purposes of this Agreement, "Effective
Time" with respect to the initial registration statement or, if filed
prior to the execution and delivery of this Agreement, the additional
registration statement means (i) if the Company has advised the
Underwriters that it does not propose to amend such registration
statement, the date and time as of which such registration statement,
or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared
effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (ii) if the Company has advised the
Underwriters that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of
which such registration statement, as amended by such amendment or
post-effective amendment, as the case may be, is declared effective by
the Commission. If an additional registration statement has not been
filed prior to the execution and delivery of this Agreement but the
Company has advised the Underwriters that it proposes to file one,
"Effective Time" with respect to such additional registration
statement means the date and time as of which such registration
statement is filed and becomes effective pursuant to Rule 462(b).
"Effective Date" with respect to the initial registration statement or
the additional registration statement (if any) means the date of the
Effective Time thereof. The initial registration statement, as amended
at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of
the initial registration statement as of the Effective Time of the
additional registration statement pursuant to the General Instructions
of the Form on which it is filed and including all information (if
any) deemed to be a part of the initial registration statement as of
its Effective Time pursuant to Rule 430A(b) ("Rule 430A(b)") under the
Act, is hereinafter referred to as the "Initial Registration
Statement". The additional registration statement, as amended at its
Effective Time, including the contents of the initial registration
statement incorporated by reference therein and including all
information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"Registration Statements" and individually as a "Registration
Statement". The form of prospectus relating to the Offered Securities,
as first filed with the Commission pursuant to and in accordance with
Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, is hereinafter
referred to as the "Prospectus". No document has been or will be
prepared or distributed in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement:
(i) on the Effective Date of the Initial Registration Statement, the
2
<PAGE> 3
Initial Registration Statement conformed in all respects to the
requirements of the Act, the Trust Indenture Act of 1939 ("Trust
Indenture Act") and the rules and regulations of the Commission
("Rules and Regulations") and did not include any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, (ii) on the Effective Date of the Additional Registration
Statement (if any), each Registration Statement conformed, or will
conform, in all respects to the requirements of the Act, the Trust
Indenture Act and the Rules and Regulations and did not include, or
will not include, any untrue statement of a material fact and did not
omit, or will not omit, to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading and (iii) on the date of this Agreement, the Initial
Registration Statement and, if the Effective Time of the Additional
Registration Statement is prior to the execution and delivery of this
Agreement, the Additional Registration Statement each conforms, and at
the time of filing of the Prospectus pursuant to Rule 424(b) or (if no
such filing is required) at the Effective Date of the Additional
Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all
respects to the requirements of the Act, the Trust Indenture Act and
the Rules and Regulations, and neither of such documents includes, or
will include, any untrue statement of a material fact or omits, or
will omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. If the
Effective Time of the Initial Registration Statement is subsequent to
the execution and delivery of this Agreement: on the Effective Date of
the Initial Registration Statement, the Initial Registration Statement
and the Prospectus will conform in all respects to the requirements of
the Act, the Trust Indenture Act and the Rules and Regulations,
neither of such documents will include any untrue statement of a
material fact or will omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, and no Additional Registration Statement has been or will
be filed. The two preceding sentences do not apply to statements in or
omissions from a Registration Statement or the Prospectus based upon
written information furnished to the Company by any Underwriter
through the Underwriters specifically for use therein, it being
understood and agreed that the only such information is that described
as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State of
Texas, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
and the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires
such qualification.
(d) Each Subsidiary Guarantor has been duly incorporated
and is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectus; and each Subsidiary Guarantor is duly qualified to
do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification; all of the issued
and outstanding capital stock of each Subsidiary Guarantor has been
duly authorized and validly issued and is fully paid and
nonassessable; and the capital stock of each Subsidiary Guarantor
owned by the Company, directly or through subsidiaries, is owned free
from liens, encumbrances and defects. The Company has no direct or
indirect subsidiaries other than the Subsidiary Guarantors.
(e) Each of the Master Club, Hill Country Resort Club,
Holly Lake Resort Club, Piney Shores Resort Club, Villages Resort
Club, The Villages Club, Holiday Hills Resort Club,
3
<PAGE> 4
Ozark Mountain Resort Club, Holiday Hills Condominium Association,
Inc., The Bluffs at Holiday Hills Condominium Association, Inc., The
Lakes at Holiday Hills Condominium Association, Inc., the Oaks at
Holiday Hills Condominium Association, Inc., The Pinnacle at Holiday
Hills Condominium Association, Inc., Ozark Mountain Condominium
Association, Inc., The Coves at Waters Bluff Condominium Association,
Inc., Streamside at Ozark Mountain Condominium Association, Inc.,
Waters Bluff at Ozark Mountain Condominium Association, Inc., Holly
Lake Ranch Association, The Villages Home Owners' Association, Inc.,
Holiday Hills Property Owners Association, Inc., The Ozark Mountain
Boat Dock Association, Timber Creek Resort Club, Fox River Resort
Club, Oak N' Spruce Resort Club, Oak N' Spruce Club and Silverleaf Las
Vegas Resort Club (collectively, the "Clubs") has been duly formed and
is an existing nonprofit corporation or unincorporated association and
is in good standing under the laws of the jurisdiction of its
formation, with power and authority to own its properties and conduct
its business as described in the Prospectus; and each Club is duly
qualified to do business and in good standing in all other
jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification.
(e) The Indenture has been duly authorized and, if the
Effective Time of a Registration Statement is prior to the execution
and delivery of this Agreement, has been or otherwise upon such
Effective Time will be duly qualified under the Trust Indenture Act
with respect to the Offered Securities registered thereby; the Offered
Securities have been duly authorized; and when the Offered Securities
are delivered and paid for pursuant to this Agreement on each Closing
Date (as defined below), the Indenture will have been duly executed
and delivered, such Offered Securities will have been duly executed,
authenticated, issued and delivered and will conform to the
description thereof contained in the Prospectus and the Indenture and
such Offered Securities will constitute valid and legally binding
obligations of the Company, enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(f) The Subsidiary Guarantees have been duly and validly
authorized by the Subsidiary Guarantors and, when delivered in
accordance with the terms of the Indenture, will have been duly
executed, authenticated and delivered and will constitute valid and
legally binding obligations of the Subsidiary Guarantors, enforceable
against each of them in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and general equity principles.
(g) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or
any Underwriter for a brokerage commission, finder's fee or other like
payment in connection with this offering.
(h) The Offered Securities, the Subsidiary Guarantees and
the Indenture when delivered, will conform in all material respects to
the descriptions thereof in the Prospectus.
(i) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court is required
for the consummation of the transactions contemplated by this
Agreement in connection with the issuance and sale of the Offered
Securities by the Company or the issuance of the Subsidiary Guarantees
by the Subsidiary Guarantors except such
4
<PAGE> 5
as have been obtained and made under the Act and the Trust Indenture
Act and such as may be required under state securities laws.
(j) The execution, delivery and performance of the
Indenture, the Subsidiary Guarantees, and this Agreement and the
issuance and sale of the Offered Securities and compliance with the
terms and provisions thereof will not result in a breach or violation
of any of the terms and provisions of, or constitute a default under,
any statute, any rule, regulation or order of any governmental agency
or body or any court, domestic or foreign, having jurisdiction over
the Company, any Subsidiary Guarantor, any Club or any of their
properties, or any agreement or instrument to which the Company, any
such Subsidiary Guarantor or any Club is a party or by which the
Company, any such Subsidiary Guarantor or any such Club is bound or to
which any of the properties of the Company, any such Subsidiary
Guarantor or any such Club is subject, or the charter or by-laws of
the Company, any such Subsidiary Guarantor or any such Club, and the
Company has full power and authority to authorize, issue and sell the
Offered Securities as contemplated by this Agreement and each
Subsidiary Guarantor has full power and authority to authorize and
issue the Subsidiary Guarantees as contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and
delivered by the Company and the Subsidiary Guarantors and constitutes
the valid and legally binding obligation of the Company and the
Subsidiary Guarantors, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles and except to the extent that indemnification from
liability in connection with the Federal securities laws or the basis
of allocation contained in the contribution provisions herein may be
unenforceable.
(l) Except as disclosed in the Prospectus, the Company,
the Subsidiary Guarantors and the Clubs have good and marketable title
to all real properties and all other properties and assets owned by
them, in each case free from liens, encumbrances and defects that
would materially affect the value thereof or materially interfere with
the use made or to be made thereof by them; and except as disclosed in
the Prospectus, the Company, the Subsidiary Guarantors and the Clubs
hold any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use
made or to be made thereof by them.
(m) The Company, the Subsidiary Guarantors and the Clubs
possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the
business now operated by them and have not received any notice of
proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the
Company, any of the Subsidiary Guarantors or the Clubs, would
individually or in the aggregate have a material adverse effect on the
Company and its subsidiaries taken as a whole.
(n) No labor dispute with the employees of the Company,
any Subsidiary Guarantor or any Club exists or, to the knowledge of
the Company or any Subsidiary Guarantor, is imminent that might have a
material adverse effect on the Company and its subsidiaries taken as a
whole.
(o) The Company, the Subsidiary Guarantors and the Clubs
own, possess or can acquire on reasonable terms, adequate trademarks,
trade names and other rights to inventions, know-how, patents,
copyrights, confidential information and other intellectual property
5
<PAGE> 6
(collectively, "intellectual property rights") necessary to conduct
the business now operated by them, or presently employed by them, and
have not received any notice of infringement of or conflict with
asserted rights of others with respect to any intellectual property
rights that, if determined adversely to the Company, any of the
Subsidiary Guarantors or the Clubs, would individually or in the
aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(p) Except as disclosed in the Prospectus, none of the
Company, any of the Subsidiary Guarantors nor any Club is in violation
of any statute, any rule, regulation, decision or order of any
governmental agency or body or any court, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the
environment or human exposure to hazardous or toxic substances
(collectively, "environmental laws"), owns or operates any real
property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any
claim relating to any environmental laws, which violation,
contamination, liability or claim would individually or in the
aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole; and the Company and the Subsidiary
Guarantors are not aware of any pending investigation which might lead
to such a claim.
(q) Except as disclosed in the Prospectus, there are no
pending actions, suits, proceedings, inquiries, arbitrations,
investigations, litigation or governmental proceedings against or
affecting the Company, any of the Subsidiary Guarantors, any of the
Clubs or any of their respective properties that, if determined
adversely to the Company, any of the Subsidiary Guarantors or any of
the Clubs, would individually or in the aggregate have a material
adverse effect on the condition (financial or other), business,
properties or results of operations of the Company and its
subsidiaries taken as a whole, or would materially and adversely
affect the ability of the Company or the Subsidiary Guarantors to
perform their obligations under the Indenture or this Agreement or
which are otherwise material in the context of the sale of the Offered
Securities or the issuing of the Subsidiary Guarantees; and no such
actions, suits, proceedings, inquiries, arbitrations, investigations,
litigation or governmental proceedings are threatened or, to the
Company's or any of the Subsidiary Guarantor's knowledge,
contemplated. None of the Company, any of the Subsidiary Guarantors
or any of the Clubs is a party or subject to the provisions of any
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body which would
individually or in the aggregate have a material adverse effect on the
Company and its subsidiaries taken as a whole.
(r) The financial statements included in each
Registration Statement and the Prospectus present fairly the financial
position of the Company and its consolidated subsidiaries as of the
dates shown and their results of operations and cash flows for the
periods shown, and such financial statements have been prepared in
conformity with the generally accepted accounting principles in the
United States applied on a consistent basis; and the schedules
included in each Registration Statement present fairly the information
required to be stated therein and the assumptions used in preparing
the pro forma financial information included in each Registration
Statement and the Prospectus provide a reasonable basis for presenting
the significant effects directly attributable to the transactions or
events described therein, the related pro forma adjustments give
appropriate effect to those assumptions, and the pro forma columns
therein reflect the proper application of those adjustments to the
corresponding historical financial statement amounts.
6
<PAGE> 7
(s) Except as disclosed in the Prospectus, since the date
of the latest audited financial statements included in the Prospectus
there has been no material adverse change, nor any development or
event involving a prospective material adverse change, in the
condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole, and,
except as disclosed in or contemplated by the Prospectus, there has
been no dividend or distribution of any kind declared, paid or made by
the Company on any class of its capital stock.
(t) The Company is not an open-end investment company,
unit investment trust face-amount certificate company, or any other
investment company that is or is required to be registered under
Section 8 of the United States Investment Company Act of 1940 (the
"Investment Company Act"); and the Company is not and, after giving
effect to the offering and sale of the Offered Securities and the
application of the proceeds thereof as described in the Prospectus,
will not be an "investment company" as defined in the Investment
Company Act.
(u) Except as disclosed in the Prospectus, the Company,
the Subsidiary Guarantors and the Clubs have and maintain liability,
property and casualty insurance (insured by insurers of recognized
financial responsibility) in favor of the Company, the Subsidiary
Guarantors and the Clubs with respect to each of the timeshare resorts
operated by the Company, including the New Resorts (as defined in the
Prospectus) (collectively, the "Resorts") in an amount and on such
terms as is reasonable and customary for businesses of the type
proposed to be conducted by the Company, the Subsidiary Guarantors and
the Clubs, including, among other things, insurance against theft,
damage, destruction and acts of vandalism. None of the Company, any
of the Subsidiary Guarantors or any of the Clubs has received from any
insurance company notice of any material defects or deficiencies
affecting the insurability of any such Resort.
(v) Title insurance in favor of the Company, is in force
with respect to those portions of each of the Resorts specified in
Section 6(h)(ii) in an amount previously disclosed to the
Underwriters.
(w) Except as disclosed in the Prospectus, all
entitlements necessary for development of the Resorts have been
obtained, and no further governmental or regulatory approvals are
necessary for additional development of the Resorts.
(x) The mortgages and deeds of trust encumbering the
Resorts are not convertible and such mortgages and deeds of trust are
not cross-defaulted or cross-collateralized to any Resort not owned
directly or indirectly by the Company.
(y) No environmental engineering firm which prepared
Phase I environmental assessment reports (or other similar reports)
with respect to the Resorts as set forth in the Registration Statement
was employed for such purpose on a contingent basis or has any
substantial interest in the Company, any of the Subsidiary Guarantors
or any Club.
(z) Except as disclosed in the Prospectus, the Company,
the Subsidiary Guarantors and the Clubs are in compliance with all
federal, state, local and foreign laws and regulations regarding the
marketing, advertising, offers to sell and sales of vacation intervals
in each state in which the Company, the Subsidiary Guarantors and the
Clubs are doing business or offering or selling vacation intervals,
including but not limited to the Federal Trade Commission Act,
Regulation Z (the truth-in-lending act), Equity Opportunity Credit Act
and Regulation B, Interstate Land Sales Full Disclosure Act, Real
Estate Standards Practices Act, Telephone
7
<PAGE> 8
Consumer Protection Act, Telemarketing and Consumer Fraud and Abuse
Prevention Act, Fair Housing Act and Civil Rights Acts of 1964 and
1968, in each case except as would not have a material adverse effect
on the Company and its subsidiaries taken as a whole. Except as
disclosed in the Prospectus, the Company, the Subsidiary Guarantors
and the Clubs have filed all required documents and supporting
information in compliance with federal, state, local and foreign laws
and regulations, and the Company, the Subsidiary Guarantors and the
Clubs are in compliance with all licensure, anti-fraud, telemarketing,
price, gift and sweepstakes and labor laws to which they are or may
become subject, in each case except as would not have a material
adverse effect on the Company and its subsidiaries taken as a whole.
The Company, the Subsidiary Guarantors and the Clubs have all permits
and licenses which are required to sell vacation intervals in each
state and foreign jurisdiction where they conduct business, in each
case except as would not have a material adverse effect on the Company
and its subsidiaries taken as a whole.
(aa) The timeshare interests sold by the Company
("Vacation Intervals") do not constitute "securities" under the Act.
Neither the offer, the sale nor the issuance of Vacation Intervals by
the Company or any of the Subsidiary Guarantors required registration
under the Act or under the securities laws of the state of Texas,
Missouri, Illinois, Massachusetts, Nevada or New York or under any
other state securities laws nor does the fact that such interests are
outstanding require registration under the Exchange Act.
(ab) The execution, delivery, and performance of each of
the documents relating to the purchases (the "New Property Purchases")
of the properties in Galveston, Texas, De Soto, Missouri, Sheridan,
Illinois, Berkshire, Massachusetts, Las Vegas, Nevada (the "New
Properties") was duly and validly authorized by the Company, and each
such document relating to the New Property Purchases was duly executed
and delivered by the Company and constitutes the legally valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms. The execution, delivery and performance of
the documents relating to the New Property Purchases by the Company
and the consummation of the transactions contemplated thereby (A) did
not require any consent, approval, authorization or other order of or
registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or official
or conflict with or constitute a breach of, or a default under, the
certificate or articles of incorporation, bylaws, or other
organizational documents, of the Company and (B) did not conflict with
or constitute a breach of, or a default under, any material agreement,
indenture, lease or other instrument to which the Company is a party
or by which the Company or any of its properties may be bound, or
violate any statute, law, regulation or filing or judgment,
injunction, order or decree applicable to the Company or any of its
properties, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company
pursuant to the terms of any agreement or instrument to which any of
them is a party or by which any of them may be bound or to which any
of the property or assets of any of them is subject.
(ac) No person has an option or right of first refusal to
purchase all or part of any of the Resorts or any interest therein.
Each of the Resorts complies with all applicable codes, laws and
regulations (including, without limitation, building and zoning codes
and laws relating to handicapped access), except as would not have a
material adverse effect on the Company and its subsidiaries taken as a
whole. Except as disclosed in the Prospectus, the Company has no
knowledge of any pending or threatened condemnation proceedings,
zoning changes, or other proceedings or actions that will in any
manner affect the size of, number of vacation intervals planned for,
the use of any improvements on, or access to, the Resorts.
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<PAGE> 9
(ad) The Company will apply the net proceeds from the
offering of the Offered Securities in the manner set forth under "Use
of Proceeds" in the Prospectus.
(ae) The consolidated capitalization as of December 31,
1997, of the Company is as set forth in the Prospectus under the
caption "Capitalization." The consolidated capitalization as of
December 31, 1997, of the Company as adjusted for this offering and
the Equity Offering (as defined in the Prospectus) is as set forth in
the Prospectus under the caption "Capitalization." All of the issued
and outstanding shares of capital stock of the Company and each of its
subsidiaries have been duly authorized and are validly issued, fully
paid and nonassessable. The Company owns, either directly or
indirectly, all of the outstanding capital stock of each of its
subsidiaries, free and clear of any liens, restrictions on transfer,
agreements, voting trusts or other defects of title whatsoever. The
issuance of the Offered Securities will not be subject to preemptive
or other similar rights. Except as disclosed in the Prospectus and
other than grants of stock options to employees of the Company
pursuant to existing employee stock option plans approved by the Board
of Directors of the Company, there are no outstanding subscriptions,
rights, warrants, options, calls, convertible or exchangeable
securities or commitments of sale related to or entitling any person
to purchase or otherwise to acquire any shares of the capital stock
of, or other ownership interests in, the Company or any of its
subsidiaries.
(af) The Company and the Subsidiary Guarantors (i) make
and keep in reasonable detail accurate books and records and (ii)
maintain internal accounting controls which provide reasonable
assurance that: (A) transactions are executed in accordance with
management's general or specific authorizations; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is permitted
only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is
compared with the existing assets at reasonable intervals.
(ag) Neither the Company nor any of the Subsidiary
Guarantors has taken, nor will any of them take, directly or
indirectly, any action designed to materially violate or cause a
material violation of Regulation M under the Act with respect to the
offering of the Offered Securities hereby.
(ah) The Company and the Subsidiary Guarantors do not
intend to, nor do they believe that they will, incur debts beyond
their ability to pay such debts as they mature. Each of the Company
and the Subsidiary Guarantors believes that the present fair saleable
value of its assets exceeds the amount that will be required to be
paid on or in respect of the existing debts and other liabilities
(including contingent liabilities) of the Company and each Subsidiary
Guarantor, respectively, as they become absolute and matured. The
assets of each of the Company and each Subsidiary Guarantor do not
constitute unreasonably small capital to carry out the business of the
Company or such Subsidiary Guarantor, respectively, as conducted or as
proposed to be conducted. Each of the Company and the Subsidiary
Guarantors believes that upon the issuance of the Offered Securities
and the Guarantees the present fair saleable value of the assets of
the Company and each Subsidiary Guarantor will exceed the amount that
will be required to be paid on or in respect of the existing debts and
other liabilities (including contingent liabilities) of the Company or
the respective Subsidiary Guarantor as they become absolute and
matured. The Company and the Subsidiary Guarantors believe that upon
the issuance of the Offered Securities and the Subsidiary Guarantees,
the assets of the Company and each Subsidiary Guarantor will not
constitute unreasonably small capital to carry out its businesses as
now conducted, including the
9
<PAGE> 10
capital needs of the Company and the Subsidiary Guarantors, taking
into account the projected capital requirements and capital
availability.
(ai) Each certificate signed by any officer of the Company
or a Subsidiary Guarantor and delivered to the Underwriters or counsel
for the Underwriters at Closing hereunder shall be deemed to be a
representation and warranty by the Company or such Subsidiary
Guarantor to the Underwriters as to the matters covered thereby.
3. Purchase, Sale and Delivery of Offered Securities. On the
basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company agrees to
sell to the Underwriters, and the Underwriters agree, severally and not
jointly, to purchase from the Company, at a purchase price of % of the
principal amount thereof plus accrued interest from to the
Closing Date (as hereinafter defined) the respective principal amounts of the
Initial Securities set forth opposite the names of the several Underwriters in
Schedule A hereto.
The Company will deliver against payment of the purchase price the
Initial Securities to be offered and sold by the Underwriters in the form of
one or more permanent global Securities in definitive form (the "Global
Securities") deposited with the Trustee as custodian for The Depository Trust
Company ("DTC") and registered in the name of Cede & Co., as nominee for DTC.
Interests in any permanent global Securities will be held only in book-entry
form through DTC, except in the limited circumstances described in the
Prospectus. Payment for the Initial Securities shall be made by the
Underwriters in Federal (same day) funds by official check or checks or wire
transfer to an account at a bank acceptable to Credit Suisse First Boston
Corporation ("CSFBC") drawn to the order of Silverleaf Resorts, Inc., account
number _____________, at the office of counsel for the Underwriters at 9:00
A.M. (New York time), on ________ __, 1998, or at such other time not later
than seven full business days thereafter as CSFBC and the Company determine,
such time being herein referred to as the "Closing Date", against delivery to
the Trustee as custodian for DTC of the Global Securities representing all of
the Offered Securities. The Global Securities will be made available for
checking at the above office of CSFBC at least 24 hours prior to the Closing
Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company and the Subsidiary
Guarantors. Each of the Company and the Subsidiary Guarantors jointly and
severally agrees with the several Underwriters that:
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement,
the Company will file the Prospectus with the Commission pursuant to
and in accordance with subparagraph (1) (or, if applicable and if
consented to by CSFBC, subparagraph (4)) of Rule 424(b) not later than
the earlier of (A) the second business day following the execution and
delivery of this Agreement or (B) the fifteenth business day after the
Effective Date of the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement and
an additional registration statement is necessary to register a
portion of the Offered Securities under the Act but the Effective Time
thereof has not occurred as of such execution and delivery, the
Company will file the additional registration statement or, if filed,
will file a post-effective amendment thereto with the Commission
pursuant to and in accordance with Rule 462(b) on or prior to 10:00
P.M., New York time, on the date of this Agreement or,
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<PAGE> 11
if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later
date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any
proposal to amend or supplement the initial or any additional
registration statement as filed or the related prospectus or the
Initial Registration Statement, the Additional Registration Statement
(if any) or the Prospectus and will not effect such amendment or
supplementation without CSFBC's consent; and the Company will also
advise CSFBC promptly of the effectiveness of each Registration
Statement (if its Effective Time is subsequent to the execution and
delivery of this Agreement) and of any amendment or supplementation of
a Registration Statement or the Prospectus and of the institution by
the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.
(c) If, at any time when a prospectus relating to the
Offered Securities is required to be delivered under the Act in
connection with sales by any Underwriter or dealer, any event occurs
as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
or if it is necessary at any time to amend the Prospectus to comply
with the Act, the Company will promptly notify CSFBC of such event and
will promptly prepare and file with the Commission, at its own
expense, an amendment or supplement which will correct such statement
or omission or an amendment which will effect such compliance.
Neither CSFBC's consent to, nor the Underwriters' delivery of, any
such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 6.
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally
available to its securityholders an earnings statement covering a
period of at least 12 months beginning after the Effective Date of the
Initial Registration Statement (or, if later, the Effective Date of
the Additional Registration Statement) which will satisfy the
provisions of Section 11(a) of the Act. For the purpose of the
preceding sentence, "Availability Date" means the 45th day after the
end of the fourth fiscal quarter following the fiscal quarter that
includes such Effective Date, except that, if such fourth fiscal
quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth
fiscal quarter.
(e) The Company will furnish to the Underwriters copies
of each Registration Statement (three of which will be signed and will
include all exhibits), each related preliminary prospectus, and, so
long as a prospectus relating to the Offered Securities is required to
be delivered under the Act in connection with sales by any Underwriter
or dealer, the Prospectus and all amendments and supplements to such
documents, in each case in such quantities as CSFBC requests. The
Prospectus shall be so furnished on or prior to 3:00 P.M., New York
time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial
Registration Statement. All other documents shall be so furnished as
soon as available. The Company will pay the expenses of printing and
distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the
Offered Securities for sale and the determination of their eligibility
for investment under the laws of such jurisdictions as
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<PAGE> 12
CSFBC designates and will continue such qualifications in effect so
long as required for the distribution.
(g) During the period of five years hereafter, the
Company will furnish to the Underwriters and, upon request, to each of
the other Underwriters, as soon as practicable after the end of each
fiscal year, a copy of its annual report to shareholders for such
year; and the Company will furnish to the Underwriters (i) as soon as
available, a copy of each report and any definitive proxy statement of
the Company filed with the Commission under the Securities Exchange
Act of 1934 or mailed to shareholders, and (ii) from time to time,
such other information concerning the Company as CSFBC may reasonably
request.
(h) The Company will pay all expenses incidental to the
performance of its obligations under this Agreement and the Indenture,
for the fees and expenses of the Trustee and its professional
advisers, for any filing fees and other expenses (including fees and
disbursements of counsel) incurred in connection with qualification of
the Offered Securities for sale under the laws of such jurisdictions
as CSFBC designates and the printing of memoranda relating thereto,
for any fees charged by investment rating agencies for the rating of
the Offered Securities, for the filing fee incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities
Dealers, Inc. of the Offered Securities, for any travel expenses of
the Company's officers and employees and any other expenses of the
Company in connection with attending or hosting meetings with
prospective purchasers of the Offered Securities and for expenses
incurred in distributing preliminary prospectuses and the Prospectus
(including any amendments and supplements thereto) to the
Underwriters.
6. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Offered
Securities on the Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company and the Subsidiary
Guarantors contained herein, to the accuracy of the statements of Company
officers made pursuant to the provisions hereof, to the performance by the
Company and the Subsidiary Guarantors of their respective obligations hereunder
and to the following additional conditions precedent:
(a) The Underwriters shall have received a letter, dated
the date of delivery thereof (which, if the Effective Time of the
Initial Registration Statement is prior to the execution and delivery
of this Agreement, shall be on or prior to the date of this Agreement
or, if the Effective Time of the Initial Registration Statement is
subsequent to the execution and delivery of this Agreement, shall be
prior to the filing of the amendment or post-effective amendment to
the registration statement to be filed shortly prior to such Effective
Time), of each of Deloitte & Touche LLP confirming that they are
independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating to
the effect that:
(i) in their opinion the financial statements and
schedules examined by them and included or incorporated by
reference in the Registration Statements comply as to form in
all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations;
(A) at the date of the latest available
balance sheet read by such accountants, or at a
subsequent specified date not more than three
business days prior to the date of this Agreement,
there was any change in the capital stock or any
increase in indebtedness of the Company and its
consolidated subsidiaries or,
12
<PAGE> 13
at the date of the latest available balance sheet
read by such accountants, there was any decrease in
consolidated total assets, as compared with amounts
shown on the latest balance sheet included in the
Prospectus; or
(B) for the period from the closing date of
the latest income statement included in the
Prospectus to the closing date of the latest
available income statement read by such accountants
there were any decreases, as compared with the
corresponding period of the previous year and with
the period of corresponding length ended the date of
the latest income statement included in the
Prospectus, in consolidated revenues or in the total
or per share amounts of consolidated net income,
except in all cases set forth in clauses (A) and (B) above for
changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such
letter;
(ii) they have read the unaudited pro forma
information included in the Registration Statement and made
inquiries of officials of the Company who have responsibility
for financial and accounting matters and other specified
procedures, and nothing came to their attention that caused
them to believe that the unaudited pro forma financial data
included in the Registration Statements do not comply as to
form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations or that the pro forma adjustments have not been
properly applied to the historical amounts in the compilation
of those statements; and
(iii) they have compared specified dollar amounts
(or percentages derived from such dollar amounts) and other
financial information contained in the Registration Statements
(in each case to the extent that such dollar amounts,
percentages and other financial information are derived from
the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and
other procedures specified in such letter and have found such
dollar amounts, percentages and other financial information to
be in agreement with such results, except as otherwise
specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "Registration Statements" shall mean the
initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement but
the Effective Time of the Additional Registration is subsequent to
such execution and delivery, "Registration Statements" shall mean the
Initial Registration Statement and the additional registration
statement as proposed to be filed or as proposed to be amended by the
post-effective amendment to be filed shortly prior to its Effective
Time, and (iii) "Prospectus" shall mean the prospectus included in the
Registration Statements.
(b) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this
Agreement, such Effective Time shall have occurred not later than
10:00 P.M., New York time, on the date of this Agreement or such later
date as shall have been
13
<PAGE> 14
consented to by CSFBC. If the Effective Time of the Additional
Registration Statement (if any) is not prior to the execution and
delivery of this Agreement, such Effective Time shall have occurred
not later than 10:00 P.M., New York time, on the date of this
Agreement or, if earlier, the time the Prospectus is printed and
distributed to any Underwriter, or shall have occurred at such later
date as shall have been consented to by CSFBC. If the Effective Time
of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with
the Commission in accordance with the Rules and Regulations and
Section 5(a) of this Agreement. Prior to such Closing Date, no stop
order suspending the effectiveness of a Registration Statement shall
have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Underwriters,
shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any
development or event involving a prospective change, in the condition
(financial or other), business, properties or results of operations of
the Company or its subsidiaries which, in the judgment of a majority
in interest of the Underwriters, is material and adverse and makes it
impractical or inadvisable to proceed with completion of the public
offering or the sale of and payment for the Offered Securities; (ii)
any downgrading in the rating of any debt securities of the Company by
any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Act), or any public
announcement that any such organization has under surveillance or
review its rating of any debt securities of the Company (other than an
announcement with positive implications of a possible upgrading, and
no implication of a possible downgrading, of such rating); (iii) any
suspension or limitation of trading in securities generally on the New
York Stock Exchange or the Nasdaq Stock Market's National Market, or
any setting of minimum prices for trading on such exchange, or any
suspension of trading of any securities of the Company on any exchange
or in the over-the-counter market; (iv) any banking moratorium
declared by U.S. Federal, New York or Texas authorities; or (v) any
outbreak or escalation of major hostilities in which the United States
is involved, any declaration of war by Congress or any other
substantial national or international calamity or emergency if, in the
judgment of a majority in interest of the Underwriters, the effect of
any such outbreak, escalation, declaration, calamity or emergency
makes it impractical or inadvisable to proceed with completion of the
public offering or the sale of and payment for the Offered Securities.
(d) The Underwriters shall have received an opinion,
dated Closing Date, of Meadows, Owens, Collier, Reed, Cousins & Blau,
L.L.P., counsel for the Company and the Subsidiary Guarantors, to the
effect that:
(i) The Company has been duly incorporated and is
an existing corporation in good standing under the laws of the
State of Texas, with corporate power and authority to own its
properties and conduct its business as described in the
Prospectus; and the Company is duly qualified to do business
as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification;
(ii) Each of the Subsidiary Guarantors has been
duly incorporated and is an existing corporation in good
standing under the laws of the state of its incorporation and
has the requisite corporate power and authority to own, lease
and operate its properties and to conduct its business as
described in the Prospectus; and each Subsidiary Guarantor is
duly qualified to do business as a foreign corporation in good
standing in all other
14
<PAGE> 15
jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification;
(iii) All of the issued and outstanding
shares of capital stock of the Subsidiary Guarantors have been
duly authorized and validly issued, and are fully paid and
nonassessable, and all outstanding shares of capital stock of
each such subsidiary are owned, directly or indirectly, by the
Company, free and clear of any liens; except as disclosed in
the Prospectus and to the best of such counsel's knowledge,
after due inquiry, there are no outstanding subscriptions,
rights, warrants, options, calls, convertible securities,
commitments of sale or liens related to or entitling any
person to purchase or otherwise to acquire any shares of
capital stock of, or other ownership interest in, any such
Subsidiary Guarantor;
(iv) Except as disclosed in the
Prospectus, there are no contracts, agreements or
understandings known to such counsel between the Company and
any person granting such person the right to require the
Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned
by such person or to require the Company to include such
securities in the securities registered pursuant to the
Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the
Company under the Act;
(v) The Company is not an open-end
investment company, unit investment trust, face-amount
certificate company or any other form of investment company
that is or is required to be registered under Section 8 of the
Investment Company Act; and the Company is not and, after
giving effect to the offering and sale of the Initial Offered
Securities and the application of the proceeds thereof as
described in the Prospectus, will not be (A) an "investment
company" as defined in the Investment Company Act or (B) a
closed-end investment company required to be registered, but
not registered under the Investment Company Act;
(vi) No consent, approval, authorization
or order of, or filing with, any governmental agency or body
or any court is required for the consummation of the
transactions contemplated by this Agreement or the Indenture
in connection with the issuance or sale of the Offered
Securities by the Company and issuance of the Subsidiary
Guarantees by the Subsidiary Guarantors, except such as have
been obtained and made under the Act and such as may be
required under state securities laws;
(vii) The execution, delivery and
performance of this Agreement, the Offered Securities, the
Indenture and the Subsidiary Guarantees (the "Operative
Documents") by the Company and the Subsidiary Guarantors and
the issuance and sale of the Offered Securities and the
Subsidiary Guarantees and compliance with the terms and
provisions thereof will not result in a breach or violation of
any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any
governmental agency or body or any court having jurisdiction
over the Company or any Subsidiary Guarantor or any of their
properties, or any agreement or instrument to which the
Company or any such Subsidiary Guarantor is a party or by
which the Company or any such Subsidiary Guarantor is bound or
to which any of the properties of the Company or any such
Subsidiary Guarantor is subject, or the charter or by-laws of
the Company or any such Subsidiary Guarantor and the Company
and each Subsidiary Guarantor have
15
<PAGE> 16
full power and authority to authorize, issue and sell the
Offered Securities and the Subsidiary Guarantees,
respectively, as contemplated by this Agreement;
(viii) The Initial Registration Statement was
declared effective under the Act as of the date and time
specified in such opinion, the Additional Registration
Statement (if any) was filed and became effective under the
Act as of the date and time (if determinable) specified in
such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion on the date specified therein or was
included in the Initial Registration Statement or the
Additional Registration Statement (as the case may be), and,
to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of a Registration Statement or
any part thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated
under the Act, and each Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of
their respective effective or issue dates, complied as to form
in all material respects with the requirements of the Act, the
Trust Indenture Act and the Rules and Regulations; such
counsel have no reason to believe that any part of a
Registration Statement or any amendment thereto, as of its
effective date or as of such Closing Date, contained any
untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto, as of its
issue date or as of such Closing Date, contained any untrue
statement of a material fact or omitted to state any material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; the descriptions in the Registration Statements
and Prospectus of statutes, rules, regulations, orders,
injunctions, decrees, judgments, legal and governmental
proceedings and contracts and other documents are accurate and
complete and fairly present the information required to be
shown; and such counsel do not know of any legal or
governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not
described as required or of any contracts or documents of a
character required to be described in a Registration Statement
or the Prospectus or to be filed as exhibits to a Registration
Statement which are not described and filed as required; it
being understood that such counsel need express no opinion as
to the financial statements or other financial data contained
in the Registration Statements or the Prospectus;
(ix) The Company has the requisite corporate
power and authority to execute, deliver and perform its
obligations pursuant to this Agreement and the Indenture;
(x) Each of this Agreement, the Offered
Securities and the Indenture has been duly authorized,
executed and delivered by the Company;
(xi) Each of the Subsidiary Guarantors has the
requisite corporate power and authority to execute, deliver
and perform its obligations pursuant to this Agreement, the
Indenture and the Subsidiary Guarantees;
(xii) Each of this Agreement, the Indenture and
the Subsidiary Guarantees have been duly authorized, executed
and delivered by each of the Subsidiary Guarantors;
(xiii) Each of the Offered Securities, the
Indenture and the Subsidiary Guarantees conforms in all
material respects to the descriptions thereof contained in the
16
<PAGE> 17
Prospectus and none of the terms of any of the other Operative
Documents is inconsistent with the description thereof in the
Prospectus;
(xiv) Each of the Operative Documents
constitutes valid and legally binding obligations of the
Company and the Subsidiary Guarantors, respectively,
enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity
principles;
(xv) The Indenture has been duly qualified
under the Trust Indenture Act;
(xvi) Except as disclosed in the Prospectus,
the Company, the Subsidiary Guarantors and the Clubs have
obtained the material approvals and permits from all federal,
state and local regulators necessary to offer for sale and
sell timeshare interests and offer purchase money financing in
connection with such sales in accordance with the applicable
laws and regulations governing the marketing and sale of
timeshare interests in real property;
(xvii) To such counsel's knowledge and based
upon such counsel's review of Reliance Certificates and
Letters (as defined below), all of the permits and/or
approvals issued by regulators of states other than the state
where each applicable Resort is located ("Foreign State") for
the offering for sale and sale of timeshare interests in such
Resort constitute the material approvals and permits necessary
to be issued by such Foreign State to permit the offering for
sale and sale of timeshare interests in such Resort in
accordance with the laws and regulations of the Foreign State
specifically governing the offering for sale and sale of
timeshare interests in real property located outside of the
Foreign State;
(xviii) Except as disclosed in the Prospectus, to
such counsel's knowledge and based upon its review of
certificates and letters from federal, state and local
regulators, the Company and other pertinent parties
(collectively, "Reliance Certificates and Letters"), except as
disclosed in the Prospectus, the Company has not received any
notice from any regulatory authority that it is in violation
of any applicable federal or state law or regulation regarding
the offering for sale and sale of timeshare interests in the
Resorts, the violation of which would have a material adverse
effect on the ownership or operation of the Resorts;
(xix) To such counsel's knowledge and based
upon such counsel's review of Reliance Certificates and
Letters, there are no real estate or timeshare related or
governmental actions, governmental suits or governmental
proceedings pending or threatened against the Company with
respect to the business and property relating to the Resorts
except (a) those which have been disclosed in the Registration
Statement and (b) those which would not have a material
adverse effect on the Company and its subsidiaries taken as a
whole;
(xx) The choice of law provisions set forth in
Section 13 hereof and in the Indenture will be recognized by
the courts of the State of Texas;
(xxi) The interest rate on the Offered
Securities will not be unlawful under any law, rule, or
regulation of the State of Texas; and
17
<PAGE> 18
(xxii) The vacation intervals do not constitute
"securities" under the Act. Neither the offer nor the sale of
timeshare interests by the Company or any Subsidiary Guarantor
required registration under the Act or under the securities
laws of the state of Texas or under the state securities laws
of any other state in which the Company is currently qualified
to do business, nor does the fact that such interests are
outstanding require registration under the Exchange Act.
Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P. may rely
upon the opinion of Armstrong, Teasdale, Schlafly & Davis for
certain matters regarding Missouri law, on the opinion of
__________ for certain matters regarding Illinois law, on the
opinion of __________ for certain matters regarding
Massachusetts law, on the opinion of __________ for certain
matters regarding Nevada law and on the opinion of __________
for certain matters regarding New York law.
(e) The Underwriters shall have received an opinion,
dated the Closing Date, of Armstrong, Teasdale, Schlafly, Davis &
Dicus, counsel for the Company, to the effect that:
(i) The execution, delivery and performance
of the Operative Documents and the issuance and sale of the
Offered Securities and the Subsidiary Guarantees will not
result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any Missouri
statute, any rule, regulation or order of any governmental
agency or body or any court within the State of Missouri
having jurisdiction over the Company or any Subsidiary
Guarantor or any of their properties;
(ii) The Company, the Subsidiary Guarantors
and the Clubs have obtained the material approvals and permits
from all federal, state and local regulators necessary to
offer for sale and sell in Missouri timeshare interests and
offer purchase money financing in connection with such sales
in accordance with the applicable laws and regulations
governing the marketing and sale of timeshare interests in
real property;
(iii) All of the permits and/or approvals
issued by Missouri regulators for the offering for sale and
sale of timeshare interests in a Resort located outside of
Missouri constitute the material approvals and permits
necessary to permit the offering for sale and sale of
timeshare interests in such Resort in accordance with the laws
and regulations of Missouri specifically governing the
offering for sale and sale of timeshare interests in real
property located outside of Missouri;
(iv) To such counsel's knowledge and based
upon its review of Reliance Certificates and Letters, except
as disclosed in the Prospectus, the Company has not received
any notice from any regulatory authority that it is in
violation of any applicable federal or state law or regulation
regarding the offering for sale and sale of timeshare
interests in the Resorts, the violation of which would have a
material adverse effect on the ownership or operation of the
Resorts; and
(v) To such counsel's knowledge and based
upon such counsel's review of Reliance Certificates and
Letters, there are no real estate or timeshare related
governmental actions, governmental suits or governmental
proceedings pending or threatened against the Company with
respect to the business and property relating to the Resorts
except (a) those which have been disclosed in the Registration
Statement and (b)
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<PAGE> 19
those which would not have a material adverse effect on the
Company and its subsidiaries taken as a whole.
(f) The Underwriters shall have received an opinion,
dated the Closing Date, of ____________________, counsel for the
Company, to the effect that:
(i) The execution, delivery and performance
of the Operative Documents and the issuance and sale of the
Offered Securities and the Subsidiary Guarantees will not
result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any Illinois
statute, any rule, regulation or order of any governmental
agency or body or any court within the State of Illinois
having jurisdiction over the Company or any Subsidiary
Guarantor or any of their properties;
(ii) The Company, the Subsidiary Guarantors
and the Clubs have obtained the material approvals and permits
from all federal, state and local regulators necessary to
offer for sale and sell in Illinois timeshare interests and
offer purchase money financing in connection with such sales
in accordance with the applicable laws and regulations
governing the marketing and sale of timeshare interests in
real property;
(iii) All of the permits and/or approvals
issued by Illinois regulators for the offering for sale and
sale of timeshare interests in a Resort located outside of
Illinois constitute the material approvals and permits
necessary to permit the offering for sale and sale of
timeshare interests in such Resort in accordance with the laws
and regulations of Illinois specifically governing the
offering for sale and sale of timeshare interests in real
property located outside of Illinois;
(iv) To such counsel's knowledge and based
upon its review of Reliance Certificates and Letters, except
as disclosed in the Prospectus, the Company has not received
any notice from any regulatory authority that it is in
violation of any applicable federal or state law or regulation
regarding the offering for sale and sale of timeshare
interests in the Resorts, the violation of which would have a
material adverse effect on the ownership or operation of the
Resorts; and
(v) To such counsel's knowledge and based
upon such counsel's review of Reliance Certificates and
Letters, there are no legal or governmental actions, suits or
proceedings pending or threatened against the Company with
respect to the business and property relating to the Resorts
except (a) those which have been disclosed in the Prospectus
and (b) those which would not have a material adverse effect
on the Company and its subsidiaries taken as a whole.
(g) The Underwriters shall have received an opinion,
dated the Closing Date, of ____________________, counsel for the
Company, to the effect that:
(i) The execution, delivery and performance
of the Operative Documents and the issuance and sale of the
Offered Securities and the Subsidiary Guarantees will not
result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any
Massachusetts statute, any rule, regulation or order of any
governmental agency or body or any court within the State of
Massachusetts having jurisdiction over the Company or any
Subsidiary Guarantor or any of their properties;
19
<PAGE> 20
(ii) The Company, the Subsidiary Guarantors
and the Clubs have obtained the material approvals and permits
from all federal, state and local regulators necessary to
offer for sale and sell in Massachusetts timeshare interests
and offer purchase money financing in connection with such
sales in accordance with the applicable laws and regulations
governing the marketing and sale of timeshare interests in
real property;
(iii) All of the permits and/or approvals
issued by Massachusetts regulators for the offering for sale
and sale of timeshare interests in a Resort located outside of
Massachusetts constitute the material approvals and permits
necessary to permit the offering for sale and sale of
timeshare interests in such Resort in accordance with the laws
and regulations of Massachusetts specifically governing the
offering for sale and sale of timeshare interests in real
property located outside of Massachusetts;
(iv) To such counsel's knowledge and based
upon its review of Reliance Certificates and Letters, except
as disclosed in the Prospectus, the Company has not received
any notice from any regulatory authority that it is in
violation of any applicable federal or state law or regulation
regarding the offering for sale and sale of timeshare
interests in the Resorts, the violation of which would have a
material adverse effect on the ownership or operation of the
Resorts; and
(v) To such counsel's knowledge and based
upon such counsel's review of Reliance Certificates and
Letters, there are no legal or governmental actions, suits or
proceedings pending or threatened against the Company with
respect to the business and property relating to the Resorts
except (a) those which have been disclosed in the Prospectus
and (b) those which would not have a material adverse effect
on the Company and its subsidiaries taken as a whole.
(h) The Underwriters shall have received an opinion,
dated the Closing Date, of ____________________, counsel for the
Company, to the effect that:
(i) The execution, delivery and performance
of the Operative Documents and the issuance and sale of the
Offered Securities and the Subsidiary Guarantees will not
result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any Nevada
statute, any rule, regulation or order of any governmental
agency or body or any court within the State of Nevada having
jurisdiction over the Company or any Subsidiary Guarantor or
any of their properties;
(ii) The Company, the Subsidiary Guarantors
and the Clubs have obtained the material approvals and permits
from all federal, state and local regulators necessary to
offer for sale and sell in Nevada timeshare interests and
offer purchase money financing in connection with such sales
in accordance with the applicable laws and regulations
governing the marketing and sale of timeshare interests in
real property;
(iii) All of the permits and/or approvals
issued by Nevada regulators for the offering for sale and sale
of timeshare interests in a Resort located outside of Nevada
constitute the material approvals and permits necessary to
permit the offering for sale and sale of timeshare interests
in such Resort in accordance with the laws and regulations of
Nevada specifically governing the offering for sale and sale
of timeshare interests in real property located outside of
Nevada;
20
<PAGE> 21
(iv) To such counsel's knowledge and based
upon its review of Reliance Certificates and Letters, except
as disclosed in the Prospectus, the Company has not received
any notice from any regulatory authority that it is in
violation of any applicable federal or state law or regulation
regarding the offering for sale and sale of timeshare
interests in the Resorts, the violation of which would have a
material adverse effect on the ownership or operation of the
Resorts; and
(v) To such counsel's knowledge and based
upon such counsel's review of Reliance Certificates and
Letters, there are no legal or governmental actions, suits or
proceedings pending or threatened against the Company with
respect to the business and property relating to the Resorts
except (a) those which have been disclosed in the Prospectus
and (b) those which would not have a material adverse effect
on the Company and its subsidiaries taken as a whole.
(i) The Underwriters shall have received an opinion,
dated the Closing Date, of ____________________, counsel for the
Company, to the effect that:
(i) The execution, delivery and performance
of the Operative Documents and the issuance and sale of the
Offered Securities and the Subsidiary Guarantees will not
result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any New York
statute, any rule, regulation or order of any governmental
agency or body or any court within the State of New York
having jurisdiction over the Company or any Subsidiary
Guarantor or any of their properties;
(ii) The Company, the Subsidiary Guarantors
and the Clubs have obtained the material approvals and permits
from all federal, state and local regulators necessary to
offer for sale and sell in New York timeshare interests and
offer purchase money financing in connection with such sales
in accordance with the applicable laws and regulations
governing the marketing and sale of timeshare interests in
real property;
(iii) To such counsel's knowledge and based
upon its review of Reliance Certificates and Letters, except
as disclosed in the Prospectus, the Company has not received
any notice from any regulatory authority that it is in
violation of any applicable federal or state law or regulation
regarding the offering for sale and sale of timeshare
interests in the Resorts, the violation of which would have a
material adverse effect on the ownership or operation of the
Resorts; and
(iv) To such counsel's knowledge and based
upon such counsel's review of Reliance Certificates and
Letters, there are no legal or governmental actions, suits or
proceedings pending or threatened against the Company with
respect to the business and property relating to the Resorts
except (a) those which have been disclosed in the Prospectus
and (b) those which would not have a material adverse effect
on the Company and its subsidiaries taken as a whole.
(j) The Underwriters shall have received from Latham &
Watkins, counsel for the Underwriters, such opinion or opinions, dated
the Closing Date, with respect to the incorporation of the Company,
the validity of the Offered Securities delivered on such Closing Date,
the Registration Statements, the Prospectus and other related matters
as the Underwriters may require, and the Company shall have furnished
to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters. In rendering such opinion,
Latham
21
<PAGE> 22
& Watkins may rely as to the incorporation of the Company and all
other matters governed by Texas law upon the opinion of Meadows,
Owens, Collier, Reed, Cousins & Blau, L.L.P. referred to above.
(k) The Underwriters shall have received a certificate,
dated as of such Closing Date, of the Chief Executive Officer and a
principal financial or accounting officer of the Company in which such
officers, to the best of their knowledge after reasonable
investigation, shall state that: the representations and warranties of
the Company in this Agreement are true and correct; the Company has
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied hereunder at or prior to such Closing
Date; no stop order suspending the effectiveness of any Registration
Statement has been issued and no proceedings for that purpose have
been instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of
subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule
462(b), including payment of the applicable filing fee in accordance
with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and,
subsequent to the date of the most recent financial statements in the
Prospectus, there has been no material adverse change, nor any
development or event involving a prospective material adverse change,
in the condition (financial or other), business, properties or results
of operations of the Company and its subsidiaries taken as a whole
except as set forth in or contemplated by the Prospectus or as
described in such certificate.
(l) The Underwriters shall have received a letter, dated
the Closing Date, of Deloitte & Touche, LLP which meets the
requirements of subsection (a) of this Section, except that the
specified date referred to in such subsection will be a date not more
than three business days prior to the Closing Date for the purposes of
this subsection.
(m) The Underwriters shall have received on or before the
Closing Date with respect to each Resort:
(i) A standard ALTA Owner's Title Insurance
Policy naming the Company or its predecessor-in-interest as
named insured and insuring such party that it owns fee title
to the real property described therein in an amount of the
original purchase price thereof, subject only to any material
exceptions to title as are described in the Prospectus, and
such exceptions which do not adversely affect the current or
potential use to be made of the Resort (the "Permitted
Exceptions");
(ii) A recent Title Commitment for a standard
ALTA Owner's Title Insurance Policy issued by a reputable
title insurance company reasonably acceptable to the
Underwriters (the "Title Company") and showing fee title to
the property described therein vested in the Company, subject
only to the Permitted Exceptions. Such Title Commitment(s)
for each of the Resorts shall cover at least the following
portions of each of the Resorts: amenity areas, current areas
under development and those areas of each of the Resorts which
the Company intends to develop and which are necessary to
construct the projected units described in the Prospectus;
(iii) Policies or certificates of insurance
relating to the Resort evidencing coverages and in amounts
customarily obtained by owners of similar Resorts, together
with a letter of opinion from a nationally or regionally
recognized insurance broker approved by the Underwriters
stating, in substance, that the coverage limits and
22
<PAGE> 23
companies underwriting such insurance for the Company are
within the realm of reasonableness given the Company's
business, operations and claims history;
(iv) UCC, judgment and tax lien searches
confirming that the personal property comprising a part of the
Resort is subject to no liens other than Permitted Exceptions;
(v) An opinion letter from an architectural
firm reasonably acceptable to the Underwriters stating in
substance that (1) such firm designed and has overseen the
construction of all improvements at the Resorts, (2) such firm
is generally aware of the condition of such improvements, (3)
except for ordinary wear and tear there are no existing
material structural defects to any of the improvements
(including foundation or roof) at the Resorts and (4) the
Company and the Improvements at the Resorts are in material
compliance with federal and state regulations relating to
access by the disabled, including the Americans with
Disabilities Act;
(vi) If such Resort is subject to a mortgage,
deed of trust or similar financing (an "Existing Mortgage")
which, as described in the Prospectus, is to be repaid with
the proceeds of the offering, a letter dated not earlier than
10 days prior to the Closing Date from the holder of such
Existing Mortgage indicating that the mortgagor or grantor
under such Existing Mortgage is not then in default and
indicating the principal amount required to satisfy all
amounts then secured by such Existing Mortgage and the
additional amount required for each day after the date of such
letter necessary to satisfy all obligations secured thereby,
together with all documentation and consents necessary to
permit the repayment of all amounts owed and the release of
the Existing Mortgage; and if such Resort is subject to an
Existing Mortgage which, as described in the Prospectus, is to
remain of record after the offering, a letter dated not
earlier than 10 days prior to the Closing Date from the holder
of such Existing Mortgage indicating that the mortgagor or
grantor under such Existing Mortgage is not then in default
and indicating the total principal amount due under the
Existing Mortgage; and
(vii) A recent Phase I Environmental Report in
form and substance acceptable to the Underwriters.
The Company will furnish the Underwriters with such conformed copies
of such opinions, certificates, letters and documents as the Underwriters
reasonably request. CSFBC may in its sole discretion waive on behalf of the
Underwriters compliance with any conditions to the obligations of the
Underwriters hereunder.
7. Indemnification and Contribution. (a) The Company will
indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses
are incurred; provided, however, that the Company will not be liable in any
such case to the extent that any such loss, claim,
23
<PAGE> 24
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with written information furnished
to the Company by any Underwriter specifically for use therein, it being
understood and agreed that the only such information furnished by any
Underwriter consists of the information described as such in subsection (b)
below.
(b) Each Underwriter will severally and not jointly
indemnify and hold harmless the Company against any losses, claims, damages or
liabilities to which the Company may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any Registration
Statement, the Prospectus, or any amendment or supplement thereto, or any
related preliminary prospectus, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by
such Underwriter specifically for use therein, and will reimburse any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Underwriter consists of the following information
in the Prospectus furnished on behalf of each Underwriter: the third from last
paragraph at the bottom of the cover page concerning the terms of the offering
by the Underwriters, the legend concerning over-allotments and stabilizing on
the inside front cover page, and the information contained in the ______
paragraph under the caption "Underwriting".
(c) Promptly after receipt by an indemnified party under
this Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under subsection (a) or (b) above, notify the indemnifying
party of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under subsection (a) or (b) above. In
case any such action is brought against any indemnified party and it notifies
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
(d) If the indemnification provided for in this Section
is unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits
24
<PAGE> 25
referred to in clause (i) above but also the relative fault of the Company on
the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Underwriters. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of
this subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section
shall be in addition to any liability which the Company may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations of
the Underwriters under this Section shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each director of the Company, to each officer of the
Company who has signed a Registration Statement and to each person, if any, who
controls the Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters
default in their obligations to purchase Offered Securities hereunder and the
aggregate principal amount of Offered Securities that such defaulting
Underwriter or Underwriters agreed but failed to purchase does not exceed 10%
of the total principal amount of Offered Securities that the Underwriters are
obligated to purchase, CSFBC may make arrangements satisfactory to the Company
for the purchase of such Offered Securities by other persons, including any of
the Underwriters, but if no such arrangements are made by the Closing Date, the
non-defaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Offered Securities that
such defaulting Underwriters agreed but failed to purchase. If any Underwriter
or Underwriters so default and the aggregate principal amount of Offered
Securities with respect to which such default or defaults occur exceeds 10% of
the total principal amount of Offered Securities that the Underwriters are
obligated to purchase, and arrangements satisfactory to CSFBC and the Company
for the purchase of such Offered Securities by other persons are not made
within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9. As used in this Agreement, the term "Underwriter"
includes any person substituted for a Underwriter under this Section. Nothing
herein will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers and of the
25
<PAGE> 26
several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation, or statement
as to the results thereof, made by or on behalf of any Underwriter, the Company
or any of their respective representatives, officers or directors or any
controlling person, and will survive delivery of and payment for the Offered
Securities. If this Agreement is terminated pursuant to Section 8 or if for any
reason the purchase of the Offered Securities by the Underwriters is not
consummated, the Company shall remain responsible for the expenses to be paid
or reimbursed by it pursuant to Section 5 and the respective obligations of the
Company and the Underwriters pursuant to Section 7 shall remain in effect, and
if any Offered Securities have been purchased hereunder the representations and
warranties in Section 2 and all obligations under Section 5 shall also remain
in effect. If the purchase of the Offered Securities by the Underwriters is not
consummated for any reason other than solely because of the termination of this
Agreement pursuant to Section 8 or the occurrence of any event specified in
clause (C), (D) or (E) of Section 6(b)(ii), the Company will reimburse the
Underwriters for all out-of-pocket expenses (including fees and disbursements
of counsel) reasonably incurred by them in connection with the offering of the
Offered Securities.
10. Notices. All communications hereunder will be in writing and,
if sent to the Underwriters will be mailed, delivered or telegraphed and
confirmed to the Underwriters, c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment
Banking Department - Transactions Advisory Group, or, if sent to the Company,
will be mailed, delivered or telegraphed and confirmed to it at 1221 Riverbend
Drive, Suite 120, Dallas, Texas 75247, Attention: Robert E. Mead, with a copy
to Robert Don Collier, Esq. Meadows, Owens, Collier, Reed, Cousins & Blau,
L.L.P., 901 Main Street, Suite 3700 Dallas, Texas 75202; provided, however,
that any notice to an Underwriter pursuant to Section 7 will be mailed,
delivered or telegraphed and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 7, and no
other person will have any right or obligation hereunder.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
13. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
26
<PAGE> 27
If the foregoing is in accordance with the Underwriters' understanding
of our agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become a binding agreement between the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
SILVERLEAF RESORTS, INC.
By........................................
CONDOMINIUM BUILDER'S INC.
By........................................
DATA BASE RESEARCH, INC.
By........................................
SILVERLEAF HOTELS, INC.
By........................................
SILVERLEAF TRAVEL, INC.
By........................................
VILLAGES LAND, INC.
By........................................
27
<PAGE> 28
SILVERLEAF RESORT ACQUISITIONS, INC.
By....................................
The foregoing Underwriting Agreement
is hereby confirmed and accepted
as of the date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By CREDIT SUISSE FIRST BOSTON CORPORATION
By.............................................
28
<PAGE> 1
EXHIBIT 4.1
-----------------------------------
SILVERLEAF RESORTS, INC.
__% SENIOR SUBORDINATED NOTES DUE 2008
INDENTURE
Dated as of ______, 1998
-----------------------------------
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Trustee
-----------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Other Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 1.03. Incorporation by Reference of Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . 16
Section 1.04. Rules of Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 2. THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.01. Form and Dating. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.02. Execution and Authentication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.03. Registrar and Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.04. Paying Agent to Hold Money in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.05. Holder Lists. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.06. Transfer and Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.07. Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.08. Outstanding Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.09. Treasury Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.10. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.11. Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.12. Defaulted Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 3. REDEMPTION AND PREPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.01. Notices to Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.02. Selection of Notes to Be Redeemed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.03. Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.04. Effect of Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.05. Deposit of Redemption Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.06. Notes Redeemed in Part. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.07. Optional Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.08. Mandatory Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.09. Offer to Purchase by Application of Excess Proceeds. . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 4. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.01. Payment of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.02. Maintenance of Office or Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.03. Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.04. Compliance Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.05. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.06. Stay, Extension and Usury Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.07. Restricted Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
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<TABLE>
<S> <C>
Section 4.08. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. . . . . . . . . . . . 33
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock. . . . . . . . . . . . . . . . . . . 33
Section 4.10. Asset Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.11. Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4.12. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.13. Business Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.14. Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.15. Offer to Repurchase Upon Change of Control. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.16. Sale and Leaseback Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 4.17. Limitation on Issuances and Sales of Capital Stock of Wholly Owned Restricted
Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 4.18. Designation of a Subsidiary as an Unrestricted Subsidiary. . . . . . . . . . . . . . . . . . . . 40
Section 4.19. Limitation on Status as Investment Company. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 4.20. No Senior SUBORDINATED Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 4.21. No Amendment of Subordination Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 4.22. Payments for Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 5. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 5.01. Merger, Consolidation, or Sale of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 5.02. Successor Corporation Substituted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 6. DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.01. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.02. Acceleration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 6.03. Other Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.04. Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.05. Control by Majority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.06. Limitation on Suits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.07. Rights of Holders of Notes to Receive Payment. . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.08. Collection Suit by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.09. Trustee May File Proofs of Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.10. Priorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 6.11. Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 7. TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 7.01. Duties of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 7.02. Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.03. Individual Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.04. Trustee's Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.05. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.06. Reports by Trustee to Holders of the Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.07. Compensation and Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.08. Replacement of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.09. Successor Trustee by Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
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<TABLE>
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Section 7.10. Eligibility; Disqualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 7.11. Preferential Collection of Claims Against Company. . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance. . . . . . . . . . . . . . . . . . . . 54
Section 8.02. Legal Defeasance and Discharge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.03. Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.04. Conditions to Legal or Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous
Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 8.06. Repayment to Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 8.07. Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 9.01. Without Consent of Holders of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 9.02. With Consent of Holders of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 9.03. Compliance with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.05. Revocation and Effect of Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.06. Notation on or Exchange of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 9.07. Trustee to Sign Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE 10. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.01. Agreement to Subordinate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.02. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.03. Liquidation; Dissolution; Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.04. Default on Designated Senior Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 10.05. Acceleration of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 10.06. When Distribution Must Be Paid Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 10.07. Notice by Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 10.08. Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 10.09. Relative Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 10.10. Subordination May Not Be Impaired by Company. . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 10.11. Distribution or Notice to Representative. . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 10.12. Rights of Trustee and Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 10.13. Authorization to Effect Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE 11. GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.01. Unconditional Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.02. Subordination of Note Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.03. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.04. Release of a Guarantor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.05. Limitation of Guarantor's Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 11.06. Guarantors May Consolidate, etc., on Certain Terms. . . . . . . . . . . . . . . . . . . . . . . 67
Section 11.07. Waiver of Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 11.08. Execution of Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
</TABLE>
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<TABLE>
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Section 11.09. Additional Subsidiary Guarantees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 12.01. Trust Indenture Act Controls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 12.02. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 12.03. Communication by Holders of Notes with Other Holders of Notes. . . . . . . . . . . . . . . . . 71
Section 12.04. Certificate and Opinion as to Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . 71
Section 12.05. Statements Required in Certificate or Opinion. . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 12.06. Rules by Trustee and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders. . . . . . . . . . . . 72
Section 12.08. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 12.09. No Adverse Interpretation of Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 12.10. Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 12.11. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 12.12. Counterpart Originals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 12.13. Table of Contents, Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
</TABLE>
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit A-1 FORM OF SUBSIDIARY GUARANTEE
Exhibit B FORM OF SUPPLEMENTAL INDENTURE
<PAGE> 6
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C> <C>
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.03
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06;12.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03;12.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.02
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05;12.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . . 2.09
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
N.A. means not applicable.
</TABLE>
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 8
INDENTURE dated as of _________, 1998 among Silverleaf Resorts, Inc., a
Texas corporation (the "Company"), Silverleaf Hotels, Inc., a Texas
corporation, Silverleaf Travel, Inc., a Texas corporation, Bull's Eye
Marketing, Inc., a California corporation, Silverleaf Berkshires, Inc., a Texas
corporation, Silverleaf Resort Acquisitions, Inc., a Texas corporation,
Database Research, Inc., a Texas corporation, Villages Land, Inc., a Texas
corporation, Bull's Eye Marketing, Inc., a Delaware corporation, and
Condominium Builders, Inc., a Texas corporation (each a "Guarantor" and
collectively, the "Guarantors"), and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee").
The Company, the Guarantors and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders of
the __% Senior Subordinated Notes due 2008 (the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Additional Notes" means up to $200.0 million in aggregate principal
amount of Notes (other than the Initial Notes) issued under this Indenture in
accordance with paragraph 4 of the Notes.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than in the ordinary course of business consistent
with past practices (provided that the sale, lease, conveyance or
<PAGE> 9
other disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole will be governed by the provisions
of Section 4.15 hereof and/or the provisions of Section 5.01 hereof and not by
the provisions of Section 4.10 hereof), and (ii) the issue or sale by the
Company or any of its Restricted Subsidiaries of Equity Interests of any of the
Company's Restricted Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $1.0 million or (b) for net proceeds in
excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of
assets by the Company to a Wholly Owned Restricted Subsidiary that is a
Guarantor or by a Restricted Subsidiary to the Company or to another Wholly
Owned Restricted Subsidiary that is a Guarantor, (ii) an issuance of Equity
Interests by a Wholly Owned Restricted Subsidiary to the Company or to another
Wholly Owned Restricted Subsidiary that is a Guarantor, (iii) a Restricted
Payment that is permitted by Section 4.07 hereof and (iv) sales, leases or
contracts for deed in the ordinary course of business of Vacation Intervals or
Mortgages Receivable, will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP)
of the obligation of the lessee for net rental payments during the remaining
term of the lease included in such sale and leaseback transaction (including
any period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company, or
any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance sheet
in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the full faith and credit
of the United States government or any agency or instrumentality thereof having
maturities of not more than six months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six
2
<PAGE> 10
months and overnight bank deposits, in each case with any domestic commercial
bank having capital and surplus in excess of $500 million and a Thompson Bank
Watch Rating of "B" or better, (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in
clauses (ii) and (iii) above entered into with any financial institution
meeting the qualifications specified in clause (iii) above and (v) commercial
paper having the highest rating obtainable from Moody's Investors Service, Inc.
or Standard & Poor's Corporation and in each case maturing within six months
after the date of acquisition.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way
of merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act), (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than the
Principal and his Related Parties, becomes the "beneficial owner" (as such term
is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Voting Stock of the
Company (measured by voting power rather than number of shares), (iv) the
Company consolidates with, or merges with or into, any Person, or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into, the Company, in any such event pursuant to a
transaction in which any of the outstanding Voting Stock of the Company is
converted into or exchanged for cash, securities or other property, other than
any such transaction where the Voting Stock of the Company outstanding
immediately prior to such transaction is converted into or exchanged for Voting
Stock of the surviving or transferee Person constituting a majority of the
outstanding shares of such Voting Stock of such surviving or transferee Person
(immediately after giving effect to such issuance), or (v) the first day on
which a majority of the members of the Board of Directors of the Company are
not Continuing Directors.
"Club" means the owners' associations for any of the Company's resorts
or developments, or of nearby residential or condominium tracts developed by
the Company or its predecessors, and the Master Club.
"Company" means Silverleaf Resorts, Inc., a Texas corporation, and any
and all successors thereto.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such
Consolidated Net Income,
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plus (iii) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred
in respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations), to the extent that any such
expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that
was paid in a prior period) of such Person and its Restricted Subsidiaries for
such period to the extent that such depreciation, amortization and other non-
cash expenses were deducted in computing such Consolidated Net Income, minus
(v) non-cash items increasing such Consolidated Net Income for such period
(excluding any such non-cash items to the extent they represent a reversal of
amounts that were accrued in prior periods and were then excluded from
Consolidated Cash Flow as a result of the second parenthetical in clause (iv)),
plus, (vi) non-cash items increasing Consolidated Net Income for a prior period
which were excluded from Consolidated Cash Flow in such period due to the
application of clause (v), to the extent such non-cash item is collected in
cash in a subsequent period, in each case, on a consolidated basis and
determined in accordance with GAAP. The recognition of revenue on the accrual
basis in accordance with GAAP upon the sale, lease, or sale by contract for
deed of Vacation Intervals shall not be deemed a non-cash item increasing
Consolidated Net Income. Notwithstanding the foregoing, the provision for
taxes on the income or profits of, and the depreciation and amortization and
other non-cash charges of, a Restricted Subsidiary of the referent Person shall
be added to Consolidated Net Income to compute Consolidated Cash Flow only to
the extent (and in the same proportion) that the Net Income of such Person was
included in calculating Consolidated Net Income.
"Consolidated Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Consolidated Interest Expense of
such Person and its Restricted Subsidiaries for such period. In the event that
the Company or any of its Restricted Subsidiaries incurs, assumes, issues
Guarantees, repays, redeems, retires, repurchases or defeases any Indebtedness
or Disqualified Stock (other than revolving credit borrowings) subsequent to
the commencement of the period for which the Consolidated Coverage Ratio is
being calculated but prior to the date on which the event for which the
calculation of the Consolidated Coverage Ratio is made (the "Calculation
Date"), then the Consolidated Coverage Ratio shall be calculated giving pro
forma effect to such incurrence, assumption, issuance, Guarantee, repayment,
redemption, retirement, repurchase, or defeasance of Indebtedness or
Disqualified Stock (and in the case of incurrence or issuance, the pro forma
application of the net proceeds thereof) as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that
have been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any
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related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall
be excluded, and (iii) the Consolidated Interest Expense attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Consolidated
Interest Expense will not be obligations of the referent Person or any of its
Restricted Subsidiaries following the Calculation Date. For purposes of this
definition, whenever pro forma effect is given to an acquisition of assets, the
amount of income or earnings relating thereto and the amount of Consolidated
Interest Expense associated with any Indebtedness incurred in connection
therewith shall be determined in good faith by a responsible financial or
accounting officer of the Company.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the sum, without duplication, of (i) the consolidated interest
expense of such Person and its Restricted Subsidiaries for such period, whether
paid or accrued (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), (ii) the consolidated interest expense of such Person
and its Restricted Subsidiaries that was capitalized during such period, (iii)
any interest expense on Indebtedness of another Person that is Guaranteed by
such Person or one of its Restricted Subsidiaries or secured by a Lien on
assets of such Person or one of its Restricted Subsidiaries (whether or not
such Guarantee or Lien is called upon), and (iv) the product of (a) all
dividend payments, whether or not in cash, on any series of Disqualified Stock
of such Person or any of its Restricted Subsidiaries, other than dividend
payments on Equity Interests payable solely in Equity Interests of the Company,
times (b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local statutory
tax rate of such Person, expressed as a decimal, in each case on a consolidated
basis and in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash by the referent Person to the Company or a Wholly
Owned Restricted Subsidiary thereof, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its
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<PAGE> 13
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date hereof in
the book value of any asset owned by such Person or a consolidated Restricted
Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Restricted Subsidiaries
(except, in each case, Permitted Investments), and (z) all unamortized debt
discount and expense and unamortized deferred charges as of such date, all of
the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date hereof or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Credit Facilities" means those certain credit facilities at the date
hereof between the Company and certain lenders providing for revolving credit
on the security of Mortgages Receivable in an aggregate amount up to $115.0
million, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, in each as
amended, modified, restated, renewed, increased, supplemented, refunded,
replaced or refinanced from time to time, whether with the same or different
lenders and in the same or different amounts.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Definitive Notes" means certificated Notes registered in the name of
the Holder thereof and issued in the form of Exhibit A hereto except that such
Note shall not bear the Global Note
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<PAGE> 14
Legend and shall not have the "Schedule of Exchanges of Interests in the Global
Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"Designated Senior Debt" means (i) any Indebtedness outstanding under
the Credit Facilities and (ii) any other Senior Debt permitted under this
Indenture, in either case in which the principal amount of which is $25 million
or more and that has been designated by the Company as "Designated Senior
Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the Holder thereof, in whole or in part, on or prior to the
date that is 360 days after the date on which the Notes mature.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary that is
not formed, incorporated or organized in a jurisdiction outside the United
States.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means up to $10.0 million in aggregate
principal amount of Indebtedness of the Company and its Restricted Subsidiaries
(other than Indebtedness under the Credit Facilities) in existence on the date
hereof, until such amounts are repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date hereof.
"Global Note" means a Note in the form of Exhibit A with the "Schedule
of Exchanges of Interests in the Global Note" attached thereto.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America and the payment for which the
United States pledges its full faith and credit.
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<PAGE> 15
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means each of (i) Silverleaf Hotels, Inc., a Texas
corporation, Silverleaf Travel, Inc., a Texas corporation, Silverleaf
Berkshires, Inc., a Texas corporation, Bull's Eye Marketing, Inc., a California
corporation, Condominium Builders, Inc., a Texas corporation, Silverleaf Resort
Acquisitions, Inc., a Texas corporation, Database Research, Inc., a Texas
corporation, and Villages Land, Inc., a Texas corporation and Bull's Eye
Marketing, Inc., a Delaware corporation and (ii) any other Subsidiary that
executes a Subsidiary Guarantee in accordance with the provisions of this
Indenture, and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether
or not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall
be (i) the accreted value thereof, in the case of any Indebtedness that does
not require current payments of interest, and (ii) the principal amount
thereof, together with any interest thereon that is more than 30 days past due,
in the case of any other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Initial Notes" means $75.0 million in aggregate principal amount of
Notes issued under this Indenture on the date hereof.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other
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<PAGE> 16
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP, in each case
excluding (i) Mortgages Receivable and (ii) receivables from "Sampler"
contracts or lot or condominium sales. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Equity Interests
of any direct or indirect Restricted Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Person is no longer a
Restricted Subsidiary of the Company, the Company shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Restricted Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of
Section 4.07 hereof.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
on such payment for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Make-Whole Amount" means, with respect to any Note, an amount equal
to the excess, if any, of (a) the present value of the remaining principal,
premium, interest payments that would be payable with respect to such Note if
such Note were redeemed on _______, 2003, computed using a discount rate equal
to the Treasury Rate plus 75 basis points, over (b) the outstanding principal
amount of such Note.
