<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-13003
SILVERLEAF RESORTS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
TEXAS 75-2259890
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1221 RIVERBEND DRIVE, SUITE 120 75247
DALLAS, TEXAS (Zip Code)
(Address of Principal Executive Offices)
</TABLE>
Registrant's Telephone Number, Including Area Code: 214-631-1166
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
COMMON STOCK, $.01 PAR VALUE NYSE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
---------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
---------------------
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sales price of the Common Stock on
February 27, 1998 as reported on the New York Stock Exchange was approximately
$96,243,825. At February 27, 1998, there were 11,311,517 shares of the
Registrant's Common Stock outstanding.
Documents Incorporated by Reference: Certain portions of the Registrant's
Definitive Proxy Statement, to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the close of
the Registrant's 1997 fiscal year, are incorporated by reference in Part III of
this Form 10-K and certain portions of the Registrant's Registration Statements
on Form S-1 (File Nos. 333-47423 and 333-47427) are incorporated by reference in
Part II of this Form 10-K.
================================================================================
<PAGE> 2
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
OVERVIEW
Silverleaf Resorts, Inc. ("Silverleaf" or the "Company") is a leading
developer, marketer, and operator of "drive-to" timeshare resorts. Silverleaf
currently owns and operates eight "Drive-to resorts" in Texas, Missouri,
Illinois and Massachusetts (the "Drive-to Resorts"). Silverleaf also owns two
"destination resorts" in Missouri (the "Destination Resorts"), and has recently
acquired sites in Las Vegas, Nevada and Galveston, Texas, for development as two
new destination resorts (the "New Resorts"). The Drive-to Resorts are designed
to appeal to value conscious vacationers seeking comfortable and affordable
accommodations in locations convenient to their residences and 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).
Silverleaf locates its Drive-to Resorts near principal market areas to
facilitate more frequent "short stay" getaways, which it believes is a growing
vacation trend. Silverleaf's Destination Resorts, which are located in the
popular resort area of Branson, Missouri, offer Silverleaf customers the
opportunity to upgrade into a higher quality resort area as their lifestyles and
travel budgets permit. Both the Drive-to Resorts and the Destination Resorts
(collectively, the "Existing Resorts") are in rustic areas and provide a quiet,
relaxing vacation environment. The New Resorts are in popular destination resort
areas which are accessible to Silverleaf's customers and complement Silverleaf's
strategy of offering its existing customers attractive upgrade opportunities.
Silverleaf believes its resorts offer its customers an economical alternative to
commercial vacation lodging. The average price for an annual one-week Vacation
Interval for a two-bedroom unit at the Existing Resorts was $7,834 for the year
ended December 31, 1997, which compares favorably to an industry average price
of $10,790 for a two-bedroom unit in 1996.
Owners of Silverleaf Vacation Intervals ("Silverleaf Owners") enjoy
benefits which are uncommon in the timeshare industry. These benefits include
(i) use of vacant lodging facilities at the Existing Resorts at no extra cost
through Silverleaf's "Endless Escape" program; (ii) year-round access to the
Existing Resorts' non-lodging amenities such as fishing, boating, horseback
riding, tennis or golf 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 Vacation Interval exchange network operated by Resort
Condominiums International ("RCI").
OPERATIONS
Silverleaf's operations presently include (i) acquiring and developing
timeshare resorts; (ii) marketing and selling one week annual and biennial
vacation intervals ("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 New Resorts and the development of any 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 continues to make significant investments 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 systems
enable it to market and sell Vacation Intervals at a lower cost than its
competitors in the timeshare industry.
As part of the Vacation Interval sales process, the Company offers
potential purchasers financing of up to 90% of the purchase price over a seven
year period. The Company has historically financed its operations by borrowing
from third-party lending institutions at an advance rate of up to 70% of
eligible customer receivables. At December 31, 1997, the Company had a portfolio
of approximately 21,320 customer promissory notes totalling approximately $104.4
million with an average yield of 14.5% per annum, which
1
<PAGE> 3
compares favorably to the Company's weighted average cost of borrowings of 10.1%
per annum. At December 31, 1997, approximately $4.0 million in principal, or
3.9% of the Company's loans to Silverleaf Owners, were 61 to 120 days past due,
and approximately $10.4 million in principal, or 9.9% of the Company's loans to
Silverleaf Owners, were more than 120 days past due. The Company provides for
uncollectible notes by reserving an amount which management believes is
sufficient to cover anticipated losses from customer defaults. In 1997 and 1996,
the Company's provision for uncollectible notes exceeded actual loan chargeoffs
by $2.9 and $1.6 million, respectively.
Each Existing Resort has a timeshare owners' association (a "Club") which
has contracted with a centralized organization (referred to as the "Master
Club") to manage the Existing Resorts on a collective basis. The Master Club, in
turn, has contracted with the Company to perform the supervisory, management and
maintenance functions at the Existing Resorts on a collective basis. All costs
of operating the Existing Resorts, including management fees to the Company, 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. The new Galveston resort will have its own Club which will
become a part of the Master Club's centralized organization structure; however,
the New Resort in Las Vegas will be operated independently of the Master Club.
RECENT DEVELOPMENTS
In June 1997, Silverleaf completed an initial public offering (the "IPO")
of 3,600,000 primary shares of its Common Stock. 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 report on Form 10-K.
- 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 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 units (25,584 Vacation
Intervals) on this property, and has begun construction of 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 hotel/timeshare resort, in
the Berkshire Mountains of western Massachusetts for $5.1 million as a
new Drive-to Resort to serve Boston and the greater New York City market.
The Oak N' Spruce Resort presently has 132 existing units and 1,629
unsold Vacation Intervals. Silverleaf intends to develop approximately
420 new units (21,840 Vacation Intervals) at this 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
2
<PAGE> 4
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 to lead 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, the Company
entered into an agreement with Crown Resort Company, 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.
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. Such plan projects development of 3,347 additional
units (including 120 units presently under construction), which would result in
172,884 additional Vacation Intervals. Since the IPO, Silverleaf has 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
3
<PAGE> 5
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 in Atlanta, undeveloped land near Kansas City, and management
rights to eight Crown resorts. 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.
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
sales will increase for recently acquired new 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. See "-- Features Common to
Existing Resorts".
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
governmental permits, and future land-planning and site-layout considerations.
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
4
<PAGE> 6
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 presently 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. Integration also facilitates Silverleaf's
internal exchange program, the Endless Escape program, and the resorts'
qualification in 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. The
Company's senior officers have an average of ten years of experience in the
timeshare industry.
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>
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>
5
<PAGE> 7
- ---------------
(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.
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.
(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.
6
<PAGE> 8
(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.
(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.
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.
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.
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
7
<PAGE> 9
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.
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.
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.
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 for one-week stays. During 1997, 539 Vacation Intervals were
sold.
THE VILLAGES AND LAKE O' THE WOODS RESORTS. The Villages and Lake O' The
Woods are sister resorts located on the shores of Lake Palestine, approximately
100 miles east of Dallas, Texas. The Villages, located approximately five miles
northwest of Lake O' The Woods, is an active sport resort popular for
water-skiing
8
<PAGE> 10
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.
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.
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-
9
<PAGE> 11
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.
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.
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 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.
10
<PAGE> 12
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.
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.
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.
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
11
<PAGE> 13
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.
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.
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-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
12
<PAGE> 14
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.
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.
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.
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
13
<PAGE> 15
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. 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.
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
14
<PAGE> 16
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.
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 deemed probable. 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.
The Company intends to borrow additional funds under its existing revolving
credit facilities 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 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.
15
<PAGE> 17
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.
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.
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 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
16
<PAGE> 18
one year, with additional units to be added within 150 days based on demand,
weather permitting. A normal part of the development process is the
establishment of a functional sales office at the new resort.
CLUBS/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.
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 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,
17
<PAGE> 19
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. The Texas Natural Resources Conservation
Commission ("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.
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 Creek, Fox River, and
Galveston resorts. The Company also receives revenues from room charges at the
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
18
<PAGE> 20
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,
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.
19
<PAGE> 21
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 Ownership Resorts ("Marriott"), The Walt Disney Company ("Disney"),
Hilton Hotels Corporation ("Hilton"), Hyatt Corporation ("Hyatt"), and Four
Seasons Resorts ("Four Seasons") have recently entered the industry. Other
companies in the timeshare industry, including Signature Resorts, Inc.
("Signature"), Fairfield Communities, Inc. ("Fairfield"), Vacation Break U.S.A.,
Inc. ("Vacation Break"), Vistana Inc. ("Vistana"), Ramada Vacation Suites
("Ramada"), and TrendWest Resorts, Inc. ("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, 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
20
<PAGE> 22
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.
21
<PAGE> 23
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 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, 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
22
<PAGE> 24
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.
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
23
<PAGE> 25
treatment of hazardous or toxic substances at a disposal or treatment facility
also may be liable for the costs of removal or remediation of a release of
hazardous or toxic substances at such disposal or treatment facility, whether or
not such facility is owned or operated by such person. In addition, some
environmental laws create a lien on the contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
Finally, the owner or operator of a site may be subject to common law claims by
third parties based on damages and costs resulting from environmental
contamination emanating from a site or from environmental regulatory violations.
In connection with 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
24
<PAGE> 26
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 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.
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. 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.
EMPLOYEES
At December 31, 1997, the Company employed 1,602 individuals. 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.
25
<PAGE> 27
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. 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
Company also has a $12.0 million revolving loan agreement due May 2003 which had
a balance due at December 31, 1997 of approximately $4.1 million. The foregoing
loans mature between December 1999 and October 2005, and are collateralized (or
cross-collateralized) by customer notes receivable, 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 (excluding the Notes) 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.
26
<PAGE> 28
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 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, prime rate was 8.5% and LIBOR rates were from 5.72%
to 5.81%.
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 credit facilities is
subject to and qualified in its entirety by reference to the terms of the credit
facilities.
27
<PAGE> 29
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)
28
<PAGE> 30
NUMBER OF VACATION INTERVAL OWNERS
(IN MILLIONS)
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.
29
<PAGE> 31
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.
30
<PAGE> 32
CAUTIONARY STATEMENTS
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Certain statements in this
report on Form 10-K 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
throughout this report on Form 10-K. In addition, when used in this report on
Form 10-K 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 report on Form 10-K
generally. The forward-looking statements are made as of the date of this report
on Form 10-K 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.
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
31
<PAGE> 33
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.
FINANCING CUSTOMER BORROWINGS. To finance its operations, the Company
borrows funds under existing or future credit arrangements and is dependent on
its 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 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.
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.
MATURITY MISMATCH. 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 related revolving
credit facilities mature between December 1999 and October 2005 with up to
$60.0 million of borrowings under 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. 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.
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.
32
<PAGE> 34
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 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
33
<PAGE> 35
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 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 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.
34
<PAGE> 36
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, 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 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.
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
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 enhanced access to capital and other
resources.
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
35
<PAGE> 37
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.
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. 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 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
36
<PAGE> 38
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.
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.
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. 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.
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
37
<PAGE> 39
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.
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.
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.
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.
38
<PAGE> 40
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.
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.
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 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.
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.
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
39
<PAGE> 41
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. 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. 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 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.
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.
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.
40
<PAGE> 42
ITEM 3. LEGAL PROCEEDINGS
The Company is currently subject to litigation and claims respecting tort,
contract and consumer disputes, among others. In the judgment of management,
none of such 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
none
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's initial public offering of Common Stock was consummated in
June 1997 (the "Initial Public Offering"), at an initial public offering price
of $16.00 per share. The Company's common stock is quoted on the New York Stock
Exchange ("NYSE") under the symbol "SVR." The following table sets forth, for
the periods indicated, the high and low sale prices for the Common Stock, as
quoted on the NYSE:
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Year Ended December 31, 1997:
Second Quarter (Commencing June 6, 1997).................... 19 14 5/8
Third Quarter............................................... 24 3/16 15
Fourth Quarter.............................................. 26 1/4 20 3/4
</TABLE>
On February 27, 1998, there were approximately 11 holders of record of the
Company's Common Stock and the estimated number of beneficial stockholders was
750.
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its Common Stock. The
Company currently intends to retain future earnings to finance its operations
and fund the growth of its business. Any payment of future dividends will be at
the discretion of the Board of Directors of the Company and will depend upon,
among other things, the Company's earnings, financial condition, capital
requirements level of indebtedness, contractual restrictions in respect of the
payment of dividends and other factors that the Company's Board of Directors
deems relevant.
41
<PAGE> 43
ITEM 6. SELECTED FINANCIAL DATA
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.
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.
The Selected Consolidated Historical Financial and Operating Information
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations appearing elsewhere in this report on Form 10-K.
<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
Interest income.................................... 1,029 1,633 3,968 6,297 9,149
Interest income from affiliates.................... 70 252 393 377 247
Management fee income.............................. 3,613 2,394 2,478 2,187 2,331
Lease income....................................... 512 1,137 1,310 1,717 1,415
Other income....................................... 1,964 1,932 1,832 1,440 3,234
--------- --------- --------- --------- ---------
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
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(a)......... $ 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>
42
<PAGE> 44
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(c).......................................... $ 5,124 $ 6,264 $ 7,530 $ 14,432 $ 25,145
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>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash 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 a 719.97205 for one stock split in May 1997.
(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 net 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.
43
<PAGE> 45
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
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 Notes 1 and 10 of Notes to Consolidated Financial Statements
appearing elsewhere in this report on Form 10-K hereinafter referred to as the
"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.
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.
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, with greater costs apportioned to higher value ratings. As Vacation
Intervals are sold, these costs are deducted from inventory on a specific
identification basis.
44
<PAGE> 46
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.
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.
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
45
<PAGE> 47
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.
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.
46
<PAGE> 48
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.
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.
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.
47
<PAGE> 49
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
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.
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 Note 7 of Notes to Consolidated Financial
Statements.
For regular federal income tax purposes, the Company reports substantially
all of the Vacation Interval sales it finances under the installment method.
Under this method, income on sales of Vacation Intervals is not recognized until
cash is received, either in the form of a down payment, or as installment
payments on customer notes receivable. The deferral of income tax liability
conserves cash resources on a current basis. Interest 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
48
<PAGE> 50
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 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 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.
Subject to completion of the debt and equity financing discussed under
"Subsequent Events" below, 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. The Company
is actively seeking sites for additional new resorts or acquisitions. In the
event the equity and debt financing discussed in "Subsequent Events" below is
not consummated, the Company's current active construction program will
continue, although at a much reduced level, using available credit facilities.
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 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.
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.
49
<PAGE> 51
SUBSEQUENT EVENTS
On March 6, 1998 the Company filed a registration statement with the
Securities and Exchange Commission (File No. 333-47423) proposing to offer
2,000,000 shares of Common Stock (the "Equity Offering"). In addition to the
2,000,000 shares being offered by the Company, the majority shareholder of the
Company is proposing to sell 500,000 additional shares of the Company's Common
Stock. On March 6, 1998 the Company also filed a second registration statement
with the Securities and Exchange Commission (File No. 333-47427) proposing to
offer $75.0 million aggregate principal amount of Senior Subordinated Notes due
2008 (the "Note Offering"). Under the terms of the registration statements for
the Equity Offering and 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. The securities
described in the Equity Offering and the Note Offering may not be offered or
sold except through the registration statements referenced above. The discussion
of the Equity Offering and the Note Offering contained in this report on Form
10-K does 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.
The Company plans to utilize the proceeds from the Equity Offering and Note
Offering to repay substantially all of its outstanding indebtedness, develop
units, amenities and infrastructure at the Existing Resorts and to develop
units, amenities, and infrastructure at New Resorts and to fund acquisitions,
working capital and general corporate purposes. If the Equity Offering and the
Note Offering are consummated, the Company will have $125.0 million of borrowing
capacity under its existing credit facilities, which will offer the Company the
additional flexibility to acquire new timeshare resorts, land upon which new
timeshare resorts may be constructed, or other companies which operate
resort-type properties. Even if the Equity Offering and the Note Offering are
consummated, however the Company does not have sufficient capital to fully
implement its master plan for the total development of over 3,000 units at the
Existing Resorts and New Resorts. To completely finance such master plan
development and fund additional acquisitions, the Company will likely be
required to raise capital in addition to the Equity Offering and the Note
Offering through existing and additional credit facilities, debt offerings,
additional public offerings of its Common Stock, or any combination of the
above.
If only the Equity Offering is consummated, the Company estimates its
indebtedness will be approximately $19.3 million, and it will have substantial
available borrowing capacity under its revolving credit facilities. If neither
the Equity Offering nor the Note Offering is consummated, the Company will be
dependent upon existing credit facilities and internally generated sources of
cash to finance its operations and budgeted capital expenditures. Any failure by
the Company to renew existing credit facilities, obtain adequate financing under
new facilities, or raise needed capital through other debt or equity offerings,
could have a material adverse effect on the Company's financial position,
results of operation or liquidity, and could significantly reduce the Company's
plans to acquire new properties, develop the New Resorts, and expand the
Existing Resorts.
Pro forma financial information regarding the pro forma effects of the
Equity Offering and the Note Offering (if either or both offerings are
consummated) is incorporated herein by reference to the pro forma financial
information of the Company set forth in the Company's registration statements on
Form S-1 for the Equity Offering (File No. 333-47423) and the Note Offering
(File No. 333-47427).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the information set forth on Index to Consolidated Financial Statements
appearing on page F-1 of this report on Form 10-K.
Certain pro forma financial information of the Company regarding the
effects of the Equity Offering and Note Offering (as defined in Item 7 of this
report on Form 10-K) is incorporated herein by reference to the pro forma
financial information of the Company set forth in the Company's registration
statements on Form S-1 on March 6, 1998 (File Nos. 333-47423 and 333-47427).
50
<PAGE> 52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
none
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a listing of the executive officers of the Company, none
of whom has a family relationship with directors or other executive officers:
ROBERT E. MEAD, age 51, 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, age 37, 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, age 56, 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, age 41, 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, age 44, 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.
LARRY H. FRITZ, age 45, 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, age 47, 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, age 49, 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.
51
<PAGE> 53
JAMES J. OESTREICH, age 57, 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 , age 36, 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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item will be set forth under "Directors
and Executive Officers" and "Proxy Statement -- Compliance with Section 16(a)
under the Securities Exchange Act of 1934" in the Company's Definitive Proxy
Statement and reference is expressly made thereto for the specific information
incorporated herein by the aforesaid reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth under "Executive
Compensation" in the Company's Proxy Statement and reference is expressly made
thereto for the specific information incorporated herein by the aforesaid
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be set forth under "Security
Ownership of Certain Beneficial Owners and Management" in the Company's Proxy
Statement and reference is expressly made thereto for the specific information
incorporated herein by the aforesaid reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be set forth under "Certain
Relationships and Related Transactions" in the Company's Proxy Statement and
reference is expressly made thereto for the specific information incorporated
herein by the aforesaid reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
4.1 -- Form of Stock Certificate of Registrant (incorporated by
reference to Exhibit 4.1 to Amendment No. 1 dated May 16,
1997 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
+10.2.7 -- Employment Agreement, dated January 20, 1998, between
Registrant and Jim Oestreich.
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).
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.
+10.3.9 -- Non-Qualified Stock Option Agreement, dated January 20,
1998, between Registrant and Jim Oestreich.
</TABLE>
53
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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).
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).
</TABLE>
54
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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).
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).
</TABLE>
55
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
+10.32 -- Amendment to Loan Documents, dated December 22, 1997,
between Registrant and Credit Suisse First Boston
Mortgage Capital, L.L.C.
+10.33 -- Second Amendment to Management Agreement, dated December
31, 1997, between Master Club and Registrant.
+10.34 -- Master Club Agreement, dated January 5, 1998, between
Master Club and Oak N' Spruce Resort Club.
+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.
+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.
+10.37 -- Contract of Sale, dated February 18, 1998, between
Registrant and Michael J. McDermott.
+10.38 -- Contract of Sale, dated February 19, 1998, between
Registrant and Lee R. Roper.
+10.39 -- Contract of Sale, dated February 19, 1998, between
Registrant and J. Phillip Ballard, Jr., and Eagle Greens
Ltd.
+10.40 -- Stock Purchase Agreement, dated January 15, 1998, between
Silverleaf Resorts, Inc. and Jim Oestreich.
+10.41 -- Contract of Sale, dated May 2, 1997, between Registrant
and Thousand Trails, Inc.
+10.42 -- First Amendment to Contract of Sale, dated July 25, 1997,
between Registrant and Thousand Trails, Inc.
+10.43 -- Master Club Agreement, dated November 13, 1997, between
Master Club and Fox River Resort Club.
+21.1 -- Subsidiaries of Silverleaf Resorts, Inc.
+27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
+ Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three-month
period ended December 31, 1997.
(c) The exhibits required by Item 601 of Regulation S-K have been listed
above.
(d) Financial Statement Schedules
None. Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the financial statements or the notes thereto.
56
<PAGE> 58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized in the City of Dallas,
State of Texas, on March 6, 1998.
SILVERLEAF RESORTS, INC.
By: /s/ ROBERT E. MEAD
------------------------------------
Name: Robert E. Mead
Title: Chairman of the Board and
Chief
Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below on behalf of the
Registrant in the capacities and on the dates indicated.
<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
Joe W. Conner Financial 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>
57
<PAGE> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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
F-7
<PAGE> 66
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
as other revenues. In addition to sales of Vacation Intervals to new prospective
owners the Company sells upgraded Vacation Intervals to existing Silverleaf
Owners. Revenues are recognized on these upgrade Vacation Interval sales when
the criteria described above are satisfied. The revenue recognized is the net of
the incremental increase in the upgrade sales price and cost of sales is the
incremental increase in the cost of the Vacation Interval purchased. A provision
for estimated customer returns (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.
F-8
<PAGE> 67
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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> 68
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
F-10
<PAGE> 69
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
other states 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.
F-11
<PAGE> 70
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-12
<PAGE> 71
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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>
F-13
<PAGE> 72
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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
F-14
<PAGE> 73
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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
</TABLE>
F-15
<PAGE> 74
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
$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 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
F-16
<PAGE> 75
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-17
<PAGE> 76
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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.
F-18
<PAGE> 77
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<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
F-19
<PAGE> 78
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
F-20
<PAGE> 79
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-21
<PAGE> 80
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-22
<PAGE> 81
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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,
F-23
<PAGE> 82
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-24
<PAGE> 83
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
4.1 -- Form of Stock Certificate of Registrant (incorporated by
reference to Exhibit 4.1 to Amendment No. 1 dated May 16,
1997 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
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).
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).
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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).
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).
</TABLE>
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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).
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).
</TABLE>
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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).
+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).
</TABLE>
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+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).
+21.1 -- Subsidiaries of Silverleaf Resorts, Inc.
+27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Filed herewith
<PAGE> 1
EXHIBIT 3.2
================================================================================
AMENDED AND RESTATED BYLAWS
OF
SILVERLEAF RESORTS, INC.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1 - ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2 - SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3 - NOTICE OF MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 4 - NOMINATION AND SHAREHOLDER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Annual Meeting of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Special Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 5 - QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 6 - VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 7 - VOTING OF STOCK BY CERTAIN HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 8 - PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 9 - PLACE OF MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 10 - INFORMAL ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II
DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1 - POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2 - NUMBER AND TENURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3 - VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4 - REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5 - SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 6 - NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7 - QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 8 - MANNER OF ACTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 9 - COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 10 - INFORMAL ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 11 - MEETING BY CONFERENCE TELEPHONE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 12 - REMOVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 13 - RESIGNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1 - COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2 - MINUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3 - INFORMAL ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV
OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 1 - NUMBER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2 - ELECTION AND VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3 - REMOVAL; RESIGNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4 - VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5 - CHIEF EXECUTIVE OFFICER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 6 - CHIEF OPERATING OFFICER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 7 - CHIEF FINANCIAL OFFICER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 8 - CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 9 - PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 10 - VICE PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 11 - SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 12 - ASSISTANT SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 13 - TREASURER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 14 - ASSISTANT TREASURER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 15 - OTHER OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 16 - SALARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 17 - SPECIAL APPOINTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1 - CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2 - LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3 - CHECKS, DRAFTS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4 - DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VI
ISSUE AND TRANSFER OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1 - ISSUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2 - TRANSFER OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3 - STOCK LEDGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VII
FIXING DATE FOR DETERMINATION
OF SHAREHOLDERS' RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VIII
AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IX
FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE X
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
ii
<PAGE> 4
SILVERLEAF RESORTS, INC.
AMENDED AND RESTATED BYLAWS
ARTICLE I
SHAREHOLDERS
Section 1 - ANNUAL MEETING
The annual meeting of the shareholders of the Corporation shall be
held in May of each year at the time and place as shall be designated by the
Board of Directors by resolution and stated in the notice of the meeting. The
business to be transacted at the annual meeting shall include the election of
directors and any other corporate business as may come before the meeting.
Section 2 - SPECIAL MEETING
At any time in the intervals between annual meetings, a special
meeting of the shareholders may be called by the Chief Executive Officer or by
the Board of Directors, and shall be called by the Chief Executive Officer at
the request in writing of shareholders owning ten percent (10%) in amount of
the entire capital stock of the Corporation issued and outstanding and entitled
to vote. Such request shall state the purpose or purposes of the proposed
meeting. No business shall be transacted at a special meeting save that
specially named in the notice.
Section 3 - NOTICE OF MEETING
Not less than ten (10) days nor more than sixty (60) days before the
date of every shareholders' meeting, the Secretary shall give to each
shareholder entitled to vote at such meeting and to each shareholder not
entitled to vote who is entitled to notice by statute, written or printed
notice stating the date, time and place of the meeting and in the case of a
special meeting, the purpose or purposes for which the meeting is called,
either by presenting it to the shareholder personally or by leaving it at the
shareholder's residence or usual place of business or by mailing it to the
shareholder at the shareholder's address as it appears on the records of the
Corporation. Notice which is mailed in accordance with the preceding sentence
shall be deemed to be given at the time when the same shall be deposited in the
United States mail with postage thereon prepaid. Any shareholder may waive
notice of any meeting by written waiver filed with the records of the meeting,
either before or after the holding thereof. The attendance of a shareholder at
a meeting shall constitute a waiver of notice of such meeting, except where a
shareholder attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. No business shall be transacted at a special meeting save that
specially named in the notice.
<PAGE> 5
Section 4 - NOMINATION AND SHAREHOLDER BUSINESS
(a) Annual Meeting of Shareholders
(1) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by shareholders may be made at an
annual meeting of shareholders (i) pursuant to the Corporation's notice of the
meeting, (ii) by or at the direction of the Board of Directors or (iii) by any
shareholder of the Corporation who was a shareholder of record at the time of
giving of notice provided for in this Section 4(a) who is entitled to vote at
the meeting and who has complied with the notice procedure set forth in this
Section 4(a).
(2) For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (iii) of paragraph
(a)(l) of this Section 4, the shareholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a shareholder's
notice shall be delivered to the Secretary at the principal executive offices
of the Corporation not less than 60 days nor more than 90 days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by more than
30 days or delayed by more than 60 days from such anniversary date, notice by
the shareholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the 10th day following
the day on which public announcement of the date of such meeting is first made.
Such shareholder's notice shall set forth (i) as to each person whom the
shareholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934 as amended ("The Exchange Act") (including such person's written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected); (ii) as to any other business that the shareholder proposes to
bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder and of
the beneficial owner, if any, on whose behalf the proposal is made; and (iii)
as to the shareholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made, (x) the name and address of
such shareholder, as they appear on the Corporation's books, and of such
beneficial owner and (y) the class and number of shares of stock of the
Corporation which are owned beneficially and of record by such shareholder and
such beneficial owner.
(3) Notwithstanding anything in the second sentence of Paragraph
(a)(2) of this Section 4 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least 70
days prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by this Section 4(a) shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, it shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Corporation.
2
<PAGE> 6
(b) Special Meetings of Shareholders
Only such business shall be conducted at a special meeting of
shareholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of shareholders at which
directors are to be elected (i) pursuant to the Corporation's notice of
meeting; (ii) by or at the direction of the Board of Directors; or (iii)
provided that the Board of Directors has determined that directors shall be
elected at such special meeting, by any shareholder of the corporation who is a
shareholder of record at the time of giving of notice provided for in this
Section 4(b) who is entitled to vote at the meeting and who complied with the
notice procedures set forth in this Section 4(b). In the event the Corporation
calls a special meeting of shareholders for the purpose of electing one or more
directors to the Board of Directors, any such shareholder may nominate a person
or persons (as the case may be) for election to such position as specified in
the Corporation's notice of meeting, if the shareholder's notice required by
paragraph (a)(2) of this Section 4 shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the 90th day
prior to such special meeting and not later than the close of business on the
later of the 60th day prior to such special meeting or the tenth day following
the day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting.
(c) General
(1) Only such persons who are nominated in accordance
with the procedures set forth in this Section 4 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 4. The presiding officer of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made in accordance with
the procedures set forth in this Section 4 and if any proposed nomination of
business in not in compliance with this Section 4, to declare that such
defective nomination or proposal be disregarded.
(2) For purposes of this Section 4, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Section 4, a shareholder shall also comply with all applicable requirements of
state law and of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 4. Nothing
3
<PAGE> 7
in this Section 4 shall be deemed to affect any rights of shareholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule l4a-8 under the Exchange Act.
Section 5 - QUORUM
At any meeting of shareholders the presence in person or by proxy of
shareholders entitled to cast a majority of the votes thereat shall constitute
a quorum; but this section shall not affect any requirement under any statute
or the Articles of Incorporation (the "Articles") of the Corporation for the
vote necessary for the adoption of any measure. A majority of the votes cast
at a meeting of shareholders, duly called and at which a quorum is present,
shall be sufficient to take or authorize action upon any matter which may
properly come before the meeting unless more than a majority of votes is
required by statute, by the Articles of the Corporation or by these Bylaws.
In the absence of a quorum, a majority of the shares represented in
person or by proxy may adjourn the meeting from time to time not more than
thirty (30) days without further notice other than by announcement at such
meeting. At such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting
originally called. If the adjournment is for more than thirty (30) days or if
after adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each shareholder entitled to
vote at the meeting.
Section 6 - VOTING
Each share of Common Stock shall be entitled to one (1) vote.
Section 7 - VOTING OF STOCK BY CERTAIN HOLDERS
Stock registered in the name of a corporation, partnership, trust or
other entity if entitled to be voted may be voted by the president or vice
president, a general partner, or trustee thereof as the case may be, or a proxy
appointed by any of the foregoing individuals, unless some other person who has
been appointed to vote such stock pursuant to a bylaw or a resolution of the
board of directors of such corporation or other entity presents a certified
copy of such bylaw or resolution, in which case such person may vote such
stock. Any director or other fiduciary may vote stock registered in the name
of such fiduciary, either in person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it
shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares entitled to be voted at any given time
unless they are held by it in a fiduciary capacity in which case they may be
voted and shall be counted in determining the total number of outstanding
shares at any given time.
The Board of Directors may adopt, by resolution, a procedure by which
a shareholder may certify, in writing to the Corporation that any shares of
stock registered in the name of the
4
<PAGE> 8
shareholder are held for the account of a specified person other than a
shareholder. The resolutions shall set forth: (i) the class of shareholders
who may make the certification, (ii) the purpose for which the certification
may be made, (iii) the form of certification and the information to be
contained in it, (iv) if the certification is with respect to a record date of
closing of the stock transfer books, the time after the record date of the
Stock transfer books within which the certification must be reviewed by the
Corporation, and (v) any other provisions with respect to the procedure which
the Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the shareholder of record of
the specified stock in place of the shareholder who makes certificates.
A proxy representing shares of stock voted by a broker, bank or other
institutional investor which does not state the manner in which the shares
shall be voted on a proposal shall be counted as present at the meeting for
purposes of determining whether a quorum exists, but shall be treated as not
voted for purposes of determining whether the requisite vote has been obtained,
and therefore will have no effect on the outcome of the vote on any matter.
Section 8 - PROXIES
At all meetings of shareholders, a shareholder may vote the shares
owned of record by the shareholder either in person or by proxy executed in
writing by the shareholder or by the shareholder's duly authorized attorney in
fact. Such proxy shall be filed with the Secretary of the Corporation before
or at the time of the meeting. No proxy shall be valid after eleven (11)
months from the date of its execution unless otherwise provided in the proxy.
Section 9 - PLACE OF MEETING
The Board of Directors may designate any place, either within or
without the state of Texas, as the place of meeting for any annual or special
meeting of shareholders. If no designation is made, or if a special meeting be
otherwise called, the place of the meeting shall be the principal office of the
Corporation.