"Make-Whole Average Life" means, with respect to any date of
acceleration of Notes, the number of years (calculated to the nearest one-
twelfth) from such date to ____________, 2003.
"Make-Whole Price" means, with respect to any Note, the greater of (a)
the sum of the principal amount of and Make-Whole Amount with respect to such
Note, and (b) the redemption price of such Note on __________________, 2003.
"Mortgages Receivable" means the gross principal amount of notes
receivable of the Company and its Restricted Subsidiaries secured by Liens on
Vacation Intervals (including notes receivable secured by Vacation Intervals or
other comparable timeshare interests acquired by the Company and its Restricted
Subsidiaries), determined in accordance with GAAP.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or loss,
together with any related provision for taxes on (or tax benefit from) such
gain or loss, realized in connection with (a) any Asset Sale
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<PAGE> 17
(including, without limitation, dispositions pursuant to sale and leaseback
transactions) or (b) the disposition of any securities by such Person or any of
its Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries and (ii) any extraordinary or
nonrecurring gain or loss, together with any related provision for taxes on (or
tax benefit from) such extraordinary or nonrecurring gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than the Credit Facilities or other
revolving Indebtedness if there is no corresponding permanent reduction in
commitments with respect thereto) secured by a Lien on the asset or assets that
were the subject of such Asset Sale and any reserve for adjustment in respect
of the sale price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender and (ii) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or assets
of the Company or any of its Restricted Subsidiaries.
"Note Custodian" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.
"Notes" means the ____% Senior Subordinated Notes due 2008.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering and sale of the Notes by the Company
pursuant to a prospectus dated as of _________, 1998, contained in the
Registration Statement.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person.
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<PAGE> 18
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 12.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Permitted Investments" means (a) any Investment in the Company or in
a Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Restricted Subsidiary of the Company
in a Person, if as a result of such Investment (i) such Person becomes a Wholly
Owned Restricted Subsidiary of the Company and a Guarantor that is engaged in
the same business as the Company and its Restricted Subsidiaries were engaged
in on the date hereof or a Related Business, or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Wholly Owned
Restricted Subsidiary of the Company that is a Guarantor and that is engaged in
the same line of business as the Company and its Restricted Subsidiaries were
engaged in on the date hereof or a Related Business; (d) any Restricted
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with Section 4.10
hereof; (e) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company; (f) payroll,
travel, and similar advances to cover matters that are expected at the time of
such advances ultimately to be treated as expenses for accounting purposes and
that are made in the ordinary course of business; (g) loans or advances to
employees made in the ordinary course of business consistent with past
practices in an aggregate amount outstanding at any one time not to exceed
$500,000; (h) stock, obligations, or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or a
Restricted Subsidiary; (i) any Investment acquired by the Company or any of its
Restricted Subsidiaries (1) in exchange for any other Investment or receivable
held by the Company of any such Restricted Subsidiary in connection with or as
a result of any bankruptcy, workout, reorganization or recapitalization of the
issuer of such other Investment or receivable or (2) as a result of a
foreclosure (or deed in lieu of) by the Company or any of its Restricted
Subsidiaries with respect to any secured Investment or other transfer of title
with respect to any secured Investment in default; (i) Hedging Obligations
permitted under Section 4.09 hereof; (j) all Investments existing on the date
hereof; (k) Investments by the Company or a Restricted Subsidiary in a Club in
an aggregate amount outstanding at any one time not to exceed $2.0 million; and
(l) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect
to subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (l) that are at the time outstanding, not to
exceed $5.0 million.
"Permitted Liens" means (i) Liens existing on the date hereof to the
extent and in the manner such Liens are in effect on such date; (ii) Liens
securing Senior Debt and Liens on assets securing Guarantees of Senior Debt, in
each case permitted to be incurred pursuant to this
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<PAGE> 19
Indenture, (iii) Liens (if any) securing the Notes and the Subsidiary
Guarantees; (iv) Liens securing Permitted Refinancing Indebtedness which is
incurred to refinance any Indebtedness which has been secured by a Lien
permitted under this Indenture and which has been incurred in accordance with
the provisions of this Indenture, provided, however, that such Liens are not
materially less favorable to the Holders and are not materially more favorable
to the Lien Holder with respect to such Liens than the Liens in respect of the
Indebtedness being refinanced; (v) Liens in favor of the Company or any Wholly
Owned Restricted Subsidiary; (vi) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the Company; (vii) Liens on property existing at the time of acquisition
thereof by the Company or any Restricted Subsidiary of the Company, provided
that such Liens were in existence prior to the contemplation of such
acquisition; (viii) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (ix) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (x)
Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of
Unrestricted Subsidiaries; and (xi) Liens incurred in the ordinary course of
business of the Company or any Restricted Subsidiary of the Company with
respect to obligations that do not exceed $1.0 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by the Company or such Restricted Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness or
Disqualified Stock of the Company or any of its Restricted Subsidiaries issued
in exchange for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund other Indebtedness of the Company or any of
its Restricted Subsidiaries; provided that: (i) the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date the same as or later than the final maturity date of, and
has a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; (iii) if the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded is subordinated
in right of payment to the Notes or the Subsidiary Guarantees, as applicable,
such Permitted Refinancing Indebtedness has a final maturity date later than
the final maturity date of, and is subordinated in right of payment to, the
Notes and the Subsidiary Guarantees, as applicable, on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
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defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or agency or political subdivision thereof (including any
subdivision or ongoing business of any such entity or substantially all of the
assets of any such entity, subdivision or business).
"Principal" means Robert E. Mead.
"Registration Statement" means the Registration Statement No. ______
on Form S-1 relating to the Notes initially filed with the Commission on
_________, 1998 and all exhibits, schedules and amendments thereto.
"Related Business" means, at any time, any business related, ancillary
or complementary (as determined in good faith by the Board of Directors) to the
business conducted by the Company and its Restricted Subsidiaries on the date
hereof.
"Related Party" with respect to the Principal means (A) the spouse or
any immediate family member of the Principal or (B) a trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding an 80% or more controlling interest of which
consist of the Principal and/or such other Persons referred to in the
immediately preceding clause (A).
"Responsible Officer," when used with respect to the Trustee, means
any Officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other Officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
Officers and also means, with respect to a particular corporate trust matter,
any other Officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means (i) all Indebtedness outstanding under Credit
Facilities, (ii) any other Indebtedness permitted to be incurred by the Company
or a Restricted Subsidiary under the terms of this Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is on a parity with or subordinated in right of payment to the Notes or
Subsidiary Guarantees, as applicable, and (iii) all Obligations with respect to
the foregoing.
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Notwithstanding anything to the contrary in the foregoing, Senior Debt will not
include (w) any liability for federal, state, local or other taxes owed or
owing by the Company, (x) any Indebtedness of the Company or any Guarantor to
the Company or any of their respective Subsidiaries or other Affiliates, (y)
any trade payables or (z) any Indebtedness that is incurred in violation of
this Indenture.
"Significant Restricted Subsidiary" of a Person means any Significant
Subsidiary that is a Restricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date of this Indenture.
"Stated Maturity" means, with respect to any installment of interest
or principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantees" means, individually and collectively, the
Guarantees given by the Guarantors pursuant to Article 11 hereof, including a
notation in the Notes substantially in the form attached hereto as Exhibit A-1.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa- 77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Treasury Rate" means, at any time of computation, the yield to
maturity at such time (as compiled by and published in the most recent Federal
Reserve Statistical Release H.15(519), which has become publicly available at
least two business days prior to the date of acceleration of the Notes, or if
such Statistical Release is no longer published, any publicly available source
of similar market data) of United States Treasury securities with a constant
maturity most nearly equal to the Make-Whole Average Life; provided, however,
that if the Make-Whole Average Life is not equal to the constant maturity of
the United States Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the Make-
Whole Average Life
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is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year shall be
used.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has
at least one director on its Board of Directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries.
"Vacation Interval" means an interest entitling the holder to use, for
a limited period on an annual or other recurrent basis, a lodging unit,
together with associated privileges and rights, at a Company resort, including,
without limitation, a fee interest, a leasehold, a vendee's interest under a
contract of deed, or other interest based on a floating period or points based
system.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board
of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
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SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
<S> <C>
"Affiliate Transaction" . . . . . . . . . . . . . . . . . 4.11
"Asset Sale Offer" . . . . . . . . . . . . . . . . . . . 3.09
"Authentication Order" . . . . . . . . . . . . . . . . . 2.02
"Change of Control Offer" . . . . . . . . . . . . . . . . 4.15
"Change of Control Payment" . . . . . . . . . . . . . . . 4.15
"Change of Control Payment Date" . . . . . . . . . . . . 4.15
"Covenant Defeasance" . . . . . . . . . . . . . . . . . . 8.03
"Event of Default" . . . . . . . . . . . . . . . . . . . 6.01
"Excess Proceeds" . . . . . . . . . . . . . . . . . . . . 4.10
"incur" . . . . . . . . . . . . . . . . . . . . . . . . . 4.09
"Legal Defeasance" . . . . . . . . . . . . . . . . . . . 8.02
"Offer Amount" . . . . . . . . . . . . . . . . . . . . . 3.09
"Offer Period" . . . . . . . . . . . . . . . . . . . . . 3.09
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . 2.03
"Permitted Debt" . . . . . . . . . . . . . . . . . . . . 4.09
"Purchase Date" . . . . . . . . . . . . . . . . . . . . . 3.09
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Restricted Payments" . . . . . . . . . . . . . . . . . . 4.07
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
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<PAGE> 24
"indenture securities" means the Notes and the Subsidiary Guarantees;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes and the Subsidiary Guarantees means the Company
and the Guarantors, respectively, and any successor obligor upon the Notes and
the Subsidiary Guarantees, respectively.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
SECTION 2.01. FORM AND DATING.
(a) General. The Notes and the Trustee's certificate of
authentication in respect thereof shall be substantially in the form
of Exhibit A hereto, the terms of which are incorporated in and made
part of this Indenture. The Subsidiary Guarantees shall be
substantially in the form of Exhibit A-1, the terms of which are
incorporated in and made part of this Indenture. The Notes may have
notations, legends or endorsements required
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<PAGE> 25
by law, stock exchange rule or usage. Each Note shall be dated the
date of its authentication. The Notes shall be in denominations of
$1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall
constitute, and are hereby expressly made, a part of this Indenture
and the Company, the Guarantors and the Trustee, by their execution
and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby. However, to the extent any
provision of any Note or Subsidiary Guarantee conflicts with the
express provisions of this Indenture, the provisions of this Indenture
shall govern and be controlling.
(b) Global Notes. Notes offered and sold in connection
with the Offering shall be issued initially in the form of one or more
Global Notes in definitive, fully registered form without interest
coupons, which shall be deposited on behalf of the purchasers of the
Notes represented thereby with the Trustee, at the Corporate Trust
Office of the Trustee, as custodian for the Depositary (or with such
other custodian as the Depositary may direct), and registered in the
name of Cede & Co., as nominee of the Depositary, duly executed by the
Company and authenticated and delivered by the Trustee as hereinafter
provided. Each Global Note shall represent such of the outstanding
Notes as shall be specified therein and each shall provide that it
shall represent the aggregate principal amount of the outstanding
Notes from time to time endorsed thereon and that the aggregate
principal amount of outstanding Notes represented thereby may from
time to time be reduced or increased, as appropriate, to reflect
exchanges and redemptions. Any endorsement of a Global Note to
reflect the amount of any increase or decrease in the aggregate amount
of outstanding Notes represented thereby shall be made by the Trustee
or the Note Custodian, at the direction of the Trustee, in accordance
with instructions given by the Holder thereof as required by this
Section 2.06.
(c) Certificated Securities. Except as provided in
Section 2.06(a), owners of beneficial interests in Global Notes will
not be entitled to receive physical delivery of Notes in certificated
form.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Notes and
may be in facsimile form.
If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers (an "Authentication Order"), authenticate Notes for original issue up
to the aggregate principal
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<PAGE> 26
amount stated in paragraph 4 of the Notes. The aggregate principal amount of
Notes outstanding at any time may not exceed such amount except as provided in
Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or an Affiliate of the Company or any of their respective Subsidiaries.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be
presented or surrendered for registration of transfer or for exchange
("Registrar") and an office or agency where Notes may be presented for payment
("Paying Agent"). The Registrar shall keep a register of the Notes and of
their transfer and exchange. The Company may appoint one or more co-registrars
and one or more additional paying agents. The term "Registrar" includes any
co-registrar and the term "Paying Agent" includes any additional paying agent.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company shall notify the Trustee in writing of the name and
address of any Agent not a party to this Indenture. If the Company fails to
appoint or maintain another entity as Registrar or Paying Agent, the Trustee
shall act as such. The Company or any of its Subsidiaries may act as Paying
Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent in connection with the Notes and to act as Note Custodian with
respect to the Global Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, and premium, if any, or interest on the Notes, and will notify the
Trustee of any default by the Company or any Guarantor in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee and to account for any assets
distributed. The Company at any time may require a Paying Agent to pay all
money held by it to the Trustee. Upon payment over to the Trustee, the Paying
Agent (if other than the Company or a Subsidiary) shall have no further
liability for the money. If the Company, a Guarantor or a Subsidiary acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders or the Trustee all money held by it as Paying Agent.
Upon any bankruptcy or reorganization proceedings relating to the Company or
any Guarantor, the Trustee shall serve as Paying Agent for the Notes.
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SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the
Trustee is not the Registrar, the Company and/or the Guarantors shall cause the
Registrar to furnish to the Trustee at least seven Business Days before each
interest payment date and at such other times as the Trustee may request in
writing, a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of the Holders of Notes and the Company and
the Guarantors shall otherwise comply with TIA Section 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes. A Global Note
may not be transferred as a whole except by the Depositary to a
nominee of the Depositary, by a nominee of the Depositary to the
Depositary or to another nominee of the Depositary, or by the
Depositary or any such nominee to a successor Depositary or a nominee
of such successor Depositary. Global Notes may be exchanged for
Definitive Notes if (i) the Depositary (x) notifies the Company that
it is unwilling or unable to continue as depositary for the Global
Notes and the Company thereupon fails to appoint a successor
depositary within 90 days or (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) the Company, in its sole
discretion, determines that the Global Notes (in whole but not in
part) should be exchanged for Definitive Notes and delivers a written
notice to such effect to the Trustee or (iii) there shall have
occurred and be continuing a Default or an Event of Default with
respect to the Notes. Upon the occurrence of either of the preceding
events in (i), (ii) or (iii) above, Definitive Notes shall be issued
in such names and issued in any approved denominations as the
Depositary shall instruct the Trustee. Global Notes also may be
exchanged or replaced, in whole or in part, as provided in Sections
2.07 and 2.10 hereof. A Global Note may not be exchanged for another
Note except as provided in this Section 2.06(a), however, beneficial
interests in a Global Note may be transferred and exchanged as
provided in Section 2.06(b),(c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the
Global Notes. The transfer and exchange of beneficial interests in the
Global Notes shall be effected through the Depositary, in accordance
with the provisions of this Indenture and the applicable procedures of
the Depositary. Transfers of beneficial interests in any Global Note
may be transferred to Persons who take delivery thereof in the form of
a beneficial interest in a Global Note. No written orders or
instructions shall be required to be delivered to the Registrar to
effect the transfers described in this Section 2.06(b).
(c) Transfer and Exchange of Definitive Notes. When Notes
in definitive form are presented to the Registrar with a request to
register the transfer or to exchange them for an equal principal
amount of Notes of other denominations, the Registrar shall register
the transfer or make the exchange if its requirements for such
transactions are met;
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<PAGE> 28
provided, however, that any Note presented or surrendered for
registration of transfer or exchange shall be duly endorsed or
accompanied by a written instruction of transfer in form satisfactory
to the Registrar and the Trustee duly executed by the Holder thereof
or by his attorney duly authorized in writing. To permit
registrations of transfer and exchanges, the Company shall issue and
the Trustee shall authenticate Notes at the Registrar's request,
subject to such rules as the Trustee may reasonably require.
(d) Beneficial Interests in Global Notes to Definitive
Notes. If any holder of a beneficial interest in a Global Note
proposes to exchange such beneficial interest for a Definitive Note or
to transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Definitive Note, then, upon satisfaction of
the conditions set forth in Section 2.06(a) hereof, the Trustee shall
cause the aggregate principal amount of the applicable Global Note to
be reduced accordingly pursuant to Section 2.01(b) hereof, and the
Company shall execute and the Trustee shall authenticate and deliver
to the Person designated in the instructions a Definitive Note in the
appropriate principal amount.
Notwithstanding the foregoing, the Company shall not be required (i)
to issue, register the transfer of or exchange Notes during a period beginning
at the opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business on the
day of selection, or (ii) to register the transfer or exchange of any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
SECTION 2.07. REPLACEMENT NOTES
If any mutilated Note is surrendered to the Trustee or the Company and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the
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<PAGE> 29
Note; however, Notes held by the Company or a Subsidiary of the Company shall
not be deemed to be outstanding for purposes of Section 3.07(b) hereof.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company, shall be
considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that the Trustee knows are so owned
shall be so disregarded.
SECTION 2.10. TEMPORARY NOTES
Until certificates representing Notes are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Company
considers appropriate for temporary Notes and as shall be reasonably acceptable
to the Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee and no one else shall cancel all Notes surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all cancelled Notes shall be
delivered to the Company. The Company may not issue new Notes to replace Notes
that it has paid or that have been delivered to the Trustee for cancellation.
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<PAGE> 30
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee
in writing of the amount of defaulted interest proposed to be paid on each Note
and the date of the proposed payment. The Company shall fix or cause to be
fixed each such special record date and payment date, provided that no such
special record date shall be less than 10 days prior to the related payment
date for such defaulted interest. At least 15 days before the special record
date, the Company (or, upon the written request of the Company, the Trustee in
the name and at the expense of the Company) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such interest to be paid.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (a) the clause of this Indenture pursuant
to which the redemption shall occur, (b) the redemption date, (c) the principal
amount of Notes to be redeemed and (d) the redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select the Notes to be
redeemed or purchased among the Holders of the Notes in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed or, if the Notes are not so listed, on a pro rata basis,
by lot or in accordance with any other method the Trustee considers fair and
appropriate. In the event of partial redemption by lot, the particular Notes
to be redeemed shall be selected, unless otherwise provided herein, not less
than 30 nor more than 60 days prior to the redemption date by the Trustee from
the outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000.
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<PAGE> 31
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of
the principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the redemption date;
(g) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes called for redemption are being
redeemed; and
(h) that no representation is made as to the correctness
or accuracy of the CUSIP number, if any, listed in such notice or
printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that
the Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as
provided in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
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SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess
of the amounts necessary to pay the redemption price of, and accrued interest
on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is
redeemed on or after an interest record date but on or prior to the related
interest payment date, then any accrued and unpaid interest shall be paid to
the Person in whose name such Note was registered at the close of business on
such record date. If any Note called for redemption shall not be so paid upon
surrender for redemption because of the failure of the Company to comply with
the preceding paragraph, interest shall be paid on the unpaid principal, from
the redemption date until such principal is paid, and to the extent lawful on
any interest not paid on such unpaid principal, in each case at the rate
provided in the Notes and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section
3.07, the Company shall not have the option to redeem the Notes
pursuant to this Section 3.07 prior to ________ __, 2003. Thereafter,
the Company shall have the option to redeem the Notes, in whole or in
part, upon not less than 30 nor more than 60 days' notice at the
redemption prices (expressed as percentages of principal amount) set
forth below plus accrued and unpaid interest thereon, if any, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on _______ of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . _______%
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . _______%
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . _______%
2006 and thereafter . . . . . . . . . . . . . . . . . . . 100.00%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this
Section 3.07, at any time prior to ____________________, 2001, the
Company may redeem up to 33 1/3% of the aggregate principal amount of
the Notes with the net cash proceeds of one or more
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<PAGE> 33
public offerings of its common stock at a redemption price equal to
__% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the redemption date; provided that at least 66
2/3% of the initially outstanding aggregate principal amount of Notes
remains outstanding immediately after the occurrence of such
redemption and provided, further that such redemption shall occur
within 60 days of the date of the closing of such offering.
(c) Any redemption pursuant to this Section 3.07 shall be
made pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 4.10 and 4.15 hereof, the Company
shall not be required to make mandatory redemption payments with respect to the
Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company shall
be required to commence an offer to all Holders to purchase Notes (an "Asset
Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later
than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Notes tendered in
response to the Asset Sale Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to
this Section 3.09 and Section 4.10 hereof and the length of time the
Asset Sale Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase
Date;
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<PAGE> 34
(c) that any Note not tendered or accepted for payment
shall continue to accrete or accrue interest;
(d) that, unless the Company defaults in making such
payment, any Note accepted for payment pursuant to the Asset Sale
Offer shall cease to accrete or accrue interest after the Purchase
Date;
(e) that Holders electing to have a Note purchased
pursuant to an Asset Sale Offer may only elect to have all of such
Note purchased and may not elect to have only a portion of such Note
purchased;
(f) that Holders electing to have a Note purchased
pursuant to any Asset Sale Offer shall be required to surrender the
Note, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Note completed, or transfer by book-entry transfer,
to the Company, a depositary, if appointed by the Company, or a Paying
Agent at the address specified in the notice at least three days
before the Purchase Date;
(g) that Holders shall be entitled to withdraw their
election if the Company, the depositary or the Paying Agent, as the
case may be, receives, not later than the expiration of the Offer
Period, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Note the
Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes
surrendered by Holders exceeds the Offer Amount, the Company shall
select the Notes to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only
Notes in denominations of $1,000, or integral multiples thereof, shall
be purchased); and
(i) that Holders whose Notes were purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered (or transferred by book-entry
transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.09. The Company, the Depositary or
the Paying Agent, as the case may be, shall promptly (but in any case not later
than five days after the Purchase Date) mail or deliver to each tendering
Holder an amount equal to the purchase price of the Notes tendered by such
Holder and accepted by the Company for purchase, and the Company shall promptly
issue a new Note, and the Trustee, upon written request from the Company shall
authenticate and mail or deliver such new Note to such Holder, in a principal
amount equal to any unpurchased portion of the Note surrendered. Any Note not
so accepted shall be promptly mailed or delivered by the
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<PAGE> 35
Company to the Holder thereof. The Company shall publicly announce the results
of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in
the Notes. Principal, premium, if any, and interest shall be considered paid
on the date due if the Paying Agent, if other than the Company or a Subsidiary
thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by
the Company in immediately available funds and designated for and sufficient to
pay all principal, premium, if any, and interest then due. The Company shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in
excess of the then applicable interest rate on the Notes to the extent lawful;
it shall pay interest (including post-petition interest in any proceeding under
any Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of
New York (or at such other location where the Trustee maintains an office), an
office or agency (which may be an office of the Trustee or an affiliate of the
Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and
any change in the location, of such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York (or at such other location where the
Trustee maintains an office) for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
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<PAGE> 36
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03 hereof.
SECTION 4.03. REPORTS.
Whether or not required by the rules and regulations of the Securities
and Exchange Commission (the "Commission"), so long as any Notes are
outstanding, the Company and the Guarantors shall furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company and/or any Guarantor were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its consolidated Subsidiaries (showing in reasonable detail,
either on the face of the financial statements or in the footnotes thereto and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company), and,
with respect to the annual information only, a report thereon by the Company's
independent certified public accountants, and (ii) all current reports that
would be required to be filed with the Commission on Form 8-K if the Company
were required to file such reports, in each case, within the time periods
specified in the SEC's rules and regulations. In addition, whether or not
required by the rules and regulations of the SEC, the Company shall file a copy
of all such information with the Commission for public availability within the
time periods specified in the SEC's rules and regulations. The Company and the
Guarantors shall at all times comply with TIA Section 314(a).
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company and each Guarantor (to the extent that
such Guarantor is so required under the TIA) shall deliver to the
Trustee, within 90 days after the end of each fiscal year, an
Officers' Certificate stating that a review of the activities of the
Company and its Subsidiaries during the preceding fiscal year has been
made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and
fulfilled its obligations under this Indenture, and further stating,
as to each such Officer signing such certificate, that to the best of
his or her knowledge the Company has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is
not in default in the performance or observance of any of the terms,
provisions and conditions of this Indenture (or, if a Default or Event
of Default shall have occurred, describing all such Defaults or Events
of Default of which he or she may have knowledge and what action the
Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains
in existence by reason of which payments on account of the principal
of or interest, if any, on the Notes is prohibited or if such event
has occurred, a description of the event and what action the Company
is taking or proposes to take with respect thereto.
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<PAGE> 37
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public
Accountants, the year-end financial statements delivered pursuant to
Section 4.03(a) above shall be accompanied by a written statement of
the Company's independent public accountants (who shall be a firm of
established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has
come to their attention that would lead them to believe that the
Company has violated any provisions of Article 4 or Article 5 hereof
or, if any such violation has occurred, specifying the nature and
period of existence thereof, it being understood that such accountants
shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer
becoming aware of any Default or Event of Default, an Officers'
Certificate specifying such Default or Event of Default and what
action the Company is taking or proposes to take with respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate
proceedings or where the failure to effect such payment is not adverse in any
material respect to the Holders of the Notes.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company and each of the Guarantors covenants (to the extent that
it may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that may affect the covenants or the performance of this Indenture; and the
Company and each of the Guarantors (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it shall not, by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been
enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any other payment or distribution on account of the Company's or any of
its Restricted Subsidiaries' Equity Interests (including, without limitation,
any payment in connection with any merger or consolidation involving the
Company) or to the direct or indirect holders of the Company's or any of its
Restricted Subsidiaries' Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of the Company and dividends and distributions payable solely to the
Company or to a Guarantor); (ii) purchase, redeem or otherwise acquire or
retire for value (including without limitation, in connection with any merger
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<PAGE> 38
or consolidation involving the Company) any Equity Interests of the Company or
any direct or indirect parent of the Company; (iii) make any payment on or with
respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinate to the Notes or the Subsidiary
Guarantees, except a payment of interest or principal at Stated Maturity; or
(iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Consolidated Coverage Ratio
test set forth in the first paragraph of Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by the Company and its
Restricted Subsidiaries after the date hereof (excluding Restricted
Payments permitted by clause (ii) of the next succeeding paragraph),
is less than the sum of (i) 50% of the Consolidated Net Income of the
Company for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the date hereof
to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate net cash proceeds received by the Company from the issue or
sale since the date of this Indenture of Equity Interests of the
Company (other than Disqualified Stock) or of Disqualified Stock or
debt securities of the Company that have been converted into or
exchanged for such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a
Restricted Subsidiary of the Company and other than Disqualified Stock
or convertible debt securities that have been converted into or
exchanged for Disqualified Stock), plus (iii) to the extent that any
Unrestricted Subsidiary is redesignated as a Restricted Subsidiary
after the date hereof, the fair market value of the Company's
Investment in such Subsidiary as of the date of such redesignation;
provided, however, that the foregoing amount shall not exceed the
amount of Investments made (and treated as a Restricted Investment) by
the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary, plus (iv) an amount equal to the net reduction in
Investments (other than Permitted Investments) made by the Company or
any Restricted Subsidiaries in any Person resulting from dividends or
distributions on, or repurchases or redemptions of, such Investments
by such Person, net cash proceeds realized upon the sale of such
Investment to an unaffiliated purchaser, reductions in obligations of
such Person guaranteed by, and repayments of loans or advances or
other transfers of assets by such Person to, the Company or a
Restricted Subsidiary, provided, however, that no amount
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<PAGE> 39
shall be included under this clause (iv) to the extent it is already
included in Consolidated Net Income.
The foregoing provisions will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of,
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for
any such redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (iv) the defeasance, redemption, repurchase or other
acquisition of subordinated Indebtedness with Excess Proceeds remaining after
an Asset Sale Offer; (v) the payment of any dividend by a Restricted Subsidiary
of the Company to the holders of its respective Equity Interests on a pro rata
basis; (vi) repurchases of Equity Interests of the Company deemed to occur upon
exercise of employee options, warrants or rights if such Equity Interests
represent a portion of the exercise price of or withholding tax due upon
exercise of such options, warrants or rights; (vii) the repurchase, redemption
or other acquisition or retirement for value of any Equity Interests of the
Company or any Restricted Subsidiary held by any employee or former employee
pursuant to the terms of any of the Company's or such Restricted Subsidiaries'
benefit plans or arrangements; provided that the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $1.0 million in any twelve-month period and $5.0 million in the
aggregate and no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; and (viii) additional Restricted
Payments in an amount not to exceed $5.0 million.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined by
the Board of Directors whose resolution with respect thereto shall be delivered
to the Trustee, such determination to be based upon an opinion or appraisal
issued by an accounting, appraisal or investment banking firm of national
standing if such fair market value exceeds $1.0 million. Not later than the
date of making any Restricted Payment, the Company shall deliver to the Trustee
an Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this Section
4.07 were computed, which calculations may be based upon the Company's latest
available financial statements, together with a copy of any fairness opinion or
appraisal required by this Indenture.
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<PAGE> 40
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a)(i) pay dividends or make any other distributions
to the Company or any of its Restricted Subsidiaries (A) on its Capital Stock
or (B) with respect to any other interest or participation in, or measured by,
its profits or (ii) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries, (b) make loans or advances to the Company or any of
its Restricted Subsidiaries or (c) transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of (i) Existing Indebtedness as in
effect on the date of this Indenture, (ii) this Indenture and the Notes, (iii)
applicable law, (iv) any instrument governing Indebtedness or Capital Stock of
a Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property or assets of
the Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of this Indenture to be incurred, (v)
by reason of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (vi) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (c) above on the property
so acquired, (vii) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced, (viii) restrictions contained in
security agreements or mortgages to the extent such restrictions restrict the
transfer of the property or assets subject to such security agreements or
mortgages, (ix) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all of the capital stock or assets of such Restricted Subsidiary
pending the closing of the sale of such sale or disposition, or (x) any
restriction in any agreement that is not more restrictive than the restrictions
in the Credit Facilities as in effect on the date of this Indenture.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company and the Guarantors shall not issue any
Disqualified Stock and the Company shall not permit any of its Restricted
Subsidiaries which are not Guarantors to issue any shares of preferred stock
other than to the Company or to a Wholly Owned Restricted Subsidiary which is a
Guarantor, provided that any subsequent issuance or transfer of Capital Stock
that results in such Guarantor ceasing to be a Wholly Owned Restricted
Subsidiary or any subsequent transfer of such preferred stock (other than to
the Company or
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<PAGE> 41
another Wholly Owned Restricted Subsidiary which is a Guarantor) will be
deemed, in each case, to be the issuance of such preferred stock by the issuer
thereof; provided, however, that the Company and any Guarantor may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if
the Consolidated Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is
incurred or such Disqualified Stock is issued would have been at least 2.0 to
1.0, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred,
or the Disqualified Stock had been issued, as the case may be, at the beginning
of such four-quarter period.
The foregoing limitations shall not apply to the incurrence of any of
the following items of Indebtedness (collectively, "Permitted Debt"):
(i) the incurrence by the Company and its
Restricted Subsidiaries of Indebtedness secured by Mortgages
Receivable (including pursuant to the Credit Facilities) in an
aggregate principal amount (with letters of credit being
deemed to have a principal amount equal to the maximum
potential liability of the Company and its Restricted
Subsidiaries thereunder) outstanding after giving effect to
such incurrence not to exceed 70% of the Mortgages Receivable
of the Company and its Restricted Subsidiaries at the date of
incurrence;
(ii) the incurrence by the Company and its
Restricted Subsidiaries of Indebtedness represented by Capital
Lease Obligations, mortgage financings or purchase money
obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of
construction or improvement of property, plant, equipment,
land or inventory used or held for sale in the business of the
Company or any Restricted Subsidiary, in an aggregate
principal amount not to exceed $5.0 million at any time
outstanding;
(iii) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness in connection with the
acquisition of assets or a new Restricted Subsidiary; provided
that such Indebtedness was incurred by the prior owner of such
assets or such Restricted Subsidiary prior to such acquisition
by the Company or one of its Restricted Subsidiaries and was
not incurred in connection with, or in contemplation of, such
acquisition by the Company or one of its Restricted
Subsidiaries; and provided further that the principal amount
(or accreted value, as applicable) of such Indebtedness,
together with any other outstanding Indebtedness incurred
pursuant to this clause (iii), does not exceed $5.0 million;
(iv) the incurrence by the Company or any of its
Restricted Subsidiaries of Permitted Refinancing Indebtedness
in exchange for, or the net proceeds of which are used to
refund, refinance or replace Existing Indebtedness or
Indebtedness that was permitted by this Indenture to be
incurred;
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(v) the incurrence by the Company or any of its
Restricted Subsidiaries of intercompany Indebtedness between
or among the Company and any of its Restricted Subsidiaries;
provided, however, that (A) if the Company or a Guarantor is
the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of
all Obligations with respect to the Notes and the Subsidiary
Guarantees and (B)(i) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Restricted
Subsidiary and (ii) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a
Restricted Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company
or such Restricted Subsidiary, as the case may be;
(vi) the incurrence by the Company of Hedging
Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture
to be outstanding;
(vii) the guarantee by the Company or any
Restricted Subsidiary of Indebtedness of the Company or a
Restricted Subsidiary that was permitted to be incurred by
another provision of this covenant;
(viii) the incurrence by the Company's Unrestricted
Subsidiaries of Non-Recourse Debt, provided, however, that if
any such Indebtedness ceases to be Non-Recourse Debt of an
Unrestricted Subsidiary, such event shall be deemed an
incurrence of Indebtedness by a Restricted Subsidiary of the
Company;
(ix) the incurrence by the Company and the
Guarantors of Indebtedness represented by the Notes and the
Subsidiary Guarantees thereof and this Indenture in an
aggregate principal amount up to $75,000,000;
(x) the incurrence by the Company and its
Restricted Subsidiaries of the Existing Indebtedness;
(xi) the incurrence by the Company and its
Restricted Subsidiaries in the ordinary course of business of
Indebtedness (A) in respect of performance, completion, surety
or similar bonds or guarantees (including pursuant to letters
of credit) in connection with new construction, development,
leasing of billboards, or compliance with federal, state or
local law, or (B) in respect of bankers acceptances, letters
of credit, appeal or similar bonds other than pursuant to
clause (A) in an aggregate amount at any time not to exceed
$5.0 million;
(xii) the incurrence of Indebtedness of the Company
or any Restricted Subsidiary arising from agreements providing
for indemnification, adjustment of purchase price or similar
obligations in connection with the disposition of any assets
of the Company or any such Restricted Subsidiary (other than
Guarantees
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of Indebtedness incurred by any Person acquiring all or any
portion of such assets for the purpose of financing such
acquisition), in principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted
Subsidiary in connection with such disposition; and
(xiii) the incurrence by the Company and its
Restricted Subsidiaries of additional Indebtedness in an
aggregate principal amount (or accreted value, as applicable)
at any time outstanding (including all indebtedness incurred
to replace, refund or refinance any such indebtedness) not to
exceed $7.5 million.
For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiii) above or
is entitled to be incurred pursuant to the first paragraph of this covenant,
the Company shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with this covenant and such item of Indebtedness
will be treated as having been incurred pursuant to only one of such clauses or
pursuant to the first paragraph hereof. Accrual of interest, the accretion of
accreted value and the payment of interest in the form of additional
Indebtedness will not be deemed to be an incurrence of Indebtedness for
purposes of this Section 4.09.
SECTION 4.10. ASSET SALES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time
of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash;
provided that the amount of (x) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the Notes or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary from further
liability and (y) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
promptly converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received), shall be deemed to be cash for purposes of
this Section 4.10. Any Restricted Payment that is permitted by Section 4.07
hereof will not be deemed to be an Asset Sale.
Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Company (or such Restricted Subsidiary) may apply such Net Proceeds,
at its option, either (a) to repay any Senior Debt of the Company or a
Guarantor, or (b) to the acquisition of a controlling interest in another
business, the making of a capital expenditure or the acquisition of other long-
term assets, in each case, in the same line of business as the Company and its
Restricted Subsidiaries were engaged on the date hereof or in a Related
Business. Pending the final application of any such
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Net Proceeds, the Company may temporarily reduce revolving Senior Debt or
otherwise invest such Net Proceeds in any manner that is not prohibited by this
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested
as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds." Within five days of each date on which the
aggregate amount of Excess Proceeds exceeds $5 million, the Company shall
commence a pro rata Asset Sale Offer pursuant to Section 3.09 hereof to
purchase the maximum principal amount of Notes that may be purchased out of the
Excess Proceeds at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon, if any, to
the date of repurchase, in accordance with the procedures set forth in Section
3.09 hereof. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for any purpose not otherwise prohibited
by this Indenture. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Upon completion of such offer
to purchase, the amount of Excess Proceeds shall be reset at zero.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of
the disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing; provided that (x) any employment, compensation or indemnity agreement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary, (y) transactions between or among the
Company and/or its Restricted Subsidiaries and (z) Restricted Payments that are
permitted by Section 4.07 hereof, in each case, shall not be deemed Affiliate
Transactions, and provided further that transactions between the Company or a
Restricted Subsidiary and any Club in the ordinary course of business shall not
be subject to clause (ii)(b) above.
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SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind (other than Permitted Liens) upon any of
their property or assets, now owned or hereafter acquired, or any income or
profits therefrom (or assign or convey any right to receive income therefrom),
which secures Indebtedness or trade payables that rank pari passu with or
subordinate to the Notes or the Subsidiary Guarantees, as applicable, unless
(i) if such Lien secures Indebtedness or trade payables that ranks pari passu
with the Notes or Subsidiary Guarantees, as applicable, the Notes and such
Subsidiary Guarantees are secured on an equal and ratable basis with the
obligation so secured until such time as such obligation is no longer secured
by a Lien or (ii) if such Lien secures Indebtedness or trade payables that is
subordinated to the Notes or Subsidiary Guarantees, as applicable, such Lien
shall be subordinated to a Lien granted to the Holders of Notes and Subsidiary
Guarantees on the same collateral as that securing such Lien to the same extent
as such Indebtedness, as applicable, until such obligation is no longer secured
by a lien.
SECTION 4.13. BUSINESS ACTIVITIES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in any business other than the same line of business in
which the Company and its Restricted Subsidiaries are engaged on the date
hereof or a Related Business, except to such extent as would not be material to
the Company and its Restricted Subsidiaries taken as a whole.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Restricted Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Subsidiary and (ii) the rights (charter and statutory),
licenses and franchises of the Company and its Restricted Subsidiaries;
provided, however, that the Company shall not be required to preserve any such
right, license or franchise, or the corporate, partnership or other existence
of any of its Restricted Subsidiaries, if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct
of the business of the Company and its Restricted Subsidiaries, taken as a
whole, and that the loss thereof is not adverse in any material respect to the
Holders of the Notes.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the
Company shall make an offer (a "Change of Control Offer") to each
Holder to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of each Holder's Notes at a purchase price in cash
equal to 101% of the aggregate principal amount thereof plus accrued
and unpaid interest thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within ten days following any Change of
Control, the Company shall mail a notice to each Holder
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stating: (1) that the Change of Control Offer is being made pursuant
to this Section 4.15 and that all Notes tendered will be accepted for
payment; (2) the purchase price and the purchase date, which shall be
no earlier than 30 days and no later than 60 days from the date such
notice is mailed (the "Change of Control Payment Date"); (3) that any
Note not tendered will continue to accrue interest; (4) that, unless
the Company defaults in the payment of the Change of Control Payment,
all Notes accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment
Date; (5) that Holders electing to have any Notes purchased pursuant
to a Change of Control Offer will be required to surrender the Notes,
with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Notes completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date; (6) that
Holders will be entitled to withdraw their election if the Paying
Agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have the
Notes purchased; and (7) that Holders whose Notes are being purchased
only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered, which unpurchased
portion must be equal to $1,000 in principal amount or an integral
multiple thereof. The Company shall comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of Notes as a result of a
Change of Control.
(b) On the Change of Control Payment Date, the Company
shall, to the extent lawful, (1) accept for payment all Notes or
portions thereof properly tendered pursuant to the Change of Control
Offer, (2) deposit with the Paying Agent an amount equal to the Change
of Control Payment in respect of all Notes or portions thereof so
tendered and (3) deliver or cause to be delivered to the Trustee the
Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being
purchased by the Company. The Paying Agent shall promptly mail to
each Holder of Notes so tendered the Change of Control Payment in an
amount equal to the purchase price for the Notes, and the Trustee
shall promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered by such Holder, if any;
provided, that each such new Note shall be in a principal amount of
$1,000 or an integral multiple thereof. The Company shall publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
(c) The Company shall not be required to make a Change of
Control Offer upon a Change of Control if a third party makes the
Change of Control Offer in the manner, at the times and otherwise in
compliance with the requirements set forth in this Section 4.15
applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
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(d) Notwithstanding the foregoing, prior to complying
with the provisions of this Section 4.15, but in any event within 90
days following a Change of Control, the Company will either repay all
outstanding Senior Debt or obtain the requisite consents, if any,
under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this Section 4.15.
SECTION 4.16. SALE AND LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company may enter into a sale and leaseback transaction if (i) the Company
could have (a) incurred Indebtedness in an amount equal to the Attributable
Debt relating to such sale and leaseback transaction pursuant to the
Consolidated Coverage Ratio test set forth in the first paragraph of Section
4.09 hereof and (b) incurred a Lien to secure such Indebtedness pursuant to
Section 4.12 hereof, (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee) of the property that is the subject of such sale and
leaseback transaction, and (iii) the transfer of assets in such sale and
leaseback transaction is permitted by, and the Company applies the proceeds of
such transaction in compliance with the provisions of Section 4.10 hereof.
SECTION 4.17. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF
WHOLLY OWNED RESTRICTED SUBSIDIARIES.
The Company (i) shall not, and shall not permit any Wholly Owned
Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Wholly Owned Restricted
Subsidiary of the Company to any Person (other than to the Company or a Wholly
Owned Restricted Subsidiary that is a Guarantor), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Capital Stock of
such Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in
accordance with Section 4.10 hereof, and (ii) will not permit any Wholly Owned
Restricted Subsidiary of the Company to issue any of its Equity Interests
(other than, if necessary, shares of its Capital Stock constituting directors'
qualifying shares) to any Person other than to the Company or a Wholly Owned
Restricted Subsidiary of the Company that is a Guarantor.
SECTION 4.18. DESIGNATION OF A SUBSIDIARY AS AN UNRESTRICTED SUBSIDIARY.
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if at the time of such designation:
(a) all outstanding Investments by the Company and its Restricted Subsidiaries
(except to the extent repaid in cash) in the Subsidiary so designated are
deemed to be a Restricted Payment at the time of such designation (all such
outstanding Investments will be deemed to constitute an amount equal to the
greatest of (i) the net book value of such Investments at the time of such
designation, (ii) the fair market value of such Investments at the time of such
designation and (iii) the original fair market value of such Investments at the
time they were made), and such Restricted Payment is permitted at such time
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under Section 4.07 hereof; (b) giving pro forma effect thereto as if such
designation had occurred at the beginning of the Company's most recently
completed four fiscal quarters for which internal financial statements are
available preceding the date of such designation, the pro forma Consolidated
Coverage Ratio for such period is greater than the historical Consolidated
Coverage Ratio for such period; (c) no Default or Event of Default shall have
occurred and be continuing immediately preceding such designation and giving
pro forma effect thereto or would occur as a consequence thereof; and (d) such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. In the event that a Restricted Subsidiary becomes an Unrestricted
Subsidiary in accordance with this paragraph, then such Restricted Subsidiary
shall be released from its obligations under its Subsidiary Guarantee in
accordance with Section 11.04 hereof.
The Board of Directors of the Company may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary, if at the time of such redesignation:
(x) giving pro forma effect to the redesignation and incurrence of Indebtedness
of the Unrestricted Subsidiary (if any) as if they occurred at the beginning of
the Company's most recently completed four fiscal quarters for which internal
financial statements are available preceding the date of such redesignation,
(i) any Indebtedness of such Unrestricted Subsidiary (including any Non-
Recourse Debt) could be incurred pursuant to the Consolidated Coverage Ratio
test set forth in the first paragraph of Section 4.09 hereof and (ii) the pro
forma Consolidated Coverage Ratio for such period is greater than the
historical Consolidated Coverage Ratio for such period; (y) the newly
redesignated Domestic Restricted Subsidiary executes and delivers a Subsidiary
Guarantee and an Opinion of Counsel; and (z) no Default or Event of Default
shall have occurred and be continuing immediately preceding such redesignation
and giving pro forma effect thereto or would occur as a consequence thereof.
Any such designation or redesignation by the Board of Directors shall
be evidenced to the Trustee by filing with the Trustee a certified copy of the
board resolution giving effect to such designation or redesignation and an
Officers' Certificate certifying that such designation or redesignation
complied with the foregoing conditions. If any Unrestricted Subsidiary becomes
a Restricted Subsidiary, such Subsidiary shall be subject to the provisions of
Article 11 hereof. If, at any time, any Unrestricted Subsidiary would fail to
meet the definition of an Unrestricted Subsidiary, it shall thereafter cease to
be an Unrestricted Subsidiary for purposes of this Indenture. If the
Unrestricted Subsidiary at such time would not be permitted to be redesignated
a Restricted Subsidiary, the Company shall be in default of this Section 4.18.
SECTION 4.19. LIMITATION ON STATUS AS INVESTMENT COMPANY.
The Company and its Restricted Subsidiaries shall take all actions
(and refrain from taking all actions) necessary to ensure that neither the
Company nor any of its Restricted Subsidiaries will be required to register as
an "investment company" (as that term is defined in the Investment Company Act
of 1940, as amended), or will otherwise become subject to regulation under the
Investment Company Act.
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SECTION 4.20. NO SENIOR SUBORDINATED DEBT.
Notwithstanding the provisions of Section 4.09 hereof, (i) the Company
shall not incur, create, issue, assume, guarantee or otherwise become liable
for any Indebtedness that is subordinate or junior in right of payment to any
Senior Debt and senior in any respect in right of payment to the Notes, and
(ii) no Guarantor shall incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt and senior in any respect in right of payment to the
Subsidiary Guarantees. No Indebtedness shall be deemed to be Senior Debt
solely because it is secured and no Indebtedness shall be deemed to be
subordinated solely because it is convertible into Equity Interests.
SECTION 4.21. NO AMENDMENT OF SUBORDINATION PROVISIONS.
Without the consent of the Holders of at least 75% in aggregate
principal amount of the Notes then outstanding, the Company will not amend,
modify or alter the provisions of Article 10 of this Indenture in any way that
will adversely affect the rights of Holders of Notes.
SECTION 4.22. PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of this
Indenture or the Notes unless such consideration is offered to be paid or is
paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 5.
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving corporation) or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia, (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Company pursuant to a
supplemental indenture under the Notes and this Indenture in a form reasonably
satisfactory to the Trustee, (iii) immediately after such transaction, no
Default or Event of Default exists and (iv) except in the case of a merger of
the
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Company with or into a Wholly Owned Restricted Subsidiary of the Company, the
Company or the entity or Person formed by or surviving any such consolidation
or merger (if other than the Company), or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made (A) will
have Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of the Company immediately preceding
the transaction and (B) will, at the time of such transaction and after giving
pro forma effect thereto as if such transaction had occurred at the beginning
of the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Consolidated Coverage Ratio test set
forth in the first paragraph of Section 4.09 hereof.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Notes except in the case
of a sale of all of the Company's assets that meets the requirements of Section
5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(a) the Company defaults in the payment when due of
interest on the Notes (whether or not prohibited by the subordination
provisions hereof) and such default continues for a period of 30 days;
(b) the Company defaults in the payment when due of
principal of or premium, if any, on the Notes (whether or not
prohibited by the subordination provisions hereof) when the same
becomes due and payable at maturity, upon redemption (including in
connection with an offer to purchase) or otherwise;
(c) the Company fails to comply for 30 days after notice
from the Trustee or the Holders of at least 25% in principal amount of
their outstanding Notes with any of the provisions of Section 4.07,
4.09, 4.10, 4.15 or 5.01 hereof;
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(d) the Company fails to observe or perform any other
covenant, representation, warranty or other agreement in this
Indenture or the Notes for 60 days after notice to the Company by the
Trustee or the Holders of at least 25% in aggregate principal amount
of the Notes then outstanding voting as a single class;
(e) a default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which
is guaranteed by the Company or any of its Restricted Subsidiaries),
whether such Indebtedness or guarantee now exists, or is created after
the date of this Indenture, which default (a) is caused by a failure
to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in
such Indebtedness on the date of such default (a "Payment Default") or
(b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $5.0 million or
more; provided, that in the case of any such Payment Default under
clause (a) such default continues beyond the lesser of 30 days or the
longest period for cure provided in any such Indebtedness as to which
a Payment Default exists, or in the case of any acceleration of
Indebtedness described in clause (b), such Indebtedness is not
discharged or such acceleration cured, waived, rescinded or annulled
within the lesser of 30 days after acceleration or the longest period
for cure provided in any such Indebtedness which has been accelerated;
(f) a final judgment or final judgments for the payment
of money are entered by a court or courts of competent jurisdiction
against the Company or any of its Restricted Subsidiaries and such
judgment or judgments remain undischarged for a period (during which
execution shall not be effectively stayed) of 60 days, provided that
the aggregate of all such undischarged judgments exceeds $5 million;
(g) except as permitted by this Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable
or invalid or shall cease for any reason to be in full force and
effect or any Guarantor, or any Person acting on behalf of any
Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee
(h) the Company or any of its Significant Restricted
Subsidiaries:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief
against it in an involuntary case,
(iii) consents to the appointment of a Custodian of
it or for all or substantially all of its property,
(iv) makes a general assignment for the benefit of
its creditors, or
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(v) generally is not paying its debts as they
become due.
(i) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Company or any of
its Significant Restricted Subsidiaries in an involuntary
case;
(ii) appoints a Custodian of the Company or any of
its Significant Restricted Subsidiaries or for all or
substantially all of the property of the Company or any of its
Restricted Subsidiaries; or
(iii) orders the liquidation of the Company or any
of its Significant Restricted Subsidiaries
and the order or decree remains unstayed and in effect for 60 consecutive days.
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (h) or (i) of Section 6.01 hereof with respect to the Company, any
Restricted Subsidiary) occurs and is continuing, the Trustee or the Holders of
at least 25% in principal amount of the then outstanding Notes may declare all
the Notes to be due and payable immediately; provided, however, that so long as
any Designated Senior Debt is outstanding, no such acceleration shall be
effective until five business days after the giving of written notice to the
Company and the representatives under the Designated Senior Debt of such
acceleration. Upon any such declaration, the Notes shall become due and
payable immediately. Notwithstanding the foregoing, if an Event of Default
specified in clause (h) or (i) of Section 6.01 hereof occurs with respect to
the Company or any of its Restricted Subsidiaries, all outstanding Notes shall
be due and payable immediately without further action or notice. The Holders
of a majority in aggregate principal amount of the then outstanding Notes by
written notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, interest or premium that has become due solely because of the
acceleration) have been cured or waived.
If an Event of Default occurs by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the Notes pursuant to Section
3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall
also become and be immediately due and payable, to the extent permitted by law,
anything in this Indenture or in the Notes to the contrary notwithstanding. If
an Event of Default occurs prior to ________ __, 2003 by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding the prohibition on redemption of the Notes prior to
such date, then, upon acceleration of the Notes, the Make-Whole Price shall
become immediately due and payable to the extent permitted by law.
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SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision
of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the
Holders of all of the Notes waive an existing Default or Event of Default and
its consequences hereunder, except a continuing Default or Event of Default in
the payment of the principal of, and premium, if any, or interest on, the Notes
(including in connection with an offer to purchase) (provided, however, that
the Holders of a majority in aggregate principal amount of the then outstanding
Notes may rescind an acceleration and its consequences, including any related
payment default that resulted from such acceleration). Upon any such waiver,
such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Trustee written
notice of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of
the then outstanding Notes make a written request to the Trustee to
pursue the remedy;
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(c) such Holder of a Note or Holders of Notes offer and,
if requested, provide to the Trustee indemnity satisfactory to the
Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within
60 days after receipt of the request and the offer and, if requested,
the provision of indemnity; and
(e) during such 60-day period the Holders of a majority
in principal amount of the then outstanding Notes do not give the
Trustee a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, and premium, if any, and
interest on the Note, on or after the respective due dates expressed in the
Note (including in connection with an offer to purchase), or to bring suit for
the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company or any Guarantor for the
whole amount of principal of, and premium, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent
lawful, interest and such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Notes allowed in any judicial proceedings relative to
the Company (or any other obligor upon the Notes), its creditors or its
property and shall be entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any such claims and any
custodian in any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.07 hereof. To the extent that
the payment of any such compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due
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the Trustee under Section 7.07 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf
of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, and premium, if any, and interest, ratably, without preference
or priority of any kind, according to the amounts due and payable on the Notes
for principal, and premium, if any and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than
10% in principal amount of the then outstanding Notes.
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ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and
skill in its exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined
solely by the express provisions of this Indenture and the
Trustee need perform only those duties that are specifically
set forth in this Indenture and no others, and no implied
covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for
its own negligent action, its own negligent failure to act, or its own
willful misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section 7.01;
(ii) the Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer,
unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section
6.05 hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is
subject to paragraphs (a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or incur any liability. The
Trustee shall be under no obligation to exercise any of its rights and
powers under this Indenture at the request of any Holders, unless
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such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree in writing with
the Company. Money held in trust by the Trustee need not be
segregated from other funds except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document
believed by it to be genuine and to have been signed or presented by
the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it
may require an Officers' Certificate or an Opinion of Counsel or both.
The Trustee shall not be liable for any action it takes or omits to
take in good faith in reliance on such Officers' Certificate or
Opinion of Counsel. The Trustee may consult with counsel and the
written advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(c) The Trustee may act through its attorneys and agents
and shall not be responsible for the misconduct or negligence of any
agent appointed with due care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith that it believes to be authorized
or within the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this
Indenture, any demand, request, direction or notice from the Company
or any Guarantor shall be sufficient if signed by an Officer of the
Company or such Guarantor.
(f) The Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders unless such Holders shall
have offered to the Trustee reasonable security or indemnity against
the costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
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SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes
or any other document in connection with the sale of the Notes or pursuant to
this Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of
the Default or Event of Default within 90 days after it occurs. Except in the
case of a Default or Event of Default in payment of principal of, premium, if
any, or interest on any Note, the Trustee may withhold the notice if and so
long as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA Section 313(a) (but if no event
described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by
mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA Section 313(d).
The Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred
or made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture
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against the Company (including this Section 7.07) and defending itself against
any claim (whether asserted by the Company or any Holder or any other person)
or liability in connection with the exercise or performance of any of its
powers or duties hereunder, except to the extent any such loss, liability or
expense may be attributable to its negligence or bad faith. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company
of its obligations hereunder. The Company shall defend the claim and the
Trustee shall cooperate in the defense. The Trustee may have separate counsel
and the Company shall pay the reasonable fees and expenses of such counsel.
The Company need not pay for any settlement made without its consent, which
consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section 313(b)(2)
to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of
a majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company
may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or
an order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
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If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the
Trustee pursuant to this Section 7.08, the Company's obligations under Section
7.07 hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or
state authorities and that has a combined capital and surplus of at least $100
million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
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SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and the Guarantors shall, subject
to the satisfaction of the conditions set forth in Section 8.04 hereof, be
deemed to have been discharged from their obligations with respect to all
outstanding Notes on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means
that the Company shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes, which shall thereafter be
deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the
other Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Notes and this Indenture (and
the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following provisions
which shall survive until otherwise terminated or discharged hereunder: (a)
the rights of Holders of outstanding Notes to receive solely from the trust
fund described in Section 8.04 hereof, and as more fully set forth in such
Section, payments in respect of the principal of, and premium, if any, and
interest on such Notes when such payments are due, (b) the Company's and the
Guarantors' obligations with respect to such Notes under Article 2 and Section
4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and the Company's and the Guarantors' obligations in
connection therewith and (d) this Article 8. Subject to compliance with this
Article 8, the Company may exercise its option under this Section 8.02
notwithstanding the prior exercise of its option under Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and the Guarantors shall, subject
to the satisfaction of the conditions set forth in Section 8.04 hereof, be
released from its obligations under the covenants contained in
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Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18,
4.19, 4.20, 4.21 and 4.22 hereof with respect to the outstanding Notes on and
after the date the conditions set forth in Section 8.04 are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed
not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 6.01 hereof, but, except as
specified above, the remainder of this Indenture and such Notes shall be
unaffected thereby. In addition, upon the Company's exercise under Section
8.01 hereof of the option applicable to this Section 8.03 hereof, subject to
the satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(d) through 6.01(f) hereof shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the
Trustee, in trust, for the benefit of the Holders, cash in United
States dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay
the principal of, and premium, if any, and interest on the outstanding
Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be;
(b) in the case of an election under Section 8.02 hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel
in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of
this Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel
in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Notes will not
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recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(d) no Default or Event of Default shall have occurred
and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the incurrence of Indebtedness all or
a portion of the proceeds of which will be used to defease the Notes
pursuant to this Article 8 concurrently with such incurrence) or
insofar as Sections 6.01(h) or 6.01(i) hereof is concerned, at any
time in the period ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall
not result in a breach or violation of, or constitute a default under,
any material agreement or instrument (other than this Indenture) to
which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an
Opinion of Counsel (which may be subject to customary exceptions) to
the effect that on the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(g) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company; and
(h) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent
required by law.
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The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, and premium, if
any, or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
secured creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02
or 8.03 hereof, as the case may be, by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
8.02 or 8.03 hereof, as the case may be; provided, however, that, if the
Company makes any payment of principal of, premium, if any, or interest on any
Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or Paying Agent.
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ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture, the
Subsidiary Guarantees or the Notes without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or
in place of certificated Notes or to alter the provisions of Article 2
hereof (including the related definitions) in a manner that does not
materially adversely affect any Holder;
(c) to provide for the assumption of the Company's or a
Guarantor's obligations to the Holders of the Notes by a successor to
the Company or a Guarantor pursuant to Article 5 or Article 10 hereof;
(d) to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights hereunder of any Holder of the Note;
(e) to comply with requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA;
(f) to provide for the issuance of Additional Notes in
accordance with the limitations set forth in this Indenture as of the
date hereof; or
(g) to allow any Guarantor to execute a supplemental
indenture and/or Subsidiary Guarantee with respect to the Notes.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company and
the Guarantors in the execution of any amended or supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into such amended or supplemental
Indenture that affects its own rights, duties or immunities under this
Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided in Section 4.21 and below in this Section 9.02, the
Company and the Trustee may amend or supplement this Indenture (including
Sections 3.09, 4.10 and 4.15 hereof), the Subsidiary Guarantees and the Notes
may be amended or supplemented with the consent of
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the Holders of at least a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04
and 6.07 hereof, any existing Default or Event of Default (other than a Default
or Event of Default in the payment of the principal of, and premium, if any, or
interest on the Notes, except a payment default resulting from an acceleration
that has been rescinded) or compliance with any provision of this Indenture,
the Subsidiary Guarantees or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes voting
as a single class (including consents obtained in connection with a tender
offer or exchange offer, or purchase of, the Notes).
In addition, without the consent of the holders of 66-2/3% in
aggregate principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for Notes), no
waiver or amendment to this Indenture may make any change in the provisions of
Section 4.15 that adversely affect the rights of any Holder of Notes. Section
2.08 hereof shall determine which Notes are considered to be "outstanding" for
purposes of this Section 9.02.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Trustee of the documents described in
Section 7.02 hereof, the Trustee shall join with the Company in the execution
of such amended or supplemental Indenture unless such amended or supplemental
Indenture directly affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise, in which case the Trustee may in its discretion,
but shall not be obligated to, enter into such amended or supplemental
Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 4.21, 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount of the Notes then
outstanding voting as a single class may waive compliance in a particular
instance by the Company with any provision of this Indenture or the Notes;
provided, however, that any such waiver that adversely affects the rights of
any Holder of Notes shall require the consent of 66-2/3% in principal amount of
the Notes then outstanding. Notwithstanding anything to the contrary herein,
without the consent of each Holder affected, an amendment or waiver under this
Section 9.02 may not (with respect to any Notes held by a non-consenting
Holder):
(a) reduce the principal amount of Notes whose Holders
must consent to an amendment, supplement or waiver;
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(b) reduce the principal of or change the fixed maturity
of any Note or alter or waive any of the provisions with respect to
the redemption of the Notes, except as provided above with respect to
Sections 3.09, 4.10 and 4.15 hereof;
(c) reduce the rate of or change the time for payment of
interest, including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the then outstanding Notes
and a waiver of the payment default that resulted from such
acceleration);
(e) make any Note payable in money other than that stated
in the Notes;
(f) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of Notes
to receive payments of principal of or interest on the Notes;
(g) make any change in Section 6.04 or 6.07 hereof or in
the foregoing amendment and waiver provisions; or
(h) release any Guarantor from any of its obligations
under its Subsidiary Guarantee or this Indenture, except in accordance
with the terms of this Indenture.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental Indenture that complies with the TIA as
then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment
becomes effective. An amendment, supplement or waiver becomes effective in
accordance with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
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Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01) shall be
fully protected in relying upon, in addition to the documents required by
Section 10.04 hereof, an Officers' Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
ARTICLE 10.
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder by accepting a Note agrees, that
the Indebtedness evidenced by the Notes is subordinated in right of payment, to
the extent and in the manner provided in this Article 10, to the prior payment
in full of all Senior Debt (whether outstanding on the date hereof or hereafter
created, incurred, assumed or guaranteed), and that the subordination is for
the benefit of the holders of Senior Debt.
SECTION 10.02. CERTAIN DEFINITIONS.
"Permitted Junior Securities" means Equity Interests in the Company or
debt securities that are subordinated to all Senior Debt (and any debt
securities issued in exchange for Senior Debt) to substantially the same extent
as, or to a greater extent than, the Notes are subordinated to Senior Debt
pursuant to the Indenture.
"Representative" means the indenture trustee or other trustee, agent
or representative for any Senior Debt.
A distribution may consist of cash, securities or other property, by
set-off or otherwise.
SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, in
an assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities:
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(1) holders of Senior Debt shall be entitled to receive payment in
full of all Obligations due in respect of such Senior Debt (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Senior Debt) before Holders of the Notes shall be entitled to
receive any payment with respect to the Notes; and
(2) until all Obligations with respect to Senior Debt (as provided
in subsection (1) above) are paid in full, any distribution to which Holders
would be entitled but for this Article 10 shall be made to holders of Senior
Debt (except that Holders of Notes may receive (i) Permitted Junior Securities
and (ii) payments and other distributions made from any defeasance trust
created pursuant to Section 8.04 hereof), as their interests may appear.
SECTION 10.04. DEFAULT ON DESIGNATED SENIOR DEBT.
The Company may not make any payment or distribution to the Trustee or
any Holder in respect of Obligations (other than (i) Permitted Junior
Securities and (ii) payments and other distributions made from any defeasance
trust created pursuant to Section 8.04 hereof) until all principal and other
Obligations with respect to the Senior Debt have been paid in full if:
(i) a default in the payment of the principal of,
premium, if any, or interest on Designated Senior Debt occurs
and is continuing beyond any applicable grace period in the
agreement, indenture or other document governing such
Designated Senior Debt; or
(ii) a default, other than a payment default, on
Designated Senior Debt occurs and is continuing that then
permits holders of the Designated Senior Debt to accelerate
its maturity and the Trustee receives a notice of the default
(a "Payment Blockage Notice") from the Company or the holders
of any Designated Senior Debt. If the Trustee receives any
such Payment Blockage Notice, no subsequent Payment Blockage
Notice shall be effective for purposes of this Section unless
and until (i) at least 360 days shall have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice
and (ii) all scheduled payments of principal, premium, if any,
and interest on the Securities that have come due have been
paid in full in cash. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice unless such default shall
have been waived for a period of not less than 180 days.
The Company may and shall resume payments on and distributions in
respect of the Notes and may acquire them upon the earlier of:
(1) the date upon which the default is cured or waived, or
(2) in the case of a default referred to in Section 10.04(ii)
hereof, 179 days pass after notice is received if the maturity of such
Designated Senior Debt has not been accelerated,
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if this Article 10 otherwise permits the payment, distribution or acquisition
at the time of such payment or acquisition.
SECTION 10.05. ACCELERATION OF SECURITIES.
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Debt of the
acceleration.
SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder receives any payment of
any Obligations with respect to the Notes at a time when the Trustee or such
Holder, as applicable, has actual knowledge that such payment is prohibited by
Section 10.04 hereof, such payment shall be held by the Trustee or such Holder,
in trust for the benefit of, and shall be paid forthwith over and delivered,
upon written request, to, the holders of Senior Debt as their interests may
appear or their Representative under the indenture or other agreement (if any)
pursuant to which Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of all Obligations with
respect to Senior Debt remaining unpaid to the extent necessary to pay such
Obligations in full in accordance with their terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically
set forth in this Article 10, and no implied covenants or obligations with
respect to the holders of Senior Debt shall be read into this Indenture against
the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the Company
or any other Person money or assets to which any holders of Senior Debt shall
be entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or gross negligence of the Trustee.
SECTION 10.07. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of any Obligations
with respect to the Notes to violate this Article 10, but failure to give such
notice shall not affect the subordination of the Notes to the Senior Debt as
provided in this Article 10.
SECTION 10.08. SUBROGATION.
After all Senior Debt is paid in full and until the Notes are paid in
full, Holders of Notes shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt
to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the Holders of Notes have been applied to
the payment of Senior Debt. A distribution made under this Article 10 to
holders of Senior Debt that otherwise would have been made to Holders of Notes
is not, as between the Company and Holders, a payment by the Company on the
Notes.
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SECTION 10.09. RELATIVE RIGHTS.
This Article 10 defines the relative rights of Holders of Notes and
holders of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders of Notes and creditors of
the Company other than their rights in relation to holders of Senior Debt; or
(3) prevent the Trustee or any Holder of Notes from exercising its
available remedies upon a Default or Event of Default, subject to the rights of
holders and owners of Senior Debt to receive distributions and payments
otherwise payable to Holders of Notes.
If the Company fails because of this Article 10 to pay principal of or
interest on a Note on the due date, the failure is still a Default or Event of
Default.
SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Debt to enforce the subordination of
the Indebtedness evidenced by the Notes shall be impaired by any act or failure
to act by the Company or any Holder or by the failure of the Company or any
Holder to comply with this Indenture.
SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 10, the Trustee and the Holders of Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of Notes for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Debt and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
10.
SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least five Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Notes to
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violate this Article 10. Only the Company or a Representative may give the
notice. Nothing in this Article 10 shall impair the claims of, or payments to,
the Trustee under or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may
do the same with like rights.
SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of Notes, by the Holder's acceptance thereof, authorizes
and directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact
for any and all such purposes.
ARTICLE 11.
GUARANTEES
SECTION 11.01. UNCONDITIONAL GUARANTEE.
Subject to the provisions of this Article 11, each Guarantor hereby
unconditionally, jointly and severally, on a senior subordinated basis,
guarantees (each such Guarantee being a "Subsidiary Guarantee" and all such
Guarantees being the "Subsidiary Guarantees") to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of the
Notes or this Indenture, that: (i) the principal of and interest and premium,
if any, on the Notes will be promptly paid in full when due, subject to any
applicable grace period, whether at maturity, by acceleration or otherwise and
interest on the overdue principal of, and interest on, to the extent lawful,
the Notes and all other obligations of the Company to the Holders or the
Trustee hereunder or thereunder will be promptly paid in full or performed all
in accordance with the terms hereof and thereof; and (ii) in case of any
extension of time of payment or renewal of any Notes or of any such other
obligations, the same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, subject to any
applicable grace period, whether at stated maturity, by acceleration or
otherwise, subject, however, in the case of clauses (i) and (ii) above, to the
limitations set forth in Section 11.05 hereof. Failing payment when due of any
amount so guaranteed or any performance so guaranteed for whatever reason,
subject to Section 11.05 hereof, the Guarantors shall be jointly and severally
obligated to pay the same immediately. Each Guarantor agrees that this is a
guarantee of payment and not a guarantee of collection.
Each Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of
the Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute
a legal or equitable discharge or defense of a Guarantor. Each Guarantor
hereby waives diligence,
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presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding
first against the Company, protest, notice and all demands whatsoever and
covenants that the Subsidiary Guarantees will not be discharged except by
complete performance of the obligations contained in the Notes, this Indenture
and in the Subsidiary Guarantees.
If any Holder of Notes or the Trustee is required by any court or
otherwise to return to the Company, any Guarantor, or any custodian, trustee,
liquidator or other similar official acting in relation to the Company or any
Guarantor, any amount paid by the Company or any Guarantor to the Trustee or
such Holder of Notes, the Subsidiary Guarantees, to the extent theretofore
discharged, shall be reinstated in full force and effect. Each Guarantor
agrees that they shall not be entitled to any right of subrogation in relation
to the Holders of the Notes in respect of any obligations guaranteed hereby
until payment in full of all obligations guaranteed hereby.
Each Guarantor further agrees that, as between each Guarantor, on the
one hand, and the Holders and the Trustee, on the other hand, (x) the maturity
of the obligations guaranteed hereby may be accelerated as provided in Article
6 for the purposes of the Subsidiary Guarantees, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such obligations as provided in Article 6, such obligations
(whether or not due and payable) shall forthwith become due and payable by each
Guarantor for the purpose of the Subsidiary Guarantees. The Notes will not be
guaranteed by any present or future foreign subsidiary or any Unrestricted
Subsidiary.
SECTION 11.02. SUBORDINATION OF NOTE GUARANTEE.
The Obligations of each Guarantor under its Note Guarantee pursuant to
this Article 10 shall be junior and subordinated in right of payment to the
rights of holders of the Senior Debt of such Guarantor on the same basis as the
Notes are junior and subordinated to Senior Debt of the Company. For the
purposes of the foregoing sentence, the Trustee and the Holders shall have the
right to receive and/or retain payments by any of the Guarantors only at such
times as they may receive and/or retain payments in respect of the Notes
pursuant to this Indenture, including Article 10 hereof.
SECTION 11.03. SEVERABILITY.
In case any provision of a Subsidiary Guarantee shall be invalid,
illegal or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.04. RELEASE OF A GUARANTOR.
In the event of a sale or other disposition of all of the assets of
any Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, then such Guarantor
(in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the capital stock of such Guarantor) or
the
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corporation acquiring the property (in the event of a sale or other disposition
of all or substantially all of the assets of such Guarantor) shall be released
and relieved of any obligations under its Subsidiary Guarantee; provided that
the Net Proceeds of such sale or other disposition shall be applied in
accordance with Section 4.10 and the other applicable provisions of the
Indenture. The Trustee shall deliver an appropriate instrument evidencing such
release upon receipt of a request by the Company accompanied by an Officers'
Certificate certifying as to the compliance with Section 4.18 hereof and this
Section 11.04. Any Guarantor not so released remains liable for the full
amount of principal of and interest on the Notes as provided in this Article
11.
SECTION 11.05. LIMITATION OF GUARANTOR'S LIABILITY.
Each Guarantor and by its acceptance of a Note each Holder confirms
that it is the intention of all such parties that the Subsidiary Guarantee by
such Guarantor pursuant to its Subsidiary Guarantee does not constitute a
fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law. To effectuate the foregoing intention, the
Holders and such Guarantor hereby irrevocably agree that the obligations of
such Guarantor under the Subsidiary Guarantees shall be limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Guarantor and after giving effect to any collections from
or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under the Subsidiary Guarantees or pursuant
to Section 11.06, result in the obligations of such Guarantor under the
Subsidiary Guarantees not constituting such fraudulent transfer or conveyance.
SECTION 11.06. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
No Guarantor may consolidate with or merge with or into (whether or
not such Guarantor is the surviving Person) another corporation, Person or
entity whether or not affiliated with such Guarantor unless:
(i) subject to the provisions of the following
paragraph, the Person formed by or surviving any such
consolidation or merger (if other than such Guarantor)
unconditionally assumes all the obligations of such Guarantor
pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee under the Notes, the
Indenture and the Subsidiary Guarantee on the terms set forth
herein or therein;
(ii) immediately after giving effect to such
transaction, no Default or Event of Default exists;
(iii) such Guarantor, or any Person formed by or
surviving any such consolidation or merger, would have
Consolidated Net Worth (immediately after giving effect to
such transaction) equal to or greater than the Consolidated
Net Worth of such Guarantor immediately preceding the
transaction; and
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<PAGE> 75
(iv) the Company would be permitted by virtue of
the Company's pro forma Consolidated Coverage Ratio,
immediately after giving effect to such transaction, to incur
at least $1.00 of additional Indebtedness pursuant to the
Consolidated Coverage Ratio test set forth in the first
paragraph of Section 4.09 hereof.