Section 10 - INFORMAL ACTION
Any action required or permitted to be taken at a meeting of
shareholders may be taken without a meeting if there is filed with the records
of shareholders meetings a unanimous written consent which sets forth the
action and is signed by each shareholder entitled to vote on the matter and a
written waiver of any right to dissent signed by each shareholder entitled to
notice of the meeting but not entitled to vote thereat.
5
<PAGE> 9
ARTICLE II
DIRECTORS
Section 1 - POWERS
The business and affairs of the Corporation shall be managed by its
Board of Directors, which may exercise all of the powers of the Corporation,
except such as are by statute or by the Articles or Bylaws of the Corporation
expressly conferred upon or reserved to the shareholders.
Section 2 - NUMBER AND TENURE
A. Prior to an Initial Public Offering.
Prior to an initial public offering of any of the
Corporation's shares of Common Stock, at any regular meeting or at any special
meeting called for that purpose, a majority of the entire Board of Directors
may establish, increase or decrease the number of directors, provided that the
number thereof shall not be less than one (1), and further provided that the
tenure of office of a director shall not be affected by any decrease in the
number of directors. As of the effective date of these Amended and Restated
Bylaws, the number of authorized directors shall be two (2), and the persons
serving as directors are Robert E. Mead and Sharon K. Brayfield. Each director
shall hold office for the term for which the director is elected and until the
director's successor is elected and qualified, or until the director's
resignation, removal (in accordance with the Articles and these Bylaws) or
death.
B. After an Initial Public Offering.
After an initial public offering of any of the Corporation's
shares of Common Stock, at any regular meeting or at any special meeting called
for that purpose, a majority of the entire Board of Directors may establish,
increase or decrease the number of directors, provided that the number thereof
shall not be less than five (5), nor more than thirteen (13), and further
provided that the tenure of office of a director shall not be affected by any
decrease in the number of directors. Pursuant to the Articles, the Board of
Directors has been divided into three classes with staggered terms of three
years per class. Each director shall serve for a term ending on the date of
the third annual meeting of shareholders following the annual meeting at which
such director was elected, provided, however, that each initial director in
Class I, as determined by the directors, shall serve for a term ending on the
date of the annual meeting of shareholders held in 1998; each initial director
in Class II, as determined by the directors, shall serve for a term ending on
the date of the annual meeting of shareholders held in 1999; and each initial
director in Class III, as determined by the directors, shall serve for a term
ending on the date of the annual meeting of shareholders held in 2000. Each
director shall hold office for the term for which the director is elected and
until the director's successor is elected and qualified, or until the
director's resignation, removal (in accordance with the Articles and these
Bylaws) or death.
6
<PAGE> 10
Section 3 - VACANCIES
Any vacancy occurring on the Board of Directors shall be filled by the
election by the remaining directors at any regular or special meeting, except
that a vacancy resulting from an increase in the number of directors shall be
filled by a majority vote of the entire Board of Board Directors. A director
elected to fill a vacancy shall be elected for the unexpired term of the
director's predecessor in office, provided that a director elected to fill a
vacancy resulting from an increase in the number of directors shall be elected
to serve until the next annual meeting of shareholders and until the director's
successor is elected and qualifies.
Section 4 - REGULAR MEETINGS
The Board of Directors shall meet for the purpose of the election of
officers and the transaction of other business as soon as practicable after
each annual meeting of shareholders. Other regular meetings of the Board of
Directors shall be held at such times and such places, either within or without
the State of Texas, as may be designated from time to time by the Chief
Executive Officer or by the Board of Directors.
Section 5 - SPECIAL MEETING
Special meetings of the Board of Directors may be called by the Chief
Executive Officer or by a majority of the directors. The person or persons
authorized to call special meetings of the Board of Directors may fix any
place, either within or without the State of Texas, as the place for holding
the special meeting of the Board of Directors called by such person or persons.
Section 6 - NOTICE
Notice of every regular or special meeting of the Board shall be given
to each director at least two (2) days prior thereto either by written notice
delivered personally or mailed or telegrammed to the director's last known
business or residence address or by personal telephone call. Notice which is
mailed in accordance with the preceding sentence shall be deemed to be given at
the time when the same shall be deposited in the United States mail with
postage thereon prepaid. Any director may waive notice of any meeting by
written waiver filed with the records of the meeting, either before or after
the holding thereof. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
Section 7 - QUORUM
A majority of the Board of Directors shall constitute a quorum for the
transaction of business, but if less than such quorum is present at a meeting,
a majority of the directors present
7
<PAGE> 11
may adjourn the meeting from time to time without further notice other than
announcement at the meeting, until a quorum shall be present.
Section 8 - MANNER OF ACTING
The action of a majority of the directors present at a meeting at
which a quorum is present shall constitute action of the Board of Directors
unless the concurrence of a greater proportion is required for such action by
statute, by the Articles of the Corporation or by these Bylaws.
Section 9 - COMPENSATION
By resolution of the Board of Directors a fixed sum and expenses, if
any, of attendance at each regular or special meeting of the Board of Directors
or of committees hereof, and other compensation for their services as such or
on committees of the Board of Directors, may be paid to the directors. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor, pursuant to a resolution of the
Board of Directors.
Section 10 - INFORMAL ACTION
Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting if a written consent to such
action is signed by all members of the Board of Directors and such written
consent is filed with the minutes of proceedings of the Board of Directors.
Section 11 - MEETING BY CONFERENCE TELEPHONE
Members of the Board of Directors may participate in a meeting by
means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participating in a meeting by such means constitutes presence in person at a
meeting.
Section 12 - REMOVAL
A director may be removed, with or without cause, upon the affirmative
vote of not less than two-thirds (2/3) of the votes entitled to be cast in the
election of members of the Board of Directors.
Section 13 - RESIGNATION
A director may resign at any time by giving written notice to the
Board of Directors, the President or the Secretary of the Corporation. Unless
otherwise specified in the notice, the
8
<PAGE> 12
resignation shall take effect upon the receipt thereof by the Board of
Directors or such officer and the acceptance of such resignation shall not be
necessary to make it effective.
ARTICLE III
COMMITTEES
Section 1 - COMMITTEES
The Board of Directors may appoint from among its members an executive
committee and other committees composed of two (2) or more directors and
delegate to these committees in the intervals between meetings of the Board of
Directors any of the powers 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, or recommend to the shareholders any
action which requires shareholder approval. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority
of those present at a meeting at which a quorum is present shall be the act of
the committee. The members of a committee present at any meeting, whether or
not they constitute a quorum, may appoint a director to act in place of an
absent member. The members of a committee may conduct any meeting thereof by
conference telephone in accordance with the provisions of Article II, Section
11.
Section 2 - MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors when required.
Section 3 - INFORMAL ACTION
Any action required or permitted to be taken at any committee meeting
may be taken without a meeting if a written consent to such action is signed by
all of the members of the committee and such written consent is filed with the
minutes of proceedings of the Board of Directors.
ARTICLE IV
OFFICERS
Section 1 - NUMBER
The officers of the Corporation shall include a Chief Executive
Officer, President, any number of Vice Presidents, a Secretary, any number of
Assistant Secretaries, a Treasurer, any number of Assistant Treasurers and may
include a Chairman of the Board (or one or more Chairmen of the Board), a Vice
Chairman of the Board, a Chief Operating Officer, a Chief Financial Officer and
such other officers as the Board of Directors may elect. Any two (2)
9
<PAGE> 13
offices may be held by the same person, except those of President and Vice
President, but no officer shall execute, acknowledge or verify any instrument
in more than one capacity, if such instrument is required to be executed,
acknowledged or verified by any two (2) or more officers. In addition, the
Board of Directors may from time to time appoint such other officers with such
powers and duties as they "shall deem necessary or desirable."
Section 2 - ELECTION AND VENUE
The officers of the Corporation shall be elected by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders, or as soon after such first meeting as may be
convenient, except that the Chief Executive Officer may appoint one or more
vice presidents, assistant secretaries and assistant treasurers. Each officer
shall hold office until the officer's successor shall have been duly elected
and shall have qualified, or until the officer's death or until the officer
shall resign or shall have been removed in the manner hereinafter provided.
The Board of Directors may, at any time, and from time to time,
authorize the making or adoption by the Corporation of special contracts with
an officer or officers for services of such officer or officers for a fixed
period and on such terms and conditions, and with such powers, duties and
compensation, as may be fixed by such contract, and may elect such officer or
officers for such term or terms as may be specified by such contract.
Section 3 - REMOVAL; RESIGNATION
Any officer or agent of the Corporation may be removed by the Board of
Directors whenever, in its judgment, the best interests of the Corporation will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. An officer may resign at any time by
giving written notice to the Board of Directors, the President or the Secretary
of the Corporation. Unless otherwise specified in the notice, the resignation
shall take effect upon the receipt thereof by the Board of Directors or such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
Section 4 - VACANCIES
A vacancy in an office may be filled by the Board of Directors for the
unexpired portion of the term.
Section 5 - CHIEF EXECUTIVE OFFICER
The Board of Directors shall designate a Chief Executive Officer. In
the absence of such designation, the Chairman of the Board (or, if more than
one, the co-chairmen of the Board in the order designated at the time of their
election or, in the absence of any designation, then, in the order of their
election) shall be the Chief Executive Officer of the Corporation. The Chief
Executive Officer shall have general responsibility for implementation of the
policies of the
10
<PAGE> 14
Corporation, as determined by the Board of Directors, and for the management of
the business and affairs of the Corporation. In addition, the Chief Executive
Officer, together with the President, shall have the power to determine the
cash compensation of employees of the Corporation other than its Senior
Executive Officers.
Section 6 - CHIEF OPERATING OFFICER
The Board of Directors may designate a Chief Operating Officer. The
Chief Operating Officer shall have the responsibilities and duties as set forth
by the Board of Directors or the Chief Executive Officer.
Section 7 - CHIEF FINANCIAL OFFICER
The Board of Directors may designate a Chief Financial Officer. The
Chief Financial Officer shall have the responsibilities and duties as set forth
by the Board or Directors or the Chief Executive Officer.
Section 8 - CHAIRMAN OF THE BOARD
The Board of Directors may designate a Chairman of the Board (or one
or more co-chairmen of the Board). The Chairman of the Board shall preside
over the meeting of the Board of Directors and of the shareholders at which the
Chairman of the Board shall be present. If there be more than one, the
co-chairmen designated by the Board of Directors will perform such duties. The
Chairman of the Board shall perform such other duties as may be assigned to the
Chairman of the Board or the co-chairmen by the Board of Directors.
Section 9 - PRESIDENT
The President shall, in general, supervise and administer all of the
business and affairs of the Corporation, subject to the control of the Board of
Directors or the Chief Executive Officer. The President may sign and execute
all authorized bonds, contracts or other obligations in the name of the
Corporation. In general, the President shall have all powers and shall perform
all duties incident to the office of President and such as may from time to
time be prescribed by the Board of Directors or the Chief Executive Officer.
Section 10 - VICE PRESIDENT
In the absence or incapacity of the President, or in the event of a
vacancy in the office of President, the Vice President, if one (or in the event
there be more than one, the Vice Presidents in the order designated by the
Board of Directors, or, in the absence of such designation, then in the order
of their election), shall have the powers and perform the duties of President.
A Vice President shall also have such powers and perform such duties as may
from time to time be prescribed by the Board of Directors or by the President.
A Vice President
11
<PAGE> 15
may have such additional descriptive designations, if any, in the Vice
President's title as may be assigned by the Board of Directors.
Section 11 - SECRETARY
The Secretary shall attend all meetings of the Board of Directors and
all meetings of the shareholders and record all the proceedings of the meetings
thereof in a book to be kept for that purpose and shall perform like duties for
the standing committees when required. The Secretary shall give, or cause to
be given, notice of all meetings of the shareholders of the Board of Directors,
and shall perform such other duties incident to the office of Secretary as from
time to time may be prescribed by the Board of Directors or by the President,
under whose supervision the Secretary shall be. The Secretary shall have
general charge of the stock ledger and custody of the corporate records and of
the seal of the Corporation and the Secretary, or an Assistant Secretary, shall
have authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by the Secretary's signature or by the signature of
such Assistant Secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing by the officer's signature.
Section 12 - ASSISTANT SECRETARY
The Assistant Secretary, if one (1) (or if there be more than one (1),
the Assistant Secretaries in the order determined by the Board of Directors,
or, in the absence of such determination, then in the order of their election)
shall, in the absence of the Secretary or in the event of the Secretary's
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from tine to time prescribe.
Section 13 - TREASURER
The Treasurer shall have general charge of the financial affairs of
the Corporation. The Treasurer shall in general have all powers and perform
all duties incident to the office of Treasurer and such as may from time to
time be prescribed by the Board of Directors or by the President.
If required by the Board of Directors, the Treasurer shall give the
Corporation a bond (which shall be renewed every six (6) years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of the Treasurer's office and for
the restoration to the Corporation, in case of the Treasurer's death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in the Treasurer's possession or
under the Treasurer's control belonging to the Corporation.
12
<PAGE> 16
Section 14 - ASSISTANT TREASURER
The Assistant Treasurer, if one (1) (or if there shall be more than
one (1), the Assistant Treasurers in the order determined by the Board of
Directors, or if there be no such determination, then in the order of their
election), shall in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Section 15 - OTHER OFFICERS
Such other officers as may be elected by the Board of Directors shall
have such powers and perform such duties as the Board may from time to time
prescribe.
Section 16 - SALARIES
The salaries of the officers shall be fixed from time to time by the
Board of Directors, and no officer shall be prevented from receiving such
salary by reason of the fact that the officer is also a director of the
Corporation.
Section 17 - SPECIAL APPOINTMENTS
In the absence or incapacity of any officer, or in the event of a
vacancy in any office, the Board of Directors may designate any person to fill
any such office pro tempore or for any particular purpose.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1 - CONTRACTS
The Board of Directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the Corporation, and such authority may be general or
confined to specific instances.
Section 2 - LOANS
No loans shall be contracted on behalf of the Corporation and no
evidence of indebtedness shall be issued in its name unless authorized by a
resolution of the Board of Directors. Such authority may be general or confined
to specific instances.
13
<PAGE> 17
Section 3 - CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the Corporation, shall be
signed by such officer or officers of the Corporation and in such manner as
shall from time to time be determined by resolution of the Board of Directors.
Section 4 - DEPOSITS
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies or other depositories as the Board of Directors may select.
ARTICLE VI
ISSUE AND TRANSFER OF STOCK
Section 1 - ISSUE
Certificates representing shares of the Corporation shall be in such
form as shall be determined by the Board of Directors. Each certificate shall
be signed by the Chief Executive Officer, the President or a Vice President and
countersigned by the Secretary or an Assistant Secretary, or the Treasurer or
an Assistant Treasurer, and shall be sealed with the corporate seal. The
signatures may be either manual or facsimile signatures, and the seal may be
the actual corporate seal or a facsimile of it or in any other form. All
certificates surrendered to the Corporation for transfer shall be cancelled,
and no new certificates shall be issued until the former certificate or
certificates for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, stolen, destroyed or mutilated
certificate, a new one may be issued therefor upon such terms and indemnity to
the Corporation as the Board of Directors may prescribe.
Section 2 - TRANSFER OF SHARES
Transfer of shares of the Corporation shall be made only on its stock
transfer books by the holder of record thereof, or by the holder's attorney
thereunto authorized by power of attorney duly executed and filed with the
secretary of the Corporation, and on surrender for cancellation of the
certificate for such shares. The person in whose name shares stand on the
books of the Corporation shall be deemed to be the owner thereof for all
purposes.
Section 3 - STOCK LEDGER
The Corporation shall maintain a stock ledger which contains the name
and address of each shareholder and the number of shares of stock of each class
which the shareholder holds. The stock ledger may be in written form or in any
form which can be converted within a reasonable time into written form for
visual inspection. The original or a duplicate of the stock
14
<PAGE> 18
ledger shall be kept at the principal office or the principal executive offices
of the Corporation in the State of Texas.
ARTICLE VII
FIXING DATE FOR DETERMINATION
OF SHAREHOLDERS' RIGHTS
The Board of Directors may fix, in advance, a date as the record date
for the purpose of determining shareholders entitled to notice of, or to vote
at, any meeting of shareholders, or shareholders entitled to receive payment of
any dividend or the allotment of any rights or in order to make a determination
of shareholders for any other proper purpose. Only shareholders of record on
such date shall be entitled to notice of, and to vote at, such meeting or to
receive such dividends or rights, as the case may be, notwithstanding any
transfer of any stock on the books of the Corporation after such record date
fixed as aforesaid. A determination of shareholders of record entitled to
notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting, provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
ARTICLE VIII
AMENDMENTS
Subject to applicable law and the Articles of the Corporation, by
affirmative vote of the holders of not less than a majority of the shares of
stock entitled to vote, the shareholders shall have the right to adopt, alter
and repeal Bylaws. Subject to the right of the shareholders provided in the
preceding sentence, the Board of Directors shall have the power to adopt, alter
and repeal Bylaws.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors.
ARTICLE X
INDEMNIFICATION
The Corporation shall indemnify, in the manner and to the fullest
extent permitted by law, any person who is or was a party to, or is threatened
to be made a party to, any threatened, pending or completed action, suit or
proceeding, whether or not by or in the right of the Corporation and whether
civil, criminal, administrative, investigative or otherwise, by reason of the
fact that such person is or was a director or officer of the Corporation, or
that such person, while an officer or director of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner or
trustee of another corporation, partnership, trust, employee benefit plan or
other enterprise. To the fullest extent permitted by law, the indemnification
provided herein shall include expenses (including attorneys' fees), judgments,
15
<PAGE> 19
fines and amounts paid in settlement and any such expenses may be paid by the
Corporation in advance of the final disposition of any such action, suit or
proceeding. Upon authorization by the Board of Directors, the Corporation may
indemnify employees and/or agents of the Corporation to the same extent
provided herein for directors and officers. Any repeal or modification of any
of the foregoing sentences of this Article X shall be prospective in operation
and effect only, and shall not adversely affect any right to indemnification or
advancement of expenses hereunder existing at the time of any such repeal or
modification.
The indemnification and reimbursement of expenses provided herein
shall not be deemed to limit the right of the Corporation to indemnify any
other person against any liability and expenses to the fullest extent permitted
by law, nor shall it be deemed exclusive of any other right to which any person
seeking indemnification from the Corporation may be entitled under any
agreement, the Articles, a vote of the shareholders or disinterested directors,
or otherwise, both as to action in such person's official capacity as an
officer or director of the Corporation and as to action in another capacity at
the request of the Corporation, while acting as an officer or director of the
Corporation.
CERTIFICATE
I, Sandra G. Cearley, hereby certify that I am the Secretary of
Silverleaf Resorts, Inc., a Texas corporation (the "Corporation"); and that the
foregoing Amended and Restated Bylaws were adopted as the Bylaws of the
Corporation effective the 20th day of February, 1998, by the unanimous written
consent of all of the Directors of the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal
of the Corporation this 20th day of February, 1998.
(S E A L) /s/ Sandra G. Cearley
-------------------------------------
Sandra G. Cearley, Secretary
16
<PAGE> 1
EXHIBIT 10.2.6
================================================================================
EMPLOYMENT AGREEMENT
BETWEEN
SILVERLEAF RESORTS, INC.
AND
ALLEN L. HUDSON
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
R E C I T A L S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A G R E E M E N T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Regulatory Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Silverleaf Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 3. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Base Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Compensation for Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) Condo and Moving Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(e) Company Vehicle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(f) Fringe Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 4. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Nondisclosure and Nonuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 5. Non-Interference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 6. Noncompetition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Tolling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Reformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 7. Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 8. Employee Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 9. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Voluntary Termination, or for Good Cause . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Involuntary Termination Without Good Cause . . . . . . . . . . . . . . . . . . . . . . . . 6
(c) Contingency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 10. Return of Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 11. Non-Binding Alternate Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Agreement to Utilize . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Failure to Resolve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 12. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 13. Successors, Assigns, Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Silverleaf Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) No Assignment by Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 14. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 15. Governing Law and Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 16. Entire Understanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 17. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Silverleaf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(b) Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 18. Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 19. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 20. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
(ii)
<PAGE> 4
EMPLOYMENT AGREEMENT
BETWEEN
SILVERLEAF RESORTS, INC.
AND
ALLEN L. HUDSON
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made between SILVERLEAF
RESORTS, INC., a Texas corporation ("Silverleaf"), and ALLEN L. HUDSON (the
"Employee").
R E C I T A L S:
A. Silverleaf has agreed to Employee as an executive employee; and
B. Silverleaf and Employee desire to set forth the terms of
Employee's proposed employment
NOW, THEREFORE, in consideration of the premises and terms hereinafter
set forth, the parties agree as follows:
A G R E E M E N T:
SECTION 1. EMPLOYMENT. Employee is hereby employed by
Silverleaf as Executive Vice-President of Architecture and Engineering
Services, for a term of four (4) years after the Commencement Date, unless
earlier terminated pursuant to the termination provisions of this Agreement.
Employee may not engage in other employment while he is in the employ of
Silverleaf pursuant to this Agreement, except Employee shall be permitted to
complete any work necessary to phase out any contracts of Hudson and Company,
Inc., existing as of the Commencement Date of this Agreement. The net profits
earned on those contracts on or after the Commencement Date, as well as any
other amounts payable to Employee or Employee's spouse for architectural
services rendered in regard thereto, shall be paid to Silverleaf as
consideration for the continued services of Employee.
SECTION 2. DUTIES. Employee agrees to devote such time,
attention and energies as are necessary to fulfill his duties as specified by
the Board of Directors of Silverleaf from time to time. Employee further
agrees that he will promote the best interests and welfare of Silverleaf and
shall perform any and all duties to the best of his abilities. The Employee
shall also:
(a) NON-COMPETITION: Not render to others, during his
employment with Silverleaf, service of any kind for compensation or
promote, participate or engage in any other business activity which
would conflict or interfere with the performance of his duties or
loyalty under this Agreement, including, but not limited to,
participating in the
<PAGE> 5
promotion or sale of products or services for a competitor of
Silverleaf or otherwise engage in business with such competitor;
subject, however, to the exception set forth in Section 1 hereof.
(b) REGULATORY LAWS: Abide by all applicable statutes,
rules and regulations of each State in which services may be rendered;
and
(c) SILVERLEAF RULES: Abide by all rules and regulations
issued by Silverleaf, which are pertinent to Employee's duties and
obligations.
SECTION 3. COMPENSATION. As compensation for the services
rendered pursuant to this Agreement and commencing as of the Commencement Date,
except as otherwise provided below:
(a) BASE COMPENSATION: Silverleaf shall pay Employee
base compensation computed at the annual rate of Three Hundred Fifty
Thousand and No/100 Dollars ($350,000.00), payable in semi-monthly
payments on the 1st and 15th days of each month.
(b) COMPENSATION FOR EXCLUSIVITY: As additional
compensation for Employee's services and in consideration of the
exclusivity of those services, Silverleaf shall pay Employee
additional total compensation of Five Hundred Thousand and No/100
Dollars ($500,000.00), payable as follows: (1) Two Hundred Thousand
and No/100 Dollars ($200,000.00) on or within ten (10) days after the
Commencement Date; and (2) One Hundred Thousand and No/100 Dollars
($100,000.00) on the first, second and third anniversaries of the
Commencement Date.
(c) STOCK OPTIONS: As of the Effective Date, Employee
shall be granted 25,000 Non-Qualified Stock Options pursuant to
Silverleaf's 1997 Stock Option Plan, one-quarter (1/4) of which will
vest on the date which is one (1) year after the Commencement Date and
a like amount to vest on the same date during each of the three years
which follow thereafter, such options to be exercisable for a period
of 10 years from the Commencement Date, at a price equal to the
average of the high and low trading prices of the common stock on the
New York Stock Exchange on the Effective Date.
(d) CONDO AND MOVING EXPENSES: Upon Employee's
relocation to Dallas, Texas, Silverleaf shall purchase Employee's Branson,
Missouri, condominium for One Hundred Eight Thousand and No/100 Dollars
($108,000.00) cash. Silverleaf shall pay Employee's reasonable moving expenses
to Dallas, Texas, such expenses to be approved in advance by Silverleaf.
(e) COMPANY VEHICLE: Silverleaf shall furnish Employee a
company owned vehicle for use by Employee in performing his duties,
and Silverleaf shall pay all expenses associated therewith.
2
<PAGE> 6
(f) FRINGE BENEFITS: Silverleaf shall provide Employee
health insurance under its group plan as it may exist from time to
time. The cost of any coverage of any of the Employee's family
members under Silverleaf's group plan shall be paid by the Employee.
The Employee shall also be entitled to such vacation time, sick leave
and other fringe benefits as may be specified by the Board of
Directors of Silverleaf from time to time for its executive personnel.
SECTION 4. CONFIDENTIALITY.
(a) NONDISCLOSURE AND NONUSE: Employee acknowledges that
during his employment with Silverleaf, he may have access to and
become acquainted with Silverleaf Confidential Information, as defined
below. Except as Employee's duties during his employment with
Silverleaf may require or Silverleaf may otherwise consent in writing,
Employee agrees that he shall not at any time disclose or use,
directly or indirectly, either during or subsequent to his employment
with Silverleaf, any Silverleaf Confidential Information.
(b) CONFIDENTIAL INFORMATION: For purposes of the
foregoing provisions, "Silverleaf Confidential Information" shall mean
(1) any and all confidential and proprietary business information and
trade secrets concerning the business and affairs of Silverleaf and
its affiliates, including but not limited to all architectural and
engineering plans, designs and similar documents and data, marketing,
sales and lead generation techniques, know-how and studies, customer
and lead lists, current and anticipated customer requirements, price
lists, business plans, training programs, computer software and
programs, and computer software and data-base technologies, systems,
structures and architectures (and related processes, formulae,
compositions, improvements, devices, know-how, inventions,
discoveries, concepts, ideas, designs, methods and information), (2)
any and all information concerning the business and affairs of
Silverleaf and its affiliates (including but not limited to their
historical financial statements, financial projections and budgets,
historical and projected sales, capital spending budgets and plans,
the names and backgrounds of key personnel, personnel training and
techniques and materials, however documented), and (3) any and all
notes, analysis, compilations, studies, summaries, and other material
prepared by or for Silverleaf and its affiliates containing or based,
in whole or in part, on any information included in the foregoing.
Provided, however, "Silverleaf Confidential Information" shall not
include information that is not unique to Silverleaf, information that
is generally known in the timeshare industry or information that was
known by Employee prior to his employment with Silverleaf.
SECTION 5. NON-INTERFERENCE. Employee further agrees that
during his employment and for a period of twelve (12) months thereafter,
Employee shall not, either on his own account or jointly with or as a manager,
agent, officer, employee, consultant, partner, joint venturer, owner or
shareholder or otherwise on behalf of any other person, firm or corporation:
(1) carry on or be engaged or interested directly or indirectly in, or solicit,
the manufacture or sale of goods or provision of services to any person, firm
or corporation which, at any time during his
3
<PAGE> 7
employment has been or is a customer or in the habit of dealing with Silverleaf
or its affiliates in their business, (2) endeavor, directly or indirectly, to
canvas or solicit in competition with Silverleaf or its affiliates or to
interfere with the supply of orders for goods or services from or by any
person, firm or corporation which during his employment has been or is a
supplier of goods or services to Silverleaf or its affiliates, or (3) directly
or indirectly solicit or attempt to solicit away from Silverleaf or its
affiliates any of its officers, employees or independent contractors or offer
employment or business to any person who, on or during the 6 months immediately
preceding the date of such solicitation or offer, is or was an officer,
employee or independent contractor of Silverleaf or its affiliates, provided,
however, the employment of Employee's wife shall not be a violation of this
Section.
SECTION 6. NONCOMPETITION.
(a) COVENANT: Employee covenants and agrees that he
shall not, for a period of one (1) year from and after the effective
date of any Termination, working alone or in conjunction with one or
more other persons or entities, for compensation or not, permit his
name to be used by or engage in or carry on, directly or indirectly,
either for himself or as a member of a partnership or other entity or
as a stockholder, investor, officer or director of a corporation or as
an employee, agent, associate or contractor of any person,
partnership, corporation or other entity, any business in competition
with the business of Silverleaf or its affiliates, as carried on by
Silverleaf or its affiliates immediately prior to the effective date
of any Termination, but only for as long as such business is carried
on by (1) Silverleaf or its affiliates or (2) any person, corporation,
partnership, trust or other organization or entity deriving title from
Silverleaf or its affiliates to the assets and goodwill of the
business being carried on by Silverleaf or its affiliates immediately
prior to the effective date of any Termination, in any county or
similar geographic area in any state of the United States in which
Silverleaf or its affiliates conducts such business or markets the
products of such business immediately prior to the effective date of
any Termination.
(b) TOLLING. If Employee violates any covenant contained
in this Section, then the term of such violated covenant shall be
tolled for the period commencing on the commencement of such violation
and ending upon the earlier of (1) such time as such violation shall
be cured by Employee to the reasonable satisfaction of Silverleaf, (2)
final adjudication (including appeals) of any action filed for
injunctive relief or damages arising out of such violation, and (3)
the expiration of 12 months after Termination during which no
violation of the covenant has occurred.
(c) REFORMATION. If, in any judicial proceeding, the
court shall refuse to enforce any covenant contained in this Section
because the time limit is too long, it is expressly understood and
agreed between Silverleaf and Employee that for purposes of such
proceeding such time limitation shall be deemed reduced to the extent
necessary to permit enforcement of such covenant. If, in any judicial
proceeding, the court shall refuse to enforce any covenant contained
in this Section because it is more extensive (whether as to geographic
area, scope of business or otherwise) than necessary to protect
4
<PAGE> 8
the business and goodwill of Silverleaf and/or its affiliates, it is
expressly understood and agreed between Silverleaf and Employee that
for purposes of such proceeding the geographic area, scope of business
or other aspect shall be deemed reduced to the extent necessary to
permit enforcement of such covenant.
SECTION 7. INJUNCTIVE RELIEF. Employee acknowledges that a
breach of Sections 4, 5 or 6 hereof would cause irreparable damage to
Silverleaf and/or its affiliates, and in the event of Employee's breach of the
provisions of Sections 4, 5 or 6 hereof, Silverleaf shall be entitled to a
temporary restraining order and an injunction restraining Employee from
breaching such Sections without the necessity of posting bond or proving
irreparable harm, such being conclusively admitted by Employee. Nothing shall
be construed as prohibiting Silverleaf from pursuing any other available
remedies for such breach, including the recovery of damages from Employee.
Employee acknowledges that the restrictions set forth in Sections 4, 5 and 6
hereof are reasonable in scope and duration, given the nature of the business
of Silverleaf and its affiliates. Employee agrees that issuance of an
injunction restraining Employee from breaching such Sections in accordance with
their terms will not pose an unreasonable restriction on Employee's ability to
obtain employment or other work following the effective date of any
Termination.
SECTION 8. EMPLOYEE INVESTMENTS. Anything to the contrary
herein notwithstanding, Employee: (1) shall not be prohibited from investing
his assets in such form or such manner as will not, in the aggregate, detract
from the performance by Employee of his duties hereunder and will not violate
the provisions of Sections 4, 5 or 6 hereof; and (2) shall not be prohibited
from purchasing stock in any publicly traded company solely as a stockholder so
long as Employee does not own (together or separately or through his
affiliates) more than two percent (2%) of the stock in any company, other than
Silverleaf, which is engaged in the timeshare business.
SECTION 9. TERMINATION. This Agreement shall terminate: (1)
upon written notice by either party, at any time and for any or no reason
whatsoever, at least thirty (30) days prior to the effective date of the
termination; or (2) as of the end of the month of Employee's death, incapacity
due to Employee's physical or mental illness as determined in Silverleaf's sole
discretion or Employee reaching Silverleaf's normal retirement age (the
"Termination"). In the event of Termination, Employee shall be entitled to the
following:
(a) VOLUNTARY TERMINATION, OR FOR GOOD CAUSE: If
Employee voluntarily terminates his employment, or if his employment
is terminated for Good Cause, Employee shall be entitled to no
severance pay. At the Termination, the payment to Employee of
compensation earned to date shall be in full satisfaction of all
claims against Silverleaf under this Agreement, and Employee expressly
agrees that he shall have no right to any additional payments
hereunder, including but not limited to any payments under Section
3(b) hereof for Employee's exclusive services which would otherwise be
due and payable after the Termination. Good Cause shall be deemed to
exist if the Employee's employment is terminated because Employee:
5
<PAGE> 9
[1] Willfully breaches or habitually neglects the
duties that the Employee is required to
perform under the terms of this Agreement;
[2] Willfully violates reasonable and substantial
rules governing employee performance;
[3] Refuses to obey reasonable orders in a manner
that amounts to insubordination;
[4] Commits clearly dishonest acts toward
Silverleaf; or
[5] Becomes incapacitated as set forth above,
dies or reaches Silverleaf's normal
retirement age.
(b) INVOLUNTARY TERMINATION WITHOUT GOOD CAUSE: If
Silverleaf terminates Employee's employment, other than for Good
Cause, Employee shall also be paid severance pay equal to the balance,
if any, of the payments that would otherwise be due after the
Termination under Section 3(b) hereof for Employee's exclusive
services, such payments to be paid at the same time the payments would
otherwise be due to Employee under Section 3(b).
(c) CONTINGENCY: Payment of any amounts due under this
Section is also contingent upon return of all Silverleaf's property as
outlined below.
SECTION 10. RETURN OF MATERIALS. Employee understands and agrees
that all architectural and engineering plans, designs and similar documents and
data or vehicles or other equipment provided to him by Silverleaf in connection
with this Agreement or developed or created during the term of this Agreement
shall remain the sole property of Silverleaf, and shall be used by the Employee
exclusively for Silverleaf's benefit. Upon termination of this Agreement, any
such materials, vehicles or other equipment shall be immediately returned to
Silverleaf.
SECTION 11. NON-BINDING ALTERNATE DISPUTE RESOLUTION. Except for
actions brought by Silverleaf pursuant to Section 7 hereof:
(a) AGREEMENT TO UTILIZE: The parties shall attempt to
settle any claim or controversy arising from this Agreement through
consultation and negotiation in good faith and a spirit of mutual
cooperation prior to the commencement of any legal action. If such
attempts fail, then the dispute shall be mediated by a
mutually-accepted mediator to be chosen by the parties within
forty-five (45) days after written notice demanding mediation is sent
by one party to the other party. Neither party may unreasonably
withhold consent to the selection of a mediator, and the parties shall
share the costs of the mediation equally. By mutual written
agreement, however, the parties may postpone mediation until they have
completed some specified but limited discovery regarding the
6
<PAGE> 10
dispute. The parties may also agree to replace mediation with any
other form of alternate dispute resolution ("ADR") available in Texas,
such as a mini-trial or arbitration.
(b) FAILURE TO RESOLVE: Any dispute which the Parties
cannot resolve through negotiation, mediation or any other form of
ADR, within six (6) months of the date of the initial demand for
mediation, may then be submitted to the appropriate court for
resolution. The use of negotiation, mediation, or any other form of
ADR procedures will not be construed under the doctrines of laches,
waiver or estoppel to affect adversely the rights of either party.
SECTION 12. WAIVER. Silverleaf's failure at any time to require
performance by Employee of any of the provisions hereof shall not be deemed to
be a waiver of any kind nor in any way affect the rights of Silverleaf
thereafter to enforce the provisions hereof. In the event that either party to
this Agreement waives any provision of this Agreement or any rights concerning
any breach or default of the other party hereto, such waiver shall not
constitute a continuing waiver of any such provision or breach or default of
the other party hereto.
SECTION 13. SUCCESSORS, ASSIGNS, BENEFIT.
(a) SILVERLEAF SUCCESSORS: The provisions of this
Agreement shall inure to the benefit of and be binding upon
Silverleaf, its successors, assigns and other affiliated entities,
including, but not limited to, any corporation which may acquire all
or substantially all of Silverleaf's assets or with or into which
Silverleaf may be consolidated, merged or reorganized. Upon any such
merger, consolidation or reorganization, the term "Silverleaf" as used
herein shall be deemed to refer to any such successor corporation.
(b) NO ASSIGNMENT BY EMPLOYEE: The parties hereto agree
that Employee's services hereunder are personal and unique, and that
Silverleaf is executing this Agreement in reliance thereon. This
Agreement shall not be assignable by Employee.
SECTION 14. SEVERABILITY. If one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, but
shall be deemed stricken and severed from this Agreement and the remaining
terms of this Agreement shall continue in full force and effect.
SECTION 15. GOVERNING LAW AND VENUE. This Agreement shall be
deemed to have been made and entered into in the State of Texas and its
validity, construction, breach, performance and operation shall be governed by
the laws of that state. The obligations hereunder of Silverleaf shall be
performable in Dallas County, Texas, and venue for any suit involving this
Agreement shall lie exclusively in Dallas County, Texas.
7
<PAGE> 11
SECTION 16. ENTIRE UNDERSTANDING. This Agreement sets forth the
entire understanding between the parties with respect to the employment of
Employee, and no other representations, warranties or agreements whatsoever
have been made by Silverleaf to Employee. Further, this Agreement may not be
modified or amended except by another instrument in writing executed by both of
the parties.
SECTION 17. NOTICES. All notices and communications under this
Agreement shall be sent to the parties at the following addresses or such other
addresses that the parties may subsequently designate in writing.
(a) SILVERLEAF:
Silverleaf Resorts, Inc.
Attention: Robert E. Mead, Chief Executive Officer
1221 Riverbend, Suite 120
Dallas, Texas 75247
(b) EMPLOYEE:
Allen L. Hudson
HC 37 Box 90
----------------------------------------
Harrison, AR 72601
----------------------------------------
SECTION 18. SECTION HEADINGS. Section and paragraph headings are
inserted herein only for convenience and shall not be used to interpret any of
the provisions hereof.
SECTION 19. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same original.
SECTION 20. EFFECTIVE DATE. This Agreement is executed effective
as of January 16, 1998 (the "Effective Date"), with the commencement of
Employee's full-time employment with Silverleaf in Dallas, Texas, to occur on
or before the 1st day of July, 1998 (the "Commencement Date"). If Employee
fails to commence his full-time services by the Commencement Date without the
written consent of Silverleaf, then this Agreement shall terminate and be null
and void for all purposes.
8
<PAGE> 12
Executed this 16th day of January, 1998.
"SILVERLEAF"
SILVERLEAF RESORTS, INC.
By: /s/ ROBERT E. MEAD
----------------------------------------
Robert E. Mead, Chief Executive Officer
"EMPLOYEE"
/s/ ALLEN L. HUDSON
--------------------------------------------
ALLEN L. HUDSON
9
<PAGE> 1
EXHIBIT 10.2.7
================================================================================
EMPLOYMENT AGREEMENT
BETWEEN
SILVERLEAF RESORTS, INC.
AND
JIM OESTREICH
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
R E C I T A L S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
A G R E E M E N T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(b) Regulatory Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(c) Silverleaf Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Base Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Bonus Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) Moving Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(e) Company Vehicle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(f) Fringe Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 4. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Nondisclosure and Nonuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 5. Non-Interference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 6. Noncompetition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Tolling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) Reformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 7. Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 8. Employee Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 9. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Voluntary Termination, or for Good Cause . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Involuntary Termination Without Good Cause . . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Contingency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 10. Return of Materials and Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 11. Non-Binding Alternate Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Agreement to Utilize . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Failure to Resolve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 12. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 13. Successors, Assigns, Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Silverleaf Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) No Assignment by Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 14. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 15. Governing Law and Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 16. Entire Understanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 17. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Silverleaf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 18. Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 19. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 20. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
(ii)
<PAGE> 4
EMPLOYMENT AGREEMENT
WITH SILVERLEAF RESORTS, INC.
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made between SILVERLEAF
RESORTS, INC., a Texas corporation ("Silverleaf"), and JIM OESTREICH (the
"Employee").
R E C I T A L S:
A. Silverleaf has agreed to employee Employee as an executive
employee; and
B. Silverleaf and Employee desire to set forth the terms of
Employee's proposed employment
NOW, THEREFORE, in consideration of the premises and terms hereinafter
set forth, the parties agree as follows:
A G R E E M E N T:
SECTION 1. EMPLOYMENT. Employee is hereby employed as Vice
President of Marketing Development of Silverleaf, effective as of the Effective
Date and for a period of three (3) years thereafter, until earlier terminated
pursuant to the termination provisions of this Agreement. Employee may not
engage in other employment while he is in the employ of Silverleaf pursuant to
this Agreement.
SECTION 2. DUTIES. Employee agrees to devote such time,
attention and energies as are necessary to fulfill his duties as specified by
the Board of Directors of Silverleaf from time to time. Employee further
agrees that he will promote the best interests and welfare of Silverleaf and
shall perform any and all duties to the best of his abilities. The Employee
shall also:
(a) NON-COMPETITION: Not render to others, during his
employment with Silverleaf, service of any kind for compensation or
promote, participate or engage in any other business activity which
would conflict or interfere with the performance of his duties or
loyalty under this Agreement, including, but not limited to,
participating in the promotion or sale of products or services for a
competitor of Silverleaf or otherwise engage in business with such
competitor;
(b) REGULATORY LAWS: Abide by all applicable statutes,
rules and regulations of each State in which services may be rendered
to the extent informed of those laws by Silverleaf; and
(c) SILVERLEAF RULES: Abide by all rules and regulations
issued by Silverleaf, which are pertinent to Employee's duties and
obligations.
<PAGE> 5
SECTION 3. COMPENSATION. As compensation for the services
rendered pursuant to this Agreement:
(a) BASE COMPENSATION: Silverleaf shall pay Employee
base compensation computed at the annual rate of Three Hundred
Thousand and No/100 Dollars ($300,000.00), payable in semi-monthly
payments on the 1st and 15th days of each month.
(b) BONUS COMPENSATION: Employee shall also be paid
weekly commissions equal to one-half percent (1/2%) of Silverleaf's
gross sales from timeshare and vacation contracts attributable to
tours produced by the telemarketing division of Silverleaf for which
Employee is directly responsible for the management. The bonus
compensation payable on such gross sales for each week shall be paid
on the second Friday thereafter.
(c) STOCK OPTIONS: Employee shall be granted 100,000
Non-Qualified Stock Options pursuant to Silverleaf's 1997 Stock Option
Plan, one-quarter (1/4) of which will vest on the date which is one
(1) year after the grant and a like amount to vest on the same date
during each of the three years which follow thereafter, such options
to be exercisable for a period of 10 years from the date of grant, at
the price of TWENTY TWO AND 84,375/100,000ths DOLLARS ($22.84375) per
share of Silverleaf's $0.01 par value common stock.
(d) MOVING EXPENSES: Silverleaf shall pay Employee's
reasonable moving expenses to Dallas, Texas, such expenses to be
approved in advance by Silverleaf.
(e) COMPANY VEHICLE: Silverleaf shall furnish Employee a
company owned vehicle for use by Employee in performing his duties,
and Silverleaf shall pay all expenses associated therewith.
(f) FRINGE BENEFITS: Silverleaf shall provide Employee
health insurance under its group plan as it may exist from time to
time. The cost of any coverage of any of the Employee's family
members under Silverleaf's group plan shall be paid by the Employee.
The Employee shall also be entitled to such vacation time, sick leave
and other fringe benefits as may be specified by the Board of
Directors of Silverleaf from time to time for its executive personnel.
SECTION 4. CONFIDENTIALITY.
(a) NONDISCLOSURE AND NONUSE: Employee acknowledges that
during his employment with Silverleaf, he may have access to and
become acquainted with Silverleaf Confidential Information, as defined
below. Except as Employee's duties during his employment with
Silverleaf may require or Silverleaf may otherwise consent in writing,
Employee agrees that he shall not at any time disclose or use,
directly or indirectly, either during or subsequent to his employment
with Silverleaf, any Silverleaf Confidential Information.
2
<PAGE> 6
(b) CONFIDENTIAL INFORMATION: For purposes of the
foregoing provisions, "Silverleaf Confidential Information" shall mean
(1) any and all confidential and proprietary business information and
trade secrets concerning the business and affairs of Silverleaf and
its affiliates, including but not limited to all marketing, sales and
lead generation techniques, know-how and studies, customer and lead
lists, current and anticipated customer requirements, price lists,
business plans, training programs, computer software and programs, and
computer software and data-base technologies, systems, structures and
architectures (and related processes, formulae, compositions,
improvements, devices, know-how, inventions, discoveries, concepts,
ideas, designs, methods and information), (2) any and all information
concerning the business and affairs of Silverleaf and its affiliates
(including but not limited to their historical financial statements,
financial projections and budgets, historical and projected sales,
capital spending budgets and plans, the names and backgrounds of key
personnel, personnel training and techniques and materials, however
documented), and (3) any and all notes, analysis, compilations,
studies, summaries, and other material prepared by or for Silverleaf
and its affiliates containing or based, in whole or in part, on any
information included in the foregoing. Provided, however, "Silverleaf
Confidential Information" shall not include information that is not
unique to Silverleaf, information that is generally known in the
timeshare industry or information that was known by Employee prior to
his employment with Silverleaf other than information acquired by
Silverleaf pursuant to its acquisition of Bull's Eye Marketing, Inc.
and its marketing know-how.
SECTION 5. NON-INTERFERENCE. Employee further agrees that
during his employment and for a period of twelve (12) months thereafter,
Employee shall not, either on his own account or jointly with or as a manager,
agent, officer, employee, consultant, partner, joint venturer, owner or
shareholder or otherwise on behalf of any other person, firm or corporation,
directly or indirectly solicit or attempt to solicit away from Silverleaf or
its affiliates any of its officers, employees or independent contractors or
offer employment or business to any person who, on or during the 6 months
immediately preceding the date of such solicitation or offer, is or was an
officer, employee or independent contractor of Silverleaf or its affiliates.
SECTION 6. NONCOMPETITION.
(a) COVENANT: Employee covenants and agrees that he or
she shall not, for a period of one (1) year from and after the
effective date of any Termination, working alone or in conjunction
with one or more other persons or entities, for compensation or not,
permit his or her name to be used by or engage in or carry on,
directly or indirectly, either for himself or herself or as a member
of a partnership or other entity or as a stockholder, investor,
officer or director of a corporation or as an employee, agent,
associate or contractor of any person, partnership, corporation or
other entity, any business in competition with the business of
Silverleaf or its affiliates, as carried on by Silverleaf or its
affiliates immediately prior to the effective date of any
Termination, but only for as long as such business is carried on by
(1) Silverleaf or its affiliates or (2) any person, corporation,
partnership, trust or other organization or entity deriving title from
Silverleaf or its affiliates to the assets and goodwill of the
business being carried on by
3
<PAGE> 7
Silverleaf or its affiliates immediately prior to the effective date
of any Termination, in any county or similar geographic area in any
state of the United States in which Silverleaf or its affiliates
conducts such business or markets the products of such business
immediately prior to the effective date of any Termination.
(b) TOLLING. If Employee violates any covenant contained
in this Section, then the term of such violated covenant shall be
tolled for the period commencing on the commencement of such violation
and ending upon the earlier of (1) such time as such violation shall
be cured by Employee to the reasonable satisfaction of Silverleaf, (2)
final adjudication (including appeals) of any action filed for
injunctive relief or damages arising out of such violation, and (3)
the expiration of 12 months after Termination during which no
violation of the covenant has occurred.
(c) REFORMATION. If, in any judicial proceeding, the
court shall refuse to enforce any covenant contained in this Section
because the time limit is too long, it is expressly understood and
agreed between Silverleaf and Employee that for purposes of such
proceeding such time limitation shall be deemed reduced to the extent
necessary to permit enforcement of such covenant. If, in any judicial
proceeding, the court shall refuse to enforce any covenant contained
in this Section because it is more extensive (whether as to geographic
area, scope of business or otherwise) than necessary to protect the
business and goodwill of Silverleaf and/or its affiliates, it is
expressly understood and agreed between Silverleaf and Employee that
for purposes of such proceeding the geographic area, scope of business
or other aspect shall be deemed reduced to the extent necessary to
permit enforcement of such covenant.
SECTION 7. INJUNCTIVE RELIEF. Employee acknowledges that a
breach of Sections 4, 5 or 6 hereof would cause irreparable damage to
Silverleaf and/or its affiliates, and in the event of Employee's breach of the
provisions of Sections 4, 5 or 6 hereof, Silverleaf shall be entitled to a
temporary restraining order and an injunction restraining Employee from
breaching such Sections without the necessity of posting bond or proving
irreparable harm, such being conclusively admitted by Employee. Nothing shall
be construed as prohibiting Silverleaf from pursuing any other available
remedies for such breach, including the recovery of damages from Employee.
Employee acknowledges that the restrictions set forth in Sections 4, 5 and 6
hereof are reasonable in scope and duration, given the nature of the business
of Silverleaf and its affiliates. Employee agrees that issuance of an
injunction restraining Employee from breaching such Sections in accordance with
their terms will not pose an unreasonable restriction on Employee's ability to
obtain employment or other work following the effective date of any
Termination.
SECTION 8. EMPLOYEE INVESTMENTS. Anything to the contrary
herein notwithstanding, Employee: (1) shall not be prohibited from investing
his assets in such form or such manner as will not, in the aggregate, detract
from the performance by Employee of his duties hereunder and will not violate
the provisions of Sections 4, 5 or 6 hereof; and (2) shall not be prohibited
from purchasing stock in any publicly traded company solely as a stockholder so
long as Employee does not own (together or separately or through his
affiliates) more than two percent
4
<PAGE> 8
(2%) of the stock in any company, other than Silverleaf, which is engaged in
the timeshare business.
SECTION 9. TERMINATION. This Agreement shall terminate: (1)
upon written notice by either party, at any time and for any or no reason
whatsoever, at least thirty (30) days prior to the effective date of the
termination; or (2) as of the end of the month of Employee's death, incapacity
due to Employee's physical or mental illness as determined in Silverleaf's sole
discretion or Employee reaching Silverleaf's normal retirement age (the
"Termination"). In the event of Termination, Employee shall be entitled to the
following:
(a) VOLUNTARY TERMINATION, OR FOR GOOD CAUSE: If
Employee voluntarily terminates his employment, or if his employment
is terminated for Good Cause or after the initial three (3) year term
of this Agreement, Employee shall be entitled to no severance pay. At
the Termination, the payment to Employee of compensation earned to
date shall be in full satisfaction of all claims against Silverleaf
under this Agreement. Good Cause shall be deemed to exist if the
Employee's employment is terminated because Employee:
[1] Willfully breaches or habitually neglects the
duties that the Employee is required to
perform under the terms of this Agreement;
[2] Willfully violates reasonable and substantial
rules governing employee performance;
[3] Refuses to obey reasonable orders in a manner
that amounts to insubordination;
[4] Commits clearly dishonest acts toward
Silverleaf; or
[5] Becomes incapacitated as set forth above,
dies or reaches Silverleaf's normal
retirement age.
(b) INVOLUNTARY TERMINATION WITHOUT GOOD CAUSE: If
Silverleaf terminates Employee's employment during the initial three
(3) year term of this Agreement, other than for Good Cause, Employee
shall also be paid severance pay equal to his base compensation set
forth in Section 3(a) of this Agreement, payable in semi- monthly
payments on the 1st and 15th days of each month for the 12 months
following the Termination. Provided, however upon Employee's
full-time reemployment following such Termination, the semi-monthly
payments still due to Employee by Silverleaf shall be decreased by the
amount of Employee's semi-monthly salary from his reemployment for the
remaining period during which the semi-monthly payments are otherwise
due. For purposes of determining such decrease, Employee's total
salary and bonuses, exclusive of any fringe benefits, for the first
twelve months of his reemployment shall
5
<PAGE> 9
be divided by twenty-four and the result shall be deemed to be
Employee's semi-monthly salary from his reemployment.
(c) CONTINGENCY: Payment of any amounts due under this
Section is also contingent upon return of all Silverleaf's property as
outlined below.
SECTION 10. RETURN OF MATERIALS AND VEHICLES. Employee
understands and agrees that any training manuals, sales and promotional
material, vehicles or other equipment provided to him by Silverleaf in
connection with this Agreement shall remain the sole property of Silverleaf,
and shall be used by the Employee exclusively for Silverleaf's benefit. Upon
termination of this Agreement, any such material, vehicles or other equipment
shall be immediately returned to Silverleaf.
SECTION 11. NON-BINDING ALTERNATE DISPUTE RESOLUTION. Except for
actions brought by Silverleaf pursuant to Section 7 hereof:
(a) AGREEMENT TO UTILIZE: The parties shall attempt to
settle any claim or controversy arising from this Agreement through
consultation and negotiation in good faith and a spirit of mutual
cooperation prior to the commencement of any legal action. If such
attempts fail, then the dispute shall be mediated by a
mutually-accepted mediator to be chosen by the parties within
forty-five (45) days after written notice demanding mediation is sent
by one party to the other party. Neither party may unreasonably
withhold consent to the selection of a mediator, and the parties shall
share the costs of the mediation equally. By mutual written
agreement, however, the parties may postpone mediation until they have
completed some specified but limited discovery regarding the dispute.
The parties may also agree to replace mediation with any other form of
alternate dispute resolution ("ADR") available in Texas, such as a
mini-trial or arbitration.
(b) FAILURE TO RESOLVE: Any dispute which the Parties
cannot resolve through negotiation, mediation or any other form of
ADR, within six (6) months of the date of the initial demand for
mediation, may then be submitted to the appropriate court for
resolution. The use of negotiation, mediation, or any other form of
ADR procedures will not be construed under the doctrines of laches,
waiver or estoppel to affect adversely the rights of either party.
SECTION 12. WAIVER. Silverleaf's failure at any time to require
performance by Employee of any of the provisions hereof shall not be deemed to
be a waiver of any kind nor in any way affect the rights of Silverleaf
thereafter to enforce the provisions hereof. In the event that either party to
this Agreement waives any provision of this Agreement or any rights concerning
any breach or default of the other party hereto, such waiver shall not
constitute a continuing waiver of any such provision or breach or default of
the other party hereto.
6
<PAGE> 10
SECTION 13. SUCCESSORS, ASSIGNS, BENEFIT.
(a) SILVERLEAF SUCCESSORS: The provisions of this
Agreement shall inure to the benefit of and be binding upon
Silverleaf, its successors, assigns and other affiliated entities,
including, but not limited to, any corporation which may acquire all
or substantially all of Silverleaf's assets or with or into which
Silverleaf may be consolidated, merged or reorganized. Upon any such
merger, consolidation or reorganization, the term "Silverleaf" as used
herein shall be deemed to refer to any such successor corporation.
(b) NO ASSIGNMENT BY EMPLOYEE: The parties hereto agree
that Employee's services hereunder are personal and unique, and that
Silverleaf is executing this Agreement in reliance thereon. This
Agreement shall not be assignable by Employee.
SECTION 14. SEVERABILITY. If one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, but
shall be deemed stricken and severed from this Agreement and the remaining
terms of this Agreement shall continue in full force and effect.
SECTION 15. GOVERNING LAW AND VENUE. This Agreement shall be
deemed to have been made and entered into in the State of Texas and its
validity, construction, breach, performance and operation shall be governed by
the laws of that state. The obligations hereunder of Silverleaf shall be
performable in Dallas County, Texas, and venue for any suit involving this
Agreement shall lie exclusively in Dallas County, Texas.
SECTION 16. ENTIRE UNDERSTANDING. This Agreement sets forth the
entire understanding between the parties with respect to the employment of
Employee, and no other representations, warranties or agreements whatsoever
have been made by Silverleaf to Employee. Further, this Agreement may not be
modified or amended except by another instrument in writing executed by both of
the parties.
SECTION 17. NOTICES. All notices and communications under this
Agreement shall be sent to the parties at the following addresses or such other
addresses that the parties may subsequently designate in writing.
(a) SILVERLEAF:
Silverleaf Resorts, Inc.
Attention: Robert E. Mead, Chief Executive Officer
1221 Riverbend, Suite 120
Dallas, Texas 75247
7
<PAGE> 11
(b) EMPLOYEE:
Jim Oestreich
1711 Muirfield Drive
Qxnard, California 93030
SECTION 18. SECTION HEADINGS. Section and paragraph headings are
inserted herein only for convenience and shall not be used to interpret any of
the provisions hereof.
SECTION 19. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same original.
SECTION 20. EFFECTIVE DATE. This Agreement is executed effective
as of December 30, 1997 (the "Effective Date"). Provided, however, the
compensation payable hereunder shall only commence upon Employee's commencement
of his full-time services to Silverleaf, which shall occur on or before March
1, 1998. If Employee fails to commence his full- time services by that date
without the written consent of Silverleaf, then this Agreement shall terminate
and be null and void for all purposes.
Executed this 20th day of January, 1998.
"SILVERLEAF"
SILVERLEAF RESORTS, INC.
By: /s/ ROBERT E. MEAD
--------------------------------------
Robert E. Mead, Chief Executive Officer
"EMPLOYEE"
/S/ JIM OESTREICH
---------------------------------------
JIM OESTREICH
8
<PAGE> 1
EXHIBIT 10.3.8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NONQUALIFIED STOCK OPTION AGREEMENT
BETWEEN
SILVERLEAF RESORTS, INC.
AND
JOE W. CONNER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I.
GRANT OF OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Grant of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.4. Time for Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5. Partial Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6. Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.7. Method of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.8. Termination of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
RESTRICTIONS AND LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1. Outstanding Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.2. Effect on Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.3. Shares as Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.4. Reclassification, Consolidation, or Merger . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.5. Limitations Upon Transfer of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.6. Limitations Upon Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.7. Rights as Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
ADMINISTRATIVE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.2. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.3. Nonqualified Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.4. Incorporation of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.5. Conditioned on Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
(i)
<PAGE> 3
NONQUALIFIED STOCK OPTION AGREEMENT
BETWEEN
SILVERLEAF RESORTS, INC.
AND
JOE W. CONNER
This Nonqualified Stock Option Agreement (the "Option Agreement") is
made between SILVERLEAF RESORTS, INC., a Texas Corporation (the "Company"), and
JOE W. CONNER ("Optionee") effective as of the date specified below.
RECITALS:
A. As Optionee is a valuable Officer and Employee of Silverleaf
Resorts, Inc., and has recognized leadership and experience in the business of
the Company, the Company deems it to be in its interest and in the interest of
its shareholders to provide an incentive to Optionee by granting Optionee an
additional proprietary interest in the Company, and the Company desires to
enter into this Option Agreement with Optionee under the terms and conditions
hereinafter set forth and to grant Optionee an option to purchase additional
common shares of the Corporation; and
B. The stock options granted hereunder are granted pursuant to
the terms of the 1997 Stock Option Plan for Silverleaf Resorts, Inc., which was
adopted by the Company and approved by the shareholders effective as of May 15,
1997, (the "Plan") and are intended to be Nonqualified Options as defined in
the Plan and not Incentive Options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"),
AGREEMENT:
NOW, THEREFORE, in consideration of the promises and the mutual
agreements hereinafter contained, and for other good and valuable
consideration, the Parties agree as follows:
ARTICLE I.
GRANT OF OPTION
SECTION 1.1. GRANT OF OPTION. The Company hereby grants to
Optionee the right and option to purchase from it, on the terms and conditions
following, all or any part of an aggregate of FIFTEEN THOUSAND (15,000) shares
of the authorized $0.01 par value common shares of the Company.
SECTION 1.2. FAIR MARKET VALUE. The fair market value of the
Company's $0.01 par value common shares as of the effective date of this Option
Agreement is TWENTY FIVE AND 125/1,000ths DOLLARS ($25.125) per share, as
determined by the Company's Board of Directors pursuant to Section 7.3 of the
Plan.
SECTION 1.3. PURCHASE PRICE. The purchase price for each share
purchasable hereunder shall be TWENTY FIVE and 125/1,000ths DOLLARS ($25.125).
<PAGE> 4
SECTION 1.4. TIME FOR EXERCISE. Optionee may elect to exercise
the options at the times and for the number of shares indicated as follows:
(a) On or after January 21, 1999, to and including January 20,
2000, 3,750 shares;
(b) On or after January 21, 2000, to and including January 20,
2001, 3,750 shares;
(c) On or after January 21, 2001, to and including January 20,
2002, 3,750 shares; and
(d) On or after January 21, 2002, to and including January 20,
2008 (the "Option Termination Date"), 3,750 shares.
However, if Optionee does not purchase the full number of shares to
which Optionee is entitled in either period (a), (b) or (c) above, Optionee is
permitted to purchase those remaining shares in a later period through and
including the Option Termination Date in addition to those shares which
Optionee may otherwise be entitled to purchase.
SECTION 1.5. PARTIAL EXERCISE. No partial exercise of such option
may be for less than 100 full shares.
SECTION 1.6. FRACTIONAL SHARES. In no event shall the Company be
required to transfer fractional shares to the Optionee.
SECTION 1.7. METHOD OF EXERCISE. The option shall be exercised by
Optionee as to all or part of the shares covered by the option by giving
written notice of such exercise to the Company, specifying the number of shares
to be purchased and specifying a business day not more than fifteen (15) days
from the date such notice is given, for the payment of the purchase price
against delivery of the shares being purchased. Such notice shall set forth a
statement, pursuant to Section 8.8 of the Plan and Section 2.4 of this Option
Agreement, that the shares are being acquired for investment.
Subject to any applicable laws or regulations and to the terms of
Sections 8.8, 11.5, and 12.1 of the Plan, the Company shall cause certificates
for the Shares so purchased to be delivered to Optionee at the principal
business office of the Company, against payment of the full purchase price, on
the date specified in the notice of exercise, such payment to be made in cash
or by certified check or by transfer and delivery of shares of the common stock
of the Company as provided in Section 7.4 of the Plan.
SECTION 1.8. TERMINATION OF OPTION. The option and all rights
granted by this Option Agreement, to the extent those rights have not been
exercised, will terminate and become null and void on the sooner of:
2
<PAGE> 5
(a) Such date as is ten (10) years from the date of this Option
Agreement;
(b) The Option Termination Date as defined in Section 1.4 hereof;
(c) The date which is three months after the date Optionee ceases
to continually serve as an Officer or Employee of the Company,
if such cessation is by disability, retirement, or dismissal
other than for cause, as defined in Section 9.4 of the Plan,
provided that in the event of Optionee's cessation of office
or employment under such terms, Optionee may exercise such
option only to the extent that Optionee was entitled to
exercise it on the date of Optionee's cessation of office or
employment;
(d) The date Optionee ceases to continually serve as an Officer or
Employee of the Company if such cessation is by voluntary
termination or dismissal for cause as defined in Sections 9.3
and 9.4 of the Plan; or
(e) The date which is one year following the death of Optionee if
Optionee dies while serving as an Officer or Employee of the
Company or within the three-month period following the
termination of such office or employment if such termination
was by disability, retirement, or dismissal other than for
cause. In the event of Optionee's death under such terms, the
person or persons to whom Optionee's rights under the option
shall pass, whether by will or by the applicable laws of
descent and distribution, may exercise such option pursuant to
Section 8.7 of the Plan only to the extent that Optionee was
entitled to exercise it on the date of Optionee's death.
For purposes of the foregoing provisions, serving as an Officer or Employee of
a subsidiary of the Company shall be deemed to be serving as an Officer or
Employee of the Company.
ARTICLE II
RESTRICTIONS AND LIMITATIONS
SECTION 2.1. OUTSTANDING OPTIONS. The option granted to Optionee
under this Option Agreement shall in no event be exercised while there is
outstanding any option previously granted to Optionee to purchase common shares
of the Company at a price higher than the option price under the option herein
granted to Optionee.
SECTION 2.2. EFFECT ON OTHER AGREEMENTS. Nothing herein contained
shall be deemed to modify the terms of any other agreement between the Company
and Optionee.
SECTION 2.3. SHARES AS INVESTMENT. By accepting this option,
Optionee acknowledges for Optionee, Optionee's heirs, and legatees that any and
all shares purchased under this Option
3
<PAGE> 6
Agreement shall be acquired for investment and not for or with a view towards
distribution, and upon the transfer of any or all of the shares subject to the
option granted hereunder, Optionee, or Optionee's heirs or legatees receiving
such shares, shall deliver to the Company a representation in writing that such
shares are being acquired in good faith for investment and not for or with a
view towards distribution.
SECTION 2.4. RECLASSIFICATION, CONSOLIDATION, OR MERGER.
Adjustments to the number of shares subject to the option and the option price
for them shall be proportionately adjusted, pursuant to Section 10.1 of the
Plan.
SECTION 2.5. LIMITATIONS UPON TRANSFER OF OPTION. During the
lifetime of Optionee, the option and all rights granted in this Option
Agreement shall be exercisable only by the Optionee, and except as Section
1.8(e) of this Option Agreement otherwise provides, the option and all rights
granted under this Option Agreement shall not be transferred, assigned,
pledged, or hypothecated in any way (whether by operation of law or otherwise),
and shall not be subject to execution, attachment, or similar process. Upon any
attempt to transfer, assign, pledge, hypothecate, or otherwise dispose of such
option or of such rights contrary to the provisions in this Option Agreement,
or upon the levy of any attachment or similar process upon such option or such
rights, such option and such rights shall immediately become null and void.