In the event of a sale or other disposition of all of the assets of
any Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, then such Guarantor
(in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the capital stock of such Guarantor) or
the corporation acquiring the property (in the event of a sale or other
disposition of all of the assets of such Guarantor) will be released and
relieved of any obligations under its Subsidiary Guarantee in accordance with
Section 11.04 hereof; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with Section 4.10 hereof.
SECTION 11.07. WAIVER OF SUBROGATION.
Each Guarantor hereby irrevocably waives, until and unless all of the
Obligations guaranteed hereby are indefeasibly discharged, any claim or other
rights which it may now or hereafter acquire against the Company that arise
from the existence, payment, performance or enforcement of such Guarantor's
obligations under the Subsidiary Guarantees and this Indenture, including,
without limitation, any right of subrogation, reimbursement, exoneration,
indemnification, and any right to participate in any claim or remedy of any
Holder of Notes against the Company, whether or not such claim, remedy or right
arises in equity, or under contract, statute or common law, including, without
limitation, the right to take or receive from the Company, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to any Guarantor in violation of the preceding sentence and the
Notes shall not have been paid in full, such amount shall have been deemed to
have been paid to such Guarantor for the benefit of, and held in trust for the
benefit of, the Holders of the Notes, and shall forthwith be paid to the
Trustee for the benefit of such Holders to be credited and applied upon the
Notes, whether matured or unmatured, in accordance with the terms of this
Indenture. Each Guarantor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by this
Indenture and that the waiver set forth in this Section 11.07 is knowingly made
in contemplation of such benefits.
SECTION 11.08. EXECUTION OF GUARANTEE.
To evidence its Subsidiary Guarantee to the Holder of Notes specified
in Section 11.01, each Guarantor hereby agrees to execute its Subsidiary
Guarantee in substantially the form of Exhibit A-1 recited to be endorsed on
each Note ordered to be authenticated and delivered by the Trustee. Each
Guarantor hereby agrees that the Subsidiary Guarantees set forth in Section
11.01 shall remain in full force and effect notwithstanding any failure to
endorse on each Note a notation of the Subsidiary Guarantees. Each such
Subsidiary Guarantee shall be signed on behalf of each Guarantor by two
Officers, or an Officer and an Assistant Secretary, or one Officer shall
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<PAGE> 76
sign and one Officer or an Assistant Secretary (each of whom shall, in each
case, have been duly authorized by all requisite corporate actions) shall
attest to such Subsidiary Guarantee prior to the authentication of the Note on
which it is endorsed, and the delivery of such Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of such
Subsidiary Guarantee on behalf of such Guarantor. Such signatures upon the
Subsidiary Guarantees may be by manual or facsimile signature of such Officers
and may be imprinted or otherwise reproduced on the Subsidiary Guarantees, and
in case any such Officer who shall have signed the Subsidiary Guarantees shall
cease to be such Officer before the Note on which such Subsidiary Guarantee is
endorsed shall have been authenticated and delivered by the Trustee or disposed
of by the Company, such Note nevertheless may be authenticated and delivered or
disposed of as though the person who signed the Subsidiary Guarantees had not
ceased to be such Officer of the Guarantor.
SECTION 11.09. ADDITIONAL SUBSIDIARY GUARANTEES.
If the Company or any of its Subsidiaries shall acquire or create
another Restricted Subsidiary after the date of the Indenture, then such newly
acquired or created Restricted Subsidiary shall become a Guarantor, on a senior
subordinated basis, of the Company's obligations under the Notes and this
Indenture by (i) executing a supplemental indenture to this Indenture in the
form set forth in Exhibit B hereto, (ii) executing a Subsidiary Guarantee in
the form set forth in Exhibit A-1 hereto and (iii) delivering to the Trustee an
Opinion of Counsel, in form reasonably satisfactory to the Trustee, that the
Subsidiary Guarantee and supplemental indenture have been duly authorized,
executed and delivered by such Restricted Subsidiary and constitute the valid
and binding obligations of such Restricted Subsidiary and enforceable against
such Restricted Subsidiary in accordance with their respective terms, subject
to customary exceptions for bankruptcy and equitable principles; provided,
however, that this Section 11.09 shall not apply to any Subsidiary during such
period as such Subsidiary (y) is organized in any jurisdiction outside the
United States or (z) has been properly designated as an Unrestricted Subsidiary
in accordance with this Indenture for so long as it continues to constitute an
Unrestricted Subsidiary.
ARTICLE 12.
MISCELLANEOUS
SECTION 12.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 12.02. NOTICES.
Any notice or communication by the Company, any Guarantor or the
Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered
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<PAGE> 77
or certified, return receipt requested), telex, telecopier or overnight air
courier guaranteeing next day delivery, to the others' address:
If to the Company or any Guarantor:
Silverleaf Resorts, Inc.
1221 Riverbend Drive, Suite 120
Dallas, Texas 75247
Telecopier No.:
Attention: Robert E. Mead
With a copy to:
Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P.
901 Main Street, Suite 3700
Dallas, Texas 75202-3792
Telecopier No:
Attention: David N. Reed
If to the Trustee:
Norwest Bank Minnesota, N.A.
Corporate Trust Department
6th and Marquette
Minneapolis, MN 55479
Telecopier No.: (612) 667-9825
Attention: Corporate Trust Department
The Company, any Guarantor or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
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<PAGE> 78
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company or any Guarantor mails a notice or communication to
Holders, it shall mail a copy to the Trustee and each Agent at the same time.
SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF
NOTES.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Guarantors, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company and/or any Guarantor to
the Trustee to take any action under this Indenture, the Company and/or such
Guarantor, as the case may be, shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance
reasonably satisfactory to the Trustee (which shall include the
statements set forth in Section 12.05 hereof) stating that, in the
opinion of the signers, all conditions precedent and covenants, if
any, provided for in this Indenture relating to the proposed action
have been satisfied; and
(b) an Opinion of Counsel in form and substance
reasonably satisfactory to the Trustee (which shall include the
statements set forth in Section 12.05 hereof) stating that, in the
opinion of such counsel, all such conditions precedent and covenants
have been satisfied.
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions
of TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate
or opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he
or she has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been satisfied; and
(d) a statement as to whether or not, in the opinion of
such Person, such condition or covenant has been satisfied.
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<PAGE> 79
SECTION 12.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 12.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No past, present or future director, Officer, employee, incorporator
or stockholder of the Company, as such, shall have any liability for any
obligations of the Company or any Guarantor under the Notes, the Subsidiary
Guarantees, this Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
SECTION 12.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES WITHOUT GIVING
EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUESTED THEREBY.
SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture and the Subsidiary Guarantees.
SECTION 12.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall
bind its successors.
SECTION 12.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
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<PAGE> 80
SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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<PAGE> 81
SIGNATURES
Dated as of ______, 1998 SILVERLEAF RESORTS, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
Dated as of ______, 1998 DATABASE RESEARCH, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
Dated as of ______, 1998 CONDOMINIUM BUILDERS, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
Dated as of ______, 1998 SILVERLEAF HOTELS, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
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<PAGE> 82
By:
-----------------------------------
Name:
Title:
Dated as of ______, 1998 SILVERLEAF TRAVEL, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
Dated as of ______, 1998 SILVERLEAF RESORT ACQUISITIONS, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
Dated as of ______, 1998 VILLAGES LAND, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
Dated as of ______, 1998 BULL'S EYE MARKETING, INC. (Calif.)
By:
-----------------------------------
Name:
Title:
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<PAGE> 83
By:
-----------------------------------
Name:
Title:
Dated as of ______, 1998 BULL'S EYE MARKETING, INC. (Del.)
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
Dated as of ______, 1998 SILVERLEAF BERKSHIRES, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
Dated as of _______, 1998 NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
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<PAGE> 84
- --------------------------------------------------------------------------------
EXHIBIT A
(Face of Note)
____% Senior Subordinated Notes due 2008
No. $__________
SILVERLEAF RESORTS, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars on _________ __, 2008.
Interest Payment Dates: ________ __, and ________ __
Record Dates: ________ __, and ________ __
Dated: _______________ __, 1998
SILVERLEAF RESORTS, INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
(SEAL)
This is one of the [Global]
Notes referred to in the
within-mentioned Indenture:
Norwest Bank Minnesota, National Association
as Trustee
By:
------------------------------
A-1
<PAGE> 85
(Back of Note)
___% Senior Subordinated Notes due 2008
[Insert the Global Note Legend]
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Silverleaf Resorts, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at
___% per annum from ________________, 1998 until maturity. The Company will
pay such interest semi-annually on _________ __ and _________ __ of each year,
or if any such day is not a Business Day, on the next succeeding Business Day
(each an "Interest Payment Date"). Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of issuance; provided that if there is no existing Default
in the payment of interest, and if this Note is authenticated between a record
date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be _____________,
1998. The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the
rate then in effect; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of
a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the _________ __ or _________ __ next preceding the
Interest Payment Date, even if such Notes are canceled after such record date
and on or before such Interest Payment Date, except as provided in Section 2.12
of the Indenture with respect to defaulted interest. The Notes will be payable
as to principal, premium, and interest at the office or agency of the Company
maintained for such purpose within or without the City and State of New York,
or, at the option of the Company, payment of interest may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, and premium, if any, on
the Global Note and all other Notes the Holders of which shall have provided
wire transfer instructions to the Company or the Paying Agent. Such payment
shall be in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts.
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<PAGE> 86
3. PAYING AGENT AND REGISTRAR. Initially, Norwest Bank Minnesota,
N.A., the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated
as of ____________, 1998 ("Indenture") between the Company, its Subsidiaries
and the Trustee. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject
to all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. To the extent any provision of this Note conflicts
with the express provisions of the Indenture, the provisions of the Indenture
shall govern and be controlling. The Notes are unsecured obligations of the
Company limited to $200.0 million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph 5, the
Company shall not have the option to redeem the Notes prior to ________ __,
2003. Thereafter, the Company shall have the option to redeem the Notes, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on ___________ of
the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . %
----------
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . %
----------
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . %
----------
2006 and thereafter . . . . . . . . . . . . . . . . . . . . . 100.00%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time prior to _______ __, 2001, the Company may redeem up
to an aggregate of 33 1/3% in principal amount of the Notes with the net cash
proceeds of a public offering of its common stock at a redemption price equal
to __% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the redemption date; provided that at least 66 2/3% in
aggregate principal amount of the Notes remain outstanding immediately after
the occurrence of such redemption and provided, further that such redemption
shall occur within 60 days of the date of the closing of such offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.
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<PAGE> 87
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be required to
make an offer (a "Change of Control Offer") to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a
purchase price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest to the date of purchase (a "Change of Control
Payment"). Within ten days following any Change of Control, the Company shall
mail a notice to each Holder setting forth the procedures governing the Change
of Control Offer as required by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sales,
within five days of each date on which the aggregate amount of Excess Proceeds
exceeds $5 million, the Company shall commence a pro rata Asset Sale Offer
pursuant to Section 3.09 of the Indenture to purchase the maximum principal
amount of Notes (including Additional Notes) that may be purchased out of the
Excess Proceeds at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
fixed for the closing of such offer, in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company (or such Subsidiary) may use any remaining Excess Proceeds for any
purpose not otherwise prohibited by the Indenture. If the aggregate principal
amount of Notes surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased on a pro rata
basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero. Holders of Notes that are the subject of an
offer to purchase will receive an Asset Sale Offer from the Company prior to
any related purchase date and may elect to have such Notes purchased by
completing the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes
or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date
and the corresponding Interest Payment Date.
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<PAGE> 88
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture, the Subsidiary Guarantees or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in
principal amount of the then outstanding Notes, and any existing default or
compliance with any provision of the Indenture, the Subsidiary Guarantees or
the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes. Without the consent of any
Holder of a Note, the Indenture, the Subsidiary Guarantees or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes or to alter the provisions regarding payment and exchange of Notes in a
manner that does not materially adversely affect any Holder, to provide for the
assumption of the Company's or Guarantor's obligations to Holders of the Notes
in case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, to
allow any Guarantor to execute a supplemental indenture to the Indenture and/or
a Subsidiary Guarantee with respect to the Notes, or to comply with the
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act, to provide for the issuance of
Additional Notes in accordance with the limitations set forth in the Indenture
or to allow any Guarantor to execute a supplemental indenture to the Indenture
and/or Subsidiary Guarantee with respect to the Notes.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default
for 30 days in the payment when due of interest on the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (ii) default in
payment when due of principal of or premium, if any, on the Notes (whether or
not prohibited by the subordination provisions of the Indenture) when the same
becomes due and payable at maturity, upon redemption (including in connection
with an offer to purchase) or otherwise, (iii) failure by the Company to comply
for 30 days after notice from the Trustee or the Holders of at least 25% in
principal amount of their outstanding Notes with Section 4.07, 4.09, 4.10, 4.15
or 5.01 of the Indenture; (iv) failure by the Company for 60 days after notice
to the Company by the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding to comply with certain other
agreements in the Indenture or the Notes; (v) default under certain other
agreements relating to Indebtedness of the Company which default results in the
acceleration of such Indebtedness prior to its express maturity and such
default has not been cured or waived as provided in the Indenture; (vi) certain
final judgments for the payment of money that remain undischarged for a period
of 60 days; (vii) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease to be in full force and effect or any Guarantor or any
Person acting on its behalf shall deny or disaffirm its obligations under such
Guarantor's Subsidiary Guarantee; and (viii) certain events of bankruptcy or
insolvency with respect to the Company or any of its Material Subsidiaries. If
any Event of Default occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Notes may declare all the
Notes to be due and payable. Notwithstanding the foregoing, in the case of an
Event of Default arising from certain events of bankruptcy or insolvency, all
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<PAGE> 89
outstanding Notes will become due and payable without further action or notice.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice
of any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in
aggregate principal amount of the Notes then outstanding by notice to the
Trustee may on behalf of the Holders of all of the Notes waive any existing
Default or Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of interest on, or the
principal of, the Notes. The Company is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and the Company
is required upon becoming aware of any Default or Event of Default, to deliver
to the Trustee a statement specifying such Default or Event of Default.
13. SUBSIDIARY GUARANTEES. Payment of principal and interest
(including interest on overdue principal and overdue interest, if lawful) is
unconditionally guaranteed on a senior subordinated basis by certain
subsidiaries of the Company.
14. SUBORDINATION. The Indebtedness evidenced by the Notes is
subordinated in right of payment to the prior payment in full of all Senior
Debt (whether outstanding on the date of the Indenture or created, incurred,
assumed or guaranteed thereafter).
15. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
16. NO RECOURSE AGAINST OTHERS. A director, Officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
17. AUTHENTICATION. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
18. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is
made as to the accuracy of such numbers either as
A-6
<PAGE> 90
printed on the Notes or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
Silverleaf Resorts, Inc.
1221 Riverbend Drive, Suite 120
Dallas, Texas 75247
Telecopier No.:
Attention: Sandra Cearley
A-7
<PAGE> 91
EXHIBIT A-1
[FORM OF NOTATION ON NOTE
RELATING TO SUBSIDIARY GUARANTEE]
SUBSIDIARY GUARANTEE
Silverleaf Resort Acquisitions, a Texas corporation, Silverleaf
Travel, Inc., a Texas corporation, Silverleaf Hotels, Inc., a Texas
corporation, Database Research, Inc., a Texas corporation, Condominium
Builders, Inc., a Texas corporation, and Villages Land, Inc., a Texas
corporation, (hereinafter referred to as the "Guarantors", which term includes
any successor or additional Guarantor under the Indenture referred to in the
Note upon which this notation is endorsed), on terms and conditions provided in
the Indenture, (i) has unconditionally guaranteed (a) the due and punctual
payment of the principal of and interest, if any, on the Notes, whether at
maturity or interest payment date, by acceleration, call for redemption or
otherwise, (b) the due and punctual payment of interest on the overdue
principal of and (if lawful) interest on the Notes, (c) the due and punctual
performance of all other obligations of the Company to the Holders or the
Trustee, all in accordance with the terms set forth in the Indenture, and (d)
in case of any extension of time of payment or renewal of any Notes or any of
such other obligations, the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise and (ii) has agreed to pay any
and all costs and expenses (including reasonable attorneys' fees) incurred by
the Trustee or any Holder in enforcing any rights under this Subsidiary
Guarantee. Capitalized terms used herein have the meanings assigned to them in
the Indenture unless otherwise indicated.
No stockholder, Officer, director or incorporator, as such, past,
present or future, of the Guarantors shall have any personal liability under
this Subsidiary Guarantee by reason of his or its status as such stockholder,
Officer, director or incorporator.
This Subsidiary Guarantee shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the successors and
assigns of the Trustee and the Holders and, in the event of any transfer or
assignment of rights by any Holder or the Trustee, the rights and privileges
herein conferred upon that party shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Note upon which this
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized Officers.
[Name of Guarantor]
By:
---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
<PAGE> 92
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
-------------------------------------------------------
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:
-------------------------
Your Signature:
--------------------
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee.
<PAGE> 93
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $___________
Date:_____________________ Your Signature: _________________________________
(Sign exactly as your name appears on the Note)
Tax Identification No.:____________________________
Signature Guarantee.
<PAGE> 94
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for and interest
in another Global Note or for a Definitive Note have been made:
<TABLE>
<CAPTION>
Date of Exchange Amount of decrease Amount of increase in Principal Amount at maturity Signature of
- ----------------- in Principal Principal Amount of of this Global Note authorized Officer
Amount of at this Global Note following such decrease (or of Trustee or Note
maturity of this --------------------- increase) Custodian
Global Note ---------------------------- ------------------
------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 95
EXHIBIT B
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
________________, among __________________ (the "Guaranteeing Subsidiary"), a
subsidiary of Silverleaf Resorts, Inc. (or its permitted successor), a Texas
corporation (the "Company"), the Company, the other Guarantors (as defined in
the Indenture referred to herein) and Norwest Bank Minnesota, National
Association, as trustee under the indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of ________, 1998 providing
for the issuance of an aggregate principal amount of up to $75,000,000 of ___%
Senior Subordinated Notes due 2008 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally
guarantee all of the Company's Obligations under the Notes and the Indenture on
the terms and conditions set forth herein (the "New Subsidiary Guarantee"); and
WHEREAS, pursuant to Section 9.01(f) of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees as
follows:
(a) Along with all Guarantors named in the Indenture, to
jointly and severally guarantee to each Holder of a Note authenticated
and delivered by the Trustee and to the Trustee and its successors and
assigns, irrespective of the validity and enforceability of the
Indenture, the Notes or the obligations of the Company hereunder or
thereunder, that:
(i) the principal of and interest on the Notes
will be promptly paid in full when due, whether at maturity,
by acceleration, redemption or otherwise, and interest on the
overdue principal of and interest on the Notes, if any, if
lawful, and
B-1
<PAGE> 96
all other obligations of the Company to the Holders or the
Trustee hereunder or thereunder will be promptly paid in full
or performed, all in accordance with the terms hereof and
thereof; and
(ii) in case of any extension of time of payment
or renewal of any Notes or any of such other obligations, that
same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether
at stated maturity, by acceleration or otherwise. Failing
payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the Guarantors
shall be jointly and severally obligated to pay the same
immediately.
(b) The obligations hereunder shall be unconditional,
irrespective of the validity, regularity or enforceability of the
Notes or the Indenture, the absence of any action to enforce the same,
any waiver or consent by any Holder of the Notes with respect to any
provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or
defense of a Guarantor.
(c) The following is hereby waived: diligence,
presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require
a proceeding first against the Company, protest, notice and all
demands whatsoever.
(d) This New Subsidiary Guarantee shall not be discharged
except by complete performance of the obligations contained in the
Notes and the Indenture.
(e) If any Holder or the Trustee is required by any court
or otherwise to return to the Company, any Guarantor, or any
Custodian, trustee, liquidator or other similar official acting in
relation to either the Company or any Guarantor, any amount paid by
the Company or any Guarantor either to the Trustee or such Holder,
this New Subsidiary Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect.
(f) The Guaranteeing Subsidiary shall not be entitled to
any right of subrogation in relation to the Holders in respect of any
obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby.
(g) As between the Guaranteeing Subsidiary, on the one
hand, and the Holders and the Trustee, on the other hand, (x) the
maturity of the obligations guaranteed hereby may be accelerated as
provided in Article 6 of the Indenture for the purposes of this New
Subsidiary Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of
acceleration of such obligations as provided in Article 6 of the
Indenture, such obligations (whether or not due and payable) shall
forthwith become due and payable by the Guaranteeing Subsidiary for
the purpose of this New Subsidiary Guarantee.
B-2
<PAGE> 97
(h) The Guarantors shall have the right to seek
contribution from any non-paying Guarantor so long as the exercise of
such right does not impair the rights of the Holders under the
Guarantee.
(i) After giving effect to any maximum amount and any
other contingent and fixed liabilities that are relevant under any
applicable Bankruptcy or fraudulent conveyance laws, and after giving
effect to any collections from, rights to receive contribution from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under Article 10 of the Indenture
shall result in the obligations of such Guarantor under its New
Subsidiary Guarantee not constituting a fraudulent transfer or
conveyance.
3. Execution and Delivery. The Guaranteeing Subsidiary agrees that this
New Subsidiary Guarantee shall remain in full force and effect notwithstanding
any failure to endorse on each Note a notation of this New Subsidiary
Guarantee.
4. Guaranteeing Subsidiary may Consolidate, Etc., On Certain Terms.
(a) The Guaranteeing Subsidiary may not consolidate with
or merge with or into (whether or not such Guaranteeing Subsidiary is
the surviving Person) another corporation, Person or entity whether or
not affiliated with such Guaranteeing Subsidiary unless:
(i) subject to Section 10.05 of the Indenture,
the Person formed by or surviving any such consolidation or
merger (if other than a Guarantor or the Company)
unconditionally assumes all the obligations of such
Guaranteeing Subsidiary, pursuant to a supplemental indenture
in form and substance reasonably satisfactory to the Trustee,
under the Notes, the Indenture, the Subsidiary Guarantees and
this New Subsidiary Guarantee on the terms set forth herein or
therein;
(ii) immediately after giving effect to such
transaction, no Default or Event of Default exists;
(iii) such Guaranteeing Subsidiary, or any Person
formed by or surviving any such consolidation or merger, would
have Consolidated Net Worth (immediately after giving effect
to such transaction) equal to or greater than the Consolidated
Net Worth of such Guaranteeing Subsidiary immediately
preceding the transaction; and
(iv) the Company would be permitted by virtue of
the Company's pro forma Consolidated Coverage Ratio,
immediately after giving effect to such transaction, to incur
at least $1.00 of additional Indebtedness pursuant to the
Consolidated Coverage Ratio test set forth in the first
paragraph of Section 4.09 of the Indenture.
3-3
<PAGE> 98
(b) In case of any such consolidation, merger, sale or
conveyance and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and
satisfactory in form to the Trustee, of the New Subsidiary Guarantee
endorsed upon the Notes and the due and punctual performance of all of
the covenants and conditions of the Indenture to be performed by the
Guaranteeing Subsidiary, such successor corporation shall succeed to
and be substituted for the Guaranteeing Subsidiary with the same
effect as if it had been named herein as a Guarantor. Such successor
corporation thereupon may cause to be signed any or all of the New
Subsidiary Guarantees to be endorsed upon all of the Notes issuable
hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the New Subsidiary Guarantees so
issued shall in all respects have the same legal rank and benefit
under the Indenture as the Subsidiary Guarantees theretofore and
thereafter issued in accordance with the terms of the Indenture as
though all of such New Subsidiary Guarantees had been issued at the
date of the execution hereof.
(c) Except as set forth in Articles 4 and 5 of the
Indenture, and notwithstanding clauses (a) and (b) above, nothing
contained in the Indenture or in any of the Notes shall prevent any
consolidation or merger of the Guaranteeing Subsidiary with or into
the Company or another Guarantor, or shall prevent any sale or
conveyance of the property of the Guaranteeing Subsidiary as an
entirety or substantially as an entirety to the Company or another
Guarantor.
5. Releases.
(a) In the event of a sale or other disposition of all of the
assets of the Guaranteeing Subsidiary, by way of merger, consolidation or
otherwise, or a sale or other disposition of all to the capital stock of the
Guaranteeing Subsidiary, then such Guaranteeing Subsidiary (in the event of a
sale or other disposition, by way of merger, consolidation or otherwise, of all
of the capital stock of such Guaranteeing Subsidiary) or the corporation
acquiring the property (in the event of a sale or other disposition of all or
substantially all of the assets of such Guaranteeing Subsidiary) will be
released and relieved of any obligations under this New Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture, including without
limitation Section 4.10 of the Indenture. Upon delivery by the Company to the
Trustee of an Officers' Certificate and an Opinion of Counsel to the effect
that such sale or other disposition was made by the Company in accordance with
the provisions of the Indenture, including without limitation Section 4.10 of
the Indenture, the Trustee shall execute any documents reasonably required in
order to evidence the release of the Guaranteeing Subsidiary from its
obligations under this New Subsidiary Guarantee
(b) Any Guarantor (including the Guaranteeing Subsidiary) not
released from its obligations under its Subsidiary Guarantee or New Subsidiary
Guarantee, as the case may be, shall remain liable for the full amount of
principal of and interest on the Notes and for the other obligations of any
Guarantor under the Indenture as provided in Article 10 of the Indenture.
B-4
<PAGE> 99
6. No Recourse Against Others. No past, present or future director,
Officer, employee, incorporator, stockholder or agent of the Guaranteeing
Subsidiary, as such, shall have any liability for any obligations of the
Company or any Guarantor under the Notes, any Subsidiary Guarantees, the
Indenture or this Supplemental Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of the
Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
7. New York Law to Govern. THE INTERNAL LAW OF THE STATE OF NEW YORK
SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
8. Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
9. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
10. The Trustee. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which recitals are made solely by the Guaranteeing Subsidiary and the
Company.
B-5
<PAGE> 100
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: _______________, ____
[GUARANTEEING SUBSIDIARY]
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
SILVERLEAF RESORTS, INC.
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
DATABASE RESEARCH, INC.
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
B-6
<PAGE> 101
CONDOMINIUM BUILDERS, INC.
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
SILVERLEAF HOTELS, INC.
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
SILVERLEAF TRAVEL, INC.
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
SILVERLEAF RESORT ACQUISITIONS, INC.
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
B-7
<PAGE> 102
VILLAGES LAND, INC.
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
SILVERLEAF BERKSHIRES, INC.
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
BULL'S EYE MARKETING, INC. (CALIF.)
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
BULL'S EYE MARKETING, INC. (DEL.)
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
B-8
<PAGE> 103
NORWEST BANK MINNESOTA, N.A.
as Trustee
By:
-------------------------
Name:
Title:
B-9
<PAGE> 1
EXHIBIT 5.1
MEADOWS, OWENS, COLLIER, REED, COUSINS
& BLAU L.L.P.
3700 NationsBank Plaza
901 Main Street
Dallas, TX 75202
(214) 744-3700
(214) 747-3732
, 1998
-----------
Silverleaf Resorts, Inc.
1221 Riverbend Drive
Suite 120
Dallas, Texas 75247
Re: Silverleaf Resorts, Inc. -- Registration
of Senior Subordinated Notes due 2008
Ladies and Gentlemen:
In connection with the registration of $75,000,000 in aggregate
principal amount of ____% Senior Subordinated Notes due 2008 (the "Notes") by
Silverleaf Resorts, Inc., a Texas corporation (the "Company") on Form S-1 under
the Securities Act of 1933, as amended, filed with the Securities and Exchange
Commission (the "Commission") on March __, 1998 (File No. 333-_____), as
amended by Amendment No. 1 filed with the Commission on ___________, 1998, as
amended by Amendment No. 2 filed with the Commission on ___________, 1998
(collectively, the "Registration Statement"), you have requested our opinion
with respect to the matters set forth below.
In our capacity as your counsel in connection with such registration,
we are familiar with the proceedings taken and proposed to be taken by the
Company in connection with the authorization and issuance of the Notes, and for
the purposes of this opinion, have assumed such proceedings will be timely
completed in the manner presently proposed. In addition, we have made such
legal and factual examinations and inquiries, including an examination of
originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and instruments, as we have deemed necessary
or appropriate for purposes of this opinion.
<PAGE> 2
Silverleaf Resorts, Inc.
, 1997
- ----------
Page 2
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons executing documents, the authenticity
of all documents submitted to us as originals and the conformity to authentic
originals of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transaction only
of the internal laws of the State of ________, and we express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any
other jurisdiction or as to any matters of municipal law or the laws of any
local agencies within any state.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that:
1) the Notes have been duly authorized by all necessary corporate
action on the part of the Company, and upon issuance and delivery thereof, in
accordance with and subject to the terms of the Registration Statement and the
Indenture (as defined in the Registration Statement), the Notes will be validly
issued; and
2) the Notes, when authenticated by the Trustee and executed and
delivered by the Company in accordance with the Indenture, will constitute valid
and binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to the following additional limitations,
qualifications and exceptions:
(i) the effect of bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to or affecting the
rights or remedies of creditors;
(ii) the effect of general principles of equity, whether enforcement
is considered in a proceeding in equity or at law, and the discretion of the
court before which any proceeding therefor may be brought;
(iii) the unenforceability under certain circumstances under law or
court decisions of provisions providing for the indemnification of or
contribution to a party with respect to a liability where such indemnification
or contribution is contrary to public policy; and
(iv) the manner by which the acceleration of the Notes may affect the
collectibility of that portion of the stated principal amount thereof which
might be determined to constitute unearned interest thereon.
To the extent that the obligations of the Company under the Indenture
and the Notes (collectively, the "Documents") may be dependent upon such
matters, we assume for purposes of this opinion that the Trustee is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization; that the Trustee is duly qualified to engage in
the activities contemplated by each of the Documents; that each of the
Documents has been duly authorized, executed and delivered by the Trustee and
constitutes the legal, valid and binding obligation of the Trustee, enforceable
against the Trustee in accordance with its terms; that the
<PAGE> 3
Silverleaf Resorts, Inc.
, 1997
- -----------
Page 3
Trustee is in compliance, generally and with respect to acting as a trustee
under each of the Documents, with all applicable laws and regulations; and that
the Trustee has the requisite organizational and legal power and authority to
perform its obligations under each of the Documents.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
Very truly yours,
<PAGE> 1
EXHIBIT 12.1
Statement Concerning Computation of Ratios of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------------------------- -----------------
Year Ended December 31, Year Ended
1993 1994 1995 1996 1997 December 31, 1997
------------------------------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations
before provision for income taxes $ 3,221 $ 4,032 $ 3,058 $ 8,409 $18,984 $16,602
Interest expense 1,426 1,642 3,609 4,759 4,664 6,686
Interest component of rent expense 20 44 87 119 227 227
Amortization of previously capitalized
interest 497 520 520
------- ------- ------- ------- ------- -------
Earnings $ 4,667 $ 5,718 $ 6,754 $13,784 $24,395 $24,035
======= ======= ======= ======= ======= =======
Fixed Charges:
Interest expense $ 1,426 $ 1,642 $ 3,609 $ 4,759 $ 4,664 $ 6,686
Interest capitalized 516 711 823 823
Interest component of rent expense 20 44 87 119 227 227
------- ------- ------- ------- ------- -------
Fixed charges $ 1,446 $ 1,686 $ 4,212 $ 5,589 $ 5,714 $ 7,736
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 3.2 3.4 1.6 2.5 4.3 3.1
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SILVERLEAF RESORTS, INC.
Due to the provisions of Item 601(b)(21)(ii) of Regulation S-K, the
Registrant has no subsidiaries which must be specifically described under Item
601(b)(21)(i).
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Silverleaf
Resorts, Inc., relating to $75,000,000 aggregate principal amount of Senior
Subordinated Notes due 2008 of Silverleaf Resorts, Inc. on Form S-1, of our
report dated February 24, 1998 (March 6, 1998 as to the last two paragraphs of
Note 15), appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the headings "Summary
Consolidated Historical Financial, Operating and Pro Forma Information,"
"Unaudited Pro Forma Condensed Consolidated Financial Information," "Selected
Consolidated Historical Financial and Operating Information" and "Experts" in
such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
March 6, 1998
<PAGE> 1
EXHIBIT 25.1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------------
___ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b) (2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. NATIONAL BANKING ASSOCIATION 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
-----------------------------
SILVERLEAF RESORTS, INC.
(Exact name of obligor as specified in its charter)
TEXAS 75-2259890
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1221 RIVERBEND DRIVE
DALLAS, TEXAS 75247
(Address of principal executive offices) (Zip code)
-----------------------------
$75,000,000 __% SENIOR SUBORDINATED NOTES DUE 2008
(Title of the indenture securities)
===============================================================================
<PAGE> 2
Item 1. General Information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust
powers.
The trustee is authorized to exercise corporate trust
powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
<TABLE>
<S> <C> <C>
Item 15. Foreign Trustee. Not applicable.
Item 16. List of Exhibits. List below all exhibits filed as a part of
this Statement of Eligibility. Norwest Bank
incorporates by reference into this Form T-1
the exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association of
the trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of
the trustee to commence business issued June
28, 1872, by the Comptroller of the Currency
to The Northwestern National Bank of
Minneapolis.*
b. A copy of the certificate of the Comptroller
of the Currency dated January 2, 1934,
approving the consolidation of The
Northwestern National Bank of Minneapolis
and The Minnesota Loan and Trust Company of
Minneapolis, with the surviving entity being
titled Northwestern National Bank and Trust
Company of Minneapolis.*
c. A copy of the certificate of the Acting
Comptroller of the Currency dated January
12, 1943, as to change of corporate title of
Northwestern National Bank and Trust Company
of Minneapolis to Northwestern National Bank
of Minneapolis.*
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
d. A copy of the letter dated May 12, 1983 from
the Regional Counsel, Comptroller of the
Currency, acknowledging receipt of notice of
name change effective May 1, 1983 from
Northwestern National Bank of Minneapolis to
Norwest Bank Minneapolis, National
Association.*
e. A copy of the letter dated January 4, 1988
from the Administrator of National Banks for
the Comptroller of the Currency certifying
approval of consolidation and merger
effective January 1, 1988 of Norwest Bank
Minneapolis, National Association with
various other banks under the title of
"Norwest Bank Minnesota, National
Association."*
Exhibit 3. A copy of the authorization of the trustee to
exercise corporate trust powers issued January 2,
1934, by the Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b)
of the Act.
Exhibit 7. A copy of the latest report of condition of the
trustee published pursuant to law or the requirements
of its supervising or examining authority.
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
</TABLE>
* Incorporated by reference to exhibit number 25 filed with
registration statement number 33-66026.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 24th day of February 1998.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ JANE Y. SCHWEIGER
--------------------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE> 5
EXHIBIT 6
February 24, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ JANE Y. SCHWEIGER
--------------------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE> 6
EXHIBIT 7
<TABLE>
<S> <C> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
Federal Financial Institutions Examination Council Expires March 31, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
/1/
Please refer to page i,
[LOGO] Table of Contents, for
the required disclosure
of estimated burden.
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC AND FOREIGN OFFICES -- FFIEC 031
(971231)
REPORT AT THE CLOSE OF BUSINESS DECEMBER 31, 1997 -----------
(RCRI 9999)
This report is required by law: 12 U.S.C. Section 324 (State This report form is to be filed by banks with branches and
member banks); 12 U.S.C. Section 1817 (State nonmember banks); consolidated subsidiaries in U.S. territories and possessions,
and 12 U.S.C. Section 161 (National banks). Edge or Agreement subsidiaries, foreign branches, consolidated
foreign subsidiaries, or International Banking Facilities.
- ------------------------------------------------------------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed The Reports of Condition and Income are to be prepared in
by an authorized officer and the Report of Condition must be accordance with Federal regulatory authority instructions.
attested to by not less than two directors (trustees) for State
nonmember banks and three directors for State member and We, the undersigned directors (trustees), attest to the
National banks. correctness of the Report of Condition (including the
supporting schedules) for this report date and declare that it
I, Mark P. Wagener, Director of Bank & Service Accounting has been examined by us and to the best of our knowledge
------------------------------------------------------------- and belief has been prepared in conformance with the
Name and Title of Officer Authorized to Sign Report instructions issued by the appropriate Federal regulatory
authority and is true and correct.
of the named bank do hereby declare that the Reports of
Condition and Income (including the supporting schedules)
for this report date have been prepared in conformance with /s/ RICHARD C. WESTERGAARD
the instructions issued by the appropriate Federal regulatory ---------------------------------------------------------------
authority and are true to the best of my knowledge and belief. Director (Trustee)
/s/ MARK P. WAGENER /s/ WILLIAM H. QUEENAN
- --------------------------------------------------------------- ---------------------------------------------------------------
Signature of Officer Authorized to Sign Report Director (Trustee)
1/30/98 /s/ PATRICK J. DONOVAN
- --------------------------------------------------------------- ---------------------------------------------------------------
Date of Signature Director (Trustee)
- ------------------------------------------------------------------------------------------------------------------------------------
SUBMISSION OF REPORTS (b) in hard-copy (paper) form and arrange for another party
to convert the paper report to automated form. That
Each bank must prepare its Reports of Condition and Income party (if other than EDS) must transmit the bank's
either: computer data file to EDS.
(a) in automated form and then file the computer data file To fulfill the signature and attestation requirement for the
directly with the banking agencies' collection agent, Reports of Condition and Income for this report date, attach
Electronic Data Systems Corporation (EDS), by modem or this signature page to the hard-copy record of the completed
on computer diskette; or report that the bank places in its files.
- ------------------------------------------------------------------------------------------------------------------------------------
FDIC Certificate Number 0 5 2 0 8 CALL NO. 202 31 12-31-97
---------------
(RCRI 9050) STBK=27-4095 00017 STCERT:27-05208
NORWEST BANK MINNESOTA, NATIONAL
SIXTH STREET AND MARQUETTE AVENUE
MINNEAPOLIS, MN 55479-0016
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency.
</TABLE>
<PAGE> 7
FFIEC 031
Page i
/2/
Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SIGNATURE PAGE COVER REPORT OF CONDITION
<S> <C> <C> <C>
REPORT OF INCOME Schedule RC -- Balance Sheet............................ RC-1, 2
Schedule RI -- Income Statement..................... RI-1, 2, 3 Schedule RC-A -- Cash and Balances Due
From Depository Institutions............................. RC-3
Schedule RI-A -- Changes in Equity Capital................ RI-4
Schedule RC-B -- Securities.......................... RC-3, 4, 5
Schedule RI-B -- Charge-offs and Recoveries and
Changes in Allowance for Loan and Lease Schedule RC-C -- Loans and Lease Financing
Losses............................................... RI-4, 5 Receivables:
Part I. Loans and Leases........................... RC-6, 7, 8
Schedule RI-D -- Income from Part II. Loans to Small Businesses and
International Operations................................ RI-6 Small Farms (included in the forms for
June 30 only)..................................... RC-8a, 8b
Schedule RI-E -- Explanations.......................... RI-7, 8
Schedule RC-D -- Trading Assets and Liabilities
(to be completed only by selected banks)................. RC-8
Schedule RC-E -- Deposit Liabilities............... RC-9, 10, 11
Schedule RC-F -- Other Assets............................. RC-11
Schedule RC-G -- Other Liabilities........................ RC-11
DISCLOSURE OF ESTIMATED BURDEN Schedule RC-H -- Selected Balance Sheet Items
for Domestic Offices.................................... RC-12
THE ESTIMATED AVERAGE BURDEN ASSOCIATED WITH THIS INFORMATION
COLLECTION IS 34.1 HOURS PER RESPONDENT AND IS ESTIMATED TO VARY Schedule RC-I -- Selected Assets and Liabilities
FROM 15 TO 400 HOURS PER RESPONSE, DEPENDING ON INDIVIDUAL of IBFs................................................. RC-13
CIRCUMSTANCES. BURDEN ESTIMATES INCLUDE THE TIME FOR REVIEWING
INSTRUCTIONS, GATHERING AND MAINTAINING DATA IN THE REQUIRED Schedule RC-K -- Quarterly Averages....................... RC-13
FORM, AND COMPLETING THE INFORMATION COLLECTION, BUT EXCLUDE THE
TIME FOR COMPILING AND MAINTAINING BUSINESS RECORDS IN THE NORMAL Schedule RC-L -- Off-Balance Sheet Items.......... RC-14, 15, 16
COURSE OF A RESPONDENT'S ACTIVITIES. A FEDERAL AGENCY MAY NOT
CONDUCT OR SPONSOR, AND AN ORGANIZATION (OR A PERSON) IS NOT Schedule RC-M -- Memoranda............................ RC-17, 18
REQUIRED TO RESPOND TO A COLLECTION OF INFORMATION, UNLESS IT
DISPLAYS A CURRENTLY VALID OMB CONTROL NUMBER. COMMENTS Schedule RC-N -- Past Due and Nonaccrual
CONCERNING THE ACCURACY OF THIS BURDEN ESTIMATE AND SUGGESTIONS Loans, Leases, and Other Assets..................... RC-19, 20
FOR REDUCING THIS BURDEN SHOULD BE DIRECTED TO THE OFFICE OF
INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND Schedule RC-O -- Other Data for Deposit
BUDGET, WASHINGTON, D.C. 20503, AND TO ONE OF THE FOLLOWING: Insurance and FICO Assessments...................... RC-21, 22
SECRETARY Schedule RC-R -- Regulatory Capital................... RC-23, 24
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551 Optional Narrative Statement Concerning
the Amounts Reported in the Reports
LEGISLATIVE AND REGULATORY ANALYSIS DIVISION of Condition and Income................................. RC-25
OFFICE OF THE COMPTROLLER OF THE CURRENCY
WASHINGTON, D.C. 20219 Special Report (TO BE COMPLETED BY ALL BANKS)
ASSISTANT EXECUTIVE SECRETARY
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
</TABLE>
For information or assistance, National and State nonmember banks should contact
the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington, D.C.
20429, toll free on (800) 688-FDIC(3342), Monday through Friday between 8:00
a.m. and 5:00 p.m., Eastern time. State member banks should contact their
Federal Reserve District Bank.
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI-1
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
3
Transit Number: 91000019
</TABLE>
CONSOLIDATED REPORT OF INCOME
FOR THE PERIOD JANUARY 1, 1997 - DECEMBER 31, 1997
ALL REPORT OF INCOME SCHEDULES ARE TO BE REPORTED ON A CALENDAR YEAR-TO-DATE
BASIS IN THOUSANDS OF DOLLARS.
SCHEDULE RI - INCOME STATEMENT
<TABLE>
<CAPTION>
I480 <-
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income:
a. Interest and fee income on loans:
(1) In domestic offices: RIAD
----
(a) Loans secured by real estate ................................................... 4011. . 359,620 1.a.1a
(b) Loans to depository institutions ............................................... 4019. . 16,468 1.a.1b
(c) Loans to finance agricultural production and other loans to farmers ............ 4024. . 898 1.a.1c
(d) Commercial and industrial loans ................................................ 4012. . 325,021 1.a.1d
(e) Acceptances of other banks ..................................................... 4026. . 591 1.a.1e
(f) Loans to individuals for household, family, and other personal expenditures:
(1) Credit cards and related plans ............................................. 4054. . 24,485 1.a.1f1
(2) Other ...................................................................... 4055. . 40,828 1.a.1f2
(g) Loans to foreign governments and official institutions ......................... 4056. . 0 1.a.1g
(h) Obligations (other than securities and leases) of states and political
subdivisions in the U.S.:
(1) Taxable obligations ........................................................ 4503. . 53 1.a.1h1
(2) Tax-exempt obligations ..................................................... 4504. . 3,118 1.a.1h2
(i) All other loans in domestic offices ............................................ 4058. . 382 1.a.1i
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... 4059. . 12,886 1.a.2
b. Income from lease financing receivables:
(1) Taxable leases ..................................................................... 4505. . 43,242 1.b.1
(2) Tax-exempt leases .................................................................. 4307. . 0 1.b.2
c. Interest income on balances due from depository institutions:(1)
(1) In domestic offices ................................................................ 4105. . 236 1.c.1
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... 4106. . 4,899 1.c.2
d. Interest and dividend income on securities:
(1) U.S. Treasury securities and U.S. Government agency obligations .................... 4027. . 116,342 1.d.1
(2) Securities issued by states and political subdivisions in the U.S.:
(a) Taxable securities ............................................................. 4506. . 70 1.d.2a
(b) Tax-exempt securities .......................................................... 4507. . 7,517 1.d.2b
(3) Other domestic debt securities ..................................................... 3657. . 380 1.d.3
(4) Foreign debt securities ............................................................ 3658. . 0 1.d.4
(5) Equity securities (including investments in mutual funds) .......................... 3659. . 8,004 1.d.5
e. Interest income from trading assets .................................................... 4069. . 14,620 1.e.
</TABLE>
- ---------------
(1) Includes interest income on time certificates of deposit not held for
trading.
<PAGE> 9
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI-2
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
4
Transit Number: 91000019
</TABLE>
Schedule RI - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income (continued) RIAD Year-to-date
----
f. Interest income on federal funds sold and securities purchased
under agreements to resell .......................................... 4020. . 203,367 . . . . . 1.f
g. Total interest income (sum of items 1.a through 1.f) ................ 4107. . 1,183,027 . . . . . 1.g
2. Interest expense:
a. Interest on deposits:
(1) Interest on deposits in domestic offices:
(a) Transaction accounts (NOW accounts, ATS accounts, and
telephone and preauthorized transfer accounts) .............. 4508. . 2,790 . . . . . 2.a.1a
(b) Nontransaction accounts:
(1) Money market deposit accounts (MMDAs) ................... 4509. . 22,201 . . . . . 2.a.1b1
(2) Other savings deposits .................................. 4511. . 15,844 . . . . . 2.a.1b2
(3) Time deposits of $100,000 or more ....................... A517. . 9,602 . . . . . 2.a.1b3
(4) Time deposits of less than $100,000...................... A518. . 93,088 . . . . . 2.a.1b4
(2) Interest on deposits in foreign offices, Edge and Agreement
subsidiaries, and IBFs .......................................... 4172. . 166,703 . . . . . 2.a.2
b. Expense of federal funds purchased and securities sold under
agreements to repurchase ............................................ 4180. . 193,515 . . . . . 2.b
c. Interest on demand notes issued to the U.S. Treasury, trading
liabilities and other borrowed money ................................ 4185. . 36,332 . . . . . 2.c
d. Not applicable
e. Interest on subordinated notes and debentures ....................... 4200. . 10 . . . . . 2.e
f. Total interest expense (sum of items 2.a through 2.e) ............... 4073. . 540,085 . . . . . 2.f
3. Net interest income (item 1.g minus 2.f) ............................... 4074 . . . . . . . . 642,942 3.
4. Provisions:
a. Provision for loan and lease losses ................................. 4230 . . . . . . . . 47,836 4.a
b. Provision for allocated transfer risk ............................... 4243 . . . . . . . . 0 4.b
5. Noninterest income:
a. Income from fiduciary activities .................................... 4070. . 231,192 . . . . . 5.a
b. Service charges on deposit accounts in domestic offices ............. 4080. . 84,436 . . . . . 5.b
c. Trading revenue (must equal Schedule RI, sum of Memorandum
items 8.a through 8.d)............................................... A220. . 51,386 . . . . . 5.c
d. Not applicable
e. Not applicable
f. Other noninterest income:
(1) Other fee income ................................................ 5407. . 138,437 . . . . . 5.f.1
(2) All other noninterest income* ................................... 5408. . 117,500 . . . . . 5.f.2
g. Total noninterest income (sum of items 5.a through 5.f) ............. 4079 . . . . . . . . 622,951 5.g
6. a. Realized gains (losses) on held-to-maturity securities .............. 3521 . . . . . . . . 0 6.a
b. Realized gains (losses) on available-for-sale securities ............ 3196 . . . . . . . . 30,600 6.b
7. Noninterest expense:
a. Salaries and employee benefits ...................................... 4135. . 285,238 . . . . . 7.a
b. Expenses of premises and fixed assets (net of rental income)
(excluding salaries and employee benefits and mortgage interest) .... 4217. . 81,565 . . . . . 7.b
c. Other noninterest expense* .......................................... 4092. . 418,621 . . . . . 7.c
d. Total noninterest expense (sum of items 7.a through 7.c) ............ 4093 . . . . . . . . 785,424 7.d
8. Income (loss) before income taxes and extraordinary items and other
adjustments (item 3 plus or minus items 4.a, 4.b, 5.g,
6.a, 6.b, and 7.d) ..................................................... 4301 . . . . . . . . 463,233 8.
9. Applicable income taxes (on item 8) .................................... 4302 . . . . . . . . 166,882 9.
10. Income (loss) before extraordinary items and other adjustments
(item 8 minus 9) ....................................................... 4300 . . . . . . . . 296,351 10.
11. Extraordinary items and other adjustments, net of income taxes* ....... 4320 . . . . . . . . 0 11.
12. Net income (loss) (sum of items 10 and 11).............................. 4340 . . . . . . . . 296,351 12.
</TABLE>
____________
*Describe on Schedule RI-E - Explanations.
<PAGE> 10
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI- 3
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
5
Transit Number: 91000019
Schedule RI - Continued
</TABLE>
<TABLE>
<CAPTION>
I481 <-
Memoranda
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------ ----------------------------
RIAD Year-to-date
---- -------------
<S> <C> <C> <C>
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after
August 7, 1986, that is not deductible for federal income tax purposes .......................... 4513. . 3 M.1
2. Income from the sale and servicing of mutual funds and annuities in domestic offices
(included in Schedule RI, item 8) ............................................................... 8431. . 1,710 M.2
3. Not applicable
4. Not applicable Number
5. Number of full-time equivalent employees at end of current period (round to ------
nearest whole number) ........................................................................... 4150. . 5,156 M.5
6. Not applicable.
7. If the reporting bank has restated its balance sheet as a result of applying push down CCYY MM DD
accounting this calendar year, report the date of the bank's acquisition (1)..................... 9106. . N/A M.7
8. Trading revenue (from cash instruments and off-balance sheet derivative instruments)
(Sum of Memorandum items 8.a through 8.d must equal Schedule RI, item 5.c): RIAD Year-to-date
----
a. Interest rate exposures....................................................................... 8757. . 36,472 M.8.a
b. Foreign exchange exposures.................................................................... 8758. . 14,294 M.8.b
c. Equity security and index exposures........................................................... 8759. . 0 M.8.c
d. Commodity and other exposures................................................................. 8760. . 620 M.8.d
9. Impact on income of off-balance sheet derivatives held for purposes other than trading:
a. Net increase (decrease) to interest income.................................................... 8761. .( 2,148) M.9.a
b. Net (increase) decrease to interest expense................................................... 8762. . 21,573 M.9.b
c. Other (noninterest) allocations............................................................... 8763. . 5,313 M.9.c
10. Credit losses on off-balance sheet derivatives (see instructions)................................ A251. . 0 M.10
11. Does the reporting bank have a Subchapter S election in effect for federal income tax YES NO
purposes for the current tax year?............................................................... A530. . NO M.11
12 Deferred portion of total applicable income taxes included in Schedule RI, items 9
and 11 (to be reported with the December Report of Income)....................................... 4772. .( 2,059) M.12
</TABLE>
____________
(1) For example, a bank acquired on June 1, 1997 would report 19970601
*Describe on Schedule RI-E - Explanations.
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI-4
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
6
Transit Number: 91000019
</TABLE>
Schedule RI-A - Changes in Equity Capital
Indicate decreases and losses in parentheses.
<TABLE>
<CAPTION>
I483 <-
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIAD
----
1. Total equity capital originally reported in the December 31, 1996, Reports of Condition
and Income ...................................................................................... 3215.. 1,243,101 1.
2. Equity capital adjustments from amended Reports of Income, net* ................................. 3216.. 0 2.
3. Amended balance end of previous calendar year (sum of items 1 and 2) ............................ 3217.. 1,243,101 3.
4. Net income (loss) (must equal Schedule RI, item 12) ............................................. 4340.. 296,351 4.
5. Sale, conversion, acquisition, or retirement of capital stock, net .............................. 4346.. 0 5.
6. Changes incident to business combinations, net .................................................. 4356.. 0 6.
7. LESS: Cash dividends declared on preferred stock ................................................ 4470.. 0 7.
8. LESS: Cash dividends declared on common stock ................................................... 4460.. 66,000 8.
9. Cumulative effect of changes in accounting principles from prior years* (see instructions
for this schedule) .............................................................................. 4411.. 0 9.
10. Corrections of material accounting errors from prior years* (see instructions for this schedule) 4412.. 0 10.
11. Change in net unrealized holding gains (losses) on available-for-sale securities ................ 8433.. 8,396 11.
12. Foreign currency translation adjustments ........................................................ 4414.. ( 278) 12.
13. Other transactions with parent holding company* (not included in items 5, 7, or 8 above) ........ 4415.. 110,757 13.
14. Total equity capital end of current period (sum of items 3 through 13) (must equal Schedule RC,
item 28) ........................................................................................ 3210.. 1,592,327 14.
</TABLE>
____________
*Describe on Schedule RI-E - Explanations.
Schedule RI-B - Charge-offs and Recoveries and Changes in Allowance
for Loan and Lease Losses
Part I. Charge-offs and Recoveries on Loans and Leases
Part I excludes charge-offs and recoveries through the allocated transfer risk
reserve.
<TABLE>
<CAPTION>
I486 (-
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------------
------------------------calendar year-to-date------------------------
(Column A) (Column B)
Charge-offs Recoveries
- ------------------------------------------------------------------------------ -------------------- --------------------
<S> <C> <C> <C>
RIAD RIAD
---- ----
1. Loans secured by real estate:
a. To U.S. addressees (domicile) ......................................... 4651.. 1,988 4661.. 2,445 1.a
b. To non-U.S. addressees (domicile) ..................................... 4652.. 0 4662.. 0 1.b
2. Loans to depository institutions and acceptances of other banks:
a. To U.S. banks and other U.S. depository institutions .................. 4653.. 0 4663.. 0 2.a
b. To foreign banks ...................................................... 4654.. 0 4664.. 0 2.b
3. Loans to finance agricultural production and other loans to farmers ...... 4655.. 0 4665.. 11 3.
4. Commercial and industrial loans:
a. To U.S. addressees (domicile) ......................................... 4645.. 32,418 4617.. 7,909 4.a
b. To non-U.S. addressees (domicile) ..................................... 4646.. 0 4618.. 1 4.b
5. Loans to individuals for household, family, and other personal
expenditures:
a. Credit cards and related plans ........................................ 4656.. 2,416 4666.. 296 5.a
b. Other (includes single payment, installment, and all student loans) ... 4657.. 8,948 4667.. 3,675 5.b
6. Loans to foreign governments and official institutions ................... 4643.. 0 4627.. 115 6.
7. All other loans .......................................................... 4644.. 0 4628.. 0 7.
8. Lease financing receivables:
a. Of U.S. addressees (domicile) ......................................... 4658.. 5,002 4668.. 773 8.a
b. Of non-U.S. addressees (domicile) ..................................... 4659.. 0 4669.. 0 8.b
9. Total (sum of items 1 through 8) ......................................... 4635.. 50,772 4605.. 15,225 9.
</TABLE>
<PAGE> 12
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI-5
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
7
Transit Number: 91000019
</TABLE>
Schedule RI-B - Continued
Part I. Continued
Memoranda
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------
----------calendar year-to-date------------
-------------------------------------------
(Column A) (Column B)
Charge-offs Recoveries
-------------------- --------------------
<S> <C> <C> <C> <C>
RIAD RIAD
---- ----
1.-3. Not applicable
4. Loans to finance commercial real estate, construction, and land
development activities (NOT SECURED BY REAL ESTATE) included in
Schedule RI-B, part I, items 4 and 7, above............................... 5409. . 0 5410. . 0 M.4
5. Loans secured by real estate in domestic offices (included in
Schedule RI-B, part I, item 1, above):
a. Construction and land development...................................... 3582. . 0 3583. . 23 M.5.a
b. Secured by farmland.................................................... 3584. . 0 3585. . 0 M.5.b
c. Secured by 1-4 family residential properties:
(1) Revolving, open-end loans secured by 1-4 family residential
properties and extended under lines of credit...................... 5411. . 0 5412. . 0 M.5.c1
(2) All other loans secured by 1-4 family residential properties....... 5413. . 1,964 5414. . 130 M.5.c2
d. Secured by multifamily (5 or more) residential properties.............. 3588. . 0 3589. . 0 M.5.d
e. Secured by nonfarm nonresidential properties........................... 3590. . 24 3591. . 2,292 M.5.e
</TABLE>
Part II. Changes in Allowance for Loan and Lease Losses
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIAD
----
1. Balance originally reported in the December 31, 1996, Reports of Condition and Income.......... 3124. . 213,930 1.
2. Recoveries (must equal part I, item 9, column B above)......................................... 4605. . 15,225 2.
3. LESS: Charge-offs (must equal part I, item 9, column A above).................................. 4635. . 50,772 3.
4. Provision for loan and lease losses (must equal Schedule RI, item 4.a)......................... 4230. . 47,836 4.
5. Adjustments * (see instructions for this schedule)............................................. 4815. . ( 924) 5.
6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC,
item 4.b)...................................................................................... 3123. . 225,295 6.
</TABLE>
- ---------------
* Describe on Schedule RI-E - Explanations.
<PAGE> 13
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI-6
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
8
Transit Number: 91000019
</TABLE>
Schedule RI-D - Income from International Operations
For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs
where international operations account for more than 10 percent of total
revenues, total assets, or net income.
Part I. Estimated Income from International Operations
<TABLE>
I492 <-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year-to-
RIAD date
----
1. Interest income and expense booked at foreign offices, Edge and Agreement
subsidiaries, and IBFs:
a. Interest income booked .................................................... 4837.. N/A 1.a
b. Interest expense booked ................................................... 4838.. N/A 1.b
c. Net interest income booked at foreign offices, Edge and Agreement
subsidiaries, and IBFs (item 1.a minus 1.b) ............................... 4839.. N/A 1.c
2. Adjustments for booking location of international operations:
a. Net interest income attributable to international operations booked at
domestic offices........................................................... 4840.. N/A 2.a
b. Net interest income attributable to domestic business booked at foreign
offices.................................................................... 4841.. N/A 2.b
c. Net booking location adjustment (item 2.a minus 2.b) ...................... 4842.. N/A 2.c
3. Noninterest income and expense attributable to international operations:
a. Noninterest income attributable to international operations ............... 4097.. N/A 3.a
b. Provision for loan and lease losses attributable to international
operations ................................................................ 4235.. N/A 3.b
c. Other noninterest expense attributable to international operations ........ 4239.. N/A 3.c
d. Net noninterest income (expense) attributable to international operations
(item 3.a minus 3.b and 3.c) .............................................. 4843.. N/A 3.d
4. Estimated pretax income attributable to international operations before
capital allocation adjustment (sum of items 1.c, 2.c, and 3.d) ............... 4844.. N/A 4.
5. Adjustment to pretax income for internal allocations to international
operations to reflect the effects of equity capital on overall bank
funding costs ................................................................ 4845.. N/A 5.
6. Estimated pretax income attributable to international operations after
capital allocation adjustment (sum of items 4 and 5) ......................... 4846.. N/A 6.
7. Income taxes attributable to income from international operations as
estimated in item 6 .......................................................... 4797.. N/A 7.
8. Estimated net income attributable to international operations (item 6
minus 7) ..................................................................... 4341.. N/A 8.
</TABLE>
<TABLE>
<CAPTION>
Memoranda
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Intracompany interest income included in item 1.a above ......... 4847.. N/A M.1
2. Intracompany interest expense included in item 1.b above ........ 4848.. N/A M.2
</TABLE>
Part II. Supplementary Details on Income from International Operations Required
by the Departments of Commerce and Treasury for Purposes of the U.S.
International Accounts and the U.S. National Income and Product Accounts
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIAD Year-to-date
----
1. Interest income booked at IBFs .............................................................. 4849.. N/A 1.
2. Interest expense booked at IBFs ............................................................. 4850.. N/A 2.
3. Noninterest income attributable to international operations booked at domestic offices
(excluding IBFs):
a. Gains (losses) and extraordinary items ................................................... 5491.. N/A 3.a
b. Fees and other noninterest income ........................................................ 5492.. N/A 3.b
4. Provision for loan and lease losses attributable to international operations booked at
domestic offices (excluding IBFs) ........................................................... 4852.. N/A 4.
5. Other noninterest expense attributable to international operations booked at domestic offices
(excluding IBFs) ............................................................................ 4853.. N/A 5.
</TABLE>
<PAGE> 14
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI-7
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
9
Transit Number: 91000019
</TABLE>
Schedule RI-E - Explanations
Schedule RI-E is to be completed each quarter on a calendar year-to-date basis.
Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and
other adjustments in Schedule RI, and all significant items of other
noninterest income and other noninterest expense in Schedule RI. (See
instructions for details.)
<TABLE>
<CAPTION>
I495 <-
Dollar Amounts
in Thousands
- -------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
RIAD Year-to-date
----
1. All other noninterest income (from Schedule RI, item 5.f.(2))
Report amounts that exceed 10% of Schedule RI, item 5.f.(2):
a. Net gains (losses) on other real estate owned ............................................ 5415.. N/A 1.a
b. Net gains (losses) on sales of loans ..................................................... 5416.. N/A 1.b
c. Net gains (losses) on sales of premises and fixed assets ................................. 5417.. N/A 1.c
Itemize and describe the three largest other amounts that exceed 10% of
Schedule RI, item 5.f.(2):
TEXT RIAD
---- ----
d. 4461: Gain on sale of loan servicing rights 4461.. 70,678 1.d
------------------------------------------------------------------------------
e. 4462: Processing fees 4462.. 26,154 1.e
------------------------------------------------------------------------------
f. 4463: 4463.. N/A 1.f
------------------------------------------------------------------------------
2. Other noninterest expense (from Schedule RI, item 7.c):
a. Amortization expense of intangible assets ................................................ 4531.. 1,008 2.a
Report amounts that exceed 10% of Schedule RI, item 7.c:
b. Net (gains) losses on other real estate owned ............................................ 5418.. N/A 2.b
c. Net (gains) losses on sales of loans ..................................................... 5419.. N/A 2.c
d. Net (gains) losses on sales of premises and fixed assets ................................. 5420.. N/A 2.d
Itemize and describe the three largest other amounts that exceed 10% of
Schedule RI, item 7.c:
TEXT RIAD
---- ----
e. 4464: Processing fees 4464.. 157,040 2.e
------------------------------------------------------------------------------
f. 4467: 4467.. N/A 2.f
------------------------------------------------------------------------------
g. 4468: 4468.. N/A 2.g
------------------------------------------------------------------------------
3. Extraordinary items and other adjustments and applicable income tax effect
(from Schedule RI, item 11) (itemize and describe all extraordinary items and
other adjustments):
TEXT RIAD
---- ----
a. (1) 4469:
----------------------------- ........................ 4469.. 0 3.a.1
(2) Applicable income tax effect _________ 4486.. 0 .......... 3.a.2
b. (1) 4487:
----------------------------- ........................ 4487.. 0 3.b.1
(2) Applicable income tax effect _________ 4488.. 0 .......... 3.b.2
c. (1) 4489: 4489.. 0 3.c.1
----------------------------- ........................ .......... 3.c.2
(2) Applicable income tax effect _________ 4491.. 0
4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A,
item 2) (itemize and describe all adjustments):
TEXT RIAD
---- ----
a. 4492: 4492.. N/A 4.a
------------------------------------------------------------------------------
b. 4493 4493.. N/A 4.b
------------------------------------------------------------------------------
5. Cumulative effect of changes in accounting principles from prior years (from
Schedule RI-A, item 9) (itemize and describe all changes in accounting principles):
TEXT RIAD
---- ----
a. A546 Effect of change to GAAP from previous non-GAAP instructions A546.. 0 5.a
------------------------------------------------------------------------------
b. 4495 4495.. N/A 5.b
------------------------------------------------------------------------------
6. Corrections of material accounting errors from prior years (from Schedule RI-A,
item 10) (itemize and describe all corrections):
TEXT RIAD
---- ----
a. 4496 4496.. N/A 6.a
------------------------------------------------------------------------------
b. 4497 4497.. N/A 6.b
------------------------------------------------------------------------------
</TABLE>
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI-8
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
10
Transit Number: 91000019
</TABLE>
Schedule RI-E - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7. Other transactions with parent holding company (from Schedule RI-A, item 13)
(itemize and describe all such transactions):
TEXT RIAD Year-to-date
---- ---- ------------
a. 4498: Capital infusion 4498.. 110,757 7.a
------------------------------------------------------------------------------
b. 4499: 4499.. N/A 7.b
------------------------------------------------------------------------------
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II,
item 5) (itemize and describe all adjustments):
TEXT
----
a. 4521: Sales of Loans 4521.. ( 924) 8.a
------------------------------------------------------------------------------
b. 4522: 4522.. N/A 8.b
------------------------------------------------------------------------------
9. Other explanations (the space below is provided for the bank to briefly describe, I498 I499 <-
at its option, any other significant items affecting the Report of Income):
No comment: X (RIAD 4769)
Other explanations (please type or print clearly):
(TEXT 4769)
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-1
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
11
Transit Number: 91000019
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
<TABLE>
<CAPTION>
C400 <-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A): RCFD
----
a. Noninterest-bearing balances and currency and coin(1) ................................... 0081.. 1,657,767 1.a
b. Interest-bearing balances(2) ............................................................ 0071.. 5,627 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) .............................. 1754.. 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D) ............................ 1773.. 1,076,385 2.b
3. Federal funds sold and securities purchased under agreements to resell ..................... 1350.. 4,544,846 3.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income RCFD
----
(from Schedule RC-C) ........................... 2122.. 12,977,063 . . . . . . 4.a
b. LESS: Allowance for loan and lease losses ...... 3123.. 225,295 . . . . . . 4.b
c. LESS: Allocated transfer risk reserve .......... 3128.. 0 . . . . . . 4.c
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c) ..................................... 2125.. 12,751,768 4.d
5. Trading assets (from Schedule RC-D) ........................................................ 3545.. 35,677 5.
6. Premises and fixed assets (including capitalized leases) ................................... 2145.. 116,095 6.
7. Other real estate owned (from Schedule RC-M) ............................................... 2150.. 6,473 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) ... 2130.. 0 8.
9. Customers' liability to this bank on acceptances outstanding ............................... 2155.. 23,925 9.
10. Intangible assets (from Schedule RC-M) ..................................................... 2143.. 16,707 10.
11. Other assets (from Schedule RC-F) .......................................................... 2160.. 235,797 11.
12. Total assets (sum of items 1 through 11) ................................................... 2170.. 20,471,067 12.
</TABLE>
- ----------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 2
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
12
Transit Number: 91000019
</TABLE>
SCHEDULE RC - CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
RCON
a. In domestic offices (sum of totals of ----
columns A and C from Schedule RC-E, part I)............................................ 2200. . 9,091,403 13.a
RCON
----
(1) Noninterest-bearing(1)...................................6631. . 3,974,409 . . . . . . 13.a.1
(2) Interest-bearing.........................................6636. . 5,116,994 . . . . . . 13.a.2
RCFN
----
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from
Schedule RC-E, part II)................................................................ 2200. . 4,139,171 13.b
RCFN
----
(1) Noninterest-bearing......................................6631. . 10,787 . . . . . . 13.b.1
(2) Interest-bearing.........................................6636. . 4,128,384 . . . . . . 13.b.2
RCFD
----
14. Federal funds purchased and securities sold under agreements to repurchase................ 2800. . 4,483,337 14.
RCON
----
15. a. Demand notes issued to the U.S. Treasury............................................... 2840. . 299,920 15.a
RCFD
----
b. Trading liabilities (from Schedule RC-D)............................................... 3548. . 24,894 15.b
16. Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
a. With a remaining maturity of one year or less.......................................... 2332. . 125,127 16.a
b. With a remaining maturity of more than one year through three years.................... A547. . 4,488 16.b
c. With a remaining maturity of more than three years..................................... A548. . 203,520 16.c
17. Not applicable.
18. Bank's liability on acceptances executed and outstanding.................................. 2920. . 23,925 18.
19. Subordinated notes and debentures (2)..................................................... 3200. . 0 19.
20. Other liabilities (from Schedule RC-G).................................................... 2930. . 482,955 20.
21. Total liabilities (sum of items 13 through 20)............................................ 2948. . 18,878,740 21.
22. Not applicable.
EQUITY CAPITAL
RCFD
----
23. Perpetual preferred stock and related surplus ............................................ 3838. . 0 23.
24. Common stock ............................................................................. 3230. . 100,000 24.
25. Surplus (exclude all surplus related to preferred stock).................................. 3839. . 717,166 25.
26. a. Undivided profits and capital reserves ................................................ 3632. . 756,247 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities ................ 8434. . 19,538 26.b
27. Cumulative foreign currency translation adjustments ...................................... 3284. .( 624) 27.
28. Total equity capital (sum of items 23 through 27) ........................................ 3210. . 1,592,327 28.
29. Total liabilities and equity capital (sum of items 21 and 28) ............................ 3300. . 20,471,067 29.
</TABLE>
<TABLE>
<S> <C> <C>
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that RCFD Number
best describes the most comprehensive level of auditing work performed ---- ------
for the bank by independent external auditors as of any date during 1996 ................. 6724. . N/A M.1
</TABLE>
<TABLE>
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in accordance 8 = No external audit work
with generally accepted auditing standards by a certified
public accounting firm (may be required by state
chartering authority)
- ------------
</TABLE>
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
<PAGE> 18
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-3
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
13
Transit Number: 91000019
</TABLE>
SCHEDULE RC-A - CASH AND BALANCES DUE FROM DEPOSITORY INSTITUTIONS
Exclude assets held for trading.
<TABLE>
<CAPTION>
C405 <-
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------
(Column A) (Column B)
Consolidated Domestic
Bank Offices
-------------------- --------------------
<S> <C> <C> <C>
RCFD RCON
---- ----
1. Cash items in process of collection, unposted debits, and currency and
coin .................................................................... 0022. . 1,317,772 . . . . . . 1.
a. Cash items in process of collection and unposted debits .............. . . . . . . 0020. . 1,198,802 1.a
b. Currency and coin .................................................... . . . . . . 0080. . 118,176 1.b
2. Balances due from depository institutions in the U.S. ................... . . . . . . 0082. . 29,259 2.
a. U.S. branches and agencies of foreign banks (including their IBFs) ... 0083. . 0 . . . . . . 2.a
b. Other commercial banks in the U.S. and other depository institutions
in the U.S. (including their IBFs) ................................... 0085. . 67,004 . . . . . . 2.b
3. Balances due from banks in foreign countries and foreign central banks .. . . . . . . 0070. . 17,262 3.
a. Foreign branches of other U.S. banks ................................. 0073. . 0 . . . . . . 3.a
b. Other banks in foreign countries and foreign central banks ........... 0074. . 19,090 . . . . . . 3.b
4. Balances due from Federal Reserve Banks ................................. 0090. . 259,528 0090. . 256,462 4.
5. Total (sum of items 1 through 4) (total of column A must equal
Schedule RC, sum of items 1.a and 1.b) .................................. 0010. . 1,663,394 0010. . 1,619,916 5.
</TABLE>
<TABLE>
<CAPTION>
Memorandum Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCON
----
1. Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2,
column B above) .............................................................................. 0050. . 24,904 M.1
</TABLE>
Schedule RC-B - Securities
Exclude assets held for trading.
<TABLE>
<CAPTION>
C410 <-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------
Held-to-maturity Available-for-sale
----------------------------------------- -----------------------------------------
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Fair Value Amortized Cost Fair Value(1)
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RCFD RCFD RCFD RCFD
---- ---- ---- ----
1. U.S. Treasury securities ......... 0211. . 0 0213. . 0 1286. . 410,872 1287. . 421,569 1.
2. U.S. Government agency
and corporation obligations
(exclude mortgage-backed
securities):
a. Issued by U.S. Govern- RCFD RCFD RCFD RCFD
---- ---- ---- ----
ment agencies(2) .............. 1289. . 0 1290. . 0 1291. . 0 1293. . 0 2.a
b. Issued by U.S.
Government-sponsored
agencies(3) ................... 1294. . 0 1295. . 0 1297. . 325 1298. . 323 2.b
</TABLE>
- ----------------
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.b, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool Certificates,"
U.S. Maritime Administration obligations, and Export-Import Bank
participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued by the
Farm Credit System, the Federal Home Loan Bank System, the Federal Home
Loan Mortgage Corporation, the Federal National Mortgage Association, the
Financing Corporation, Resolution Funding Corporation, the Student Loan
Marketing Association, and the Tennessee Valley Authority.