SECTION 2.6. LIMITATIONS UPON TRANSFER OF SHARES. No shares
acquired by Optionee pursuant to this Option Agreement shall be sold or
disposed of within six (6) months following the date of acquisition of such
shares, unless either the grant of this Non-Qualified Option is approved by the
Board of Directors, or a committee of the Board of Directors that is composed
solely of two or more non-employee directors as defined in Rule 16b-3 of the
Exchange Act, or the grant of this Non-Qualified Option is approved or
ratified, in compliance with section 14 of the Exchange Act, by either: the
affirmative votes of the holders of a majority of the securities of the Company
present, or represented, and entitled to vote at a meeting duly held in
accordance with the applicable laws of the state or other jurisdiction in which
the Company is incorporated, or the written consent of the holders of a
majority of the securities of the Company entitled to vote, provided that such
ratification occurs no later than the date of the next annual meeting of the
shareholders. Any attempted sale, disposal or transfer of such shares shall be
without effect. All shares transferred to Optionee pursuant to the exercise of
the option granted hereby shall be clearly marked with the foregoing
restrictions on transfer.
SECTION 2.7. RIGHTS AS SHAREHOLDER. Neither Optionee nor
Optionee's executor, administrator, heirs, or legatees, shall be or have any
rights or privileges of a shareholder of the Company in respect of the shares
transferable upon exercise of the option granted under this Option Agreement,
unless and until certificates representing such shares shall have been
endorsed, transferred, and delivered and the Optionee, or the Optionee's
executor, administrator, heirs or legatees, as the case may be, has caused his
name to be entered as the shareholder of record on the books of the Company.
4
<PAGE> 7
ARTICLE III
ADMINISTRATIVE PROVISIONS
SECTION 3.1. NOTICES. Any notice to be given under the terms of
this Option Agreement shall be addressed to the Parties as follows:
If to the Company:
Silverleaf Resorts, Inc.
Attn: Robert E. Mead, Chief Executive Officer
1221 Riverbend Drive, Suite 120
P.O.Box 358
Dallas, Texas 75221
If to Optionee:
Joe W. Conner
751 Pelican Lane
Coppell, Texas 75019
Any Party may change its address by giving notice in writing, stating
its new address, to the other Party as provided in the foregoing manner. Any
notice shall be deemed duly given when enclosed in a properly sealed envelope
or wrapper addressed as herein required certified and deposited (postage and
certification fee prepaid) in a post office or branch post office regularly
maintained by the United States Government.
SECTION 3.2. BINDING EFFECT. This Option Agreement shall be
binding upon the heirs, executors, administrators, and successors of the
parties hereto.
SECTION 3.3. NONQUALIFIED OPTIONS. The options granted hereunder
are intended to be Nonqualified Options as defined in the Plan.
SECTION 3.4. INCORPORATION OF THE PLAN. The terms, conditions and
limitations contained in the Plan are incorporated herein by reference and such
provisions shall control to the extent they are not specifically contrary to a
provision of this Option Agreement.
5
<PAGE> 8
EXECUTED this 6th day of February, 1998, but EFFECTIVE the 21st day of
January, 1998.
SILVERLEAF RESORTS, INC., the Company
By: /s/ ROBERT E. MEAD
---------------------------------------
ROBERT E. MEAD, Chief Executive Officer
/s/ JOE W. CONNER
------------------------------------------
JOE W. CONNER, Optionee
6
<PAGE> 1
EXHIBIT 10.3.9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NONQUALIFIED STOCK OPTION AGREEMENT
BETWEEN
SILVERLEAF RESORTS, INC.
AND
JIM OESTREICH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I.
GRANT OF OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Grant of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.4. Time for Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5. Partial Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6. Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.7. Method of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.8. Termination of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
RESTRICTIONS AND LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1. Outstanding Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.2. Effect on Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.3. Shares as Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.4. Reclassification, Consolidation, or Merger . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.5. Limitations Upon Transfer of Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.6. Limitations Upon Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.7. Rights as Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
ADMINISTRATIVE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.2. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.3. Nonqualified Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.4. Incorporation of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.5. Conditioned on Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
(i)
<PAGE> 3
NONQUALIFIED STOCK OPTION AGREEMENT
BETWEEN
SILVERLEAF RESORTS, INC.
AND
JIM OESTREICH
This Nonqualified Stock Option Agreement (the "Option Agreement") is
made between SILVERLEAF RESORTS, INC., a Texas Corporation (the "Company"), and
JIM OESTREICH ("Optionee") effective as of the date specified below.
RECITALS:
A. As Optionee has agreed to become an Officer and Employee of
Silverleaf Resorts, Inc., and has recognized leadership and experience in the
business of the Company, the Company deems it to be in its interest and in the
interest of its shareholders to provide an incentive to Optionee by granting
Optionee a proprietary interest in the Company, and the Company desires to
enter into this Option Agreement with Optionee under the terms and conditions
hereinafter set forth and to grant Optionee an option to purchase common shares
of the Corporation; and
B. The stock options granted hereunder are granted pursuant to
the terms of the 1997 Stock Option Plan for Silverleaf Resorts, Inc., which was
adopted by the Company and approved by the shareholders effective as of May 15,
1997, (the "Plan") and are intended to be Nonqualified Options as defined in
the Plan and not Incentive Options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"),
AGREEMENT:
NOW, THEREFORE, in consideration of the promises and the mutual
agreements hereinafter contained, and for other good and valuable
consideration, the Parties agree as follows:
ARTICLE I.
GRANT OF OPTION
SECTION 1.1. GRANT OF OPTION. The Company hereby grants to
Optionee the right and option to purchase from it, on the terms and conditions
following, all or any part of an aggregate of ONE HUNDRED THOUSAND (100,000)
shares of the authorized $0.01 par value common shares of the Company.
SECTION 1.2. FAIR MARKET VALUE. The fair market value of the
Company's $0.01 par value common shares as of the effective date of this Option
Agreement is TWENTY TWO AND 84,375/100,000ths DOLLARS ($22.84375) per share, as
determined by the Company's Board of Directors pursuant to Section 7.3 of the
Plan.
SECTION 1.3. PURCHASE PRICE. The purchase price for each share
purchasable hereunder shall be TWENTY TWO and 84,375/100,000ths DOLLARS
($22.84375).
<PAGE> 4
SECTION 1.4. TIME FOR EXERCISE. Optionee may elect to exercise
the options at the times and for the number of shares indicated as follows:
(a) On or after December 30, 1998, to and including December 29,
1999, 25,000 shares;
(b) On or after December 30, 1999, to and including December 29,
2000, 25,000 shares;
(c) On or after December 30, 2000, to and including December 29,
2001, 25,000 shares; and
(d) On or after December 30, 2001, to and including December 29,
2007 (the "Option Termination Date"), 25,000 shares.
However, if Optionee does not purchase the full number of shares to
which Optionee is entitled in either period (a), (b) or (c) above, Optionee is
permitted to purchase those remaining shares in a later period through and
including the Option Termination Date in addition to those shares which
Optionee may otherwise be entitled to purchase.
SECTION 1.5. PARTIAL EXERCISE. No partial exercise of such option
may be for less than 100 full shares.
SECTION 1.6. FRACTIONAL SHARES. In no event shall the Company be
required to transfer fractional shares to the Optionee.
SECTION 1.7. METHOD OF EXERCISE. The option shall be exercised by
Optionee as to all or part of the shares covered by the option by giving
written notice of such exercise to the Company, specifying the number of shares
to be purchased and specifying a business day not more than fifteen (15) days
from the date such notice is given, for the payment of the purchase price
against delivery of the shares being purchased. Such notice shall set forth a
statement, pursuant to Section 8.8 of the Plan and Section 2.4 of this Option
Agreement, that the shares are being acquired for investment.
Subject to any applicable laws or regulations and to the terms of
Sections 8.8, 11.5, and 12.1 of the Plan, the Company shall cause certificates
for the Shares so purchased to be delivered to Optionee at the principal
business office of the Company, against payment of the full purchase price, on
the date specified in the notice of exercise, such payment to be made in cash
or by certified check or by transfer and delivery of shares of the common stock
of the Company as provided in Section 7.4 of the Plan.
SECTION 1.8. TERMINATION OF OPTION. The option and all rights
granted by this Option Agreement, to the extent those rights have not been
exercised, will terminate and become null and void on the sooner of:
2
<PAGE> 5
(a) Such date as is ten (10) years from the date of this Option
Agreement;
(b) The Option Termination Date as defined in Section 1.4 hereof;
(c) The date which is three months after the date Optionee ceases
to continually serve as an Officer or Employee of the Company,
if such cessation is by disability, retirement, or dismissal
other than for cause, as defined in Section 9.4 of the Plan,
provided that in the event of Optionee's cessation of office
or employment under such terms, Optionee may exercise such
option only to the extent that Optionee was entitled to
exercise it on the date of Optionee's cessation of office or
employment;
(d) The date Optionee ceases to continually serve as an Officer or
Employee of the Company if such cessation is by voluntary
termination or dismissal for cause as defined in Sections 9.3
and 9.4 of the Plan; or
(e) The date which is one year following the death of Optionee if
Optionee dies while serving as an Officer or Employee of the
Company or within the three-month period following the
termination of such office or employment if such termination
was by disability, retirement, or dismissal other than for
cause. In the event of Optionee's death under such terms, the
person or persons to whom Optionee's rights under the option
shall pass, whether by will or by the applicable laws of
descent and distribution, may exercise such option pursuant to
Section 8.7 of the Plan only to the extent that Optionee was
entitled to exercise it on the date of Optionee's death.
For purposes of the foregoing provisions, serving as an Officer or Employee of
a subsidiary of the Company shall be deemed to be serving as an Officer or
Employee of the Company.
ARTICLE II
RESTRICTIONS AND LIMITATIONS
SECTION 2.1. OUTSTANDING OPTIONS. The option granted to Optionee
under this Option Agreement shall in no event be exercised while there is
outstanding any option previously granted to Optionee to purchase common shares
of the Company at a price higher than the option price under the option herein
granted to Optionee.
SECTION 2.2. EFFECT ON OTHER AGREEMENTS. Nothing herein contained
shall be deemed to modify the terms of any other agreement between the Company
and Optionee.
SECTION 2.3. SHARES AS INVESTMENT. By accepting this option,
Optionee acknowledges for Optionee, Optionee's heirs, and legatees that any and
all shares purchased under this Option Agreement shall be acquired for
investment and not for or with a view towards distribution, and upon the
transfer of any or all of the shares subject to the option granted hereunder,
Optionee,
3
<PAGE> 6
or Optionee's heirs or legatees receiving such shares, shall deliver to the
Company a representation in writing that such shares are being acquired in good
faith for investment and not for or with a view towards distribution.
SECTION 2.4. RECLASSIFICATION, CONSOLIDATION, OR MERGER.
Adjustments to the number of shares subject to the option and the option price
for them shall be proportionately adjusted, pursuant to Section 10.1 of the
Plan.
SECTION 2.5. LIMITATIONS UPON TRANSFER OF OPTION. During the
lifetime of Optionee, the option and all rights granted in this Option
Agreement shall be exercisable only by the Optionee, and except as Section
1.8(e) of this Option Agreement otherwise provides, the option and all rights
granted under this Option Agreement shall not be transferred, assigned,
pledged, or hypothecated in any way (whether by operation of law or otherwise),
and shall not be subject to execution, attachment, or similar process. Upon any
attempt to transfer, assign, pledge, hypothecate, or otherwise dispose of such
option or of such rights contrary to the provisions in this Option Agreement,
or upon the levy of any attachment or similar process upon such option or such
rights, such option and such rights shall immediately become null and void.
SECTION 2.6. LIMITATIONS UPON TRANSFER OF SHARES. No shares
acquired by Optionee pursuant to this Option Agreement shall be sold or
disposed of within six (6) months following the date of acquisition of such
shares, unless either the grant of this Non-Qualified Option is approved by the
Board of Directors, or a committee of the Board of Directors that is composed
solely of two or more non-employee directors as defined in Rule 16b-3 of the
Exchange Act, or the grant of this Non-Qualified Option is approved or
ratified, in compliance with section 14 of the Exchange Act, by either: the
affirmative votes of the holders of a majority of the securities of the Company
present, or represented, and entitled to vote at a meeting duly held in
accordance with the applicable laws of the state or other jurisdiction in which
the Company is incorporated, or the written consent of the holders of a
majority of the securities of the Company entitled to vote, provided that such
ratification occurs no later than the date of the next annual meeting of the
shareholders. Any attempted sale, disposal or transfer of such shares shall be
without effect. All shares transferred to Optionee pursuant to the exercise of
the option granted hereby shall be clearly marked with the foregoing
restrictions on transfer.
SECTION 2.7. RIGHTS AS SHAREHOLDER. Neither Optionee nor
Optionee's executor, administrator, heirs, or legatees, shall be or have any
rights or privileges of a shareholder of the Company in respect of the shares
transferable upon exercise of the option granted under this Option Agreement,
unless and until certificates representing such shares shall have been
endorsed, transferred, and delivered and the Optionee, or the Optionee's
executor, administrator, heirs or legatees, as the case may be, has caused his
name to be entered as the shareholder of record on the books of the Company.
4
<PAGE> 7
ARTICLE III
ADMINISTRATIVE PROVISIONS
SECTION 3.1. NOTICES. Any notice to be given under the terms of
this Option Agreement shall be addressed to the Parties as follows:
If to the Company:
Silverleaf Resorts, Inc.
Attn: Robert E. Mead, Chief Executive Officer
1221 Riverbend Drive, Suite 120
P.O.Box 358
Dallas, Texas 75221
If to Optionee:
Jim Oestreich
1711 Muirfield Drive
Qxnard, California 93030
Any Party may change its address by giving notice in writing, stating
its new address, to the other Party as provided in the foregoing manner. Any
notice shall be deemed duly given when enclosed in a properly sealed envelope
or wrapper addressed as herein required certified and deposited (postage and
certification fee prepaid) in a post office or branch post office regularly
maintained by the United States Government.
SECTION 3.2. BINDING EFFECT. This Option Agreement shall be
binding upon the heirs, executors, administrators, and successors of the
parties hereto.
SECTION 3.3. NONQUALIFIED OPTIONS. The options granted hereunder
are intended to be Nonqualified Options as defined in the Plan.
SECTION 3.4. INCORPORATION OF THE PLAN. The terms, conditions and
limitations contained in the Plan are incorporated herein by reference and such
provisions shall control to the extent they are not specifically contrary to a
provision of this Option Agreement.
SECTION 3.5. CONDITIONED ON EMPLOYMENT. The option granted to
Optionee under this Option Agreement shall terminate and become null and void
if Optionee does not commence employment with the Company on or before March 1,
1998.
5
<PAGE> 8
EXECUTED this 20th day of January, 1998, but EFFECTIVE the 30th day of
December, 1997.
SILVERLEAF RESORTS, INC., the Company
By: /s/ ROBERT E. MEAD
-----------------------------------------
ROBERT E. MEAD, Chief Executive Officer
/s/ JIM OESTREICH
--------------------------------------------
JIM OESTREICH, Optionee
6
<PAGE> 1
EXHIBIT 10.31
LOAN AGREEMENT
DATED AS OF DECEMBER 19, 1997
BY AND BETWEEN
CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC
AND
SILVERLEAF RESORTS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 PARTICULAR TERMS; DEFINITIONS . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 THE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.2 Loan Requests; Loan Supplements . . . . . . . . . . . . . . 16
2.2.1 Submission of Loan Requests . . . . . . . . . . . 16
2.2.2 Execution and Delivery of Loan Supplement . . . . 17
2.3 Effect of Loan Supplement . . . . . . . . . . . . . . . . . 17
2.4 References . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.5 Disbursement of Loan Proceeds . . . . . . . . . . . . . . . 17
2.6 Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.7 Loan Term; Maturity Date . . . . . . . . . . . . . . . . . . 18
2.8 Interest Rate . . . . . . . . . . . . . . . . . . . . . . . 18
2.8.1 Interest Rate . . . . . . . . . . . . . . . . . . 18
2.8.2 Calculation of Interest . . . . . . . . . . . . . 18
2.9 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.9.1 Interest . . . . . . . . . . . . . . . . . . . . . 18
2.9.2 Repayment of Outstanding Principal
Balance . . . . . . . . . . . . . . . . . . 18
2.9.3 General . . . . . . . . . . . . . . . . . . . . . 18
2.10 Funding Losses; Change in Law, Etc. . . . . . . . . . . . . 19
2.11 Prepayment of Loans . . . . . . . . . . . . . . . . . . . . 21
2.11.1 Optional Prepayments . . . . . . . . . . . . . . . 21
2.11.2 Mandatory Prepayments . . . . . . . . . . . . . . 21
2.11.3 No Reborrowings . . . . . . . . . . . . . . . . . 21
2.12 Default Interest; Late Charge . . . . . . . . . . . . . . . 22
2.13 Excess Interest . . . . . . . . . . . . . . . . . . . . . . 22
2.14 Loan Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.15 Servicing of Loans . . . . . . . . . . . . . . . . . . . . . 25
2.16 Certain Notices . . . . . . . . . . . . . . . . . . . . . . 25
2.17 Non-Disturbance . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 3 SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1 Loan Obligations; Facility Obligations . . . . . . . . . . . 25
3.2 Cross-Collateralization . . . . . . . . . . . . . . . . . . 25
ARTICLE 4 CONDITIONS PRECEDENT TO LOANS . . . . . . . . . . . . . . . . . . . 26
4.1 Representations and Warranties . . . . . . . . . . . . . . . 26
4.2 No Default . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.3 No Injunction . . . . . . . . . . . . . . . . . . . . . . . 26
4.4 Transaction Costs . . . . . . . . . . . . . . . . . . . . . 26
4.5 Delivery of Documents . . . . . . . . . . . . . . . . . . . 26
4.6 Loan Requests . . . . . . . . . . . . . . . . . . . . . . . 27
4.7 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.8 Borrower's Minimum Equity Requirement . . . . . . . . . . . 28
4.9 Title Policy and Endorsements . . . . . . . . . . . . . . . 28
4.10 Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.11 Environmental Report . . . . . . . . . . . . . . . . . . . . 29
4.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.13 Compliance with Laws . . . . . . . . . . . . . . . . . . . . 29
4.14 Counsel Opinions . . . . . . . . . . . . . . . . . . . . . . 29
4.15 Property . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.16 Timeshare Documents . . . . . . . . . . . . . . . . . . . . 29
4.17 Mortgage Recording Tax . . . . . . . . . . . . . . . . . . . 30
4.18 Additional Items . . . . . . . . . . . . . . . . . . . . . . 30
4.19 Consents, Licenses, Approvals, Etc . . . . . . . . . . . . . 30
4.20 Initial and Subsequent Extensions of Credit . . . . . . . . 30
ARTICLE 5 CERTAIN REPRESENTATIONS AND WARRANTIES OF BORROWER . . . . . . . . 30
5.1 Borrower Organization, Enforceability, Etc . . . . . . . . . 31
5.1.1 Borrower Existence; Status . . . . . . . . . . . . 31
5.1.2 Borrower Address . . . . . . . . . . . . . . . . . 31
5.1.3 Borrower's Corporate Structure . . . . . . . . . . 31
5.1.4 Borrower's Organizational Documents . . . . . . . . 31
5.2 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.3 Valid Liens . . . . . . . . . . . . . . . . . . . . . . . . 32
5.4 Property Uses . . . . . . . . . . . . . . . . . . . . . . . 32
5.5 No Structural Defects . . . . . . . . . . . . . . . . . . . 32
5.6 Compliance with Zoning, Etc. . . . . . . . . . . . . . . . . 32
5.7 No Condemnation . . . . . . . . . . . . . . . . . . . . . . 33
5.8 No Casualty . . . . . . . . . . . . . . . . . . . . . . . . 33
5.9 Purchase Options . . . . . . . . . . . . . . . . . . . . . . 33
5.10 No Encroachments . . . . . . . . . . . . . . . . . . . . . . 33
5.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.12 No Conflict with Law or Agreements . . . . . . . . . . . . . 34
5.13 Personal Property . . . . . . . . . . . . . . . . . . . . . 34
5.14 Easements; Access; Utilities . . . . . . . . . . . . . . . . 34
5.15 No Flood Hazard, Etc . . . . . . . . . . . . . . . . . . . . 34
5.16 Property Taxed as a Separate Tax Lot . . . . . . . . . . . . 35
5.17 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.18 Environmental . . . . . . . . . . . . . . . . . . . . . . . 35
5.19 No Default . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.20 No Offsets . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
5.21 Financial Statements . . . . . . . . . . . . . . . . . . . . 36
5.22 No Insolvency . . . . . . . . . . . . . . . . . . . . . . . 37
5.22.1 Fraudulent Conveyance . . . . . . . . . . . . . . 37
5.23 Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.24 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . 37
5.25 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.26 FIRPTA . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.27 PUHCA . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.28 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.29 No Margin Stock . . . . . . . . . . . . . . . . . . . . . . 38
5.30 Investment Company Act . . . . . . . . . . . . . . . . . . . 38
5.31 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.32 Full and Accurate Disclosure . . . . . . . . . . . . . . . . 38
5.33 Other Obligations and Liabilities . . . . . . . . . . . . . 39
5.34 Documents . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.35 Survival of Representations and Warranties . . . . . . . . . 39
5.36 Timeshare Development . . . . . . . . . . . . . . . . . . . 39
5.37 Resorts . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.38 Timeshare Regimen Reports . . . . . . . . . . . . . . . . . 41
5.39 Architectural and Environmental Control . . . . . . . . . . 42
5.40 Other Compliance . . . . . . . . . . . . . . . . . . . . . . 42
5.41 No Investigations or Violations . . . . . . . . . . . . . . 42
ARTICLE 6 CERTAIN COVENANTS OF BORROWER . . . . . . . . . . . . . . . . . . . 42
6.1 Payment and Performance of Loan Obligations and Facility
Obligations . . . . . . . . . . . . . . . . . . . . . . . . 42
6.2 Transfers . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.3 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.4 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 44
6.5 Compliance with Restrictive Covenants, Etc . . . . . . . . . 44
6.6 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.7 Delivery of Notices . . . . . . . . . . . . . . . . . . . . 46
6.8 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.9 Intentionally Omitted . . . . . . . . . . . . . . . . . . . 47
6.10 After Acquired Property . . . . . . . . . . . . . . . . . . 48
6.11 Books and Records . . . . . . . . . . . . . . . . . . . . . 48
6.12 Delivery of Estoppel Certificates . . . . . . . . . . . . . 48
6.13 Management . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.14 Financial Statements; Audit Rights . . . . . . . . . . . . . 48
6.14.1 Statements to be Delivered . . . . . . . . . . . . 48
6.14.2 Time for Delivery . . . . . . . . . . . . . . . . 50
6.14.3 Officer's Certificate . . . . . . . . . . . . . . 50
6.15 Maintenance of Non-Taxable Status . . . . . . . . . . . . . 50
6.16 Lender's Attorneys' Fees and Expenses . . . . . . . . . . . 50
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
6.17 Environmental . . . . . . . . . . . . . . . . . . . . . . . 51
6.18 Report Updates . . . . . . . . . . . . . . . . . . . . . . . 53
6.19 Lender Access to Property . . . . . . . . . . . . . . . . . 54
6.20 Delivery of Documents Regarding Ownership . . . . . . . . . 54
6.21 Use of Property . . . . . . . . . . . . . . . . . . . . . . 54
6.22 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.23 Borrower's Minimum Equity . . . . . . . . . . . . . . . . . 54
6.24 Capital Offering Proceeds . . . . . . . . . . . . . . . . . 54
6.25 Resort Utilities . . . . . . . . . . . . . . . . . . . . . . 54
6.26 Resort Maintenance and Amenities . . . . . . . . . . . . . . 54
6.27 Timeshare Regime . . . . . . . . . . . . . . . . . . . . . . 55
6.28 Marketing/Sales . . . . . . . . . . . . . . . . . . . . . . 55
6.29 Tangible Consolidated Net Worth . . . . . . . . . . . . . . 55
ARTICLE 7 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.1 Events of Default; Defaults . . . . . . . . . . . . . . . . 55
7.1.1 Non-Payment . . . . . . . . . . . . . . . . . . . 55
7.1.2 Affirmative Covenants . . . . . . . . . . . . . . 55
7.1.3 Negative Covenants . . . . . . . . . . . . . . . 56
7.1.4 Financial Statements . . . . . . . . . . . . . . 56
7.1.5 Representations . . . . . . . . . . . . . . . . . 56
7.1.6 Other Loan Documents . . . . . . . . . . . . . . 56
7.1.7 Failure to Deliver Estoppel Certificate . . . . . 56
7.1.8 Cessation of Borrower . . . . . . . . . . . . . . 56
7.1.9 Transfer . . . . . . . . . . . . . . . . . . . . 57
7.1.10 Liens . . . . . . . . . . . . . . . . . . . . . . 57
7.1.11 Involuntary Bankruptcy, Etc . . . . . . . . . . . 57
7.1.12 Voluntary Bankruptcy, Etc . . . . . . . . . . . . 57
7.1.13 Judgments . . . . . . . . . . . . . . . . . . . . 57
7.1.14 Delivery of Financial Statements . . . . . . . . 57
7.1.15 ERISA . . . . . . . . . . . . . . . . . . . . . . 58
7.1.16 Other Conditions for Acceleration . . . . . . . . 58
7.1.17 Denial of Obligation . . . . . . . . . . . . . . 58
7.1.18 Failure to Provide Further Assurances . . . . . . 58
7.1.19 Priority of Liens Under Loan Documents . . . . . 58
7.1.20 Certain Covenants . . . . . . . . . . . . . . . . 58
7.1.21 Default in Payment of Indebtedness . . . . . . . 58
7.1.22 Environmental Claims . . . . . . . . . . . . . . 58
7.1.23 Continuous Operation . . . . . . . . . . . . . . 59
7.1.24 Suspension of Sales . . . . . . . . . . . . . . . 59
7.2 Termination of Commitment and Rights upon Event of Default . 59
7.3 Waiver of Stay, Extension and Moratorium Laws, Appraisal and
Valuation, Redemption and Marshalling . . . . . . . . . . 60
7.4 Preferences . . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
7.5 Waiver of Cross-Default and Cross-Collateralization . . . . 61
ARTICLE 8 RELEASES OF COLLATERAL; RIGHT OF FIRST REFUSAL . . . . . . . . . . 61
8.1 Release Provisions . . . . . . . . . . . . . . . . . . . . . 61
8.1.1 Release Conditions . . . . . . . . . . . . . . . . 61
8.1.2 Definition of Property . . . . . . . . . . . . . . 62
8.1.3 Release . . . . . . . . . . . . . . . . . . . . . . 62
8.2 Right of First Refusal . . . . . . . . . . . . . . . . . . . 62
ARTICLE 9 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 63
9.1 Rights Cumulative; Waivers . . . . . . . . . . . . . . . . . 63
9.2 Lender's Action for its Own Protection Only . . . . . . . . 64
9.3 No Third Party Beneficiaries . . . . . . . . . . . . . . . . 65
9.4 Payment of Expenses, Etc . . . . . . . . . . . . . . . . . . 65
9.4.1 Payment Of Expenses . . . . . . . . . . . . . . . . 65
9.4.2 Advances Secured . . . . . . . . . . . . . . . . . 66
9.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . 66
9.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 68
9.7 No Oral Modification . . . . . . . . . . . . . . . . . . . . 70
9.8 Assignment by Lender . . . . . . . . . . . . . . . . . . . . 70
9.8.1 Assignment . . . . . . . . . . . . . . . . . . . . 70
9.8.2 Participations . . . . . . . . . . . . . . . . . . 70
9.8.3 Assignment and Acceptance . . . . . . . . . . . . . 71
9.8.4 Other Business . . . . . . . . . . . . . . . . . . 71
9.8.5 Privity of Contract . . . . . . . . . . . . . . . . 71
9.8.6 Availability of Records . . . . . . . . . . . . . . 71
9.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . 71
9.10 No Assignment by Borrower . . . . . . . . . . . . . . . . . 72
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 72
9.12 Successors and/or Assigns . . . . . . . . . . . . . . . . . 72
9.13 Entire Contract . . . . . . . . . . . . . . . . . . . . . . 72
9.14 Liability . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.15 Counterparts; Headings . . . . . . . . . . . . . . . . . . . 72
9.16 Time of the Essence . . . . . . . . . . . . . . . . . . . . 72
9.17 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.17.1 No Subsequent Consent . . . . . . . . . . . . . . 72
9.17.2 Withholding of Consent . . . . . . . . . . . . . . 73
9.18 No Partnership . . . . . . . . . . . . . . . . . . . . . . . 73
9.19 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . 74
9.20 Limitation on Liability . . . . . . . . . . . . . . . . . . 74
9.21 Jurisdiction, Venue, Service of Process . . . . . . . . . . 74
9.22 Appointment of Agent for Service of Process . . . . . . . . 75
9.23 Rule of Construction . . . . . . . . . . . . . . . . . . . . 75
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C> <C>
9.24 Further Assurances . . . . . . . . . . . . . . . . . . . . . 75
9.25 Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.26 Placement of Loan . . . . . . . . . . . . . . . . . . . . . 76
9.26.1 Loan Pool. . . . . . . . . . . . . . . . . . . . . 76
9.26.2 Rating Agency Requirements . . . . . . . . . . . . 76
9.26.3 Disclosure; Indemnification . . . . . . . . . . . 78
9.26.4 Trustee . . . . . . . . . . . . . . . . . . . . . 79
9.26.5 Information Access . . . . . . . . . . . . . . . . 79
9.26.6 Time of Transfer or Placement . . . . . . . . . . 79
9.27 Disclosure of Information By Lender . . . . . . . . . . . . 79
ARTICLE 10 SPECIAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 80
10.1 Tax and Insurance Escrow . . . . . . . . . . . . . . . . . . 80
10.1.1 Tax and Insurance Deposits . . . . . . . . . . . . 80
10.1.2 Payment of Taxes and Insurance Premiums . . . . . 80
10.1.3 Application upon Event of Default . . . . . . . . 81
10.1.4 Reliance . . . . . . . . . . . . . . . . . . . . . 81
10.1.5 No Third Party Beneficiary . . . . . . . . . . . . 81
</TABLE>
<TABLE>
<S> <C>
SCHEDULES
- ---------
Schedule A Approved Loans
EXHIBITS
Exhibit A Form of Loan Supplement
Exhibit B Form of Mortgage Note
Exhibit C Form of First Mortgage
Exhibit D Form of Second Mortgage
Exhibit E Form of Environmental Indemnity
Exhibit F-1 Form of Corporate Opinion
Exhibit F-2 Form of Local Counsel Opinion
</TABLE>
vi
<PAGE> 8
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "AGREEMENT") is made as of the 19th day of
December, 1997 between CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, a
Delaware limited liability company ("Lender"), and SILVERLEAF RESORTS, INC., a
Texas corporation ("BORROWER").
RECITALS
A. Borrower has acquired or shall acquire each of the Properties (as
hereinafter defined) for the purpose of owning, developing and operating
timeshare resort developments in a manner similar to the timeshare resort
developments currently owned and operated by Borrower.
B. Borrower has requested that Lender make available to Borrower a
non-revolving credit facility in the aggregate principal sum of up to Ten
Million and 00/100 Dollars ($10,000,000.00) to be used by Borrower for the
purpose of financing and/or refinancing certain of the development and
acquisition costs for each of the Properties.
C. Lender has advised Borrower that, subject to the terms of this
Agreement and the documents to be executed in connection herewith, and based
upon the representations, warranties, covenants and undertakings of Borrower
herein and therein contained, Lender is willing to make the Loans (as
hereinafter defined) to Borrower on the terms and conditions set forth herein.
D. It is the intention of the parties that, notwithstanding that
Borrower owns each of the Properties, all of the Loan Obligations (as
hereinafter defined) of Borrower under this Agreement, the Loan Documents and
the Facility Documents (as each such term is hereinafter defined) shall be
secured by first and second mortgage or deed of trust liens on each of the
Properties and by other collateral and agreements, as more particularly set
forth in this Agreement.
NOW, THEREFORE, in consideration of the above premises and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Lender and Borrower hereby agree as follows:
ARTICLE 1
PARTICULAR TERMS; DEFINITIONS
For all purposes of this Agreement, the following terms shall have the
respective meanings hereinafter specified, such definitions to be applicable
equally to the singular and plural forms of such terms:
"ACM" shall mean asbestos-containing materials.
<PAGE> 9
"AFFILIATE" shall mean, with respect to a specified Person, (i) a
Person who, directly or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with, the specified
Person, (ii) any Person who is an officer, director, partner, manager,
employee, or trustee of, or serves in a similar capacity with respect to, the
specified Person or of which the specified Person is an officer, partner,
manager or trustee, or with respect to which the specified Person serves in a
similar capacity, (iii) any Person who, directly or indirectly, has an
Ownership Interest in the specified Person, (iv) any Person in which the
specified Person has an Ownership Interest, (v) the spouse, issue, or parent of
the specified Person, and (vi) any Person which would constitute an Affiliate
of any such Person described in clauses (i) through (v) above.