<PAGE> 19
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 4
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
14
Transit Number: 91000019
</TABLE>
Schedule RC-B - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------------
Held-to-maturity Available-for-sale
----------------------------------------- -----------------------------------------
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Fair Value Amortized Cost Fair Value(1)
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RCFD RCFD RCFD RCFD
---- ---- ---- ----
3. Securities issued by states
and political subdivisions
in the U.S.:
a. General obligations ........... 1676. . 0 1677. . 0 1678. . 44,767 1679. . 47,592 3.a
b. Revenue obligations ........... 1681. . 0 1686. . 0 1690. . 78,775 1691. . 86,210 3.b
c. Industrial development
and similar obligations ....... 1694. . 0 1695. . 0 1696. . 4,528 1697. . 5,224 3.c
4. Mortgage-backed
securities (MBS):
a. Pass-through securities:
(1) Guaranteed by
GNMA ...................... 1698. . 0 1699. . 0 1701. . 56,532 1702. . 58,107 4a1
(2) Issued by FNMA
and FHLMC ................. 1703. . 0 1705. . 0 1706. . 321,909 1707. . 331,373 4a2
(3) Other pass-through
securities................. 1709. . 0 1710. . 0 1711. . 48 1713. . 51 4a3
b. Other mortgage-backed
securities (include CMOs,
REMICs, and stripped
MBS):
(1) Issued or guaranteed
by FNMA, FHLMC, RCFD RCFD RCFD RCFD
---- ---- ---- ----
or GNMA ................... 1714. . 0 1715. . 0 1716. . 24,402 1717. . 23,913 4b1
(2) Collateralized
by MBS issued or
guaranteed by FNMA, RCFD RCFD RCFD RCFD
---- ---- ---- ----
FHLMC, or GNMA............. 1718. . 0 1719. . 0 1731. . 25 1732. . 26 4b2
(3) All other mortgage-
backed securities.......... 1733. . 0 1734. . 0 1735. . 2,075 1736. . 2,076 4b3
5. Other debt securities:
a. Other domestic debt RCFD RCFD RCFD RCFD
---- ---- ---- ----
securities .................... 1737. . 0 1738. . 0 1739. . 6,331 1741. . 6,346 5.a
b. Foreign debt
securities .................... 1742. . 0 1743. . 0 1744. . 0 1746. . 0 5.b
6. Equity securities:
a. Investments in mutual RCFD RCFD RCFD RCFD
---- ---- ---- ----
funds and other equity
securities with readily
determinable fair values....... ... . . . . . . . ... . . . . . . . A510. . 2,896 A511. . 2,896 6.a
b. All other equity
securities(1).................. ... . . . . . . . ... . . . . . . . 1752. . 90,679 1753. . 90,679 6.b
7. Total (sum of items 1
through 6) (total of
column A must equal
Schedule RC, item 2.a)
(total of column D must
equal Schedule RC,
item 2.b)......................... 1754. . 0 1771. . 0 1772. . 1,044,164 1773. . 1,076,385 7.
</TABLE>
- -------------
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.b, column D.
<PAGE> 20
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-5
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
15
Transit Number: 91000019
</TABLE>
Schedule RC-B - Continued
Memoranda
<TABLE>
<CAPTION>
C412 <-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCFD
----
1. Pledged securities(1) ......................................................................... 0416.. 189,190 M.1
2. Maturity and repricing data for debt securities(1, 2)(excluding those in nonaccrual status):
a. Securities issued by the U.S. Treasury, U.S. Government agencies, and states and
political subdivisions in the U.S.; other non-mortgage debt securities; and
mortgage pass-through securities other than those backed by closed-end first
lien 1-4 family residential mortgages with a remaining maturity or repricing
frequency of: (3, 4)
(1) Three months or less ................................................................... A549.. 6,303 M.2.a.1
(2) Over three months through 12 months .................................................... A550.. 4,117 M.2.a.2
(3) Over one year through three years ...................................................... A551.. 157,094 M.2.a.3
(4) Over three years through five years..................................................... A552.. 181,208 M.2.a.4
(5) Over five years through 15 years........................................................ A553.. 116,902 M.2.a.5
(6) Over 15 years........................................................................... A554.. 101,640 M.2.a.6
b. Mortgage pass-through securities backed by closed-end first lien 1-4 family
residential mortgages with a remaining maturity or repricing frequency of: (3, 5)
(1) Three months or less.................................................................... A555.. 28,331 M.2.b.1
(2) Over three months through 12 months..................................................... A556.. 32,038 M.2.b.2
(3) Over one year through three years....................................................... A557.. 50 M.2.b.3
(4) Over three years through five years..................................................... A558.. 18,022 M.2.b.4
(5) Over five years through 15 years........................................................ A559.. 15,816 M.2.b.5
(6) Over 15 years........................................................................... A560.. 295,274 M.2.b.6
c. Other mortgage backed securities (include CMOs, REMICs and stripped MBS; exclude
mortgage pass-through securities) with an expected average life of: (6)
(1) Three years or less..................................................................... A561.. 12,789 M.2.c.1
(2) Over three years........................................................................ A562.. 13.226 M.2.c.2
d. Fixed rate AND floating rate debt securities with a REMAINING MATURITY of one year
or less (included in Memorandum items 2.a through 2.c above)................................ A248.. 9,021 M.2.d
3-6. Not applicable.
7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale
or trading securities during the calendar year-to-date (report the amortized cost at
date of sale or transfer)...................................................................... 1778.. 0 M.7
8. High-risk mortgage securities (included in the held-to-maturity and available-for-sale
accounts in Schedule RC-B, item 4.b):
a. Amortized cost.............................................................................. 8780.. 48 M.8.a
b. Fair value.................................................................................. 8781.. 51 M.8.b
9. Structured notes (included in the held-to-maturity and available-for-sale
accounts in Schedule RC-B, items 2, 3, and 5):
a. Amortized cost.............................................................................. 8782.. 200 M.9.a
b. Fair value.................................................................................. 8783.. 198 M.9.b
</TABLE>
_____________
(1) Includes held-to-maturity securities at amortized cost and
available-for-sale securities at fair value.
(2) Exclude equity securities, e.g., investments in mutual funds, Federal
Reserve stock, common stock, and preferred stock.
(3) Report fixed rate debt securities by remaining maturity and floating rate
debt securities by repricing frequency.
(4) Sum of Memorandum items 2.a.(1) though 2.a.(6) plus any nonaccrual debt
securities in the categories of debt securities reported in Memorandum item
2.a that are included in Schedule RC-N, item 9, column C, must equal
Schedule RC-B, sum of items 1,2,3 and 5, columns A and D, plus mortgage
pass-through securities other than those backed by closed-end first lien
1-4 family residential mortgages included in Schedule RC-B, item 4.a,
columns A and D.
(5) Sum of Memorandum items 2.b.(1) through 2.b.(6) plus any nonaccrual
mortgage pass-through securities backed by closed-end first lien
1-4 family residential mortgages included in Schedule RC-N, item 9, column
C, must equal Schedule RC-B, item 4.a, sum of columns A and D, less the
amount of mortgage pass-through securities other than those backed by
closed-end first lien 1-4 family residential mortgages included in
Schedule RC-B, item 4.a, columns A and D.
(6) Sum of Memorandum items 2.c.(1) and 2.c.(2) plus any nonaccrual "Other
morgage-backed securities" included in Schedule RC-N, item 9, column C, must
equal Schedule RC-B, item 4.b,, sum of columns A and D.
<PAGE> 21
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-6
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
16
Transit Number: 91000019
</TABLE>
Schedule RC-C - Loans and Lease Financing Receivables
Part I. Loans and Leases
Do not deduct the allowance for loan and lease losses from amounts
reported in this schedule. Report total loans and leases, net of unearned
income. Exclude assets held for trading and commercial paper.
<TABLE>
<CAPTION>
C415 <-
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------
(Column A) (Column B)
Consolidated Domestic
RCFD Bank RCON Offices
---- ------------ ---- --------
<S> <C> <C> <C> <C> <C>
1. Loans secured by real estate .......................................... 1410.. 6,822,917 ....... 1.
a. Construction and land development .................................. ......... 1415.. 77,117 1.a
b. Secured by farmland (including farm residential and other
improvements) ...................................................... ......... 1420.. 374 1.b
c. Secured by 1-4 family residential properties:
(1) Revolving, open-end loans secured by 1-4 family residential
properties and extended under lines of credit .................. ......... 1797.. 124,597 1.c1
(2) All other loans secured by 1-4 family residential properties:
(a) Secured by first liens ..................................... ......... 5367.. 5,888,225 1.c2a
(b) Secured by junior liens .................................... ......... 5368.. 331,609 1.c2b
d. Secured by multifamily (5 or more) residential properties .......... ......... 1460.. 51,824 1.d
e. Secured by nonfarm nonresidential properties ....................... ......... 1480.. 349,171 1.e
2. Loans to depository institutions:
a. To commercial banks in the U.S. .................................... ......... 1505.. 403,755 2.a
(1) To U.S. branches and agencies of foreign banks ................. 1506.. 372 ....... 2.a1
(2) To other commercial banks in the U.S. .......................... 1507.. 408,559 ....... 2.a2
b. To other depository institutions in the U.S. ....................... 1517.. 0 1517.. 0 2.b
c. To banks in foreign countries ...................................... ......... 1510.. 835 2.c
(1) To foreign branches of other U.S. banks ........................ 1513.. 1,356 ....... 2.c1
(2) To other banks in foreign countries ............................ 1516.. 64,043 ....... 2.c2
3. Loans to finance agricultural production and other loans to farmers ... 1590.. 3,308 1590.. 3,308 3.
4. Commercial and industrial loans:
a. To U.S. addressees (domicile) ...................................... 1763.. 3,380,139 1763.. 3,379,722 4.a
b. To non-U.S. addressees (domicile) .................................. 1764.. 54,968 1764.. 0 4.b
5. Acceptances of other banks:
a. Of U.S. banks ...................................................... 1756.. 0 1756.. 0 5.a
b. Of foreign banks ................................................... 1757.. 4,741 1757.. 4,741 5.b
6. Loans to individuals for household, family, and other personal
expenditures (i.e., consumer loans) (includes purchased paper) ........ ......... 1975.. 783,261 6.
a. Credit cards and related plans (includes check credit and other
revolving credit plans) ............................................ 2008.. 195,160 ....... 6.a
b. Other (includes single payment, installment, and all student loans). 2011.. 588,812 ....... 6.b
7. Loans to foreign governments and official institutions (including
foreign central banks) ................................................ 2081.. 5,000 2081.. 5,000 7.
8. Obligations (other than securities and leases) of states and political
subdivisions in the U.S. (includes nonrated industrial development
obligations) .......................................................... 2107.. 10,018 2107.. 10,018 8.
9. Other loans ........................................................... 1563.. 694,870 ....... 9.
a. Loans for purchasing or carrying securities (secured and unsecured). ......... 1545.. 58,615 9.a
b. All other loans (exclude consumer loans) ........................... ......... 1564.. 636,255 9.b
10. Lease financing receivables (net of unearned income) .................. ......... 2165.. 744,722 10.
a. Of U.S. addressees (domicile) ...................................... 2182.. 744,722 ....... 10.a
b. Of non-U.S. addressees (domicile) .................................. 2183.. 0 ....... 10.b
11. LESS: Any unearned income on loans reflected in items 1-9 above ....... 2123.. 1,922 2123.. 1,018 11.
12. Total loans and leases, net of unearned income (sum of items 1 through
10 minus item 11) (total of column A must equal Schedule RC, item 4.a). 2122.. 12,977,063 2122.. 12,852,131 12.
</TABLE>
<PAGE> 22
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-7
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
17
Transit Number: 91000019
</TABLE>
Schedule RC-C - Continued
Part I. Continued
<TABLE>
<CAPTION>
Memoranda Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C>
RCFD
----
1. Not applicable.
2. Loans and leases restructured and in compliance with modified terms
(included in Schedule RC-C, part I, above and not reported as past due
or nonaccrual in Schedule RC-N, Memorandum item 1):
a. Loans secured by real estate:
(1) To U.S. addressees (domicile) ................................... 1687.. 0 M.2.a1
(2) To non-U.S. addressees (domicile) ............................... 1689.. 0 M.2.a2
b. All other loans and all lease financing receivables (exclude loans to
individuals for household, family, and other personal expenditures).. 8691.. 0 M.2.b
c. Commercial and industrial loans to and lease financing receivables
of non-U.S. addressees (domicile) included in Memorandum item 2.b
above................................................................ 8692.. 0 M.2.c
3. Maturity and repricing data for loans and leases (excluding those
in nonaccrual status):
a. Closed-end loans secured by first liens on 1-4 family residential
properties in domestic offices with a remaining maturity or
repricing frequency of:(1,2)
RCON
----
(1) Three months or less ............................................ A564.. 5,424,682 M.3.a1
(2) Over three months through 12 months ............................. A565.. 238,376 M.3.a2
(3) Over one year through three years ............................... A566.. 21,833 M.3.a3
(4) Over three years through five years.............................. A567.. 11,417 M.3.a4
(5) Over five years through 15 years................................. A568.. 101,225 M.3.a5
(6) Over 15 years ................................................... A569.. 83,643 M.3.a6
b. All loans and leases other than closed-end loans secured by first
liens on 1-4 family residential properties with a remaining maturity
or repricing frequency of (1,3)
RCFD
----
(1) Three months or less............................................. A570.. 2,299,456 M.3.b1
(2) Over three months through 12 months ............................. A571.. 1,875,521 M.3.b2
(3) Over one year through three years ............................... A572.. 723,356 M.3.b3
(4) Over three years through five years.............................. A573.. 1,380,934 M.3.b4
(5) Over five years through 15 years................................. A574.. 706,063 M.3.b5
(6) Over 15 years ................................................... A575.. 84,940 M.3.b6
c. Fixed rate AND floating rate loans and leases with a REMAINING
MATURITY of one year or less (included in Memorandum items 3.a
and 3.b above)....................................................... A247.. 8,241,690 M.3.c
d. Fixed rate AND floating rate loans secured by nonfarm nonresidential
properties in domestic offices (4) with a REMAINING MATURITY of over RCON
----
five years (included in Memorandum item 3.b above)................... A577.. 109,031 M.3.d
e. Fixed rate AND floating rate commercial and industrial loans (5) with
a REMAINING MATURITY of over three years (included in Memorandum RCFD
----
item 3.b above)...................................................... A578.. 1,542,081 M.3.e
- --------------
</TABLE>
(1) Report fixed rate loans and leases by remaining maturity and floating rate
loans by repricing frequency.
(2) Sum of Memorandum items 3.a.(1) through 3.a.(6) plus total nonaccrual
closed-end loans secured by first liens on 1-4 family residential
properties in domestic offices included in Schedule RC-N, Memorandum item
3.c.(2), column C, must equal total closed-end loans secured by first liens
on 1-4 family residential properties from Schedule RC-C, part I, item
1.c.(2)(a), column B.
(3) Sum of Memorandum items 3.b.(1) through 3.b.(6) plus total nonaccrual loans
and leases from Schedule RC-N, sum of items 1 through 8, column C, minus
nonaccrual closed-end loans secured by first liens on 1-4 family residential
properties in domestic offices included in Schedule RC-N, Memorandum item
3.c.(2), column C, must equal total loans and leases from Schedule RC-C,
Part I, sum of items 1 through 10, column A, minus total closed-end loans
secured by first liens on 1-4 family residential properties in domestic
offices from Schedule RC-C, part I, item 1.c.(2)(a), column B.
(4) As defined for Schedule RC-C, part I, item 1.e., column B.
(5) As defined for Schedule RC-C, part I, item 4., column A.
<PAGE> 23
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-8
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
18
Transit Number: 91000019
</TABLE>
Schedule RC-C - Continued
Part I. Continued
Memoranda (continued)
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4. Loans to finance commercial real estate, construction, and land RCON
development activities (NOT SECURED BY REAL ESTATE) included in ----
Schedule RC-C, part I, items 4 and 9, column A, page RC-6(1) .............. 2746.. 0 M.4
5. Loans and leases held for sale (included in Schedule RC-C, part I, page RC-6) 5369.. 5,324,275 M.5
6. Adjustable rate closed-end loans secured by first liens on 1-4 family
residential properties in domestic offices (included in Schedule RC-C,
part I, item 1.c.(2)(a), column B, page RC-6) ............................. 5370.. 1,238,256 M.6
</TABLE>
_____________
(1) Exclude loans secured by real estate that are included in Schedule RC-C,
part I, items 1.a through 1.e.
Schedule RC-D - Trading Assets and Liabilities
Schedule RC-D is to be completed only by banks with $1 billion or more in total
assets or with $2 billion or more in par/notional amount of off-balance sheet
derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e,
columns A through D).
<TABLE>
<CAPTION>
C420 <-
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS RCON
----
1. U.S. Treasury securities in domestic offices ................................................ 3531.. 0 1.
2. U.S. Government agency obligations in domestic offices (exclude mortgage-backed
securities)....... .......................................................................... 3532.. N/A 2.
3. Securities issued by states and political subdivisions in the U.S. in domestic offices ...... 3533.. N/A 3.
4. Mortgage-backed securities (MBS) in domestic offices:
a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA ..................... 3534.. 10,210 4.a
b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA
(include CMOs, REMICs, and stripped MBS).................................................. 3535.. N/A 4.b
c. All other mortgage-backed securities...................................................... 3536.. N/A 4.c
5. Other debt securities in domestic offices ................................................... 3537.. N/A 5.
6. Certificates of deposit in domestic offices ................................................. 3538.. N/A 6.
7. Commercial paper in domestic offices ........................................................ 3539.. N/A 7.
8. Bankers acceptances in domestic offices ..................................................... 3540.. N/A 8.
9. Other trading assets in domestic offices .................................................... 3541.. N/A 9.
RCFN
----
10. Trading assets in foreign offices ........................................................... 3542.. N/A 10.
11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity
contracts:
RCON
----
a. In domestic offices ...................................................................... 3543.. 25,467 11.a
RCFN
----
b. In foreign offices ....................................................................... 3543.. N/A 11.b
RCFD
----
12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5) ........... 3545.. 35,677 12.
LIABILITIES
13. Liability for short positions ............................................................... 3546.. N/A 13.
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity
contracts ................................................................................... 3547.. 24,894 14.
15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b) ...... 3548.. 24,894 15.
</TABLE>
<PAGE> 24
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-9
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
19
Transit Number: 91000019
</TABLE>
Schedule RC-E - Deposit Liabilities
Part I. Deposits in Domestic Offices
<TABLE>
<CAPTION>
Dollar Amounts in Thousands C425 <-
------------------------------------------------------ --------
Nontransaction
Transaction Accounts Accounts
----------------------------------------- --------------------
(Column A) (Column B) (Column C)
Total transaction Memo: Total Total
accounts (including demand deposits nontransaction
total demand (included in accounts
deposits) column A) (including MMDAs)
-------------------- -------------------- --------------------
- ---------------------------------------------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
RCON RCON RCON
Deposits of:
1. Individuals, partnerships, and corporations .......... 2201 2,669,334 2240 2,505,849 2346 5,394,631 1.
2. U.S. Government ...................................... 2202 30,171 2280 30,171 2520 0 2.
3. States and political subdivisions in the U.S. ........ 2203 34,482 2290 34,370 2530 8,617 3.
4. Commercial banks in the U.S. ......................... 2206 901,287 2310 901,287 2550 0 4.
5. Other depository institutions in the U.S. ............ 2207 10,659 2312 10,659 2349 0 5.
6. Banks in foreign countries ........................... 2213 11,404 2320 11,404 0 6.
7. Foreign governments and official institutions
(including foreign central banks) .................... 2216 0 2300 0 2377 0 7.
8. Certified and official checks ........................ 2330 30,818 2330 30,818 8.
9. Total (sum of items 1 through 8) (sum of
columns A and C must equal Schedule RC,
item 13.a) ........................................... 2215 3,688,155 2210 3,524,558 2385 5,403,248 9.
</TABLE>
<TABLE>
<CAPTION>
Memoranda
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RCON
1. Selected components of total deposits (i.e., sum of item 9, columns A and C):
a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts ........................ 6835 496,110 M.1.a
b. Total brokered deposits .................................................................... 2365 0 M.1.b
c. Fully insured brokered deposits (included in Memorandum item 1.b above):
(1) Issued in denominations of less than $100,000 .......................................... 2343 0 M.1.c1
(2) Issued either in denominations of $100,000 or in denominations greater than $100,000
and participated out by the broker in shares of $100,000 or less ....................... 2344 0 M.1.c2
d. Maturity data for brokered deposits:
(1) Brokered deposits issued in denominations of less than $100,000 with a remaining
maturity of one year or less (included in Memorandum item 1.c.(1) above)................ A243 0 M.1.d1
(2) Brokered deposits issued in denominations of $100,000 or more with a remaining
maturity of one year or less (included in Memorandum item 1.b above).................... A244 0 M.1.d2
e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S.
reported in item 3 above which are secured or collateralized as required under state law) .. 5590 35,227 M.1.e
2. Components of total nontransaction accounts (sum of Memoranda items 2.a through 2.d must
equal item 9, column C above):
a. Savings deposits:
(1) Money market deposit accounts (MMDAs) .................................................. 6810 1,767,642 M.2.a1
(2) Other savings deposits (excludes MMDAs) ................................................ 0352 1,856,993 M.2.a2
b. Total time deposits of less than $100,000 .................................................. 6648 1,590,872 M.2.b
c. Total time deposits of $100,000 or more .................................................... 2604 187,741 M.2.c
3. All NOW accounts (included in column A above) ................................................. 2398 163,597 M.3
4. Not applicable
</TABLE>
<PAGE> 25
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 10
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
20
Transit Number: 91000019
</TABLE>
Schedule RC-E - Continued
<TABLE>
<CAPTION>
Memoranda (continued)
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5. Maturity and repricing data for time deposits of less than $100,000:
a. Time deposits of less than $100,000 with a remaining maturity or repricing RCON
frequency of: (1, 2) ----
(1) Three months or less ................................................................... A579. . 259,236 M.5.a1
(2) Over three months through 12 months .................................................... A580. . 649,753 M.5.a2
(3) Over one year through three years ...................................................... A581. . 538,897 M.5.a3
(4) Over three years ....................................................................... A582. . 142,986 M.5.a4
b. Fixed rate AND floating rate time deposits of less than $100,000 with a REMAINING
MATURITY of one year or less (included in Memorandum items 5.a.(1) through 5.a.(4) above)... A241. . 909,989 M.5.b
6. Maturity and repricing data for time deposits of $100,000 or more:
a. Time deposits of $100,000 or more with a remaining maturity or repricing frequency
of: (1, 3)
(1) Three months or less ................................................................... A584. . 60,304 M.6.a1
(2) Over three months through 12 months .................................................... A585. . 62,573 M.6.a2
(3) Over one year through three years ...................................................... A586. . 44,191 M.6.a3
(4) Over three years ....................................................................... A587. . 20,673 M.6.a4
b. Fixed rate AND floating rate time deposits of $100,000 or more with a REMAINING
MATURITY of one year or less (included in Memorandum items 6.a.(1) through 6.a.(4) above)... A242. . 122,877 M.6.b
</TABLE>
- -------------
(1) Report fixed rate time deposits by remaining maturity and floating rate
time deposits by repricing frequency.
(2) Sum of Memorandum items 5.a.(1) through 5.a.(4) must equal Schedule RC-E
Memorandum item 2.b above.
(3) Sum of Memorandum items 6.a.(1) through 6.a.(4) must equal Schedule RC-E
Memorandum item 2.c above.
<PAGE> 26
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI-11
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
21
Transit Number: 91000019
</TABLE>
Schedule RC-E Continued
Part II. Deposits in Foreign Offices (including Edge and
Agreement subsidiaries and IBFs)
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C>
RCFN
Deposits of: ----
1. Individuals, partnerships, and corporations ................................................... 2621.. 901,042 1.
2. U.S. banks (including IBFs and foreign branches of U.S. banks) ................................ 2623.. 3,206,730 2.
3. Foreign banks (including U.S. branches and agencies of foreign banks, including their IBFs) ... 2625.. 31,227 3.
4. Foreign governments and official institutions (including foreign central banks) ............... 2650.. 0 4.
5. Certified and official checks ................................................................. 2330.. 38 5.
6. All other deposits ............................................................................ 2668.. 134 6.
7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b) .......................... 2200.. 4,139,171 7.
</TABLE>
Memorandum
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
RCFD
----
1. Time deposits with a remaining maturity of one year or less (included in Part II,
item 7 above) ................................................................................ A245.. 4,128,384 M.1
</TABLE>
Schedule RC-F - Other Assets
<TABLE>
<CAPTION>
C430 <-
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
RCFD
----
1. Income earned, not collected on loans ........................................................ 2164.. 55,571 1.
2. Net deferred tax assets(1) ................................................................... 2148.. 0 2.
3. Interest only strips receivable (not in the form of a security)(2) on:
a. Mortgage loans ............................................................................ A519.. 0 3.a
b. Other financial assets .................................................................... A520.. 0 3.b
4. Other (itemize amounts that exceed 25% of this item) ......................................... 2168.. 180,226 4.
TEXT RCFD
---- ----
a. 3549 Bank owned life insurance 3549.. 79,801 ........ 4.a
----------------------------------------------------------------
b. 3550 3550.. N/A ........ 4.b
----------------------------------------------------------------
c. 3551 3551.. N/A ........ 4.c
-----------------------------------------------------------------
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11) ........................... 2160.. 235,797 5.
</TABLE>
<TABLE>
<CAPTION>
Memorandum
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C>
RCFD
-----
1. Deferred tax assets disallowed for regulatory capital purposes ............................... 5610.. 0 M.1
---------------------------
</TABLE>
Schedule RC-G - Other Liabilities
<TABLE>
<CAPTION>
C435 <-
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C>
RCON
----
1. a. Interest accrued and unpaid on deposits in domestic offices(3) ............................ 3645.. 30,796 1.a
RCFD
----
b. Other expenses accrued and unpaid (includes accrued income taxes payable) ................. 3646.. 284,466 1.b
2. Net deferred tax liabilities(1) .............................................................. 3049.. 150,058 2.
3. Minority interest in consolidated subsidiaries ............................................... 3000.. 295 3.
4. Other (itemize and describe amounts that exceed 25% of this item) ............................ 2938.. 17,340 4.
TEXT RCFD
---- ----
a. 3552 Miscellaneous accounts payable 3552.. 7,431 ........ 4.a
----------------------------------------------------------------
b. 3553 3553.. N/A ........ 4.b
----------- ----------------------------------------------------
c. 3554 3554.. N/A ........ 4.c
-----------------------------------------------------------------
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20) ........................... 2930.. 482,955 5.
</TABLE>
____________
(1) See discussion of deferred income taxes in Glossary entry on "income
taxes."
(2) Report interest only strips receivables in the form of a security as
available-for-sale securities in Schedule RC, item 2.b, or as trading
assets in Schedule RC, item 5 as appropriate.
(3) For savings banks, include "dividends" accrued and unpaid on deposits.
<PAGE> 27
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 12
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
22
Transit Number: 91000019
</TABLE>
Schedule RC-H - Selected Balance Sheet Items for Domestic Offices
<TABLE>
<CAPTION>
C440
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic Offices
-------------------
RCON
----
1. Customers' liability to this bank on acceptances outstanding ................................. 2155. . 12,864 1.
2. Bank's liability on acceptances executed and outstanding ..................................... 2920. . 12,864 2.
3. Federal funds sold and securities purchased under agreements to resell ....................... 1350. . 4,544,846 3.
4. Federal funds purchased and securities sold under agreements to repurchase ................... 2800. . 4,483,337 4.
5. Other borrowed money ......................................................................... 3190. . 333,135 5.
EITHER
6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs .................. 2163. . N/A 6.
OR
7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs .................... 2941. . 3,954,506 7.
8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and IBFs) 2192. . 20,263,210 8.
9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and
IBFs) ......................................................................................... 3129. . 14,716,377 9.
Items 10 - 17 Include Held-to-Maturity and Available-for-Sale Securities in Domestic Offices.
10. U.S. Treasury securities ..................................................................... 1779. . 421,569 10.
11. U.S. Government agency obligations (excludes mortgage-backed
securities) .................................................................................. 1785. . 323 11.
12. Securities issued by states and political subdivisions in the U.S. ........................... 1786. . 139,026 12.
13. Mortgage-backed securities (MBS):
a. Pass-through securities:
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA .......................................... 1787. . 389,480 13.a.1
(2) Other pass-through securities ......................................................... 1869. . 51 13.a.2
b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS):
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA .......................................... 1877. . 23,913 13.b.1
(2) All other mortgage-backed securities .................................................. 2253. . 2,102 13.b.2
14. Other domestic debt securities ............................................................... 3159. . 6,346 14.
15. Foreign debt securities ...................................................................... 3160. . 0 15.
16. Equity securities:
a. Investments in mutual funds and other equity securities with readily determinable
fair values................................................................................ A513. . 2,896 16.a
b. All other equity securities ............................................................... 3169. . 90,679 16.b
17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) ........ 3170. . 1,076,385 17.
Memorandum (to be completed only by banks with IBFs and other "foreign" offices)
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------
EITHER
1. Net due from the IBF of the domestic offices of the reporting bank ............................ 3051. . N/A M.1
OR
2. Net due to the IBF of the domestic offices of the reporting bank .............................. 3059. . 0 M.2
</TABLE>
<PAGE> 28
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 13
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
23
Transit Number: 91000019
</TABLE>
Schedule RC-I - Selected Assets and Liabilities of IBFs
To be completed only by banks with IBFs and other "foreign" offices.
<TABLE>
<CAPTION>
C445 <-
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RCFN
----
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12) .................. 2133.. N/A 1.
2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, item 12,
column A) ...................................................................................... 2076.. N/A 2.
3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, column A) ..... 2077.. N/A 3.
4. Total IBF liabilities (component of Schedule RC, item 21) ...................................... 2898.. N/A 4.
5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E,
part II, items 2 and 3) ........................................................................ 2379.. N/A 5.
6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5, and 6) ...... 2381.. N/A 6.
</TABLE>
Schedule RC-K - Quarterly Averages (1)
__________
<TABLE>
<CAPTION>
C455 <-
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
RCFD
----
1. Interest-bearing balances due from depository institutions ............................... 3381.. 96,414 1.
2. U.S. Treasury securities and U.S. Government agency obligations(2) ....................... 3382.. 970,426 2.
3. Securities issued by states and political subdivisions in the U.S.(2) .................... 3383.. 128,430 3.
4. a. Other debt securities(2) .............................................................. 3647.. 3,607 4.a
b. Equity securities(3) (includes investments in mutual funds and Federal Reserve stock) . 3648.. 93,544 4.b
5. Federal funds sold and securities purchased under agreements to resell ................... 3365.. 3,654,345 5.
6. Loans:
a. Loans in domestic offices:
RCON
----
(1) Total loans ....................................................................... 3360.. 11,686,790 6.a.1
(2) Loans secured by real estate ...................................................... 3385.. 5,990,872 6.a.2
(3) Loans to finance agricultural production and other loans to farmers ............... 3386.. 21,397 6.a.3
(4) Commercial and industrial loans ................................................... 3387.. 4,181,148 6.a.4
(5) Loans to individuals for household, family, and other personal expenditures ....... 3388.. 819,566 6.a.5
RCFN
----
b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs ............. 3360.. 168,104 6.b
RCFD
----
7. Trading assets ........................................................................... 3401.. 418,553 7.
8. Lease financing receivables (net of unearned income) ..................................... 3484.. 715,822 8.
9. Total assets(4) .......................................................................... 3368.. 18,728,736 9.
LIABILITIES
10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts,
RCON
----
and telephone and preauthorized transfer accounts) (exclude demand deposits) ............. 3485.. 84,564 10.
11. Nontransaction accounts in domestic offices:
a. Money market deposit accounts (MMDAs) ................................................. 3486.. 1,747,098 11.a.
b. Other savings deposits ................................................................ 3487.. 1,760,287 11.b.
c. Time deposits of $100,000 or more ..................................................... A514.. 281,909 11.c.
d. Time deposits of less than $100,000 ................................................... A529.. 1,610,414 11.d.
RCFN
----
12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs .. 3404.. 3,443,832 12.
RCFD
----
13. Federal funds purchased and securities sold under agreements to repurchase ............... 3353.. 3,962,655 13.
14. Other borrowed money (includes mortgage indebtedness and obligations under capitalized
leases) .................................................................................. 3355.. 340,818 14.
</TABLE>
_____________
(1) For all items, banks have the option of reporting either (1) an average of
daily figures for the quarter, or (2) an average of weekly figures (i.e.,
the Wednesday of each week of the quarter).
(2) Quarterly averages for all debt securities should be based on amortized
cost.
(3) Quarterly averages for all equity securities should be based on historical
cost.
(4) The quarterly average for total assets should reflect all debt securities
(not held for trading) at amortized cost, equity securities with readily
determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.
<PAGE> 29
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 14
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
24
Transit Number: 91000019
</TABLE>
Schedule RC-L - Off-Balance Sheet Items
Please read carefully the instructions for the preparation of Schedule RC-L.
Some of the amounts reported in Schedule RC-L are regarded as volume indicators
and not necessarily as measures of risk.
<TABLE>
<CAPTION>
C460 <-
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCFD
1. Unused commitments:
a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home
equity lines ............................................................................... 3814 . . 235,982 1.a
b. Credit card lines .......................................................................... 3815 . . 0 1.b
c. Commercial real estate, construction, and land development:
(1) Commitments to fund loans secured by real estate ....................................... 3816 . . 53,309 1.c.1
(2) Commitments to fund loans not secured by real estate ................................... 6550 . . 15,170 1.c.2
d. Securities underwriting .................................................................... 3817 . . 0 1.d
e. Other unused commitments ................................................................... 3818 . . 4,238,612 1.e
2. Financial standby letters of credit and foreign office guarantees ............................. 3819 . . 988,775 2.
RCFD
a. Amount of financial standby letters of credit ----
conveyed to others ................................3820 . . 432,926 . . . . . 2.a.
3. Performance standby letters of credit and foreign office guarantees ............................ 3821 . . 89,173 3.
RCFD
a. Amount of performance standby letters of credit ----
conveyed to others .................................3822 . . 16,770 . . . . . 3.a
4. Commercial and similar letters of credit ...................................................... 3411 . . 148,233 4.
5. Participations in acceptances (as described in the instructions) conveyed to others by
the reporting bank ............................................................................ 3428 . . 0 5.
6. Participations in acceptances (as described in the instructions) acquired by the reporting
(nonaccepting) bank ........................................................................... 3429 . . 0 6.
7. Securities borrowed ........................................................................... 3432 . . 2,500,400 7.
8. Securities lent (including customers' securities lent where the customer is indemnified
against loss by the reporting bank) ........................................................... 3433 . . 324,290 8.
9. Financial assets transferred with recourse that have been treated as sold
for Call Report purposes:
a. First lien 1-to-4 residential mortgage loan pools:
(1) Outstanding principal balance of mortgages transferred as of the report date ........... A521 . . 17,152 9.a.1
(2) Amount of recourse exposure on these mortgages as of the report date ................... A522 . . 17,152 9.a.2
b. Other financial assets (excluding small business obligations reported in item 9.c.):
(1) Outstanding principal balance of assets transferred as of the report date ............... A523 . . 0 9.b.1
(2) Amount of recourse exposure on these assets as of the report date ....................... A524 . . 0 9.b.2
c. Small business obligations transferred with recourse under section 208 of the
Riegle Community Developement and Regulatory Improvement Act of 1994:
(1) Outstanding principal balance of small business obligations transferred as of the
report date ............................................................................ A249 . . 0 9.c.1
(2) Amount of retained recourse on these obligations as of the report date ................. A250 . . 0 9.c.2
10. Notional amount of credit derivatives:
a. Credit derivatives on which the reporting bank is the guarantor ............................ A534 . . 0 10.a
b. Cretit derivatives on which the reporting bank is the beneficiary .......................... A535 . . 40,000 10.b
11. Spot foreign exchange contracts ............................................................... 8765 . . 61,043 11.
12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives)
(itemize and describe each component of this item over 25% of Schedule RC, item 28,
"Total equity capital") ....................................................................... 3430 . . 0 12.
TEXT RCFD
----- ----
a. 3555:........................................................................3555 . . N A . . . . . 12.a
b. 3556:........................................................................3556 . . N A . . . . . 12.b
c. 3557:........................................................................3557 . . N A . . . . . 12.c
d. 3558:........................................................................4558 . . N A . . . . . 12.d
</TABLE>
<PAGE> 30
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 15
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
25
Transit Number: 91000019
</TABLE>
Schedule RC-L - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
13. All other off-balance sheet assets (exclude off-balance sheet derivatives)
(itemize and describe each component of this item over 25% of Schedule RC,
item 28, "Total equity capital")........................................................ 5591.. 0 13.