"AFFIRMATIVE COVENANT" shall mean a promise or covenant by any Person
to perform, act, suffer, permit or consent to.
"AGGREGATE LOAN AMOUNT" shall mean, as of any date of determination,
the aggregate Loan Amount of all Loans which have been made on or before such
date.
"AGREEMENT" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"APPROVED ACCOUNTANT" shall mean one of the so-called "Big Six"
accounting firms or such other independent certified public accountant of
nationally recognized standing selected by the Person required to deliver the
applicable Financial Statements and other reports specified herein, which
Approved Accountant shall be approved by Lender.
"APPROVED BUDGET" shall have the meaning ascribed to such term in
Section 6.14.1 (d) hereof.
"APPROVED LEASES" shall mean all Leases entered into after the date of
this Agreement in accordance with Section 6.6 hereof.
"ASSIGNEES" shall have the meaning ascribed to such term in Section
9.8.1, hereof.
"BANKRUPTCY CODE" shall mean Title 11 of the United States Code, 11
U.S.C. Section 101 et seq., as amended.
"BASE RATE" shall mean the rate per annum equal to,
(i) during the period prior to the Scheduled Maturity Date,
three percent (3.0%) in excess of the then applicable Treasury Rate,
or
(ii) during the period on and after the Maturity Date, seven
percent (7.0%) in excess of the then applicable Treasury Rate.
2
<PAGE> 10
"BEST KNOWLEDGE" OR "KNOWLEDGE" shall mean, for the purpose of this
Agreement and the other Loan Documents and Facility Documents, the actual
knowledge of the Person in question, after having made due inquiry. If any
entity with respect to which this term would be applicable is a corporation,
knowledge of such entity shall refer to actual knowledge of its officers or
directors, after having made due inquiry. If any such entity is a partnership,
knowledge of such entity shall refer to actual knowledge of each of its
partners who participates in the management of such partnership (directly or
indirectly), after having made due inquiry. If any such entity is a limited
liability company, knowledge of such entity shall refer to actual knowledge of
its managing members, after having made due inquiry.
"BORROWER" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"BORROWER'S MINIMUM EQUITY" shall have the meaning ascribed to such
term in Section 4.8 hereof.
"CAPITAL ADEQUACY EVENTS" shall have the meaning ascribed to such term
in Section 2.10(d) hereof.
"CAPITAL OFFERING" shall mean any public offering by Borrower of its
securities or any bond offering by Borrower; provided, however, that should
Borrower transfer its business and assets, or any Ownership Interests in
Borrower to another non-natural Person of which it shall retain control
(notwithstanding that such transfer is not permitted hereunder), the term
Capital Offering shall mean any public offering of the securities of such
Person or any bond offering by such Person.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601, et seq.), as the same
may be amended from time to time.
"CERTIFICATES" means the securities issued in connection with a
Securitization of the Loans.
"CHANGE OF CONTROL" shall be deemed to have occurred at such time
after the date of this Agreement as a "person" or "group" (within the meaning
of Sections 13 (d) and 14 (d) (2) of the Securities Exchange Act of 1934),
other than a Person who has filed a Schedule 13(d) with the Securities and
Exchange Commission on or prior to the date of this Agreement (but only as to
the stock of Borrower that such Person holds as of the date of this Agreement),
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of more than 5% of the total
voting power of all classes of stock then outstanding of Borrower normally
entitled to vote in the election of directors. Notwithstanding anything to the
contrary set forth herein, if any stock or other interest in Borrower or right
to manage Borrower shall have been pledged or otherwise given as security
prior to the date of this Agreement, a Change of Control shall be deemed to
have occurred upon the exercise of any rights or remedies under or in
connection with such pledge or other security arrangement which results in such
stock or other interest or the right to manage being foreclosed or otherwise
being finally vested in another Person.
3
<PAGE> 11
"CLAIM" shall have the meaning ascribed to such term in Section 9.5(b)
hereof.
"CLOSING DATE" shall mean, for each Loan, the date of disbursement by
Lender to or for the account of Borrower of the Funding Amount of such Loan.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COLLATERAL" shall have the meaning ascribed to such term in Section
3.2 hereof.
"COMMITMENT" shall mean the obligation of Lender to make Loans in an
aggregate principal sum up to, but not exceeding, Ten Million and 00/100
Dollars ($ 10,000,000.00).
"COMMITMENT TERMINATION Date" shall mean the earliest to occur of (i)
December 19, 1998, or (ii) such date as there shall have occurred (A) an Event
of Default hereunder and the Commitment shall have terminated in the manner
specified in Section 7.2(a) hereof, or (B) a prepayment of the Loans in
accordance with,Section 2.11.1 (b) hereof.
"COMMON ELEMENTS" shall mean all common elements at the Property
including, but not limited to, any limited common element, as each such common
element is defined or provided for in the Declaration or other Timeshare
Document.
"CONTROL" (AND THE CORRELATIVE TERMS "CONTROLLED BY" AND
"CONTROLLING") shall mean the power to direct the business and affairs of the
Person in question by reason of the ownership of beneficial interests, by
contract or otherwise.
"CORRECTIVE WORK" shall mean the removal, relocation, elimination,
remediation, encapsulation or any other treatment of Hazardous Substances of or
from all or any portion of any Property or any other property owned and/or
leased by Borrower and, to the extent thereby required, the reconstruction and
rehabilitation of such Property or any other property owned and/or leased by
Borrower performed by any Person including, without limitation, Borrower,
Lender, any other Indemnified Party, any of their respective agents,
contractors, subcontractors, employees, or any Governmental Authority for any
reason, including, without limitation, pursuant to any Environmental Laws.
"COSTS"' shall mean all out-of-pocket expenditures and expenses which
may be paid or incurred by or on behalf of Lender in connection with the
preparation, negotiation and enforcement of this Agreement and the other Loan
Documents and Facility Documents, including payments to remove or protect
against liens, attorneys' fees, receivers' fees, engineers' fees, accountants'
fees, appraisal fees, independent consultants' fees (including environmental
consultants), servicing fees, all costs and expenses incurred in connection
with any of the foregoing, Lender's out-of-pocket costs and expenses related to
any audit or inspection of any Property, outlays for documentary and expert
evidence, stenographers' charges, stamp taxes, publication costs, repair costs
and costs (which may be estimates as to items to be expended after entry of an
order or judgment) for procuring all such abstracts of title, title and Uniform
Commercial Code searches and examinations, title insurance policies, Torrens'
Certificates and similar data and assurances with respect to title as
4
<PAGE> 12
Lender may deem reasonably necessary either to prosecute any action or to
evidence to bidders at any foreclosure sale of any Property the true condition
of the title to, or the value of, such Property.
"DECLARATION" OR "DECLARATIONS" shall mean with respect to each
Resort, the applicable declaration filed by Borrower on the land records where
such Resort is located, submitting the Property described therein to a time
share form of vacation ownership.
"DEFAULT" shall have the meaning ascribed to such term in Section 7.1
hereof.
"DEFAULT RATE" shall have the meaning ascribed to such term in Section
2.12 hereof. In no event shall the Default Rate exceed the maximum interest
rate permitted under applicable law.
"DESIGNATED OFFICER" shall mean (i) if Borrower is a corporation, the
chief financial officer of such corporation or such other officer of such
corporation as is fully familiar with the financial affairs of Borrower and is
approved by Lender, (ii) if Borrower is a partnership, such officer of
Borrower's managing general partner as satisfies the first sentence of this
definition, or (iii) if Borrower is a limited liability company, such officer
of Borrower's managing member as satisfies the first sentence of this
definition.
"DESIGNEE" shall have the meaning specified in Section 9.22 hereof.
"DISCLOSED VIOLATIONS" shall have the meaning ascribed to such term in
Section 5.6(a) hereof.
"DISCLOSURE DOCUMENT" shall have the meaning ascribed to such term
in Section 9.26.3 hereof.
"DISQUALIFIED PERSON" shall have the meaning ascribed to such term in
Section 5.25 hereof.
"DOLLAR" or "$" shall mean lawful money of the United States of
America.
"DOMESTIC BUSINESS DAY" shall mean any day except a Saturday, Sunday
or other day on which commercial banks are required or permitted by law to
close in New York City.
"EASEMENT" shall have the meaning ascribed to such term in Section
5.14 hereof
"ENVIRONMENTAL COSTS" shall mean incurred and potential damages,
losses, liabilities, costs and expenses of Corrective Work, any other clean-up
or response costs (which, without limitation, shall include costs to cause any
Property or any other property owned and/or leased by Borrower to come into
compliance with Environmental Laws), investigation costs (including fees of
consultants, counsel and other experts in connection with any environmental
investigation, testing, audits or studies), and any other incurred or potential
obligations, penalties, fines,.impositions, fees, levies, lien removal or
bonding costs, claims, litigation, demands, causes of action (including,
without limitation, any reduction in the value of such Property or other
property owned and/or leased by Borrower) damages (including any actual,
punitive or consequential
5
<PAGE> 13
damages under any disbursements or expenses of any kind and nature whatsoever
(including, without limitation, attorneys' and experts' or other consultants'
reasonable fees and disbursements incurred in connection with any of the
matters with respect to which Lender is indemnified hereunder or under any
other Loan Agreement), including interest thereon.
"ENVIRONMENTAL LAWS" shall mean CERCLA; The Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq.; The Hazardous Substances
Transportation Act, 42 U.S.C. Section 9601, et seq.; The Emergency Planning &
Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001, et seq.; The Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq.; The Clean Air Act, 42
U.S.C. Section 7401 et seq.; The Clean Water Act, 33 U.S.C. Section 1251 et
seq.; The Safe Drinking Water Act, 42 U.S.C. Section 201 et seq.; as any of the
foregoing may be amended from time to time; and any other federal, state and
local laws or regulations, codes, statutes, orders, decrees, guidance documents,
judgments or injunctions, now or hereafter issued, promulgated, approved or
entered thereunder, relating to pollution, contamination or protection of the
environment, including, without limitation, laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes into the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata, buildings or facilities) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes.
"ENVIRONMENTAL MATTER" shall mean any matter arising out of, relating
to, or resulting from pollution, contamination or protection of the environment
(including natural resources), and any matters relating to emission, discharge,
release or threatened release, of Hazardous Substances into the air (indoor and
outdoor), surface water, ground water, soil, land surface or subsurface,
buildings or facilities or otherwise arising out of, relating to, or resulting
from the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, handling, release or threatened release of Hazardous
Substances.
"ENVIRONMENTAL REPORT" shall have the meaning ascribed to such term in
Section 4.11 hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the regulations promulgated thereunder from time to time.
"EURODOLLAR BUSINESS DAY" shall mean any Domestic Business Day on
which commercial banks are open for international business (including dealings
in dollar deposits) in London, England.
"EVENT OF DEFAULT" shall have the meaning ascribed to such term in
Section 7.1 hereof.
"EXCESS INTEREST" shall have the meaning ascribed to such term in
Section 2.13 hereof.
"EXCHANGE ACT" shall mean the Securities and Exchange Act of 1934, as
amended.
6
<PAGE> 14
"EXERCISE NOTICE" shall have the meaning ascribed to such term in
Section 8.2 hereof.
"FACILITY COLLATERAL" shall have the meaning ascribed to such term in
Section 3.2 hereof.
"FACILITY DOCUMENTS" shall have the meaning ascribed to such term in
Section 3.1.2 hereof.
"FACILITY OBLIGATIONS" shall have the meaning ascribed to such term in
Section 3.1.2 hereof.
"FINANCIAL STATEMENTS" shall mean the financial statements and other
documentation required to be delivered pursuant to Section 6.14 hereof.
"FINANCING NOTICE" shall have the meaning ascribed to such term in
Section 8.2 hereof.
"FIRST MORTGAGE" shall have the meaning ascribed to such term in
Section 4.5 hereof.
"FUNDING AMOUNT" shall mean, in respect of any Loan advanced
hereunder, an amount equal to not more than sixty-five percent (65%) of the
Property Capitalization of the Property for which such Loan is being advanced
as calculated and set forth in the Loan Supplement for such Loan.
"FUNDING LOSSES" shall have the meaning ascribed to such term in
Section 2.10(a) hereof.
"FUNDING PARTY" shall mean any bank or other entity, if any, which is
indirectly or directly funding Lender with respect to the Loan, in whole or in
part, including, without limitation, any direct or indirect assignee of, or
participant in, any of the Loans.
"GOVERNMENTAL AUTHORITY" shall mean the United States, the State and
City where the applicable Property is located and any political subdivision of
any of the foregoing, and any agency, department, commission, board, court,
bureau or instrumentality of any of them, or any securities exchange.
"HAZARDOUS SUBSTANCES" shall mean asbestos, ACM, PCBs,
urea-formaldehyde and urea-formaldehyde foam insulation, nuclear fuel or waste,
petroleum products and any hazardous waste, toxic substance, related
components, related constituents, pollutant or contaminant, including, without
limitation, any substance defined or treated as a "hazardous substance",
"extremely hazardous substance" or "toxic substance" (or comparable term) in
any applicable Environmental Law and any other material, which may give rise to
Environmental Costs.
"IMPROVEMENTS" shall mean the buildings, improvements and structures
situated on or appurtenant to any Property.
"INDEBTEDNESS" shall mean any and all liabilities and obligations
owing by any Person to any Person, including principal, interest, charges,
fees, reimbursements and expenses, however
7
<PAGE> 15
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured,
original, renewed or extended, (i) in respect of any borrowed money (whether by
loans, the issuance and sale of debt securities or the sale of any property to
another Person subject to an understanding, agreement, contract or otherwise to
repurchase such property) or for the deferred purchase price of any property or
services (other than trade accounts payable or accrued expenses that are or
would be incurred in the ordinary course of business ("TRADE PAYABLES") and
payable within thirty (30) days), (ii) as lessee under any leases which shall
have been or should be, in accordance with generally accepted accounting
principles, recorded as capital leases, (iii) under direct or indirect
guarantees and obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise assure any creditor against loss in respect of the
obligations of others, (iv) in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for
the account of such indebted Person, or (v) in respect of unfunded vested
benefits under plans covered by ERISA or any similar liabilities to, for the
benefit of, or on behalf of, any employees of such indebted Person.
"INDEMNIFIED PARTIES" shall mean each of Lender, the Affiliates of
Lender and the Participants and their respective successors, assigns, partners,
members, shareholders, officers, directors, employees, agents and attorneys.
"INSOLVENT" shall mean (i) the inability of a Person to pay its debts
as they become due and/or (ii) the fair value of such Person's debts is greater
than the fair value of such Person's assets.
"INTEREST ACCRUAL PERIOD" shall mean, with respect to any Payment
Date, the calendar month preceding such Payment Date, provided, however, that
no Interest Accrual Period shall end later than the Maturity Date (other than
for purposes of calculating interest at the Default Rate), and the initial
Interest Accrual Period shall begin on the date of this Agreement.
"INTERVAL" shall mean with respect to each Resort, the undivided
fractional fee simple interval ownership interest as a tenant-in-common
(sometimes referred to in the Timeshare Documents as a "Vacation Ownership
Interest") in a Unit sold to a third party purchaser by delivery of a warranty
deed, for a time-share period (sometimes referred to in the Timeshare Documents
as a "Use Period") per calendar year of one week, together with all appurtenant
rights and interests, including, without limitation, appurtenant rights in and
to the Common Elements, and Easements and other use rights in and to all Resort
facilities and amenities all as more particularly described in the Declaration
or other Timeshare Documents.
"LAW CHANGE" shall have the meaning ascribed to such term in Section
2.14(c) hereof.
"LEASE" shall mean any lease now or hereafter on or affecting any
Property, or any part thereof, whether written or oral, and all licenses and
other agreements for the use and/or occupancy of any Property, or any part
thereof, as the same shall have been or shall hereafter be amended.
"LEGAL REQUIREMENT" shall mean any law, statute, ordinance, order,
rule, regulation, decree or other requirement of a Governmental Authority, and
all conditions of any Permit.
8
<PAGE> 16
"LENDER" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"LENDER'S COUNSEL" shall mean Brown Raysman Millstein Felder & Steiner
LLP, located in New York, New York, and any other law firm acting as counsel to
Lender.
"LENDER'S COUNSEL FEES" shall mean all reasonable fees and
disbursements of Lender's Counsel.
"LENDER'S PROPOSED FINANCING" shall have the meaning ascribed to such
term in Section 8.2 hereof
"LIBOR" shall mean, with respect to any Interest Accrual Period, the
rate per annum (rounded upwards, if necessary, to the nearest one-sixteenth
(1/16th) of one percent (1%)) reported, with respect to the initial Interest
Accrual Period, at 11:00 a.m. London time on the date of this Agreement (or if
such date is not a Eurodollar Business Day, the immediately preceding
Eurodollar Business Day), and thereafter, at 11:00 a.m. London time on the date
two (2) Eurodollar Business Days prior to the first day of such Interest
Accrual Period, on Telerate Access Service Page 3750 (British Bankers
Association Settlement Rate) as the non-reserve adjusted London Interbank
Offered Rate for U.S. dollar deposits having a thirty (30) day term and in an
amount of $1,000,000 or more (or on such other page as may replace Telerate
Page 3750 on that service or such other service or services as may be nominated
by the British Bankers Association for the purpose of displaying such rate, all
as determined by Lender in its sole but good faith discretion). In the event
that (i) more than one such LIBOR is provided, the average of such rates shall
apply or (ii) no such LIBOR is published, then LIBOR shall be determined from
such comparable financial reporting company as Lender in its sole but good
faith discretion shall determine. LIBOR for any Interest Accrual Period shall
be adjusted from time to time by increasing the rate thereof to compensate
Lender and any Funding Party for any aggregate reserve requirements (including,
without limitation, all basic, supplemental, marginal and other reserve
requirements and taking into account any transitional adjustments or other
scheduled changes in reserve requirements during any Interest Accrual Period)
which are required to be maintained by Lender or such Funding Party with
respect to "Eurocurrency Liabilities" (as presently defined in Regulation D of
the Board of Governors of the Federal Reserve System) of the same term under
Regulation D, or any other regulations of a Governmental Authority having
jurisdiction over Lender or such Funding Party of similar effect.
"LIBOR INTEREST RATE" shall mean, with respect to any Interest Accrual
Period, the floating rate per annum equal to three percent (3.0%) in excess of
LIBOR for such Interest Accrual Period.
"LIENS" shall have the meaning ascribed to such term in Section 6.3
hereof.
"LOAN" shall mean a non-revolving credit loan made in respect of a
Property in accordance with the terms hereof (collectively, the "LOANS").
9
<PAGE> 17
"LOAN AMOUNT" shall mean, in respect of any Loan, the original maximum
principal amount of such Loan, whether or not ultimately advanced to Borrower.
"LOAN COLLATERAL" shall have the meaning ascribed to such term in
Section 3.2 hereof.
"LOAN DOCUMENTS" shall have the meaning ascribed to such term in
Section 4.5 hereof.
"LOAN INTEREST" shall have the meaning ascribed to such term in
Section 9.26.1 hereof.
"LOAN OBLIGATIONS" shall have the meaning ascribed to such term in
Section 3.1.1 hereof.
"LOAN POOL" shall have the meaning ascribed to such term in Section
9.26.1 hereof.
"LOAN REQUEST" shall have the meaning ascribed to such term in Section
2.2.1 hereof.
"LOAN SERVICER" shall have the meaning ascribed to such term in
Section 2.15 hereof.
"LOAN SERVICING FEE" shall have the meaning ascribed to such term in
Section 2.15 hereof.
"LOAN SUPPLEMENT" or "LOAN SUPPLEMENTS" shall have the meaning
ascribed to such term in Section 2.2.1 hereof.
"LOAN TAXES" shall have the meaning ascribed to such term in section
2.14(a) hereof.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (i)
the ability of Borrower to perform its material obligations under any of the
Loan Documents and/or Facility Documents, including, without limitation, the
timely payment of principal of or interest on any Loan or other amounts payable
in connection therewith by Borrower, (ii) the validity or enforceability of any
of the Loan Documents and/or Facility Documents by or against Borrower, (iii)
the rights and remedies of Lender under any of the Loan Documents and/or
Facility Documents, or (iv) without limiting the foregoing, any Property or any
use or occupancy thereof and/or the Collateral and the priority of the Liens
thereon in favor of Lender.
"MATURITY DATE" shall mean the day which is the earlier to occur of
(i) the Scheduled Maturity Date or (ii) the date on which payment of the Loans
shall have been accelerated pursuant to the terms of this Agreement.
"MORTGAGES" shall have the meaning ascribed to such term in Section
4.5 hereof.
"NEGATIVE COVENANT" shall mean a promise or covenant by any Person not
to act, perform, suffer, permit or consent to.
"NOTE" or "NOTES" shall have the meaning set forth in Section 2.6
hereof.
10
<PAGE> 18
"NOTICES" shall have the meaning ascribed to such term in Section 9.6
hereof.
"OBLIGATED PARTY" shall have the meaning ascribed to such term in
Section 7.2(b)(i) hereof.
"OFFICER'S CERTIFICATE" shall mean a certificate delivered to Lender
and signed by the Designated Officer of Borrower. Any Officer's Certificate
shall be based on the actual knowledge, upon due inquiry, of the officer
executing the same and shall contain a statement by such officer that (i) in
the ordinary course of the performance of his duties he would normally obtain
knowledge of, or (ii) he has made such inquiry as in his judgment is reasonably
sufficient to obtain knowledge of, the existence of any condition or event
necessary to make the statement(s) otherwise set forth in such Officer's
Certificate.
"ORGANIZATIONAL DOCUMENTS" shall mean, with respect to any Person who
is not a natural person, the certificate or articles of incorporation,
memorandum of association, articles of association, trust agreement, by-laws,
partnership agreement, limited partnership agreement, certificate of
partnership or limited partnership, limited liability company articles of
organization, limited liability company operating agreement or any other
organizational document, and all shareholder agreements, voting trusts and
similar arrangements with respect to its stock, partnership interests,
membership interests or other equity interests.
"OUTSTANDING PRINCIPAL BALANCE" means, as of any date with respect to
any Loan made to Borrower hereunder, the outstanding principal balance of such
Loan.
"OWNERSHIP INTEREST" shall mean, with respect to any Person, ownership
of the right to profits and losses of, and/or the right to exercise voting
power to elect directors, managers, operators or other management of, or
otherwise to affect the direction of management, policies or affairs of, such
Person, whether through ownership of securities or partnership, membership or
other interests therein, by contract or otherwise.
"PARTICIPANTS," shall have the meaning ascribed to such term in
Section 9.8.2. hereof.
"PARTY IN INTEREST" shall have the meaning ascribed to such term in
Section 5.25(a) hereof.
"PAYMENT DATE" shall mean February 1, 1998 and the first day of each
month thereafter during the Term.
"PCBs" shall mean polychlorinated biphenyls.
"PERMIT" shall mean all approvals, consents, registrations,
franchises, permits, licenses, variances, certificates of occupancy and other
authorizations with regard to zoning, landmark, ecological, environmental, air
quality, subdivision, planning, building or land use required by the applicable
Governmental Authority for the construction, lawful occupancy and operation of
the improvements on any Property and the actual and contemplated uses thereof.
11
<PAGE> 19
"PERMITTED ENCUMBRANCES" shall mean those interests encumbering all or
any portion of any Property, which interests are set forth on Schedule B of the
Title Policy in respect of such Property or which have otherwise been disclosed
in writing to Lender or are hereafter consented to by Lender in writing.
"PERMITTED TRANSFERS" shall have the meaning ascribed to such term in
Section 6.2(e) hereof.
"PERSON" shall mean any individual, partnership, corporation
(including a business trust), limited liability company, joint stock company,
estate, trust, unincorporated association, joint venture or other entity or a
government or an agency or political subdivision thereof.
"PLACEMENT PARTY" shall have the meaning ascribed to such term in
Section 9.26.1 hereof.
"PROHIBITED TRANSACTION" shall mean a prohibited transaction as
described under Section 406 of ERISA or Section 4975 of the Code which is not
the subject of a statutory exemption under Section 408(b) of ERISA or an
administrative exemption granted pursuant to Section 408(a) of ERISA.
"PROPERTY" shall mean any parcel or parcels of real property and the
related Improvements owned and/or leased by Borrower, which are either vacant
land or used as a campground and/or Resort, and which are encumbered by the
Mortgages as Collateral for the Loan Obligations and/or Facility Obligations
(collectively, the "PROPERTIES").
"PROPERTY CAPITALIZATION" shall mean, in respect of any Property, the
total costs and expenses incurred by Borrower to acquire and finance such
Property, as determined by Lender in its sole discretion, including, without
limitation, the purchase price and any Soft Costs.
"PROPOSED FINANCING" shall have the meaning ascribed to such term in
Section 8.2 hereof.
"RATING AGENCIES" shall mean (i) any nationally-recognized statistical
rating organizations that provide a rating on any of the Certificates on the
date of issuance of such Certificates, or (ii) prior to the issuance of the
Certificates, Standard & Poor's Rating Group, a division of The McGraw Hill
Corporation, and any other nationally-recognized statistical rating
organization that has been designated by Lender in its sole discretion.
"RELEASE" shall have the meaning ascribed to such term in Section
8.1.1 hereof.
"RELEASE CONDITIONS" shall have the meaning ascribed to such term in
Section 8.1.1 hereof.
"RELEASE PRICE" shall have the meaning ascribed to such term in
Section 8.1.1(c) hereof.
"RELEASE REQUEST" shall have the meaning ascribed to such term in
Section 8.1.1(a) hereof
12
<PAGE> 20
"RESORT" or "RESORTS" shall mean, as applicable, each or all of the
vacation ownership, interval ownership and time-share projects existing or to
be developed at each of the Properties, consisting of, among other things,
Units and Intervals now existing or hereafter added, in one or more buildings
or phases and all related Common Elements and appurtenances, together with all
related or appurtenant properties, amenities, facilities, equipment,
appliances, fixtures, Easements, and other rights and interests as established
by and more fully described in the applicable Declaration and other Timeshare
Documents, as the same may be amended from time to time.
"RESPA" shall have meaning ascribed to such term in Section 5.40
hereof.
"SCHEDULED MATURITY DATE" shall mean January 1, 2000.
"SECOND MORTGAGE" shall have the meaning ascribed to such term in
Section 4.5 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SECURITIZATION" shall have the meaning ascribed to such term in
Section 9.26.1 hereof.
"SECURITIZATION INDEMNIFICATION" shall have the meaning ascribed to
such term in Section 9.26.3 hereof.
"SECURITIZATION INDEMNIFIED PARTY" shall have the meaning ascribed to
such term in Section 9.26.3 hereof.
"SOFT COSTS" shall mean, in respect of any Property, the total "soft"
costs and expenses incurred by Borrower to acquire and finance such Property
set forth on the Loan Supplement for such Property, as determined by Lender in
its sole discretion, including, without limitation, the title search fees and
premiums, survey fees, brokerage commissions, attorneys fees and expenses, the
costs incurred for the preparation of engineering, environmental, marketing and
other due diligence reports in anticipation of such purchase and financing of
such Property (including any such costs incurred with respect to the Loan for
such Property), which costs shall not exceed $100,000.00 in the aggregate for
each Property.
"SURVEY" shall have the meaning ascribed to such term in Section 4.10
hereof.
"TANGIBLE ASSETS" shall mean, as to any Person at any particular date,
all amounts that would be included as assets on a consolidated balance sheet of
such Person and its subsidiaries as of such date, computed in accordance with
generally accepted accounting principles, consistently applied, minus without
duplication (a) the amount of any Indebtedness owed to such Person by any
Affiliate of such Person, (b) the value of any intangible assets (including any
value attributable to goodwill, organizational expenses, trademarks, tradenames
and similar intellectual property rights, franchises, licenses and other items
which would properly be treated as intangible in accordance with generally
accepted accounting principles, consistently applied, (c) all reserves, prepaid
expenses, deferred charges or unamortized debt discount and expense (except
those paid or incurred
13
<PAGE> 21
in the ordinary course of business), (d) without duplication of amounts
allocable to assets already excluded therefrom in accordance with generally
accepted accounting principles, consistently applied, the value of any other
securities of, capital contributions to, or investments in any Affiliate of
such Person unless publicly traded, readily marketable, or capable of
independent valuation, but such securities shall not fail to be readily
marketable because of, for example, restrictions on transfer or other
requirements of law where such restrictions or requirements are reasonably
taken into consideration in determining the value thereof), and (e) any write-
up in the book value of any asset (other then readily marketable securities)
resulting from a revaluation thereof subsequent to such Person's fiscal year
end for the most recent fiscal year of such Person.
"TANGIBLE CONSOLIDATED NET WORTH" shall mean, at any particular date,
an amount equal to the excess of all of Borrower's Tangible Assets over all
amounts that would be included as liabilities on a balance sheet of Borrower as
of such date, computed on a consolidated basis in accordance with generally
accepted accounting principles, consistently applied.
"TAXES" shall have the meaning ascribed to such term in the Mortgages.
"TERM" shall mean the period commencing on the date hereof and ending
on the date on which the entire Outstanding Principal Balance of all Loans and
all other sums that shall be due and payable to Lender hereunder and under any
of the other Loan Documents and Facility Documents, shall be paid in full to
Lender.
"TIMESHARE ACT" shall mean, collectively, those certain timeshare acts
or other laws, if any, as the same may be amended from time to time, and any
rules and regulations promulgated thereunder, and any subsequent statutes that
may be enacted pertaining to the development, establishment, existence, or
operation of interval ownership, timeshare membership or vacation ownership or
membership resorts or any matter whatsoever relating thereto in the states
where each of the Resorts are located, including, but not limited to, Nevada,
Illinois, Missouri and Texas.
"TIMESHARE DOCUMENTS" shall mean all of the documents relating to each
of the Resorts and the creation, marketing and sale of Intervals thereat,
respectively, including:
(i) The registration statements, if required, to be filed
with each of the states in which a Resort is located approving the
establishment and operation of the Resorts and the sale of Intervals;
(ii) The Declaration and all amendments establishing and
describing the timeshare state status of the Units and Intervals, and
all amenities, services, and the Common Elements and areas related or
appurtenant thereto and any other declarations, covenants, conditions
and restrictions encumbering the Resorts;
(iii) The rules and regulations of the Resorts;
14
<PAGE> 22
(iv) Other registrations, approvals and permits for the
creation and sale of Intervals and the operation of the Resorts,
including, without limitation, samples of all advertising and
promotional materials;
(v) The Organizational Documents of any Timeshare Owner's
Association, together with its certificate of good standing if the
Timeshare Owner's Association is an incorporated association;
(vi) All agreements entered into, by or on behalf of the
Timeshare Owner's Association, including, but not limited to,
agreements with Borrower or any Affiliate thereof related to marketing
management, operations and maintenance of the Resorts and agreements
with purchasers of Intervals; and
(vii) The form of all documents used to market and sell
Intervals or that govern the rights of purchasers thereof, including,
without limitation, purchase contacts, advertising materials, notes
receivable, truth-in-lending and RESPA disclosure statements,
purchaser's acknowledgments, grant deeds, mortgages or deeds of trust,
reservation agreements, subsidy agreements, management agreements,
warranties, space leases, equipment leases or other personal property
financing arrangements, if any.
"TIMESHARE OWNER'S ASSOCIATION" shall mean, with respect to each
Resort, those nonstock not-for-profit corporations, whose members are Interval
owners, which are organized to administer the Resort, including, without
limitation, those not-for-profit corporations set forth on each Loan
Supplement.
"TIMESHARE PROPERTY" shall mean any Property which has an existing
Resort located thereon.
"TITLE COMPANY" shall have the meaning ascribed to such term in
Section 4.9 hereof.
"TITLE POLICY" shall have the meaning ascribed to such term in Section
4.9 hereof.
"TRADE PAYABLES" shall have the meaning ascribed to such term in the
definition of "Indebtedness" above.
"TRANSFER" shall have the meaning specified in Section 6.2 hereof.
"TREASURY RATE" shall mean, with respect to any Interest Accrual
Period, the rate per annum (rounded upwards, if necessary, to the nearest one-
sixteenth (1/16th) of one percent (1%)) reported, with respect to the initial
Interest Accrual Period, at 11:00 a.m. New York City time on the date of this
Agreement (or if such date is not a Domestic Business Day, the immediately
preceding Domestic Business Day), and during any Interest Accrual Period
thereafter, at 11:00 a.m. New York City time on the date two (2) Domestic
Business Days prior to the first day of each such Interest Accrual Period, on
United States Treasury Securities, adjusted to a constant maturity of one (1)
year.
15
<PAGE> 23
"U.S. PERSON" shall mean any Person that is (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created
or organized under the laws of the United States or any State thereof, or (iii)
any estate or trust that is subject to United States federal income taxation,
regardless of the source of its income.