TEXT RCON
---- ----
a. 5592:....................................................5592.. N/A ................ 13.a
b. 5593:....................................................5593.. N/A ................ 13.b
c. 5594:....................................................5594.. N/A ................ 13.c
d. 5595:....................................................5595.. N/A ................ 13.d
</TABLE>
<TABLE>
<CAPTION>
C461 <-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
(Column A) (Column B) (Column C) (Column D)
Off-balance Sheet Commodity
Derivatives Interest Rate Foreign Exchange Equity Derivative And Other
Position Indicators Contracts Contracts Contracts Contracts
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
14. Gross amounts (e.g.,
notional amounts) (for each
column, sum of items 14.a
through 14.e must equal
sum of items 15, 16.a,
and 16.b):
a. Futures contracts.......... 16,500 0 0 0 14.a
RCFD 8693 RCFD 8694 RCFD 8695 RCFD 8696
b. Forward contracts.......... 0 1,065,549 0 0 14.b
RCFD 8697 RCFD 8698 RCFD 8699 RCFD 8700
c. Exchange-traded option
contracts:
(1) Written options........ 0 0 0 0 14.c1
RCFD 8701 RCFD 8702 RCFD 8703 RCFD 8704
(2) Purchased options...... 0 0 0 0 14.c2
RCFD 8705 RCFD 8706 RCFD 8707 RCFD 8708
d. Over-the-counter option
contracts:
(1) Written options........ 615,060 4,000 0 9,349 14.d1
RCFD 8709 RCFD 8710 RCFD 8711 RCFD 8712
(2) Purchased options...... 790,995 6,000 0 6,570 14.d2
RCFD 8713 RCFD 8714 RCFD 8715 RCFD 8716
e. Swaps...................... 4,531,600 0 0 9,599 14.e
RCFD 3450 RCFD 3826 RCFD 8719 RCFD 8720
15. Total gross notional amount
of derivatives contracts
held for trading.............. 2,313,555 1,075,549 0 25,518 15.
RCFD A126 RCFD A127 RCFD 8723 RCFD 8724
16. Total gross notional amount
of derivative contracts
held for purposes other
than trading:
a. Contracts marked
to market ................. 0 0 0 0 16.a
RCFD 8725 RCFD 8726 RCFD 8727 RCFD 8728
b. Contracts not marked
to market ................. 3,640,600 0 0 0 16.b
RCFD 8729 RCFD 8730 RCFD 8731 RCFD 8732
c. Interest rate swap
where the bank has
agreed to pay a
fixed rate................. 200,000.................................................................16.c
RCFD A589
</TABLE>
<PAGE> 31
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-16
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
26
Transit Number: 91000019
</TABLE>
Schedule RC-L--Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------
(Column A) (Column B) (Column C) (Column D)
Off-balance Sheet Equity Commodity
Derivatives Position Interest Rate Foreign Exchange Derivative And Other
Indicators Contracts Contracts Contracts Contracts
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
17. Gross fair values of
derivative contracts:
a. Contracts held for
trading: RCFD RCFD RCFD RCFD
---- ---- ---- ----
(1) Gross
positive
fair
value _______________ 8733.. 4,303 8734.. 20,542 8735.. 0 8736.. 622 17.a1
(2) Gross
negative
fair
value _______________ 8737.. 4,967 8738.. 19,295 8739.. 0 8740.. 638 17.a2
b. Contracts
held for
purposes
other than
trading that
are marked to
market:
(1) Gross
positive
fair
value _______________ 8741.. 0 8742.. 0 8743.. 0 8744.. 0 17.b1
(2) Gross
negative
fair
value _______________ 8745.. 0 8746.. 0 8747.. 0 8748.. 0 17.b2
c. Contracts
held for
purposes
other than
trading that
are not
marked
to market:
(1) Gross
positive
fair
value _______________ 8749.. 79,331 8750.. 0 8751.. 0 8752.. 0 17.c1
(2) Gross
negative
fair
value _______________ 8753.. 245 8754.. 0 8755.. 0 8756.. 0 17.c2
</TABLE>
<TABLE>
<CAPTION>
Memoranda Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
RCFD
----
1.-2. Not applicable ____________________________________________________________________________ ..............
3. Unused commitments with an original maturity exceeding one year that are reported in
Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments
that are fee paid or otherwise legally binding) ______________________________________________ 3833.. 4,070,198 M.3
a. Participations in commitments with an original RCFD
----
maturity exceeding one year conveyed to others _____ 3834.. 239,769 ........... M.3a
4. To be completed only by banks with $1 billion or more in total assets:
Standby letters of credit and foreign office guarantees (both financial and
performance) issued to non-U.S. addressees (domicile) included in Schedule RC-L,
items 2 and 3, above _________________________________________________________________________ 3377.. 75 M.4
5. Installment loans to individuals for household, family, and other personal
expenditures that have been securitized and sold (with servicing retained),
amounts outstanding by type of loan:
a. Loans to purchase private passenger automobiles (to be completed for the September
report only) ______________________________________________________________________________ 2741.. N/A M.5.a
b. Credit cards and related plans (TO BE COMPLETED QUARTERLY) ________________________________ 2742.. 0 M.5.b
c. All other consumer installment credit (including mobile home loans)(to be completed for the
September report only) ____________________________________________________________________ 2743.. N/A M.5.c
</TABLE>
<PAGE> 32
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 17
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
27
Transit Number: 91000019
</TABLE>
Schedule RC-M - Memoranda
<TABLE>
<CAPTION>
C465 <-
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Extensions of credit by the reporting bank to its executive officers, directors, principal
shareholders, and their related interests as of the report date: RCFD
a. Aggregate amount of all extensions of credit to all executive officers, directors, principal ----
shareholders, and their related interests .................................................... 6164. . 5,650 1.a
b. Number of executive officers, directors, and principal shareholders to whom
the amount of all extensions of credit by the reporting bank (including
extensions of credit to related interests) equals or exceeds the lesser RCFD Number
of $500,000 or 5 percent of total capital as defined for this purpose ---- ------
in agency regulations........................................................ 6165. . 3 . . . . . 1.b
2. Federal funds sold and securities purchased under agreements to resell with U.S.
branches and agencies of foreign banks (1) (included in Schedule RC, items 3.a and 3.b).......... 3405. . 497,500 2.
3. Not applicable.
4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others
(include both retained servicing and purchased servicing):
a. Mortgages serviced under a GNMA contract ..................................................... 5500. . 0 4.a
b. Mortgages serviced under a FHLMC contract:
(1) Serviced with recourse to servicer ....................................................... 5501. . 0 4.b.1
(2) Serviced without recourse to servicer .................................................... 5502. . 0 4.b.2
c. Mortgages serviced under a FNMA contract:
(1) Serviced under a regular option contract ................................................. 5503. . 0 4.c.1
(2) Serviced under a special option contract ................................................. 5504. . 0 4.c.2
d. Mortgages serviced under other servicing contracts ........................................... 5505. . 446,383 4.d
5. To be completed only by banks with $1 billion or more in total assets:
Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must
equal Schedule RC, item 9):
a. U.S. addressees (domicile) ................................................................... 2103. . 15,413 5.a
b. Non-U.S. addressees (domicile) ............................................................... 2104. . 8,512 5.b
6. Intangible assets:
a. Mortgage servicing rights .................................................................... 3164. . 0 6.a
(1) Estimated fair value of mortgage servicing assets......................................... A590. . 0 6.a.1
b. Other identifiable intangible assets:
(1) Purchased credit card relationships ...................................................... 5506. . 0 6.b.1
(2) All other identifiable intangible assets ................................................. 5507. . 339 6.b.2
c. Goodwill ..................................................................................... 3163. . 16,368 6.c
d. Total (sum of items 6.a, 6.b.1, 6.b.2 and 6.c) (must equal Schedule RC, item 10) ............. 2143. . 16,707 6.d
e. Amount of intangible assets (included in item 6.b.(2) above) that have been
grandfathered or are otherwise qualifying for regulatory capital purposes .................... 6442. . 0 6.e
7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to redeem
the debt ........................................................................................ 3295. . 0 7.
</TABLE>
- --------------
(1) Do not report federal funds sold and securities purchased under agreements
to resell with other commercial banks in the U.S. in this item.
<PAGE> 33
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 18
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
28
Transit Number: 91000019
</TABLE>
Schedule RC-M - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
8. a. Other real estate owned: RCFD
----
(1) Direct and indirect investments in real estate ventures ........................ 5372.. 0 8.a.1
(2) All other real estate owned: RCON
----
(a) Construction and land development in domestic offices ...................... 5508.. 0 8.a.2a
(b) Farmland in domestic offices ............................................... 5509.. 0 8.a.2b
(c) 1-4 family residential properties in domestic offices ...................... 5510.. 6,364 8.a.2c
(d) Multifamily (5 or more) residential properties in domestic offices ......... 5511.. 0 8.a.2d
(e) Nonfarm nonresidential properties in domestic offices ...................... 5512.. 109 8.a.2e
RCFN
----
(f) In foreign offices ......................................................... 5513.. 0 8.a.2f
RCFD
----
(3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7) ...... 2150.. 6,473 8.a.3
b. Investments in unconsolidated subsidiaries and associated companies:
(1) Direct and indirect investments in real estate ventures ........................ 5374.. 0 8.b.1
(2) All other investments in unconsolidated subsidiaries and associated companies .. 5375.. 0 8.b.2
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8) ...... 2130.. 0 8.b.3
9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC,
item 23, "Perpetual preferred stock and related surplus" .............................. 3778.. 0 9.
10. Mutual fund and annuity sales in domestic offices during the quarter (include
proprietary, private label, and third party mutual funds): RCON
----
a. Money market funds ................................................................. 6441.. 73,725 10.a
b. Equity securities funds ............................................................ 8427.. 0 10.b
c. Debt securities funds .............................................................. 8428.. 0 10.c
d. Other mutual funds ................................................................. 8429.. 50,131 10.d
e. Annuities .......................................................................... 8430.. 11,720 10.e
f. Sales of proprietary mutual funds and annuities (included in items 10.a through
10.e above) ........................................................................ 8784.. 77,704 10.f
RCFD
11. Net unamortized realized deferred gains (losses) on off-balance sheet derivative ----
contracts included in assets and liabilities reported in Schedule RC................... A525.. (25,990) 11.
12. Amount of assets netted against nondeposit liabilities and deposits in foreign
offices (other than insured branches in Puerto Rico and U.S. territories and
possessions) on the balance sheet (Schedule RC) in accordance with generally
accepted accounting principles(1) ..................................................... A526.. 0 12.
13. Outstanding principal balance of loans other than 1-4 family residential mortgage
mortgage loans that are serviced for others (to be completed if this balance is
more than $10 million and exceeds ten percent of total assets) ........................ A591.. 0 13.
</TABLE>
Memorandum
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. (to be completed for the December report only) Reciprocal holdings of banking
organizations' capital instruments ..................................................... 3836.. 0 M.1.
</TABLE>
- ----------
(1) Exclude netted on-balance sheet amounts associated with off-balance sheet
derivative contracts, deferred tax assets netted against deferred tax
liabilities, and assets netted in accounting for pensions.
<PAGE> 34
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 19
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
29
Transit Number: 91000019
</TABLE>
Schedule RC-N - Past Due and Nonaccrual Loans, Leases, and Other Assets
The FFIEC regards the information reported in all of Memorandum item 1, in items
1 through 10, column A, and in Memorandum items 2 through 4, column A, as
confidential.
<TABLE>
<CAPTION>
C470 <-
Dollar Amounts In Thousands
- -------------------------------------------------------------------------------------------------------------------------
-----(column a)---- ----(column b)---- ------(column c)---------
past due past due 90 nonaccrual
30 through 89 days or more
days and still and still
accruing accruing
-------------------- ------------------ -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RCFD RCFD RCFD
---- ---- ----
1. Loans secured by real estate:
a. To U.S. addressees (domicile) ................ 1245. . 27,082 1246. . 1,971 1247. . 8,682 1.a
b. To non-U.S. addressees (domicile) ............ 1248. . 0 1249. . 0 1250. . 0 1.b
2. Loans to depository institutions and
acceptances of other banks:
a. To U.S. banks and other U.S. depository
institutions ................................. 5377. . 0 5378. . 0 5379. . 0 2.a
b. To foreign banks ............................. 5380. . 0 5381. . 0 5382. . 0 2.b
3. Loans to finance agricultural production and
other loans to farmers .......................... 1594. . 0 1597. . 18 1583. . 0 3.
4. Commercial and industrial loans:
a. To U.S. addressees (domicile) ................ 1251. . 36,315 1252. . 0 1253. . 6,966 4.a
b. To non-U.S. addressees (domicile) ............ 1254. . 0 1255. . 0 1256. . 0 4.b
5. Loans to individuals for household, family, and
other personal expenditures:
a. Credit cards and related plans ............... 5383. . 2,045 5384. . 0 5385. . 0 5.a
b. Other (includes single payment, installment,
and all student loans) ....................... 5386. . 21,890 5387. . 1,858 5388. . 1,408 5.b
6. Loans to foreign governments and official
institutions .................................... 5389. . 0 5390. . 0 5391. . 0 6.
7. All other loans ................................. 5459. . 14,803 5460. . 70 5461. . 47 7.
8. Lease financing receivables:
a. Of U.S. addressees (domicile) ................ 1257. . 0 1258. . 0 1259. . 10,436 8.a
b. Of non-U.S. addressees (domicile) ............ 1271. . 0 1272. . 0 1791. . 0 8.b
9. Debt securities and other assets (exclude other
real estate owned and other repossessed assets) . 3505. . 0 3506. . 0 3507. . 0 9.
</TABLE>
================================================================================
Amounts reported in items 1 through 8 above include guaranteed and unguaranteed
portions of past due and nonaccrual loans and leases. Report in item 10 below
certain guaranteed loans and leases that have already been included in the
amounts reported in items 1 through 8.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
10. Loans and leases reported in items 1 RCFD RCFD RCFD
through 8 above which are wholly or partially ---- ---- ----
guaranteed by the U.S. Government ............... 5612. . 1,539 5613. . 58 5614. . 726 10.
a. Guaranteed portion of loans and leases
included in item 10 above .................... 5615. . 1,198 5616. . 43 5617. . 512 10.a
</TABLE>
<PAGE> 35
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-20
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
30
Transit Number: 91000019
</TABLE>
Schedule RC-N - Continued
Memoranda
<TABLE>
<CAPTION>
C473 <-
Dollar Amounts in Thousands
-------------------------------------------------------------------------
(Column A) (Column B) (Column C)
Past due Past due 90 Nonaccrual
30 through 89 days or more
days and still and still
accruing accruing
- ------------------------------------------------------ -------------------- -------------------- -------------------------------
<S> <C> <C> <C> <C>
1. Restructured loans and leases included in
Schedule RC-N, items 1 through 8, above RCFD RCFD RCFD
(and not reported in Schedule RC-C, Part I, ---- ---- ----
Memorandum item 2).................................1658.. 0 1659.. 0 1661.. 0 M.1
2. Loans to finance commercial real estate,
construction, and land development activities
(NOT SECURED BY REAL ESTATE) included in
Schedule RC-N, items 4 and 7, above ...............6558.. 0 6559.. 0 6560.. 0 M.2
3. Loans secured by real estate in domestic offices
(included in Schedule RC-N, item 1, above): RCON RCON RCON
---- ---- ----
a. Construction and land development ..............2759.. 2,155 2769.. 0 3492.. 482 M.3a
b. Secured by farmland ............................3493.. 0 3494.. 0 3495.. 0 M.3b
c. Secured by 1-4 family residential properties:
(1) Revolving, open-end loans secured by
1-4 family residential properties and
extended under lines of credit .............5398.. 2,006 5399.. 488 5400.. 0 M.3c1
(2) All other loans secured by 1-4 family
residential properties .....................5401.. 20,250 5402.. 1,483 5403.. 7,049 M.3c2
d. Secured by multifamily (5 or more)
residential properties .........................3499.. 0 3500.. 0 3501.. 0 M.3d
e. Secured by nonfarm nonresidential properties ...3502.. 2,671 3503.. 0 3504.. 1,151 M.3e
--------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
(Column A) (Column B)
Past due 30 Past due 90
through 89 days days or more
-------------------- --------------------------------
<S> <C> <C> <C>
4. Interest rate, foreign exchange rate, and other RCFD RCFD
commodity and equity contracts: ---- ----
a. Book value of amounts carried as assets ........3522.. 14 3528.. 0 M.4.a
b. Replacement cost of contracts with a
positive replacement cost ......................3529.. 0 3530.. 0 M.4.b
--------------------------------------------------------
</TABLE> C477 <-
- ------------------------------------------------------------------------------
Person to whom questions about the Reports of Condition and Income should be
directed:
(612) 667-9895
CHRIS MOCOL, MANAGER OF REGULATORY REPORTING
- ------------------------------------------------------------------------------
Name and Title (TEXT 8901) Area code/phone number/extension (TEXT 8902)
<PAGE> 36
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-21
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
31
Transit Number: 91000019
</TABLE>
Schedule RC-O - Other Data for Deposit Insurance Assessments and FICO
Assessments
__________
<TABLE>
<CAPTION>
C475 <-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RCON
1. Unposted debits (see instructions): ------
a. Actual amount of all unposted debits ...................................................... 0030.. N/A 1.a
OR
b. Separate amount of unposted debits:
(1) Actual amount of unposted debits to demand deposits ................................... 0031.. 0 1.b1
(2) Actual amount of unposted debits to time and savings deposits(1) ...................... 0032.. 0 1.b2
2. Unposted credits (see instructions):
a. Actual amount of all unposted credits ..................................................... 3510.. N/A 2.a
OR
b. Separate amount of unposted credits:
(1) Actual amount of unposted credits to demand deposits .................................. 3512.. 0 2.b1
(2) Actual amount of unposted credits to time and savings deposits(1) ..................... 3514.. 0 2.b2
3. Uninvested trust funds (cash) held in bank's own trust department (not included in total
deposits in domestic offices) ................................................................ 3520.. 0 3.
4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in
Puerto Rico and U.S. territories and possessions (not included in total deposits):
a. Demand deposits of consolidated subsidiaries .............................................. 2211.. 12,928 4.a
b. Time and savings deposits(1) of consolidated subsidiaries ................................. 2351.. 0 4.b
c. Interest accrued and unpaid on deposits of consolidated subsidiaries ...................... 5514.. 0 4.c
5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions:
a. Demand deposits in insured branches (included in Schedule RC-E, Part II) .................. 2229.. 0 5.a
b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II) ..... 2383.. 0 5.b
c. Interest accrued and unpaid on deposits in insured branches
(included in Schedule RC-G, item 1.b) ..................................................... 5515.. 0 5.c
Item 6 is not applicable to state nonmember banks that have not been authorized by the
Federal Reserve to act as pass-through correspondents.
6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on
behalf of its respondent depository institutions that are also reflected as deposit
liabilities of the reporting bank: RCON
a. Amount reflected in demand deposits (included in Schedule RC-E, Part I, item 4 or 5, ------
column B).................................................................................. 2314.. 145 6.a
b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, Part I,
item 4 or 5, column A or C, but not column B).............................................. 2315.. 0 6.b
7. Unamortized premiums and discounts on time and savings deposits: (1,2)
a. Unamortized premiums ...................................................................... 5516.. 49,421 7.a
b. Unamortized discounts ..................................................................... 5517.. 0 7.b
8. To be completed by banks with "Oakar deposits."
a. Deposits purchased or acquired from other FDIC-insured institutions during the
quarter
(1) Total deposits purchased or acquired from other FDIC-insured institutions
during the quarter..................................................................... A531.. N/A 8.a.1
(2) Amount of purchased or acquired deposits reported in item 8.a.(1) above
attributable to a secondary fund (i.e., BIF members report deposits
attributable to SAIF; SAIF members report deposits attributable to BIF)................ A532.. N/A 8.a.2
b. Total deposits sold or transferred during the quarter...................................... A533.. N/A 8.b
</TABLE>
- ----------
(1) For FDIC and FICO insurance assessment purposes, "time and savings
deposits" consists of nontransaction accounts and all transactions accounts
other than demand deposits.
(2) Exclude core deposit intangibles.
<PAGE> 37
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 22
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
32
Transit Number: 91000019
</TABLE>
Schedule RC-O - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCON
----
9. Deposits in lifeline accounts ______________________________________________________________ 5596.. 9.
10. Benefit-responsive "Depository Institution Investment Contracts" (included in total
deposits in domestic offices) ______________________________________________________________ 8432.. 0 10.
11. Adjustments to demand deposits reported in Schedule RC-E for certain reciprocal demand
balances:
a. Amount by which demand deposits would be reduced if the reporting bank's reciprocal demand
balances with the domestic offices of U.S. banks and savings associations and insured
branches in Puerto Rico and U.S. territories and possessions that were reported on a gross
basis in Schedule RC-E had been reported on a net basis _________________________________ 8785 0 11.a
b. Amount by which demand deposits would be increased if the reporting bank's reciprocal
demand balances with foreign banks and foreign offices of other U.S. banks (other than
insured branches in Puerto Rico and U.S. territories and possessions) that were reported
on a net basis in Schedule RC-E had been reported on a gross basis ______________________ A181 0 11.b
c. Amount by which demand deposits would be reduced if cash items in process of
collection were included in the calculation of the reporting bank's net reciprocal demand
balances with the domestic offices of U.S. banks and savings associations and insured
branches in Puerto Rico and U.S. territories and possessions in Schedule RC-E ___________ A182 0 11.c
12. Amount of assets netted against deposit liabilities on the balance sheet (Schedule
RC) in accordance with generally accepted accounting principles (exclude amounts
related to reciprocal demand balances):
a. Amount of assets netted against demand deposits ________________________________________ A527 0 12.a
b. Amount of assets netted against time and savings deposits ______________________________ A528 0 12.b
</TABLE>
<TABLE>
<CAPTION>
Memoranda
(to be completed each quarter except as noted) Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Total deposits in domestic offices of the bank
(sum of Memorandum items 1.a.(1) and 1.b.(1) must equal Schedule RC, item 13.a):
a. Deposit accounts of $100,000 or less: RCON
----
(1) Amount of deposit accounts of $100,000 or less _______________________________________ 2702.. 5,222,707 M.1a1
(2) Number of deposit accounts of $100,000 or less RCON Number
---- ------
(to be completed for the June report only)______ 3779.. N/A ........... M.1a2
b. Deposit accounts of more than $100,000:
(1) Amount of deposit accounts of more than $100,000 _____________________________________ 2710.. 3,868,696 M.1b1
(2) Number of deposit accounts of more than RCON Number
---- ------
$100,000 _______________________________________ 2722.. 6,636 ........... M.1b2
2. Estimated amount of uninsured deposits in domestic offices of the bank:
a. An estimate of your bank's uninsured deposits can be determined by multiplying the number of
deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2) above by $100,000
and subtracting the result from the amount of deposit accounts of more than $100,000 reported
in Memorandum item 1.b.(1) above.
Indicate in the appropriate box at the right whether your bank has a method or RCON YES NO
procedure for determining a better estimate of uninsured deposits than the ----
estimate described above __________________________________________________________________ 6861.. X M.2.a
b. If the box marked YES has been checked, report the estimate of uninsured deposits
determined by using your bank's method or procedure _______________________________________ 5597.. N/A M.2.b
3. Has the reporting institution been consolidated with a parent bank or savings
association in that parent bank's or parent savings association's Call Report
or Thrift Financial Report?
If so, report the legal title and FDIC Certificate Number of the parent bank
or parent savings association: FDIC Cert No
TEXTA545: ____________________________________________________________________________________ A545.. N/A M.3
</TABLE>
<PAGE> 38
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-23
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
33
Transit Number: 91000019
</TABLE>
Schedule RC-R - Regulatory Capital
This schedule must be completed by all banks as follows: Banks that reported
total assets of $1 billion or more in Schedule RC, item 12, for June 30, 1996,
must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets
of less than $1 billion must complete items 1 through 3 below or Schedule RC-R
in its entirety, depending on their response to item 1 below.
<TABLE>
<S> <C> <C> <C>
C480 <-
1. Test for determining the extent to which Schedule RC-R must be completed. To be completed
only by banks with total assets of less than $1 billion. Indicate in the appropriate RCFD YES NO
box at the right whether the bank has total capital greater than or equal to eight percent ---- --- --
of adjusted total assets ............................................................... 6056 N/A 1.
For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government
agency obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan
and lease losses and selected off-balance sheet items as reported on Schedule RC-L (see instructions).
If the box marked YES has been checked, then the bank only has to complete items 2 and 3 below. If the box marked
NO has been checked, the bank must complete the remainder of this schedule.
A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight
percent or that the bank is not in compliance with the risk-based capital guidelines.
</TABLE>
NOTE: All banks are required to complete
items 2 and 3 below. See optional
worksheet for items 3.a through 3.f.
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCFD
2. Portion of qualifying limited-life capital instruments (original weighted average ----
maturity of at least five years) that is includible in Tier 2 capital:
a. Subordinated debt (1) and intermediate term preferred stock...................... A515.. 0 2.a
b. Other limited-life capital instruments........................................... A516.. 0 2.b
3. Amounts used in calculating regulatory capital ratios (report amounts determined by
the bank for its own internal regulatory capital analyses consistent with applicable
capital standards):
a. Tier 1 capital................................................................... 8274.. 1,556,376 3.a
b. Tier 2 capital................................................................... 8275.. 174,995 3.b
c. Total risk-based capital......................................................... 3792.. 1,731,371 3.c
d. Excess allowance for loan and lease losses (amount that exceeds 1.25% of gross
risk-weighted assets)............................................................ A222.. 50,300 3.d
e. Net risk-weighted assets (gross risk-weighted assets less excess allowances
reported in item 3.d above and all other deductions)............................. A223.. 13,949,295 3.e
f. "Average total assets" (quarterly average reported in Schedule RC-K, item 9, less
all assets deducted from Tier 1 capital) (2)..................................... A224.. 18,713,633 3.f
Items 4-9 and Memoranda items 1 and 2 are to be completed
by banks that answered NO to item 1 above and
by banks with total assets of $1 billion or more.
</TABLE>
<TABLE>
(Column A) (Column B)
Assets Recorded Credit Equivalent Amount
on the of Off-Balance
Balance Sheet Sheet Items(3)
---------------- ------------------------
<S> <C> <C>
4. Assets and credit equivalent amounts of off-balance RCFD RCFD
sheet items assigned to the Zero percent risk category ---- ----
a. Assets recorded on the balance sheet __________________5163..............880,627 .......... 4.a
b. Credit equivalent amount of off-balance sheet items ___ ............... 3796.. 0 4.b
</TABLE>
______________
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.
(2) Do not deduct excess allowance for loan and lease losses.
(3) Do not report in column B the risk-weighted amount of assets reported in
column A.
<PAGE> 39
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 24
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
34
Transit Number: 91000019
</TABLE>
Schedule RC-R - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------
(Column A) (Column B)
Assets Credit Equivalent
Recorded Amount
on the of Off-Balance
Balance Sheet Sheet Items(1)
-------------------- ---------------------
<S> <C> <C>
RCFD RCFD
---- ----
5. Assets and credit equivalent amounts of off-balance sheet items
assigned to the 20 percent risk category:
a. Assets recorded on the balance sheet .................................. 5165.. 7,411,631 . . . . . . 5.a
b. Credit equivalent amount of off-balance sheet items ................... . . . . . . 3801.. 914,998 5.b
6. Assets and credit equivalent amounts of off-balance sheet items
assigned to the 50 percent risk category:
a. Assets recorded on the balance sheet .................................. 3802.. 5,042,169 . . . . . . 6.a
b. Credit equivalent amount of off-balance sheet items ................... . . . . . . 3803.. 164,122 6.b
7. Assets and credit equivalent amounts of off-balance sheet items
assigned to the 100 percent risk category:
a. Assets recorded on the balance sheet .................................. 3804.. 7,308,308 . . . . . . 7.a
b. Credit equivalent amount of off-balance sheet items ................... . . . . . . 3805.. 2,422,819 7.b
8. On-balance sheet asset values excluded from and deducted in
the calculation of the risk-based capital ratio(2) ....................... 3806.. 53,627 . . . . . . 8.
9. Total assets recorded on the balance sheet (sum of
items 4.a, 5.a, 6.a, 7.a, and 8, column A)(must equal Schedule RC,
item 12 plus items 4.b and 4.c) .......................................... 3807.. 20,696,362 . . . . . . 9.
</TABLE>
Memoranda
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
RCFD
----
1. Current credit exposure across all off-balance sheet derivative contracts covered by the
risk-based capital standards ................................................................. 8764.. 24,893 M.1.
</TABLE>
<TABLE>
<CAPTION>
---------------------With a remaining maturity of----------------------------
(Column A) (Column B) (Column C)
Over one year
One year or less through five years Over five years
----------------------- ----------------------- ---------------------------
<S> <C> <C> <C>
2. Notional principal amounts of
off-balance sheet derivative
contracts:(3)
RCFD RCFD RCFD
---- ---- ----
a. Interest rate contracts ........... 3809.. 797,802 8766.. 4,224,581 8767.. 275,212 M.2a
b. Foreign exchange contracts ........ 3812.. 950,678 8769.. 19,104 8770.. N/A M.2b
c. Gold contracts .................... 8771.. N/A 8772.. N/A 8773.. N/A M.2c
d. Other precious metals contracts ... 8774.. N/A 8775.. N/A 8776.. N/A M.2d
e. Other commodity contracts ......... 8777.. 7,749 8778.. 8,420 8779.. N/A M.2e
f. Equity derivative contracts ....... A000.. N/A A001.. N/A A002.. N/A M.2f
</TABLE>
- --------------------
(1) Do not report in column B the risk-weighted amount of assets reported in
column A.
(2) Include the difference between the fair value and the amortized cost of
available-for-sale securities in item 8 and report the amortized cost of
these securities in items 4 through 7 above. Item 8 also includes
on-balance sheet asset values (or portions thereof) of off-balance sheet
interest rate, foreign exchange rate, and commodity contracts and those
contracts (e.g. future contracts) not subject to risk-based capital.
Exclude from item 8 margin accounts and accrued receivables not included in
the calculation of credit equivalent amounts of off-balance sheet
derivatives as well as any portion of the allowance for loan and lease
losses in excess of the amount that may be included in Tier 2 capital.
(3) Exclude foreign exchange contracts with an original maturity of 14 days or
less and all futures contracts.
<PAGE> 40
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-25
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
35
Transit Number: 91000019
</TABLE>
Optional Narrative Statement Concerning the Amounts
Reported in the Reports of Condition and Income
at close of business on December 31, 1997
<TABLE>
<CAPTION>
Norwest Bank Minnesota, N.A. Minneapolis MN
_______________________________________________________________ __________________________________, ___________________________
Legal Title of Bank City State
<S> <C> <C>
The management of the reporting bank may, if it wishes, sub- the truncated statement will appear as the bank's statement
mit a brief narrative statement on the amounts reported in both on agency computerized records and in computer-file
the Reports of Condition and Income. This optional statement releases to the public.
will be made available to the public, along with the publicly
available data in the Reports of Condition and Income, in re- All information furnished by the bank in the narrative state-
sponse to any request for individual bank report data. How- ment must be accurate and not misleading. Appropriate efforts
ever, the information reported in column A and in all of shall be taken by the submitting bank to ensure the statement's
Memorandum item 1 of Schedule RC-N is regarded as confidential accuracy. The statement must be signed, in the space provided
and will not be released to the public. BANKS CHOOSING TO below, by a senior officer of the bank who thereby attests to
SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE its accuracy.
STATEMENT DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS
OF INDIVIDUAL BANK CUSTOMERS, REFERENCES TO THE AMOUNTS If, subsequent to the original submission, material changes
REPORTED IN THE CONFIDENTIAL ITEMS IN SCHEDULE RC-N, OR ANY are submitted for the data reported in the Reports of Condi-
OTHER INFORMATION THAT THEY ARE NOT WILLING TO HAVE MADE tion and Income, the existing narrative statement will be
PUBLIC OR THAT WOULD COMPENSATE THE PRIVACY OF THEIR deleted from the files, and from disclosure; the bank, at its
CUSTOMERS. Banks choosing not to make a statement by check option, may replace it with a statement, under signature,
the "No comment" box below and should make no entries of appropriate to the amended data.
any kind in the space provided for the narrative statement;
i.e., DO NOT enter in this space such phrases as "No statement," The optional narrative statement will appear in agency
"Not applicable," "N/A," "No comment," and "None." records and in release to the public exactly as submitted (or
amended as described in the preceding paragraph) by the
management of the bank (except for the truncation of state-
ments exceeding the 750-character limit described above).
THE STATEMENT WILL NOT BE EDITED OR SCREENED IN ANY
The optional statement must be entered on this sheet. The WAY BY THE SUPERVISORY AGENCIES FOR ACCURACY OR
statement should not exceed 100 words. Further, regardless RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT
of the number of words, the statement must not exceed 750 SIGNIFY THAT ANY FEDERAL SUPERVISORY AGENCY HAS
characters, including punctuation, indentation, and standard VERIFIED OR CONFIRMED THE ACCURACY OF THE INFORMATION
spacing between words and sentences. If any submission CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL
should exceed 750 characters, as defined, it will be truncated APPEAR ON ANY PUBLIC RELEASE OF THE OPTIONAL STATEMENT
at 750 characters with no notice to the submitting bank and SUBMITTED BY THE MANAGEMENT OF THE REPORTING BANK.
- ---------------------------------------------------------------------------------------------------------------------------------
No comment X (RCON 6979) C471 C472 <-
BANK MANAGEMENT STATEMENT (please type or print clearly): (TEXT 6980)
--------------------------------------------- --------------------------------
Signature of Executive Officer of Bank Date of Signature
</TABLE>
<PAGE> 41
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 12/31/97 ST-BK: 27-4095
Sixth Street and Marquette Avenue
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
36
Transit Number: 91000019
</TABLE>
<TABLE>
<S> <C> <C> <C>
THIS PAGE IS TO BE COMPLETED BY ALL BANKS
- ----------------------------------------------------------------------------------------------------------------------------------
OMB No. For OCC: 1557-0081
OMB No. For FDIC: 3064-0052
OMB No. For Federal Reserve: 7100-0036
Expiration Date: 03/31/2000
SPECIAL REPORT
(Dollar Amounts in Thousands)
CLOSE OF BUSINESS DATE: FDIC Certificate Number:
December 31, 1997 05208 C700 <-
- ----------------------------------------------------------------------------------------------------------------------------------
LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date)
- ----------------------------------------------------------------------------------------------------------------------------------
The following information is required by Public Laws 90-44 and 102-242, but does not constitute a part of the Report of
Condition. With each Report of Condition, these Laws require all banks to furnish a report of all loans or other extensions of
credit to its executive officers made since the date of the previous Report of Condition. Data regarding individual loans or
other extensions of credit are not required. If no such loans or other extensions of credit were made during the period, insert
"none" against subitem (a). (Exclude the first $15,000 of indebtedness of each executive officer under bank credit card plan.)
See Sections 215.2 and 215.3 of Title 12 of the Code of Federal Regulations (Federal Reserve Board Regulation O) for the
definitions of "executive officer" and "extension of credit," respectively. Exclude loans and other extensions of credit to
directors and principal shareholders who are not executive officers.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
RCFD
----
a. Number of loans made to executive officers since the previous Call Report date .............. 3561.. 1 a.
b. Total dollar amount of above loans (in thousands of dollars) ................................ 3562.. 11 b.
c. Range of interest charged on above loans (example: 9 3/4% = 9.75) ........................... 7701/7702.. 9.50% to 9.50% c.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
SIGNATURE AND TITLE OF OFFICER AUTHORIZED TO SIGN REPORT DATE (Month, Day, Year)
Mark P. Wagener
/s/ MARK P. WAGENER Director of Bank & Service Accounting 1/30/98
- ---------------------------------------------------------------------------------- -----------------------------------
NAME AND TITLE OF PERSON TO WHOM INQUIRIES MAY BE DIRECTED: (TEXT 8903) AREA CODE/PHONE NUMBER/EXTENSION:
(TEXT 8904)
(612) 667-9895
CHRIS MOCOL, MANAGER OF REGULATORY REPORTING
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FDIC 8040/53 (6-95)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001033032
<NAME> SILVERLEAF RESORTS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,970
<SECURITIES> 0
<RECEIVABLES> 92,036
<ALLOWANCES> 0
<INVENTORY> 28,310
<CURRENT-ASSETS> 42,736
<PP&E> 26,537
<DEPRECIATION> 4,908
<TOTAL-ASSETS> 156,401
<CURRENT-LIABILITIES> 9,728
<BONDS> 0
0
0
<COMMON> 113
<OTHER-SE> 83,652
<TOTAL-LIABILITY-AND-EQUITY> 156,401
<SALES> 68,682
<TOTAL-REVENUES> 85,058
<CGS> 6,600
<TOTAL-COSTS> 50,886
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,524
<INTEREST-EXPENSE> 4,664
<INCOME-PRETAX> 18,984
<INCOME-TAX> 7,024
<INCOME-CONTINUING> 11,960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,960
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
</TABLE>