"UNIT" shall mean, with respect to each Resort located at a Timeshare
Property, one living unit in a building incorporated into the Resort pursuant
to the Declaration, together with all related or appurtenant Common Elements
and related or appurtenant interests and services, Easements and other rights
or benefits as described and provided for in the Declaration, including, but
limited to, the right to use the Resort amenities and facilities in accordance
with the Timeshare Documents.
ARTICLE 2
THE LOANS
2.1 LOANS. Subject to the terms and conditions of this Agreement,
including, without limitation, satisfaction of each of the conditions precedent
set forth in Article 4 hereof, and relying upon the representations and
warranties set forth herein and in the other Loan Documents, Lender agrees to
make Loans to Borrower in an aggregate principal amount up to, but not
exceeding, the Commitment, beginning on the date hereof and continuing through
the Commitment Termination Date. Within the limitations set forth in this
Agreement, Borrower may, from time to time, borrow and prepay (but may not
reborrow) the Loans up to the Commitment.
2.2 LOAN REQUESTS; LOAN SUPPLEMENTS.
2.2.1 SUBMISSION OF LOAN REQUESTS. At any time prior to the
Commitment Termination Date, provided no Default shall have occurred and be
continuing, Borrower shall have the right to submit to Lender requests for
Loans (each, a "LOAN REQUEST"), the aggregate principal amount of which shall
never exceed the Commitment. Each Loan Request shall include (i) a Loan
Supplement substantially in the form annexed hereto as Exhibit A (each, a "LOAN
SUPPLEMENT", and collectively, the "LOAN SUPPLEMENTS"), setting forth the terms
of the proposed Loan, (ii) evidence reasonably satisfactory to Lender that,
with respect to such Loan, the conditions precedent set forth in Article 4
hereof have been, or as of the closing of such proposed Loan will be,
satisfied, and (iii) a representation and warranty of Borrower that the
requested Loan, when added to the then existing or concurrently requested
Loans, does not exceed the Commitment. All Loans shall be in a minimum Loan
Amount of $300,000.00, and Lender shall not be obligated to fund any Loans more
often than four (4) times prior to the Commitment Termination Date. Lender
shall have ten (10) days following its receipt of each Loan Request to approve
or disapprove the proposed Loan requested therein in its sole reasonable
discretion; provided, however, that Lender's failure to so notify Borrower of
the approval or disapproval of such Loan Request shall be deemed a disapproval
of such Loan Request, but shall have no effect on any of Lender's rights or
remedies hereunder. Lender
16
<PAGE> 24
hereby approves the Loan Requests for each of the Loans set forth on Schedule A
annexed hereto. Notwithstanding Lender's approval of a Loan Request, Borrower
shall comply with all of the terms and conditions of this Agreement and the
other Loan Documents as a condition precedent to Lender advancing the requested
Loan.
2.2.2 EXECUTION AND DELIVERY OF LOAN SUPPLEMENT. Following
Lender's approval of any proposed Loan pursuant to a Loan Request, as provided
in Section 2.2.1 hereof, at any time prior to the Commitment Termination Date,
and provided that no Default shall have occurred and be continuing, upon (i)
the due execution and delivery of a completed Loan Supplement together with the
other Loan Documents contemplated herein in respect of such proposed Loan, and
(ii) the satisfaction of the conditions precedent set forth in Article 4 hereof
with respect to such proposed Loan, Lender shall advance a Loan to Borrower in
respect of the Property identified in such Loan Supplement in accordance with
and subject to the terms and conditions set forth in such Loan Supplement, this
Agreement, the other Loan Documents and such other terms and conditions as
Lender reasonably shall require.
2.3 EFFECT OF LOAN SUPPLEMENT. The execution and delivery by
Borrower of a Loan Supplement shall constitute the irrevocable acceptance,
assumption and ratification by Borrower of the terms and conditions of this
Agreement for all purposes with respect to the Loan identified in such Loan
Supplement. Each Loan to be advanced in connection with any Loan Supplement
shall constitute a separate Loan and shall incorporate therein all of the terms
and conditions of this Agreement to the same extent as if the provisions hereof
were set forth in full therein, provided that each successive Loan Supplement
shall be deemed to amend and restate the aggregate amount of Loans advanced
under all Loan Supplements.
2.4 REFERENCES. This Agreement shall constitute Lender's and
Borrower's agreement concerning, and contains all terms, covenants and
conditions applicable to, all Loans contemplated hereby, and shall also
evidence the Loan Obligations and the Facility Obligations. Accordingly, all
references in this Agreement to the terms "Loan" and "Property", in the
singular sense, shall be deemed to be a reference to each Loan provided for in
each Loan Supplement and the Property identified in such Loan Supplement
securing such Loan. All references in this Agreement to the terms "Loans" and
"Properties", in the plural sense, shall be deemed to be a reference to all
Loans provided for in all Loan Supplements and all Properties identified in all
Loan Supplements securing each Loan, in the aggregate.
2.5 DISBURSEMENT OF LOAN PROCEEDS. Not later than 4:00 P.M. New
York City Time, on the date specified in each Loan Supplement pursuant to a
Loan Request which has been approved by Lender, and so long as no Default shall
then have occurred and be continuing, Lender shall transfer to Borrower or to
such other party as Borrower shall direct, by wire transfer or otherwise as
directed by Borrower, but in any event in immediately available funds, an
amount equal to the Funding Amount relating to the Loan to be made by Lender to
Borrower pursuant to such Loan Supplement on such date.
2.6 NOTE. Each Loan shall be evidenced by a Mortgage Note of
Borrower with respect thereto (each,a "NOTE", and collectively, the "NOTES")
which shall be substantially in the
17
<PAGE> 25
form of Exhibit B annexed hereto, with such changes thereto, if any, as shall
be required to properly evidence and reflect the terms of the Loan as provided
for in the Loan Supplement for such Loan and/or to conform to the laws of the
state in which the applicable Property is located.
2.7 LOAN TERM; MATURITY DATE. Each of the Loans shall mature on
the Maturity Date, irrespective of its Closing Date, at which time the entire
Loan Obligations shall be due and payable, it being expressly understood and
agreed that the other Facility Obligations shall also mature and be due and
payable on the Maturity Date.
2.8 INTEREST RATE.
2.8.1 INTEREST RATE. Subject to the further provisions of
this Agreement, including Sections 2.12 and 2.13 hereof, the Outstanding
Principal Balance shall bear interest throughout the Term at the LIBOR Interest
Rate for any Interest Accrual Period commencing throughout the Term.
2.8.2 CALCULATION OF INTEREST. All interest payable
hereunder shall be computed on the basis of a 360-day year for the actual
number of days elapsed. In computing the number of days during which interest
accrues, the day on which funds are initially advanced shall be included
regardless of the time of day such advance is made, and the day on which funds
are repaid shall be excluded.
2.9 PAYMENTS.
2.9.1 INTEREST. Prior to the Maturity Date, interest
accruing on the Outstanding Principal Balance during each Interest Accrual
Period shall be payable by Borrower monthly in arrears on each Payment Date.
2.9.2 REPAYMENT OF OUTSTANDING PRINCIPAL BALANCE. The
entire Outstanding Principal Balance, together with all accrued and unpaid
interest thereon and all other amounts payable hereunder or under any of the
other Loan Documents and/or the Facility Documents, shall, to the extent not
sooner paid pursuant to the terms of the Notes, the other Loan Documents or the
Facility Documents, be due and payable in full on the Maturity Date.
2.9.3 GENERAL. All sums payable to Lender hereunder shall
be payable, without setoff, deduction or counterclaim, in immediately available
funds, no later than 12:00 P.M. New York City time on the date when due by wire
transfer to the following account: NationsBank, N.A., ABA Number: 101-000-035,
Account Number: 010161046526, Account Name: Midland Loan Services, L.P.,
Reference: Silverleaf Resorts, Inc., or to such other account or address as
Lender may from time to time designate in a written notice to Borrower.
Payments received by Lender in immediately available funds on any day after
12:00 P.M. New York City time shall be treated for all purposes of the Loans
as having been paid and received by Lender on the next Domestic Business Day.
Notwithstanding anything to the contrary contained herein, when any payment is
due hereunder or under any of the other Loan Documents on a day which is not a
18
<PAGE> 26
Domestic Business Day, such payment shall be made on the next succeeding
Domestic Business Day.
2.10 FUNDING LOSSES; CHANGE IN LAW, ETC.
(a) Borrower hereby agrees to pay to Lender any amount necessary
to compensate Lender and any Funding Party for any losses or costs (including,
without limitation, the costs of breaking any "LIBOR" contract, if applicable,
or funding losses determined on the basis of Lender's or such Funding Party's
reinvestment rate and the interest rate thereon) (collectively, "FUNDING
LOSSES") sustained by Lender or any Funding Party: (i) if the Loan, or any
portion hereof, is repaid for any reason whatsoever on any date other than a
Payment Date (including, without limitation, from condemnation or insurance
proceeds), (ii) upon the conversion of the interest rate on the Loan to the
Base Rate in accordance with Section 2.10(b) hereof, (iii) as a consequence of
(A) any increased costs that Lender or any Funding Party may sustain in
maintaining the borrowing evidenced hereby or (B) the reduction of any amounts
received or receivable from Borrower, in either case, due to the introduction
of, or any change in, law or applicable regulation or treaty (including the
administration or interpretation thereof), whether or not having the force of
law, or due to the compliance by Lender or the Funding Party, as the case may
be, with any directive, whether or not having the force of law, or request from
any central bank or domestic or foreign governmental authority, agency or
instrumentality having jurisdiction, and/or (iv) any other set of circumstances
not attributable to Lender's or a Funding Party's acts. Payment of Funding
Losses hereunder shall be in addition to any obligation to pay a prepayment
premium under Section 2.11 hereof in circumstances where such prepayment
premium would be due and owing.
(b) If Lender determines (which determination shall be conclusive
and binding upon Borrower, absent manifest error) (i) that Dollar deposits in
an amount approximately equal to the then Outstanding Principal Balance are not
generally available at such time in the London Interbank Market for deposits in
Eurodollars, (ii) that the rate at which such deposits are being offered will
not adequately and fairly reflect the cost to Lender or a Funding Party of
maintaining a LIBOR Interest Rate on the Loan (or the portion of the Loan being
funded by such Funding Party), or of funding the same in such market for such
Interest Accrual Period, due to circumstances affecting the London Interbank
Market generally, (iii) that reasonable means do not exist for ascertaining
LIBOR, or (iv) that the LIBOR Interest Rate would be in excess of the maximum
interest rate which Borrower may by law pay, then, in any such event, Lender
shall so notify Borrower and, as of the date of such notification with respect
to an event described in clause (ii) or (iv) above, or as of the expiration of
the applicable Interest Accrual Period with respect to an event described in
clause (i) or (iii) above, interest shall accrue at the Base Rate until such
time as the situations described above are no longer in effect, or as otherwise
provided herein; provided, however, if the situation described in clause (ii)
above occurs, (x) Borrower shall have the option, to be exercised by written
notice to Lender, to pay Lender (in the manner reasonably required by Lender)
for such increased cost of maintaining the LIBOR Interest Rate, and (y) if the
same only affects a portion of the Loan, then only such portion shall have
interest accrue at the Base Rate (provided the remaining portion is at least
$1,000,000.00), and interest shall continue to accrue on the remaining portion
at the LIBOR Interest Rate.
19
<PAGE> 27
(c) If the introduction of, or any change in, any law, regulation
or treaty, or in the interpretation thereof by any governmental authority
charged with the administration or interpretation thereof, shall make it
unlawful for Lender or any Funding Party to maintain the LIBOR Interest Rate
with respect to the Loan, or any portion thereof, or to fund the Loan, or any
portion thereof, in Eurodollars in the London Interbank Market, then, (i) the
Loans (or such portion of the Loan) shall thereafter bear interest at the Base
Rate (unless the Default Rate shall be applicable), and (ii) Borrower shall pay
to Lender the amount of Funding Losses (if any) incurred in connection with
such conversion. The accrual of interest at the Base Rate shall continue until
such Payment Date, if any, as the situation described in this Section 2.10(c)
is no longer in effect.
(d) If Lender or a Funding Party, as the case may be, shall have
determined that the applicability of any law, rule, regulation or guideline
adopted pursuant to or arising out of the July 1988 report of the Basle
Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards", or
the adoption of any other law, rule, regulation or guideline (including, but
not limited to, any United States law, rule, regulation or guideline) regarding
capital adequacy, or any change becoming effective in any of the foregoing or
in the enforcement or interpretation or administration of any of the foregoing
by any court or any domestic or foreign governmental authority, central bank or
comparable agency charged with the enforcement or interpretation or
administration thereof, or compliance by Lender or its holding company or such
Funding Party or its holding company, as the case may be, with any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the capital of Lender, Lender's
holding company, such Funding Party or such Funding Party's holding company, as
the case may be, to a level below that which Lender or its holding company or
the Funding Party or its holding company, as the case may be, could have
achieved but for such applicability, adoption, change or compliance (taking
into consideration Lender's or its holding company's or such Funding Party's or
its holding company's, as the case may be, policies with respect to capital
adequacy) (the foregoing being hereinafter referred to as "CAPITAL ADEQUACY
EVENTS"), then, upon demand by Lender, Borrower shall pay to Lender, from time
to time, such additional amount or amounts as will compensate Lender or such
Funding Party for any such reduction suffered.
(e) Any amount payable by Borrower under Section 2.10(a) or
Section 2.10(d) hereof shall be paid to Lender within five (5) days of receipt
by Borrower of a certificate signed by an officer of Lender setting forth the
amount due and the basis for the determination of such amount, which statement
shall be conclusive and binding upon Borrower, absent manifest error. Failure
on the part of Lender to demand payment from Borrower for any such amount
attributable to any particular period shall not constitute a waiver of Lender's
right to demand payment of such amount for any subsequent or prior period.
Lender shall use reasonable efforts to deliver to Borrower prompt notice of any
event described in Section 2.10(a) or 2.10(d) hereof and of the amount to be
paid under this Section 2.10 as a result thereof, provided, however, any
failure by Lender to so notify Borrower shall not affect Borrower's obligation
to make the payments to be made under this Section 2.10 as a result thereof.
All amounts which may become due and payable by Borrower in
20
<PAGE> 28
accordance with the provisions of this Section 2.10 shall constitute additional
interest hereunder and shall be secured by the Mortgages and the other Loan
Documents.
(f) If Lender or any Funding Party requests compensation for any
losses or costs to be reimbursed pursuant to any one or more of the provisions
of Sections 2.10(a)(iii), 2.10(a)(iv) or Section 2.10(d) hereof, or if any
event occurs as described in Sections 2.10(b) or 2.10(c) which would cause the
Note no longer to bear interest at the LIBOR Interest Rate then, upon request
of Borrower, Lender or such Funding Party shall use reasonable efforts, in a
manner consistent with such institution's practice in connection with loans
like the Loan, to designate a different lending office for funding or booking
the Loans or to assign its rights and obligations under this Agreement to
another of its offices, branches or Affiliates if such designation or
assignment, in Lender's sole but good faith judgment, (i) would eliminate,
mitigate or reduce amounts payable by Borrower in connection with Funding
Losses or Capital Adequacy Events or, with respect to an event described in
Sections 2.10(b) or 2.10(c) hereof, would allow the Loans to continue to bear
interest at the LIBOR Interest Rate without additional cost to Lender, and (ii)
would not be otherwise prejudicial to Lender. Borrower hereby agrees to pay all
reasonably incurred costs and expenses incurred by Lender or any Funding Party
in connection with any such designation or assignment.
2.11 PREPAYMENT OF LOANS.
2.11.1 OPTIONAL PREPAYMENTS.
(a) Borrower expressly waives any right to prepay the
Loans, in whole or in part, except as hereinafter provided.
(b) Provided that no Event of Default shall have occurred
and be continuing, Borrower may elect to prepay the entire Outstanding
Principal Balance of all Loans, in whole but not in part, on any Payment Date,
provided that: (i) Borrower has given Lender written notice of such prepayment
not more than sixty (60) days and not less than thirty (30) days prior to the
date of such prepayment, and (ii) such prepayment is accompanied by all
interest accrued on all Facility Obligations and all other Loan Obligations and
Facility Obligations due hereunder and under the other Loan Documents and/or
the Facility Documents up to and including the date of prepayment.
2.11.2 MANDATORY PREPAYMENTS. Prior to the Maturity Date,
Borrower shall from time to time prepay the Loans then outstanding in the
following amounts at the following times: (i) subject to the requirements of
Section 8.1 hereof, upon the Release of any Unit, an amount equal to the
Release Price thereof, (ii) in the event of any casualty or condemnation of any
Property, such amounts as are required under the terms of the Mortgages; and
(iii) upon the occurrence of a Capital Offering, the entire Outstanding
Principal Balance of all Loans which shall be applied by Lender to any
outstanding Loan Obligations and/or Facility Obligations in any manner or order
of priority as determined by Lender in its sole discretion.
2.11.3 NO REBORROWINGS. The amount of any Loan, once repaid, whether
in whole or in part, may not be reborrowed under this Agreement.
21
<PAGE> 29
2.12 DEFAULT INTEREST; LATE CHARGE.
(a) If any payment of principal, interest or other sum payable
hereunder or under any of the other Loan Documents or Facility Documents, is
not paid when due (including by reason of failure to pay all principal,
interest and all other amounts due hereunder and under the other Loan Documents
and Facility Documents on the Maturity Date (or such earlier date as the same
may become due, whether by acceleration or otherwise)), such principal amount,
interest or other sum shall bear interest at a rate per annum (the "DEFAULT
RATE") equal to seven percent (7%) in excess of LIBOR (or, if at such time
Lender shall have notified Borrower that reasonable means do not exist for
ascertaining LIBOR as provided in clause (iii) of Section 2.10(b) hereof, the
Treasury Rate), which Default Rate shall so apply from the date such amount was
due until the date such amount is indefeasibly paid to Lender. Without limiting
the foregoing, upon the occurrence of, and during the continuance of, an Event
of Default hereunder, the entire Outstanding Principal Balance shall bear
interest at the Default Rate. Interest at the Default Rate shall be paid
immediately upon demand, which demand may be made as frequently as Lender shall
elect.
(b) If any installment of interest or principal (including,
without limitation, the entire Outstanding Principal Balance on the Maturity
Date) is not paid when due, or if any other amount payable hereunder or under
any other Loan Document or Facility Document is not paid within ten (10) days
after written notice thereof is given to Borrower, Borrower shall pay to Lender
a late charge of four percent (4%) of the amount so overdue in order to defray
part of the expense incident to handling such delinquent payment or payments.
Such late charge shall be immediately due and payable without notice or demand
by Lender. Such late charge shall be in addition to, and separate from, any
increase in interest due hereunder as a result of calculation of interest due
hereunder at the Default Rate. Acceptance by Lender of any late charge or
interest at the Default Rate shall not be deemed a waiver of any of Lender's
rights hereunder or under the other Loan Documents or Facility Documents with
respect to such late payment.
2.13 EXCESS INTEREST. It is agreed that, notwithstanding any
provision to the contrary in this Agreement, the Notes or any of the other Loan
Documents or Facility Documents, no such provision shall require the payment or
permit the collection of any amount ("EXCESS INTEREST") in excess of the
maximum amount of interest permitted by law to be charged for the use or
detention, or the forbearance in the collection, of all or any portion of the
indebtedness evidenced by the Note. If any Excess Interest is provided for, or
is adjudicated to be provided for, in the Note, this Agreement or any of the
other Loan Documents or Facility Documents, then in such event:
(a) the provisions of this Section 2.13 shall govern and
control;
(b) neither Borrower nor any of the other Persons
required to pay any amounts with respect to the Loans shall be
obligated to pay any Excess Interest;
22
<PAGE> 30
(c) any Excess Interest that Lender may have received
hereunder shall, at the option of Lender, (i) be applied as a credit
against the then entire Outstanding Principal Balance (without payment
of prepayment premium) due hereunder, accrued and unpaid interest
thereon not to exceed the maximum amount permitted by law, or both,
(ii) be refunded to the payor thereof, or (iii) any combination of the
foregoing;
(d) the applicable interest rate or rates shall be
automatically subject to reduction to the maximum lawful rate and this
Agreement, the Notes and the other Loan Documents or Facility
Documents shall be deemed to have been, and shall be, reformed and
modified to reflect such reduction in such interest rate or rates; and
(e) neither Borrower nor any of the other Persons
required to pay any amounts with respect to the Loans shall have any
action or remedy against Lender for any damages whatsoever, or any
defense to enforcement of this Agreement, the Notes or any of the
other Loan Documents, arising out of the payment or collection of any
Excess Interest.
2.14 LOAN TAXES.
(a) Any and all payments by Borrower to Lender hereunder and under
the other Loan Documents shall, provided that Lender complies with the
requirements of Section 2.14(c) hereof, be made free and clear of, and without
deduction for, any and all present or future taxes, levies, imposts, deductions,
charges, withholdings or liabilities with respect thereto, except for the
following, for which Borrower shall not be responsible: (i) taxes imposed on or
measured by Lender's net income or net receipts; or (ii) franchise taxes imposed
on Lender by the jurisdiction in which (A) Lender is organized, (B) Lender is
"doing business" (unless such determination of "doing business" is made solely
as a result of Lender's interest in the Loans and the security therefor), or (C)
Lender's applicable lending office is located (all such taxes, levies, imposts,
deductions, charges or withholdings and liabilities (except those described in
the foregoing clauses (i) and (ii)) and being hereinafter referred to as "LOAN
TAXES"). If Borrower shall be required by law to deduct or withhold any Loan
Taxes from or in respect of any sum payable hereunder or under any other Loan
Document, then (1) any such sum payable hereunder or under any other Loan
Document shall be increased as may be necessary so that after making all
required deductions or withholdings (including deductions applicable to
additional sums payable under this Section 2.14), Lender receives an amount
equal to the sum it would have received had no such deductions or withholdings
(including deductions applicable to additional sums payable under this Section
2.14) been made, (2) Borrower shall make such deductions or withholdings, and
(3) Borrower shall pay the full amount deducted or withheld to the relevant
taxing authority in accordance with applicable law. Borrower will indemnify
Lender for the full amount of any Loan Taxes (including, without limitation, any
Loan Taxes (as well as taxes described in clauses (i) and (ii) of the second
preceding sentence) imposed by any jurisdiction on any amounts payable under
this Section 2.14) paid or payable by Lender and any liability (including,
without limitation, penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Loan Taxes were correctly or legally
asserted. A certificate as to the amount of such payment or liability delivered
to Borrower by Lender shall be conclusive absent manifest error.
23
<PAGE> 31
The agreements and obligations of Borrower contained in this Section 2.14 shall
survive the payment in full of principal and interest under this Agreement and
the Notes.
(b) Within thirty (30) days after the date of any payment
of Loan Taxes withheld by Borrower in respect of any payment to Lender,
Borrower will furnish to Lender the original or a certified copy of a receipt
or other evidence satisfactory to the Lender evidencing payment thereof.
(c) If Lender is a U.S. Person (other than the lender
originally named herein), Lender shall deliver to Borrower, upon request, a
Form W-9 (unless it establishes to the reasonable satisfaction of Borrower that
it is otherwise eligible for an exemption from backup withholding tax or other
withholding tax). If Lender is not a U.S. Person, Lender shall deliver to
Borrower, upon request, a Form W-8 and either (i) a Form 1001 which indicates a
0% rate of tax or (ii) a Form 4224. If Lender is not a U.S. Person, Lender
further undertakes to deliver to Borrower additional Forms W-8, 1001, 4224 (or
any successor forms) or other manner of certification, as the case may be, (A)
on or before the date that any such form expires or becomes obsolete, (B) after
the occurrence of any event requiring a change in the most recent form
previously delivered by it to Borrower, and (C) such extensions or renewals
thereof as may reasonably be requested by Borrower, certifying that Lender is
entitled to receive payments hereunder without deduction or withholding of any
Loan Taxes. However, in the event that any change in law, rule, regulation,
treaty or directive, or in the interpretation or application thereof (a "LAW
CHANGE"), has occurred prior to the date on which any delivery pursuant to the
preceding sentence would otherwise be required which renders such form
inapplicable, or which would prevent Lender from duly completing and delivering
any such form, or if such Law Change results in Lender being unable to deliver
a Form W-9 (or other satisfactory evidence that it is otherwise eligible for an
exemption from backup withholding tax or other withholding tax), Lender shall
not be obligated to deliver such forms but shall, promptly following such Law
Change, but in any event prior to the time the next payment hereunder is due
following such Law Change, advise Borrower in writing whether it is capable of
receiving payments without any deduction or withholding of Loan Taxes. In the
event of such Law Change, Borrower shall have the obligation to make Lender
whole and to "gross-up" under Section 2.14(a) hereof, despite the failure by
Lender to deliver such forms.
(d) If Lender receives a refund in respect of Loan Taxes
paid by Borrower, it shall promptly pay such refund, together with any other
amounts paid by Borrower pursuant to Section 2.14(a) hereof in connection with
such refunded Loan Taxes, to Borrower; provided, however, that Borrower agrees
to promptly return such refund to Lender if it receives notice from Lender that
it is required to repay such refund. Nothing contained herein shall be
construed to require Lender to seek any refund and Lender shall have no
obligation to Borrower to do so.
(e) All amounts payable under this Section 2.14 shall
constitute additional interest hereunder and shall be secured by the Mortgages
and the other Loan Documents. The provisions of this Section 2.14 shall survive
any payment or prepayment of the Loans and any foreclosure or satisfaction of
the Collateral.
(f) Any reference under this Section 2.14 to "Lender" shall
be deemed to include any Participant and any Assignee.
24
<PAGE> 32
2.15 SERVICING OF LOANS. The Loans shall be serviced by an
insured financial servicer selected by Lender in its sole discretion (the "LOAN
SERVICER"). Lender may change the Loan Servicer from time to time without the
consent of Borrower, on notice to Borrower. The Loan Servicer's fees in the
amount of twelve one-hundredths of one percent (.12%) (the "LOAN SERVICING
FEE") shall be payable by Borrower monthly in arrears on each Payment Date.
2.16 CERTAIN NOTICES. Notices hereunder to Lender of optional
prepayments or Loan Requests shall be effective only if received by Lender not
later than 1:00 p.m. New York City time on the number of Domestic Business Days
or days prior to the date of the relevant reduction, prepayment, or borrowing
or funding specified herein. Each such notice shall specify the amount and date
of the prepayment or borrowing or funding requested.
2.17 NON-DISTURBANCE. Lender acknowledges that certain
purchasers of Intervals or campground memberships who have paid a portion but
not all of the sums due under their obligations to Borrower may have an
interest in an Interval or a campground membership, as the case may be, without
having received a deed or membership certificate. Notwithstanding anything to
the contrary contained herein, in the event that Lender shall foreclose upon
the Mortgages and succeed to the interest of Borrower at any such Property,
Lender agrees for itself, its successors and assigns that it will not disturb
or interfere with the rights of any such purchaser to whom Borrower has
heretofore granted or may hereafter grant, a beneficial interest, pursuant to a
Declaration or campground membership contract, reviewed and approved by Lender,
at any such Property, including, but not limited to, the rights of any such
purchaser to the use of the recreational facilities, amenities, roads and the
other Common Elements of the Resort at such Property, provided that such
purchaser is not in default of, and performs in a prompt and timely fashion,
all obligations required under such purchaser's Interval or campground
membership, as the case may be, sale/ownership agreements with Borrower.
ARTICLE 3
SECURITY
3.1 LOAN OBLIGATIONS; FACILITY OBLIGATIONS. Borrower shall
promptly pay the principal, interest and any other sums payable in respect of
(i) each Loan made to Borrower under the Loan Documents with respect to each
such Loan, and shall perform and observe all of the terms, covenants and
conditions of such Loan Documents (collectively, the "LOAN OBLIGATIONS"), and
(ii) all of the Loans made to Borrower under all of the Loan Documents
(collectively, the "FACILITY DOCUMENTS") and shall perform and observe and/or
cause to be performed and observed all of the terms, covenants and conditions
of the Facility Documents (collectively, the "FACILITY OBLIGATIONS").
3.2 CROSS-COLLATERALIZATION. The Loan Obligations shall be
secured by the following (collectively, the "LOAN COLLATERAL"): (i) the Loan
Documents, (ii) the collateral or security described in this Agreement and/or
in the other Loan Documents, and (iii) any other collateral as shall be
reasonably required by Lender as a condition to the making of any Loan. The
Facility Obligations shall be secured by the following (collectively, the
"FACILITY COLLATERAL", and
25
<PAGE> 33
together with the Loan Collateral, collectively, the "COLLATERAL"): (i) the
Facility Documents, (ii) the collateral or security described in this Agreement
and/or in the other Facility Documents, and (iii) any other collateral as shall
be reasonably required by Lender as a condition to the making of any Loan.
ARTICLE 4
CONDITIONS PRECEDENT TO LOANS
The obligation of Lender to make any Loan provided for hereunder is subject to
the fulfillment on or prior to the Closing Date therefor of all of the
following conditions to Lender's satisfaction:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Borrower hereunder, and under the other Loan Documents in respect
of any Loan, and any certificate, document OR financial or other statement
furnished at any time under or in connection herewith or therewith, shall be
true and correct in all material respects as of the date thereof and, except as
otherwise provided in Section 5.35 hereof, as of the current Closing Date.
4.2 NO DEFAULT. Borrower shall be in compliance with all of
the terms and conditions set forth herein and in each of the other Loan
Documents on its part to be observed or performed, and there shall not have
occurred and be continuing any Default, and each Loan Request delivered by
Borrower hereunder shall be deemed to constitute a representation and warranty
by Borrower as of the date of such Loan Request to that effect (as of the date
of such Loan Request and, unless Borrower otherwise notifies Lender prior to
the current Closing Date, as of such Closing Date).
4.3 No INJUNCTION. No law or regulation shall have been
adopted, no order, judgment or decree of any Governmental Authority having
jurisdiction over Lender, Borrower, or the transactions contemplated by this
Agreement shall have been issued, and no litigation shall be pending or
threatened in writing, which in the good faith judgment of Lender would enjoin,
prohibit or restrain, or impose or result in the imposition of any condition
having a Material Adverse Effect.
4.4 TRANSACTION COSTS. The obligation of Lender to make any
Loan is subject to Borrower paying, or having made provision from the
anticipated proceeds of such Loan for the payment of, all Costs paid or payable
relating to such Loan.
4.5 DELIVERY OF DOCUMENTS. Lender shall have received the
following agreements and instruments in respect of each Loan, duly executed by
Borrower dated the Closing Date, all in form and substance satisfactory to
Lender (all of such documents, together with this Agreement, the Loan
Supplement for the Loan, and any other documents evidencing or securing the
Loan or executed in connection therewith, and any modifications, renewals and
extensions thereof, are referred to herein collectively as the "LOAN
DOCUMENTS"), it being understood and agreed that any such Loan Documents may be
modified to conform, to the extent determined
26
<PAGE> 34
necessary by Lender in its sole but reasonable discretion, to the law of the
jurisdiction in which the Property is located:
(a) a Note;
(b) a first priority Mortgage, Security
Agreement, Assignment of Leases and Fixture Filing (or Deed of
Trust, if applicable) in the form annexed hereto as Exhibit C, to
secure the Loan Obligations, with such changes thereto as shall be
required to properly evidence and reflect the terms of the Loan as
provided for in the Loan Supplement (the "FIRST MORTGAGE");
(c) a second priority Mortgage, Security
Agreement, Assignment of Leases and Fixture Filing (or Deed of
Trust, if applicable) in the form annexed hereto as Exhibit D, to
secure all of the Facility Obligations (with respect to all Loans
theretofore and thereafter made hereunder) or such lesser portion of
the Facility Obligations as shall be provided for in the Loan
Supplement, with such changes thereto as shall be required to
properly evidence and reflect the terms of the Loan as provided for
in the Loan Supplement, and subordinate to the First Mortgage (the
"SECOND MORTGAGE", and together with the First Mortgage, the
"MORTGAGES");
(d) such Uniform Commercial Code financing
statements as Lender may require;
(e) an Environmental Indemnification Agreement,
in the form annexed hereto as Exhibit E (the "ENVIRONMENTAL
INDEMNITY"), executed by Borrower;
(f) if any portion of the Property consists of a
leasehold interest, a consent and estoppel executed by the lessor
under the lease creating such interest and/or an amendment to such
lease, which consent and/or amendment shall provide, inter alia, for
customary "mortgagability" provisions, including, without
limitation, that (i) such lease may be mortgaged to Lender, (ii)
such lease shall not be terminated, modified or amended without the
prior written consent of Lender, (iii) Lender shall receive copies
of any notice of default under such lease and an opportunity to cure
such default, (iv) such lessor shall accept a cure from Lender, (iv)
if any such default is incapable of cure without possession of the
Property, such lessor shall grant Lender additional time to cure
such default as is necessary to allow Lender to obtain possession of
the Property, and (v) if such default is incapable of cure and such
lease shall be terminated, to enter into a new lease with Lender on
the same terms and conditions as set forth in such terminated lease;
and
(g) any other documents reasonably requested by
Lender.
4.6 LOAN REQUEST. Lender shall have (i) received a Loan
Request, (ii) approved such Loan Request, and (iii) received a Loan Supplement,
in each case as required by Section 2.2 hereof.
27
<PAGE> 35
4.7 FEES. The obligation of Lender to make its initial
extension of credit hereunder is also subject to the payment or delivery by
Borrower of such fees and other consideration as Borrower shall have agreed to
pay or deliver to Lender in connection herewith, including, without limitation,
the fees and expenses of Lender's Counsel in connection with the negotiation,
preparation, execution and delivery of this Agreement, the Notes and the other
Loan Documents and the extensions of credit hereunder.
4.8 BORROWER'S MINIMUM EQUITY REQUIREMENT. As of the
Closing Date, Borrower shall have invested cash equity in the Property in an
amount equal to not less than thirty five percent (35%) of the Property
Capitalization for such Property ("BORROWER'S MINIMUM EQUITY") and shall have
provided reasonably satisfactory evidence of such investment to Lender.
4.9 TITLE POLICY AND ENDORSEMENTS. Lender shall have
received a title insurance policy or an acceptable marked commitment therefor
("TITLE POLICY"), dated the Closing Date and acceptable to Lender, insuring
marketability of title and insuring that the lien of the First Mortgage is a
valid first lien on the Property and the lien of the Second Mortgage is a valid
second lien on the Property, subject only to the First Mortgage and such other
exceptions to title approved by Lender. The Title Policy shall also contain any
reinsurance or co-insurance and any endorsements required by Lender, including,
without limitation, if applicable and if available, the following endorsements
in form and substance acceptable to Lender: creditors' rights, zoning 3.1,
survey, variable rate, usury, first loss, last dollar, tie in (cluster),
contiguity (where applicable), street address, "doing business", extended
coverage endorsements and such other endorsements and affirmative assurances as
Lender shall reasonably require in order to provide insurance against specific
risks identified by Lender in connection with the Property or the Loan,
provided, that (i) to the extent that the title company(ies) issuing the Title
Policy (individually or collectively, as the case may be, the "TITLE COMPANY")
shall be precluded by law or regulation from issuing any required endorsement
or if such endorsement is not generally available for a reasonable cost as
reasonably determined by Lender, such endorsement shall not be required if
Borrower shall provide alternative assurances to Lender (by way of counsel
opinion or indemnity, for example) as to the matters that would otherwise have
been addressed by such title endorsement, and (ii) in lieu of a zoning 3.1
endorsement, Borrower may provide to Lender an official letter from the
appropriate official in the locality in which the Property is situated, in form
and content reasonably satisfactory to Lender, as to the zoning classification
of the Property and that the current use of the Property conforms with such
zoning classification. In addition, on the Closing Date, tie-in (cluster)
endorsements and/or amendments to previously issued tie-in (cluster)
endorsements shall be provided, to aggregate, to the greatest extent permitted
by applicable law and regulations, the Title Policy issued on the Closing Date
with the Title Policies issued for Loans previously made. It is expressly
understood and agreed by Borrower that the Title Policies issued on each of the
Loans must all be issued by the same Title Company.
4.10 SURVEY. Lender shall have received and approved a
survey of the Property (the "SURVEY"), dated or redated not more than sixty
(60) days prior to the Closing Date, but in any event subsequent to the
completion of the Improvements on the Property, prepared by a registered land
surveyor in accordance with the 1992 American Land Title Association/American
Congress on Surveying and Mapping Standards and certified or re-certified in
favor of Lender
28
<PAGE> 36
and the Title Company. The Survey shall be sufficient for the Title Company to
remove the general survey exception from the Title Policy.
4.11 ENVIRONMENTAL REPORT. Lender shall have received a
Phase I Environmental audit of the Property prepared not more than six (6)
months prior to the Closing Date by an environmental consultant approved by
Lender, and, if recommended by such Phase I Environmental audit, a Phase II
Environmental audit of the Property thereafter prepared by such environmental
consultant (individually or collectively, if applicable, the "ENVIRONMENTAL
REPORT"). The Environmental Report shall (i) be addressed to Lender and/or be
accompanied by a letter from the consultant who prepared the same acknowledging
that Lender may rely thereon, and (ii) be acceptable to Lender, in form and
substance, in Lender's sole discretion.
4.12 INSURANCE. Borrower shall have provided to Lender
copies of certificates evidencing the insurance policies required to be
delivered pursuant to the terms of the Mortgages, each in form and substance
acceptable to Lender.
4.13 COMPLIANCE WITH LAWS. Borrower shall have submitted to
Lender, and Lender shall have approved, (i) a final and valid certificate of
occupancy (or its equivalent) for the Property or, if required under applicable
law in lieu of a certificate covering the entire Property, final and valid
certificates of occupancy (or their equivalents) for each of the individual
retail spaces at the Property, or, if applicable, if any of the foregoing
certificates shall not be final, a temporary and valid certificate of occupancy
(or its equivalent) in lieu thereof, provided such temporary certificate
permits occupancy of the Property covered thereby and shall become a final
certificate upon completion of certain conditions stated therein, (ii) all
other permits necessary for the use and/or operation of the Property as
currently used and operated and as contemplated to be used and operated
(whether such permits are held in the name of Borrower or any other Person),
and (iii) evidence reasonably satisfactory to Lender that the Property complies
in all material respects with all applicable laws, rules, regulations and
ordinances (including, without limitation, building, zoning, density, land use,
planning requirements and restaurant, liquor and beverage laws, rules,
regulations and ordinances, to the extent applicable), covenants, conditions
and restrictions, subdivision requirements (including, without limitation,
parcel maps), and environmental impact and other environmental requirements.
4.14 COUNSEL OPINIONS. Lender shall have received
acceptable legal opinions (i) from corporate counsel to Borrower, substantially
in the form of Exhibit F-1 annexed hereto, and (ii) from real estate counsel to
Borrower in the jurisdiction where the Property is situated, substantially in
the form of Exhibit F-2 annexed hereto.
4.15 PROPERTY. The Property shall be a Timeshare Property
or raw land or a campground intended to be developed by Borrower into a Resort
and located in the United States of America.
4.16 TIMESHARE DOCUMENTS. Lender shall have received copies
of all Timeshare Documents related to the Property.
29
<PAGE> 37
4.17 MORTGAGE RECORDING TAX. Borrower shall have paid or
caused to be paid all state, county and municipal recording and other taxes
imposed upon the execution and recordation of the Mortgages, if any, and upon
all other Mortgages previously executed hereunder to secure any other Loans for
which any such taxes, if any, shall not have been paid.
4.18 ADDITIONAL ITEMS. Lender shall have received such
other certificates, opinions, documents and instruments relating to the
transactions contemplated hereby and by any of the Loan Documents as Lender may
have reasonably requested, and all corporate and other proceedings and all
other documents (including, without limitation, all documents referred to
herein) and legal matters in connection with the transactions contemplated by
this Agreement, the Note and the other Loan Documents shall be reasonably
satisfactory in form and substance to Lender and its counsel.
4.19 CONSENTS, LICENSES, APPROVALS, ETC. Lender shall have
received copies of all consents, licenses and approvals, if any, required in
connection with the execution, delivery and performance by Borrower, and the
validity and enforceability against Borrower, of this Agreement and the other
Loan Documents, and such consents, licenses and approvals shall be in full
force and effect.
4.20 INITIAL AND SUBSEQUENT EXTENSIONS OF CREDIT. The
obligation of Lender to make any such Loan or otherwise extend any credit to
Borrower upon the occasion of each borrowing or other extension of credit
hereunder is subject to the receipt by Lender on the Closing Date of a
certificate of a Designated Officer of Borrower to the effect that, both
immediately prior to the making of any such Loan or extension of credit, and
also after giving effect thereto and to the intended use thereof:
(a) each of the conditions specified in Article
4 hereof have been satisfied together with such evidence thereof
satisfactory to Lender as Lender may reasonably request;
(b) no Material Adverse Effect shall have
occurred; and
(c) the Aggregate Loan Amount as of such Closing
Date does not exceed the Commitment.
ARTICLE 5
CERTAIN REPRESENTATIONS AND WARRANTIES OF BORROWER
As an inducement to Lender to enter into this Agreement and to
make the Loans, Borrower hereby represents and warrants as follows, which
representations and warranties shall be true and correct as of the date hereof
and as of each Closing Date hereunder (except as otherwise provided in Section
5.35 hereof), which shall survive any closing hereunder, and which (except as
otherwise provided in Section 5.35 hereof) shall remain true and correct until
all of the Loan Obligations are repaid in full:
30
<PAGE> 38
5.1 BORROWER ORGANIZATION, ENFORCEABILITY, ETC.
5. 1.1 BORROWER EXISTENCE; STATUS. Borrower is a duly formed
corporation under the laws of Texas, validly existing and in good standing
under the laws of the state of its formation, and has full power and authority
to execute and deliver to Lender this Agreement and all other Loan Documents
and Facility Documents to which it is a party, to own its properties and to
perform the Loan Obligations and Facility Obligations and carry out the duties
imposed upon Borrower by this Agreement and the other Loan Documents and
Facility Documents to which it is a party. All Loan Documents and Facility
Documents executed by Borrower have been duly authorized, approved, executed
and delivered by Borrower and constitute the legal, valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms. Borrower is authorized to do business in the State where the
Property is located and is not required by applicable law to be authorized to
do business in any other jurisdiction.
5.1.2 BORROWER ADDRESS. Borrower's chief executive office is
located at 1221 Riverbend - Suite 120, Dallas, Texas and shall not be changed
during the Term without giving Lender at least thirty (30) days prior notice
thereof.
5.1.3 BORROWER'S CORPORATE STRUCTURE.
(a) Borrower uses no trade name, and has not and will not
do any business under any name other than its actual name set forth herein.
(b) The authorized capital stock of Borrower consists of
one hundred million (100,000,000) shares of common stock, par value $0.01 per
share, of which eleven million three hundred eleven thousand five hundred
seventeen (11,311,517) shares are outstanding; such outstanding shares have
been duly authorized and validly issued; and Borrower has delivered to Lender a
true and correct list of all warrants and stock options granted by borrower to
any Person.
5.1.4 BORROWER'S ORGANIZATIONAL DOCUMENTS. A true and
complete copy of Borrower's Organizational Documents have been furnished to
Lender. Borrower's Organizational Documents constitute the entire agreement
among the shareholders in Borrower and are binding upon and enforceable against
all of such shareholders in accordance with their respective terms. There are
no other agreements, oral or written, among any of the shareholders in Borrower
relating to Borrower. No party is in default of its obligations under
Borrower's Organizational Documents and no condition exists which, with the
giving of notice and/or the passage of time, would constitute a default under
Borrower's Organizational Documents.
5.2 TITLE. Fee simple and/or leasehold title to the
Property (other than any portion thereof which consists of an Easement) is, or
contemporaneously with the funding of the Loan will be, owned by Borrower, free
and clear of all liens, claims, encumbrances, covenants,
31
<PAGE> 39
conditions, restrictions, security interests and claims of others, except for
the Loan Documents, the Facility Documents, and the Permitted Encumbrances.
5.3 VALID LIENS. Subject to the Permitted Encumbrances,
the First Mortgage is a good and valid first mortgage lien on the Property and
first priority security interest in the personal property described in the
First Mortgage; the Second Mortgage is a good and valid second mortgage lien on
the Property and second priority security interest in the personal property
described in the Second Mortgage.
5.4 PROPERTY USES. The Property consists solely of raw
land, a campground or a Resort (as set forth in the Loan Supplement pursuant to
a Loan Request approved by Lender) and, in each case, is used for no other
purpose.
5.5 NO STRUCTURAL DEFECTS. There are no structural defects
in the Improvements, or material defects to the building systems thereof.
5.6 COMPLIANCE WITH ZONING, ETC.
(a) Except as may be disclosed in the violations searches
received from the Title Company in connection with the Title Policy (the
"DISCLOSED VIOLATIONS"), the Property complies with all applicable Legal
Requirements. Borrower shall use its diligent efforts to cure, or cause to be
cured, the Disclosed Violations and to have them removed of record. Any zoning
or subdivision approval is based on no real property, or rights appurtenant
thereto, other than the Property. The Property as improved and used is not in
material violation of any recorded and, to the best knowledge of Borrower,
unrecorded covenants, conditions or restrictions of any kind or nature
affecting all or any part of the Property, or any interest therein. To the best
knowledge of Borrower, the Improvements can be fully rebuilt in the event of
casualty or destruction thereof under the Permits applicable to the Property,
subject, however, to non-discretionary requirements of any Governmental
Authority. No amendment or change in any such material Permit, and no amendment
or change in zoning or any other land use control, has been sought or obtained
by Borrower or any Affiliate of Borrower, or will be sought or obtained by
Borrower or any Affiliate of Borrower, with respect to any Property or the
Improvements thereon, except as specifically approved in writing by Lender or
as may be required in connection with the conversion of such Property into a
Timeshare Property, provided that any amendment or change in zoning or any
other land use control shall not in any way reduce the maximum number of Units
as set forth in the Loan Supplement with respect to such Property.
(b) Except as may be disclosed in the violations searches
received from the Title Company in connection with the Title Policy, all
Permits required by any Governmental Authority for the operation of the
Improvements and the actual and contemplated uses thereof, or otherwise
required to be in compliance with any Environmental Laws, have been obtained.
The copy of the certificate of occupancy for the Property, if any, delivered to
Lender prior to the date hereof is a true and correct copy of the permanent
certificate of occupancy for the Property, remains in full force and effect,
and is not subject to any conditions or limitations, other than
32
<PAGE> 40
those of general applicability to all certificates of occupancy for similar
properties located in the county where the Property is located.
(c) If and when requested by Lender, Borrower shall deliver
to Lender true, correct and complete copies of each material Permit.
(d) There are no pending or, to the best knowledge of
Borrower, threatened actions, suits or proceedings to revoke, attack,
invalidate, rescind or modify the zoning of the Property, or any material
Permits issued with respect to the Property or any part thereof, or asserting
that such Permits or the zoning of the Property do not permit the use of the
Property as contemplated by the Loan Documents.
5.7 NO CONDEMNATION. Borrower has not received any notice
of, and to the best of Borrower's knowledge there does not exist, any actual,
proposed or threatened exercise of the power of eminent domain or other taking
by any governmental or quasi-governmental body or agency, of all or any portion
of the Property, or any interest therein, or any right of access thereto.
5.8 NO CASUALTY. The Improvements have suffered no material
casualty or damage which has not been fully repaired and the cost thereof fully
paid.
5.9 PURCHASE OPTIONS. Except as set forth in Section 5.36
hereof, neither the Property nor any part thereof is subject to any purchase
options or other similar rights in favor of third parties.
5.10 NO ENCROACHMENTS. There are no material encroachments
on the Property and the Improvements do not encroach upon any Easement, any
other interest in real property, any adjoining land or any adjoining street,
except as set forth in the Survey.
5.11 LITIGATION. There are no actions, suits, proceedings,
arbitrations, tenant disputes, labor disputes or governmental investigations
pending, or, to the best knowledge of Borrower, threatened against or affecting
Borrower, any Affiliate of Borrower, the Timeshare Owner's Associations or the
Property, including, without limitation, the Resorts (i) which, if successful,
are reasonably likely to have an adverse effect on Borrower or any Property, or
Borrower's ability to perform its obligations pursuant to and as contemplated
by this Agreement and the other Loan Documents, (ii) which, if successful, are
reasonably likely to affect the validity or enforceability of any of the Loan
Documents or the priority of the Liens thereof, or (iii) which, if successful,
are reasonably likely to adversely affect the use of, operations at, or capital
improvements being made to, the Property. Borrower is neither operating under,
nor subject to, any order, writ, injunction, decree or demand of any court or
any Governmental Authority. No actions, suits, proceedings or arbitrations are
pending or, to the best knowledge of Borrower, threatened against Borrower
which involve claims, damages or sums of money not covered (including all
applicable deductibles) by insurance.
33
<PAGE> 41
5.12 NO CONFLICT WITH LAW OR AGREEMENTS. The execution and
delivery of this Agreement and the other Loan Documents or Facility Documents,
and the performance and consummation of the transactions contemplated hereby
and thereby, on the part of Borrower and fulfillment of the terms of the Loan
Documents and Facility Documents by Borrower (i) do not and will not conflict
with, violate, or constitute a default (or a condition or event which, after
notice or lapse of time or both, would constitute such a default) under any
provision of any Organizational Document or any contractual obligation of
Borrower or any Legal Requirement or any court decree or order applicable to
any Property or Borrower, and (ii) will not result in, or require, the creation
or imposition of any lien or encumbrance on, or conveyance of, any of
Borrower's properties pursuant to any contractual obligation, and (iii) do not
require the consent or approval of any Governmental Authority or other person
or entity, except for consents and approvals already obtained.
5.13 PERSONAL PROPERTY. All equipment and other personal
property necessary for (or otherwise actually used in connection with) the
proper and efficient operation and maintenance of the Property, the actual and
contemplated uses of the Property and Borrower's compliance with its
obligations under the Leases, are owned and/or leased by Borrower and
constitute part of the Property subject to the Mortgages and located thereat,
other than (i) any such equipment which is owned by a utility company, or (ii)
any such equipment and personal property which is owned by tenants of the
Property and utilized solely by such tenant.
5.14 EASEMENTS; ACCESS; UTILITIES. All easements, cross
easements, licenses, air rights and rights-of-way or other similar property
interests (collectively, "EASEMENTS"), if any, necessary for the full
utilization of the Property and the Improvements for their intended purposes
have been obtained, are described in the Title Policy and are in full force and
effect without default thereunder. The Property has direct rights of access to
public ways and is served by water, sewer, sanitary sewer and storm drain
facilities adequate to service the Property for its intended uses. All public
utilities necessary or convenient to the full use and enjoyment of the Property
is located either in the public right of way abutting the Property (which are
connected so as to serve the Property without passing over other property) or
in recorded Easements serving the Property and described in the Title Policy.
All roads necessary for the use of the Property for its current purposes have
been completed and are available for public use.
5.15 NO FLOOD HAZARD, ETC. Except as set forth in the
Survey, (i) the Property is not situated in an area designated as having
special flood hazards as defined by the Flood Disaster Protection Act of 1973,
as amended, or designated a wetlands by any governmental entity having
jurisdiction over such Property, or (ii) the Property is situated in an area
designated as having special flood hazards as defined by the Flood Disaster
Protection Act of 1973, as amended, or as a wetlands by any governmental entity
having jurisdiction over the Property, but Borrower either (i) has obtained and
paid for, and there is currently in effect, or (ii) upon the existence of any
Improvements on such Property, shall obtain and maintain in effect, the flood
insurance required under the terms of the Mortgages. No portion of the Property
is located on or adjacent to navigable waters and no portion of the Property
consists of filled-in land, except as set forth on the Survey.
34
<PAGE> 42
5.16 PROPERTY TAXED AS A SEPARATE TAX LOT. Except as set
forth in the Survey, (i) the Property is taxed as a separate and distinct tax
lot, (ii) no part of the Property shares a tax lot with any adjoining lands,
and (iii) for all purposes the Property may be mortgaged, conveyed and
otherwise dealt with as a single, independent parcel.
5.17 LEASES.
(a) Borrower has not entered into any Lease which continues
in existence, and is not bound by any such Lease, other than the Approved
Leases.
(b) Rent has not been collected under any of the Leases
more than one (1) month in advance of the due date. The term of each Lease has
commenced and the tenant has commenced the full payment of rent under such
Lease without the tenant thereunder being entitled to any abatement thereof.
The landlord is not required to perform any tenant work or pay any work
allowances under any Lease.
(c) Borrower has delivered true, correct and complete
copies of the Leases (including all amendments and supplements thereto) to
Lender.
(d) There are no brokerage fees or commissions due and
payable in connection with the leasing of space at the Property, except as has
been previously disclosed to Lender in writing, and no such fees or commissions
will become due and payable in the future in connection with the Leases,
including by reason of any extension of such Lease or expansion of the space
leased thereunder, except as has previously been disclosed to Lender in
writing.
5.18 ENVIRONMENTAL. Borrower covenants and represents to
Lender that, except as may be actually disclosed in the Environmental Report,
(i) no Hazardous Substances are now or have ever been located, produced, used,
stored, treated, transported, incorporated, discharged, emitted, released,
deposited or disposed of in, upon, under, over or from the Property in a manner
that may give rise to any actual or potential liability to pay response costs
or other damages, losses or expenses or otherwise violate any Environmental
Laws; (ii) no Hazardous Substances are currently located, stored or used at the
Property, except with respect to such Hazardous Substances which are (A)
customarily located, stored or used at golf courses similar to the Property, or
(B) unique and necessary to a tenant's business located in the Property,
provided that such Hazardous Substances described in clause (ii)(A) or (ii)(B)
are at all times stored, located and used in compliance with all Environmental
Laws; (iii) no Hazardous Substances have been discharged, released or emitted,
upon or from the Property into the environment, and no threat exists of a
discharge, release or emission of a Hazardous Substance upon or from the
Property into the environment, which discharge, release or emission, in either
case, would subject the owner of the Property to any damages, penalties or
liabilities under any applicable Environmental Laws; (iv) the Property has not
ever been used as or for a mine, a landfill, a dump or other disposal facility,
or a gasoline service station; (v) no underground storage tank is now located
on or in the Property or, if previously located therein, each such tank has
been removed therefrom in compliance with all applicable Environmental Laws and
any clean-up of the surrounding soil in connection therewith has been
completed; (vi) no asbestos, ACM, materials
35
<PAGE> 43
containing urea-formaldehyde, or transformers, capacitors, ballasts or other
equipment that contain PCBs are located about the Property; (vii) the Property
has never been used by Borrower or any Affiliate of Borrower, or to the best of
Borrower's knowledge, after due inquiry, any other Person (including any prior
owner of the Property), as a permanent or temporary treatment, storage or
disposal site for any Hazardous Substance; (viii) (A) no violation of any
Environmental Law now exists in, upon, under, over or from the Property, (B) no
notice of any such violation or any alleged violation thereof has been issued
or given by any Governmental Authority, and (C) there is not now any
investigation or report involving the Property by any Governmental Authority or
agency which in any way relates to Hazardous Substances; (ix) no Person has
given any notice of or asserted any claim, cause of action, penalty, cost or
demand for payment or compensation, whether or not involving any injury or
threatened injury to human health, the environment or natural resources,
resulting or allegedly resulting from any activity or event described in
clauses (i)-(viii) above and, to the best knowledge of Borrower, no basis for
such a claim exists; (x) there are not now, nor to Borrower's best knowledge
have there ever been, any actions, suits, proceedings or damage settlements
relating in any way to Hazardous Substances in, upon, under, over or from the
Property; (xi) no oral or written notification of a Release (as such term is
defined in 42 U.S.C. Section 9601(22)) of any Hazardous Substances has been
filed by or on behalf of Borrower through authorized employees or agents and
the Property is not listed on the Environmental Protection Agency's List of
Hazardous Waste Sites or any other list of Hazardous Substance sites maintained
by any federal, state or local Governmental Authority; (xii) there are no
environmental liens on the Property and, to the best knowledge of Borrower, no
governmental actions have been taken or are in process which could subject the
Property to such liens; (xiii) Borrower has not transported or arranged for the
transportation of any Hazardous Substances to any location which is listed or
proposed for listing under CERCLA or on any similar state list or which is the
subject of federal, state or local enforcement actions or other investigations;
(xiv) no environmental or engineering investigations, studies, audits, tests,
reviews or other analyses have been conducted by, or are in the possession of,
Borrower or the Affiliates of Borrower in relation to the Property, other than
the Environmental Report; Borrower has delivered a true, correct and complete
copy of the Environmental Report to Lender; and (xv) to the best of Borrower's
knowledge, the Environmental Report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make any statement
contained therein or herein, in light of the circumstances under which such
statement was made, not misleading.
5.19 NO DEFAULT. There is no Default on the part of Borrower
under this Agreement, the Notes, the Mortgages or any other Loan Document or
Facility Document.
5.20 NO OFFSETS. Borrower has no counterclaims, offsets or
defenses with respect to the Loan, the Notes or any other Loan Document or
Facility Document.
5.21 FINANCIAL STATEMENTS. All financial statements of
Borrower heretofore delivered to Lender in connection with the Loan are true
and correct in all material respects and fairly present the financial condition
of the subjects thereof as of the respective dates thereof, and no material
adverse change has occurred in the financial condition reflected therein, or
the operations or business of Borrower since the respective dates of the most
recent financial
36
<PAGE> 44
statements delivered to Lender. The financial statements heretofore delivered
have been prepared in accordance with the procedures and accounting principles
and standards required by Section 6.14 hereof.
5.22 NO INSOLVENCY. Borrower is not Insolvent, and Borrower
will not be rendered Insolvent by the execution of this Agreement, the Note or
any other Loan Documents or Facility Documents, or by the consummation of the
transactions contemplated hereby and thereby.
5.22.1 FRAUDULENT CONVEYANCE. Borrower has not
entered into the transactions contemplated by this Agreement or any other Loan
Document or Facility Documents with the actual intent to hinder, delay, or
defraud any creditor, and Borrower has received reasonably equivalent value in
exchange for its Loan Obligations and Facility Obligations under the Notes, this
Agreement and the other Loan Documents and Facility Documents. After giving
effect to the transactions contemplated by the Loan Documents and the Facility
Documents, the fair salable value of Borrower's assets exceeds, and will,
immediately following the execution and delivery of the Loan Documents and the
Facility Documents and the advance of the Loan proceeds thereunder, exceed,
Borrower's total probable liabilities, including, without limitation, the
maximum amount of its subordinated, unliquidated, disputed and/or contingent
liabilities. Borrower's assets do not, and, immediately following the execution
and delivery of the Loan Documents and Facility Documents and the advance of the
Loan proceeds thereunder, will not, constitute unreasonably small capital to
carry out its business as conducted or as proposed to be conducted. Borrower
does not intend to, and does not believe that it will, incur debts and
liabilities (including, without limitation, contingent liabilities and other
commitments) beyond its ability to pay such debts and liabilities as they mature
(taking into account the timing and amounts to be payable on or in respect of
obligations of Borrower).
5.23 BROKER. No broker or consultant has been retained by
Borrower or any Affiliate of Borrower in connection with the Loan or the Loan
Documents. Borrower will indemnify, defend and hold the Indemnified Parties
harmless from and against all loss, cost, liability and expense arising from
the claims of all brokers and consultants relating to the Loan and/or the
Property with whom Borrower, any Affiliate of Borrower or any employee or agent
of Borrower has dealt, including, without limitation, sales, mortgage or
leasing brokers or consultants.
5.24 FISCAL YEAR. Each fiscal year of Borrower commences on
January 1.
5.25 ERISA.
(a) The execution, delivery and performance of this
Agreement, the Mortgages and the other Loan Documents do not constitute a
Prohibited Transaction, assuming solely for this purpose that Lender is a party
in interest as defined in Section 3(14) OF ERISA ("PARTY IN INTEREST") or a
disqualified person as defined in Section 4975(e)(2) of the Internal Revenue
Code ("DISQUALIFIED PERSON") with respect to an employee benefit plan, if any,
which has directly or indirectly invested in Borrower.
37
<PAGE> 45
(b) Borrower has made, and shall continue to make, all
required contributions to all employee benefit plans, if any, within the time
periods required by the applicable provisions of ERISA and any other federal or
state law, and Borrower has no knowledge of any material liability which has
been incurred by Borrower which remains unsatisfied for any taxes or penalties
with respect to any employee benefit plan or any multi-employer plan. Each such
plan has been administered in compliance with its terms and the applicable
provisions of ERISA and any other federal or state law.
5.26 FIRPTA. Borrower is not a "foreign person" within the
meaning of Sections 1445 or 7701 of the Internal Revenue Code.
5.27 PUHCA. Borrower is not a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of either a
"holding company" or a "subsidiary company", all as defined in the Public
Utility Holding Company Act of 1935, as amended.
5.28 INSURANCE. All Insurance Policies (as defined in the
Mortgages) required to be obtained and maintained by Borrower pursuant to the
Mortgages are in full force and effect and the premiums due thereon have been
paid in full. Borrower and the Property are in compliance with the provisions of
such Insurance Policies and the provisions relating to the Insurance Policies
in the Mortgages, and no notice of cancellation, termination or default has
been received with respect to any such policy.
5.29 NO MARGIN STOCK. None of the proceeds of the Loan will
be used by Borrower for the purpose of purchasing or carrying "margin stock"
within the meaning of Regulation G, T, U or X issued by the Board of Governors
of the Federal Reserve System, as at any time amended, and Borrower agrees to
execute all instruments which may be necessary from time to time, if any, to
comply with all the requirements of Regulation U of the Federal Reserve System,
as at any time amended.
5.30 INVESTMENT COMPANY ACT. Borrower is not (i) an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, or (ii)
subject to any other United States federal or state law or regulation which
purports to restrict or regulate its ability to borrow money.
5.31 TAXES. Borrower has filed all federal, state and local
tax returns required to be filed prior to the date hereof and has paid all
taxes, charges and assessments shown to be due from Borrower on such tax
returns. There are no delinquent Taxes in respect of, or affecting, the
Property. Except as disclosed in writing to Lender, there are no pending, or to
Borrower's best knowledge, proposed special or other assessments for public
improvements or otherwise affecting the Property.
5.32 FULL AND ACCURATE DISCLOSURE. No statement of fact made
by Borrower in this Agreement or in any of the other Loan Documents contains
any untrue statement of a material fact or omits to state any material fact
necessary to make statements contained herein or therein not misleading. There
is no material fact presently known to Borrower which has not been
38
<PAGE> 46
disclosed to Lender which adversely affects, nor as far as Borrower can
foresee, might reasonably adversely affect, the Property or the business,
operations or condition (financial or otherwise) of Borrower.
5.33 OTHER OBLIGATIONS AND LIABILITIES. Borrower has no liabilities
or other obligations that arose or accrued prior to the date hereof that,
either individually or in the aggregate, could have a Material Adverse Effect.
Borrower has no known material contingent liabilities, except as may be
disclosed in writing to Lender.
5.34 DOCUMENTS. Borrower has furnished (or caused to be furnished)
to Lender true and complete copies of all material documents relating to the
Property which a reasonably prudent institutional Lender, making a loan in a
similar amount and on similar terms as the Loan, would want to have the
opportunity to review prior to agreeing to make such loan or prior to agreeing
to any of the material terms thereof.
5.35 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties set forth in Article 5 hereof shall be true and
correct as to all of the Loans as of the date hereof, as of each Closing Date
and shall remain true throughout the Term, except (i) to the extent agreed to
by Lender in its written approval of any Loan Request, and (ii) as specified in
any Loan Supplement.
5.36 TIMESHARE DEVELOPMENT. With respect to each Timeshare
Property,
(a) Borrower and the Timeshare Documents are or shall be, prior to
the sale of any Interval, at the Resort, in compliance with all applicable laws
related to the sale of such Intervals, including, without limitation, the
applicable Timeshare Acts;
(b) Borrower has or shall obtain, prior to the sale of any
Intervals, all applicable governmental permits, approvals, consents, licenses
and certificates for the establishment and/or operation of the Resort as
vacation ownerships, interval ownerships and/or timeshare projects in
accordance with the applicable Timeshare Acts, and for the occupancy and
intended use and operation of the Resort, including the Units;
(c) All water, sewer (sanitary and storm), electricity, solid
waste disposal, telephone, police, fire and rescue services are being or shall
be provided to the Resort, respectively;
(d) The Timeshare Documents provided to Lender shall be true,
correct and complete copies in each instance;
(e) In accordance with the requirements set forth in the
Declaration, respectively, Borrower or the Timeshare Owner's Association, as
required, has paid or will have paid in full, prior to delinquency, all ad
valorem taxes and other taxes and assessments against the Resort; and Borrower
knows of no basis for any additional taxes or assessments against the Resort;
39
<PAGE> 47
(f) The Timeshare Owner's Association has filed all tax returns
required to have been filed by it and has paid or will paid, prior to
delinquency, all taxes shown to be due and payable on such returns, including
interest and penalties and all other taxes which are payable by it to the
extent the same has become due and payable;
(g) Borrower has good and marketable title to all unsold Units and
Intervals at the Resort, respectively, and all rights, properties and benefits
appurtenant to or benefiting the Resort;
(h) Borrower has not received any notice from any court,
government or authority or other tribunal alleging that Borrower or the Resort,
has violated any applicable Timeshare Acts, respectively, any rules or
regulations thereunder, the Declaration, or any other applicable laws,
agreements or arrangements which could have a Materially Adverse Effect;
(i) Borrower, the Resort, the Timeshare Owner's Association and/or
any Affiliate of Borrower, respectively, involved in the development and
operation of the Resort, respectively, and to the best of Borrower's knowledge,
other Persons involved in the development and operation of the Resort,
respectively, possess all requisite franchises, certificates of convenience and
necessity, operating rights, approvals, licenses, permits, consents,
authorizations, exceptions and orders as are necessary to carry on its or their
business as now being conducted, without any known conflict with the rights of
any other Person, and with respect to Borrower, the Resort and the Timeshare
Owner's Association, respectively, in each case subject to no Lien other than
as provided for of permitted by the terms of this Agreement; and
(j) Borrower has not failed, nor has the Resort or, to Borrower's
knowledge, the Timeshare Owner's Association failed, to obtain any consents or
joinders, or any approvals, licenses, permits, franchise or other governmental
authorizations, or to make or cause to be made any filings, submissions,
registrations or declarations with any government or agency or department
thereof, necessary to the establishment, ownership or operation of the Resort,
or to the conduct of Borrower's business, including, without limitation, the
operation of the Resort and the sale, or offering for sale, of Intervals
therein; which violation or failure to obtain or register could have a Material
Adverse Effect.
5.37 RESORTS. With respect to each Timeshare Property,
(a) The Resort has been established and dedicated, and is and
shall remain, a timeshare plan and project in full compliance with all
applicable laws and regulations, including without limitation, the applicable
Timeshare Acts;
(b) The Resort has direct access to a publicly dedicated road and
all roadways inside the Resort are subject to access and use Easements or other
dedication or provision that benefits and will continue to benefit all
purchasers of Intervals;
40
<PAGE> 48
(c) All Easements necessary to the furnishing of any utility
services have been or shall be obtained and duly recorded, and inure or shall
inure to the benefit of the Resort and the Timeshare Owner's Association,
respectively;
(d) Each purchaser of an Interval has access to and the full use
and enjoyment of all of the Common Elements and public utilities of the Resort,
all in accordance with the Declaration and the Timeshare Documents;
(e) All costs arising from the construction or acquisition of any
Units and any other improvements and the purchase of any fixtures or equipment,
inventory, furnishings or other personalty located in, at, or on the Resort
have been paid or will be paid when due;
(f) The marketing, sale, offering for sale, retail solicitation of
purchasers or, if applicable, lessees, and financing of Intervals in the Resort
(1) do not constitute the sale, or the offering for sale, of securities subject
to the registration requirements of the Securities Act, or any state securities
law, (2) do not violate the applicable Timeshare Acts or any land sales or
consumer protection law, statute or regulation of the state in which such
purchaser is located or any other state or jurisdiction in which a purchaser
resides or in which sales or solicitation activities occur; and (3) do not
violate any consumer credit or usury statute of the state in which such
purchaser is located or any other state or jurisdiction in which a purchaser
resides or in which sales or solicitation activities occur. All marketing and
sales activities are performed by employees or agents of Borrower, all of which
are and shall be properly licensed in accordance with applicable laws;
(g) Except for specific items which may be owned by independent
contractors, the machinery, equipment, fixtures, tools and supplies used or to
be used in connection with the Resort, including without limitation, with
respect to the operation and maintenance of the Common Elements, are or shall
be owned by either Borrower or the Timeshare Owner's Association; and
(h) Borrower has entered or shall enter into the contracts,
agreements, and arrangements necessary for the operation of the Resort,
including but not limited to, those with respect to utilities, maintenance,
management, services, marketing sales which contracts shall be, in each
instance, satisfactory to and approved by Lender in form and substance.
5.38 TIMESHARE REGIMEN REPORTS. With respect to each Timeshare
Property, Borrower has furnished to Lender true and correct copies of the
Timeshare Documents with respect to such Timeshare Property which consist of
all those placed on file by Borrower as of the Closing Date with the applicable
and appropriate federal, state or local regulatory or recording agencies,
offices or departments. All such filings and/or recordations, and all joinders
and consents necessary in order to establish the plan in respect of the Resort,
including without limitation, the Units, Intervals, and all appurtenant Common
Elements, and all related use and access rights, have been or shall be done or
obtained as of the Closing Date, and all laws, regulations and statutes, and
all agreements or arrangements, in connection therewith have been or shall be
complied with as of the Closing Date.
41
<PAGE> 49
5.39 ARCHITECTURAL AND ENVIRONMENTAL CONTROL. With respect to each
Timeshare Property, all Units, Common Elements and other Improvements at, upon
or appurtenant to the Resort, respectively, are in compliance with the design,
use, architectural and environmental control provisions, if any, set forth in
the applicable Declaration and under applicable laws.
5.40 OTHER COMPLIANCE. With respect to each Timeshare Property,
Borrower has, in all material respects, complied with and will at all times
comply with all laws and regulations of the United States, the states in which
the Resort is located, any political subdivision of any of such states and any
other governmental, quasi governmental or administrative jurisdiction in which
Intervals have been or shall be sold or offered for sale, or in which sales,
offers of sale or solicitations with respect to the Resort, have been or will
be conducted, including to the extent applicable, but not limited to: (i) the
applicable Timeshare Acts; (ii) the Consumer Credit Protection Act; (iii)
Regulation Z of the Federal Reserve Board; (iv) the Equal Credit Opportunity
Act, (v) Regulation B of the Federal Reserve Board; (vi) the Federal Trade
Commission's 3-Day Cooling-Off Rule for Door-2-Door Sales; (vii) Section 5 of
the Federal Trade Commission Act; (viii) Interstate Land Sales Full Disclosure
Act; (ix) Federal postal laws; (x) applicable state and federal securities
laws; (xi) applicable usury laws; (xii) applicable trade practices, home and
telephone solicitation, sweepstakes, anti-lottery and consumer credit and
protection laws; (xiii) applicable real estate sales, licensing, disclosure,
reporting and escrow laws; (xiv) the Americans With Disabilities Act and
related accessibility guidelines; (xv) Real Estate Settlement Procedures Act
("RESPA"); (xvi) all amendments to and rules and regulations promulgated under
the foregoing acts or laws; (xvii) other applicable federal statutes and rules
and regulations promulgated thereunder; and (xviii) any state law or law of any
state (and the rules and regulations promulgated thereunder) relating to
ownership, establishment or operation of the Resort, or the sale, offering for
sale, or financing of Intervals.
5.41 NO INVESTIGATIONS OR VIOLATIONS. With respect to each
Timeshare Property, neither Borrower nor the Resort, nor the operations,
marketing or sales conducted with respect thereto are under investigation with
respect to any Timeshare Documents or any Timeshare Act, and Borrower has not
received any notification of, nor is Borrower aware of any violations of any
Timeshare Documents, any Timeshare Act, or any other laws or regulations,
whether state or federal, relating to the Resort or any other resorts owned by
Borrower, or the marketing of Intervals for sale.
ARTICLE 6
CERTAIN COVENANTS OF BORROWER
Borrower hereby covenants and agrees with Lender as follows:
6.1 PAYMENT AND PERFORMANCE OF LOAN OBLIGATIONS AND FACILITY
OBLIGATIONS. Borrower shall punctually pay and perform the Loan Obligations in
accordance with the respective terms of the Loan Documents. Borrower shall
punctually pay and perform the Facility Obligations in accordance with the
respective terms of the Facility Documents.
42
<PAGE> 50
6.2 TRANSFERS.
(a) Except for Permitted Transfers, Borrower will not, directly or
indirectly, sell, assign, convey, pledge, hypothecate, encumber, lease (except
in accordance with the terms of Section 6.6 hereof) or otherwise transfer (each
of the foregoing constituting a "TRANSFER") the Property or any part thereof,
or any interest therein, or suffer, consent to or permit the foregoing,
without, in each instance, the prior written consent of Lender. Borrower will
not permit any owner (directly or indirectly) of a legal or beneficial interest
in Borrower to Transfer such interest, whether by transfer of stock, assignment
of partnership interest or other transfer of legal or beneficial interest in
Borrower or in any direct or indirect owner thereof, or otherwise permit any
new or additional legal or beneficial Ownership Interests in Borrower or any
direct or indirect owner to be issued, without, in each instance, the prior
written consent of Lender.
(b) To the extent that Lender elects to consent to any Transfer as
to which its consent is required hereunder, Lender shall be entitled to
condition its consent on such matters as Lender may elect, in its sole
discretion, including, without limitation, execution of instruments of
assignment and assumption with respect to the Loan Documents and the
Collateral, payment of a transfer fee or other consideration, delivery of
Officer's Certificates and affidavits and indemnities, including an affidavit
and indemnification regarding Code Sections 1445 and 7701, agreements
restricting actions which may or may not be taken by any transferee or its
owners or restrictions in any such Person's Organizational Documents with
respect thereto, additional or replacement security for the Loan, restrictions
as to the use of any consideration paid for such Transfer, and opinions,
including opinions regarding the assumptions of Loan Obligations hereunder,
substantive consolidation and such other matters as Lender may request. Within
ten (10) days after the closing of any Transfer, whether or not such Transfer
required Lender's consent, if (i) the Property or any part thereof or any
interest therein, or (ii) any direct or indirect ownership interests in
Borrower, is transferred, Borrower will provide Lender with a copy of the deed
or other instrument of Transfer to the transferee. Borrower will promptly after
request therefor provide Lender with such other information and documentation
with respect to such Transfer as Lender shall reasonably request, including,
without limitation, information as to ownership of such transferee.
(c) Upon the occurrence of any Transfer, the provisions of this
Section 6.2 shall continue to apply to the transferee as if it were the
transferor hereunder, and any consent by Lender permitting a transaction
otherwise prohibited under this Section 6.2, or any right of Borrower or any
other Person to Transfer without such consent, shall not constitute a consent
to or waiver of any right, remedy or power of Lender to withhold its consent on
a subsequent occasion to a transaction not otherwise permitted by the
provisions of this Section 6.2. Notwithstanding the giving of any consent
hereunder by Lender, Borrower shall not engage in any Prohibited Transaction.
(d) Notwithstanding the provisions of this Section 6.2, Obsolete
Collateral (as such term is defined in the Mortgages) may be sold or otherwise
disposed of, provided, however, that either (i) such Obsolete Collateral has
been or is contemporaneously being replaced by like
43
<PAGE> 51
collateral of at least equal value and utility which is subject to the Lien of
the Mortgages with the same priority as with respect to the Obsolete
Collateral, or (ii) such Obsolete Collateral may be removed without adversely
affecting the maintenance, safety and operations at the Property.
(e) For purposes hereof, "PERMITTED TRANSFERS" shall mean (i) any
Transfers of the capital stock of Borrower so long as the same do not,
individually or in the aggregate, result in a Change of Control, and (ii) any
Transfers of Intervals contemplated under any contract of sale for any
Intervals pursuant to a Declaration, provided that no Transfer of record shall
be permitted with respect to any such Intervals prior to the Release of the
Unit containing any such Intervals and receipt by Lender of the Release Price
therefor.
6.3 LIENS. Borrower shall not create, suffer or permit to exist
any mortgage, pledge, lien, security interest (including, without limitation, a
purchase money security interest), encumbrance, charge, attachment, levy,
distraint or other judicial process (collectively, "LIENS") on, of or against,
or otherwise affecting, all or any portion of any Property (including, without
limitation, fixtures and other personal property), or any other property of
Borrower (whether tangible or intangible and now owned or hereafter acquired)
in favor of any Person other than Lender, without the prior written consent of
Lender (which consent may be withheld in Lender's sole discretion) in each
instance, other than the Permitted Encumbrances.
6.4 INDEBTEDNESS.
(a) Borrower shall timely pay any and all Indebtedness incurred by
Borrower.
(b) Notwithstanding that any Trade Payables incurred with respect
to any Property are otherwise permitted hereunder, Borrower shall pay any
portion of such Trade Payables which becomes due and payable within sixty (60)
days following the date on which each such amount is due and payable.
6.5 COMPLIANCE WITH RESTRICTIVE COVENANTS, ETC.
(a) Borrower will not modify, waive in any material respect or release any
Easements, restrictive covenants or other Permitted Encumbrances, or suffer,
consent to or permit the foregoing, without Lender's prior written consent,
which consent shall not be unreasonably withheld or delayed, except that
Lender's prior written consent shall not be required for any of the foregoing
in connection with the conversion of any Property into a Timeshare Property,
provided that the same shall not cause any diminution in value of any
Collateral. Borrower will timely comply in all material respects with the terms
of all Easements, restrictive covenants and all other Permitted Encumbrances.
Borrower shall take such further actions as Lender may reasonably request from
time to time with respect to such Easements, restrictive covenants or Permitted
Encumbrances.
(b) Borrower shall observe and comply with any conditions and
requirements necessary to preserve and extend any and all rights, privileges,
franchises and concessions that are applicable to the Property, the use and
occupancy thereof, or the business conducted thereat,
44
<PAGE> 52
and will timely comply in all material respects with all regulations, rules,
ordinances, statutes, orders and decrees of any Governmental Authority or court
applicable to it and/or the Property or any part thereof.
6.6 LEASES.
(a) Except as permitted in this Section 6.6, Borrower will not
enter into any Lease without the prior written consent of Lender, which may be
granted or withheld in Lender's sole discretion. Notwithstanding the foregoing,
Lender shall use its commercially reasonable discretion in granting or
withholding its consent with respect to a new Lease; provided, however, that
(i) the tenant under the Lease in question is not an Affiliate of Borrower,
(ii) such transaction is entered into on arms length terms (without
consideration of any other relationship Borrower or any Affiliate of Borrower
may have with the tenant or any Affiliate of such tenant), and (iii) the fair
market value of the Property and the ability of Borrower to make all payments
under the Loan Documents is not adversely affected thereby.
(b) Borrower will timely comply with all material terms and
conditions on its part to be performed under each Lease. Borrower shall neither
do nor neglect to do, nor permit to be done, anything which may cause the
termination of any Lease, other than due to the default of the tenant(s) under
such Lease. Borrower shall not collect any rent or other payment under any
Lease more than one month in advance of the due date thereof. Borrower will use
its best efforts to require the performance of all of the obligations of
tenants and other Persons bound by the Leases and to enforce the Leases,
subject, however, to the limitation on termination described in this Section
6.6.
(c) Borrower may, without Lender's prior written consent, enter
into any Lease, provided that each of the following conditions is satisfied:
(i) such Lease is subordinate to the Mortgages; (ii) the term of such Lease is
less than one (1) year, and (iii) such Lease does not contain any options to
purchase or other rights with respect to the ownership of the Property.
(d) Borrower may, without Lender's prior written consent, modify
or amend any Lease, provided that either (i) such modification or amendment is
required to be entered into pursuant to the terms of such Lease, or (ii) each
of the following conditions is satisfied: (A) such Lease would, after such
amendment or modification, satisfy the conditions set forth in Section 6.6(c)
hereof, to as great an extent as it did prior to such amendment or
modification; and (B) such amendment or modification does not otherwise have a
Material Adverse Effect.
(e) Each Lease executed by Borrower after the date hereof shall
provide, in a manner satisfactory to Lender, for (i) automatic subordination of
such Lease to the liens of the Mortgages, (ii) attornment by the tenant or
licensee thereunder to Lender promptly after the giving by Lender of a notice
to such tenant requiring such attornment, (iii) the tenant or licensee
thereunder to give a notice to Lender of each material default by the landlord
or licensor thereunder, simultaneously with the giving of notice of such
default to such landlord or licensor, (iv) Lender to have the right, but not
the obligation, to cure any default by the landlord or licensor thereunder
after the expiration of the landlord's or licensor's cure period, if any, and
(v)
45
<PAGE> 53
execution and delivery (not more than ten (10) days after a request therefor)
of an estoppel certificate satisfactory to Lender. Without limiting the
foregoing, each Lease shall also provide that Lender (or any other successor to
the landlord or licensor acquiring the Property by foreclosure, deed in lieu of
foreclosure or otherwise in connection with the enforcement of the Loan
Documents) shall not be: (A) liable for any previous act or omission of the
landlord or licensor under such Lease; (B) subject to any credit, demand,
claim, counterclaim, offset or defense which theretofore accrued to such tenant
or licensee against the landlord or licensor; (C) unless consented to by Lender
or permitted without Lender's consent under this Section 6.6, bound by any
previous modification of such Lease, or by any previous prepayment of more than
one month's fixed rent or additional rent; (D) bound by any covenant or
obligation of the landlord or licensor to perform, undertake or complete any
work in the leased space of the Property or to prepare it for occupancy; (E)
required to account for any security deposit of the tenant or licensee other
than any security deposit actually delivered to Lender by Borrower; (F) bound
by any obligation to make any payment to such tenant or licensee or grant any
credits, except for services, repairs, maintenance and restoration provided for
under the Lease to be performed by landlord or licensor after the date of such
attornment; and (G) responsible for any monies owing by the landlord or
licensor to such tenant or licensee.
6.7 DELIVERY OF NOTICES. Borrower will promptly, but in no event
later than five (5) days after Borrower becomes aware of any of the following
events, furnish a written notice to Lender (together with the applicable
correspondence and papers relating thereto) specifying the nature and period of
existence of such condition or event and, with respect to events described in
clause (a) below, what action Borrower is taking or proposes to take with
respect thereto (compliance with the provisions of this Section 6.7 shall not
be deemed or construed to constitute a waiver of or consent to any Default or
Event of Default of which Borrower has given Lender notice pursuant to this
Section 6.7):
(a) any Default hereunder or under any of the other Loan
Documents or Facility Documents, or any Event of Default;
(b) (1) any receipt or delivery by Borrower of a notice
of default or termination, (2) any proposed action with respect to any
default, or (3) any failure by any Person to perform any material
obligation, maintain any material representation or warranty or
satisfy any material condition, in each instance, in connection with
any material Easement, recorded instrument or Permit;
(c) the filing of any action, suit or proceeding against
or affecting Borrower or the Property that, if adversely determined,
could singly or collectively (1) impair the validity or enforceability
of this Agreement or any of the other Loan Documents or Facility
Documents or the ability of Borrower to perform its Loan Obligations
or Facility Obligations hereunder or thereunder or otherwise have a
Material Adverse Effect, or (2) result in a Lien on any portion of the
Property; and/or
46
<PAGE> 54
(d) any notice received from any Governmental Authority
asserting a violation of any material Legal Requirement and any
correspondence to or from Borrower with respect thereto.
(e) the filing of any Timeshare Documents whereby any
Property shall convert to a Timeshare Property.
Without limiting the generality of the foregoing, Borrower will
transmit to Lender, immediately upon receipt thereof, any communication
(addressed to Borrower or any Affiliate of Borrower) which relates to matters
which is reasonably likely to adversely affect Lender's security for the Loan
or reasonably likely to have an adverse effect on the financial condition of
Borrower, and will promptly respond fully to any inquiry of Lender made with
respect thereto.
6.8 ERISA.
(a) In addition to the prohibitions set forth in Section 5.25
hereof, and not in limitation thereof, Borrower shall not Transfer or
hypothecate its interest or rights in this Agreement or in the Property, or
attempt to do any of the foregoing or suffer any of the foregoing, nor shall
any Person owning a direct or indirect interest in Borrower Transfer any of its
rights or interest (direct or indirect) in such Person, attempt to do any of
the foregoing or suffer any of the foregoing, nor shall Borrower or any Person
owning a direct or indirect interest in Borrower take, without limitation, any
action or fail to take any action, if, in any such case, doing so would (i)
cause the Loan or the exercise of any of Lender's rights in connection
therewith to constitute a Prohibited Transaction (unless Borrower furnishes a
legal opinion reasonably satisfactory to Lender that the same is exempt from
the Prohibited Transaction provisions of ERISA and the Internal Revenue Code or
otherwise does not constitute a Prohibited Transaction), assuming solely for
this purpose that Lender is a Party In Interest or a Disqualified Person with
respect to an employee benefit plan, if any, which has directly or indirectly
invested in Borrower, or (ii) otherwise result in Lender being deemed in
violation of any applicable provisions of ERISA with respect to the Loan.
Borrower shall take such steps as are necessary to assure that each of them
(and their respective shareholders, partners and members) does not commit any
act, or fail to commit any act, the occurrence of which or the failure of which
to occur would cause the Loan to be a Prohibited Transaction.
(b) If the provisions of this Section 6.8 are violated, Borrower
agrees, at its own cost and expense, to take such steps as Lender shall
reasonably request to prevent the occurrence of a Prohibited Transaction or to
correct the occurrence of a Prohibited Transaction. Borrower agrees to
indemnify, defend and hold the Indemnified Parties free and harmless from and
against all loss, costs (including attorney's fees and expenses), taxes,
penalties, damages and expenses any Indemnified Party may suffer by reason of
the investigation, defense and settlement of claims based upon a breach of the
foregoing provisions. The provisions of Section 9.5 hereof shall apply to such
indemnification. The foregoing indemnification shall survive repayment of the
Loan.
6.9 INTENTIONALLY OMITTED.
47
<PAGE> 55
6.10 AFTER ACQUIRED PROPERTY. Borrower will grant to Lender a first
lien security interest in and to all equipment and other personal property
owned by Borrower and located at any Property, whether or not used in the
construction, maintenance and/or operation of the Improvements, immediately
upon acquisition of same or any part of same, unless such equipment or personal
property is the subject of any Indebtedness which would prohibit the granting
of such security interest.
6.11 BOOKS AND RECORDS. Borrower shall keep and maintain at all
times at its principal office complete, true and accurate books of account and
records reflecting the results of its operations. Borrower shall permit Lender,
its agents, consultants and representatives, upon reasonable notice (which may
be given orally or in writing) and at reasonable times, to examine and audit
the books and records of Borrower and make copies thereof, at Borrower's
expense. Borrower shall make all records relating to the Property available to
Lender and shall cooperate with any examination, audit or other inquiry
(including causing the personnel responsible for the Property to be available
to respond to inquiries).
6.12 DELIVERY OF ESTOPPEL CERTIFICATES.
(a) Borrower shall, from time to time, within ten (10) days after
written request from Lender, furnish to Lender or such other party (or parties
as may be requested by Lender) a written certificate setting forth the unpaid
principal of and interest due on the Note and any other sums evidenced or
secured by the Mortgages, and/or the other Loan Documents or Facility
Documents, stating the date through which interest has been paid, and stating
whether or not any offsets, defenses or counterclaims exist with respect to the
Loan Documents or Facility Documents. If requested, such certificate will also
attach true and correct copies of any Loan Documents or Facility Documents and
state such other information as Lender shall require. Upon request of Lender,
Borrower shall within ten (10) days after such request furnish Lender or such
other party or parties as Lender may request, a written certificate certifying
as to such matters as Lender may reasonably request.
(b) Borrower shall use all reasonable efforts to deliver to Lender
upon request, which may be made from time to time, tenant estoppel certificates
from each commercial tenant at the Property in form and substance reasonably
satisfactory to Lender.
6.13 MANAGEMENT. The Property is at all times to be managed by
Borrower in a competent and professional manner appropriate for a Resort
similar to the Property.
6.14 FINANCIAL STATEMENTS; AUDIT RIGHTS.
6.14.1 STATEMENTS TO BE DELIVERED. Until the Loan is repaid
in full, Borrower shall cause the following financial statements and
documentation to be delivered at the time and in the form and manner referenced
below:
48
<PAGE> 56
(i) audited statements of the financial position (balance
sheet) of Borrower as of the close of each fiscal year of Borrower
during the Term, and of stockholders' equity, retained earnings,
changes in financial position and cash flows for such fiscal year,
which statements shall be duly certified by the Designated Officer to
fairly represent the financial condition of Borrower as of the date
thereof and to have been prepared in accordance with generally
accepted accounting principles and accompanied by an opinion of the
Approved Accountant (which opinion shall be unqualified and shall not
contain any "statement of emphasis") to the effect that such financial
statements present fairly, in all material respects, the financial
condition of Borrower as of the end of the fiscal year being reported
on and that the results of the operations and cash flows for said year
are in conformity with generally accepted accounting principles,
consistently applied, and that the examination of the Approved
Accountant in connection with such financial statements has been
conducted in accordance with generally accepted auditing standards and
included such tests of the accounting records and such other auditing
procedures as the Approved Accountant deemed necessary in the
circumstances;
(ii) unaudited quarterly balance sheet of Borrower, a
statement of profits and losses and a calculation of net cash flows
for the applicable quarter, such quarterly financial statements to be
certified by a Designated Officer to fairly represent the financial
condition of Borrower as of the date thereof and to have been prepared
in accordance with generally accepted accounting principles;
(iii) a monthly operating statement showing all receipts,
expenses and net cash flow for the applicable calendar month,
year-to-date results and variances from the same month in the prior
calendar year and from the Approved Budget, and such other matters as
Lender shall reasonably require, which monthly operating statements
shall be certified by a Designated Officer to be true, correct and
complete in all material respects and shall be prepared on a cash
basis;
(iv) not later than each December 1 during the Term,
Borrower shall submit to Lender a detailed budget for each Property
covering the calendar year commencing on the following January 1 (each
such budget is referred to as an "APPROVED BUDGET"); until Lender
shall receive a new budget, the Approved Budget from the prior year
shall remain in effect, and it is expressly understood and agreed that
the budget for the calendar year in which the Closing Date shall occur
shall be delivered to Lender within thirty (30) days following the
Closing Date;
(v) the annual Form 1065 (with accompanying schedules
K-1) (or any substitute therefor) prepared by Borrower;
(vi) schedule of all accounts payable with respect to each
Property at the end of each calendar quarter, certified by a
Designated Officer to be true, correct and complete in all material
respects; and
49
<PAGE> 57
(vii) such other reports and information which Lender
reasonably requires certified by a Designated Officer to be true,
correct and complete in all material respects.
6.14.2 TIME FOR DELIVERY.
(a) The statements referred to in paragraph (i) of
Section 6.14.1 hereof shall be delivered to Lender within ninety (90) days
after the last day of each fiscal year of Borrower. The statements referred to
in paragraphs (ii) and (vi) of Section 6.14.1 hereof shall be delivered to
Lender within thirty (30) days after the last day of each calendar quarter. The
reports referred to in paragraph (iii) of Section 6.14.1 hereof shall be
delivered to Lender within twenty (20) days after the last day of each calendar
month. Notwithstanding anything to the contrary, the information required under
paragraph (v) of Section 6.14.1 hereof shall be delivered to Lender
simultaneously with delivery to the partners/members of Borrower but in no
event later than ninety (90) days after the last day of each fiscal year of
Borrower. All Financial Statements shall be in form and substance satisfactory
to Lender.
(b) Borrower shall deliver to Lender Borrower's Form 10-Q
Quarterly Reports, Form 10-K Annual Reports, Form 8-K Current Reports and any
other filings made by Borrower with the Securities and Exchange Commission, if
any, as soon as the same are filed, or any other information that is provided by
Borrower to its shareholders, and any other report reasonably requested by
Lender relating to any of the Collateral and/or the financial condition of
Borrower.
6.14.3 OFFICER'S CERTIFICATE. Each Financial Statement
described in paragraphs (i), (ii) and (iii) of Section 6.14.1 hereof shall be
accompanied by an Officer's Certificate of Borrower certifying that, to the
best of such officer's knowledge, Borrower has observed and performed, in all
material respects, all of its covenants and other agreements contained in this
Agreement and the other Loan Documents, whether there exists any material
Default or Event of Default and, if there is, specifying the nature and period
of existence thereof and the action Borrower is taking or proposing to take
with respect thereto.
6.15 MAINTENANCE OF TAXABLE STATUS. Borrower will maintain its
status of being taxed as a corporation for the purposes of federal, state and
local income taxes.
6.16 LENDER'S ATTORNEYS' FEES AND EXPENSES. Borrower shall appear
in and defend any action or proceeding purporting to affect the security of the
Mortgages or the security interests granted under any of the other Loan
Documents, or the rights and powers of Lender under any of the Loan Documents,
and Borrower (in addition to Lender's attorneys' fees and expenses to be paid
by Borrower otherwise pursuant to this Agreement or the other Loan Documents)
shall pay all of Lender's attorneys' fees and expenses in connection with the
enforcement of this Agreement and the other Loan Documents and the collection
of all amounts payable hereunder and thereunder. In case of any Default under
this Agreement or any of the other Loan Documents, or if any action or
proceeding is commenced in which it becomes necessary to defend or uphold the
Lien or priority of the Mortgages or the other Loan Documents, or which
adversely affects Lender's interests in the Property or any part thereof,
50
<PAGE> 58
including, but not limited to, eminent domain, or proceedings of any nature
affecting the Property or involving the bankruptcy, insolvency, arrangement,
reorganization or other form of debtor relief with respect to Borrower or
relating to a decedent, then Lender may, but without obligation to do so, and
without releasing Borrower from any obligation hereunder or under the other
Loan Documents, make such appearances, disburse such reasonable sums and take
such action as Lender deems necessary or appropriate to protect Lender's
interest in the Property. All costs incurred by Lender, including attorneys'
fees and disbursements, in taking any action described above shall be paid by
Borrower upon demand together with interest thereon at the Default Rate from
the date paid by Lender through the date of repayment by Borrower and the same
shall be deemed to constitute protective advances evidenced by the Note and
secured by the Mortgages and the other Loan Documents. In addition to, and
without limiting the generality of, the foregoing, if, at any time hereafter,
Lender employs counsel (i) upon the occurrence of a Default, for advice or
other representation (whether or not any suit has been, or shall thereafter be,
filed, and whether or not other legal proceedings have been, or shall
thereafter be, instituted, and whether or not Lender shall be a party thereto)
with respect to the Loan, the Property or any part thereof, this Agreement or
any of the other Loan Documents, or (ii) to protect, collect, lease, sell, take
possession of, foreclose upon or liquidate all or any part of the Property, or
to attempt to enforce any security interest or Lien in all or on any part of
the Property, or to enforce any rights of Lender or any of Borrower's Loan
Obligations hereunder or under any of the other Loan Documents, or any
obligations of any other Person which may be obligated to Lender by virtue of
this Agreement or any other agreement, instrument or document heretofore or
hereafter delivered to Lender by or for the benefit of Borrower, then, in any
such event, all of the attorneys' fees and expenses arising from such services,
and all expenses, costs and charges relating thereto, shall be paid by Borrower
upon demand, together with interest thereon at the Default Rate from the date
paid by Lender through the date of repayment by Borrower, and the same shall be
deemed to constitute protective advances evidenced by the Note and secured by
the Mortgages and the other Loan Documents.
6.17 ENVIRONMENTAL.
(a) Borrower shall not (and it shall not permit any tenant,
subtenant, contractor, agent or manager to) locate, produce, use, store, treat,
transport, incorporate, discharge, emit, release, deposit or dispose of any
Hazardous Substance in, upon, under, at, over or from the Property, except that
Borrower (its tenants, subtenants, manager, contractors or agents) may store,
locate and use on the Property Hazardous Substances which are (i) customarily
located, stored or used at golf courses similar to the Property, or (ii) unique
to a tenant's business located in the Property, provided that such Hazardous
Substances described in clauses (i) or (ii) above are at all times stored,
located and used in compliance with all Environmental Laws. Borrower shall not
permit any Hazardous Substances to be located, produced, used, stored, treated,
transported, incorporated, discharged, emitted, released, deposited, disposed
of or to escape in, upon, under, over or from the Property in violation of any
Environmental Law, and shall comply with all Environmental Laws which are
applicable to the Property. Borrower shall not engage in any conduct in
connection with the Property that may subject Borrower to Environmental Costs
or contribute to or aggravate a release of Hazardous Substances. In addition to
the foregoing restrictions, Borrower agrees that no asbestos, ACM, materials
containing urea-formaldehyde, or
51
<PAGE> 59
transformers, capacitors, ballasts or other equipment that contain PCBs are, or
will at any time be, located about the Property.
(b) Borrower shall, promptly within the time permitted by
Environmental Laws, initiate and diligently pursue to completion, any and all
remedial action required pursuant to any Environmental Laws in response to the
presence of any Hazardous Substances at, on, under or about, or emanating from,
the Property, and shall take such remedial action as is required to minimize
any impairment of Lender's Lien on, and security interest in, the Property. If
Borrower undertakes any remedial action with respect to any Hazardous Substance
about the Property, Borrower shall conduct and complete such remedial action in
compliance with all applicable Environmental Laws. If any Hazardous Substance
is removed or caused to be removed from the Property by Borrower, the generator
number assigned by the Environmental Protection Agency to such Hazardous
Substance shall not be in the name of Lender, and Borrower shall assume any and
all liability for such removed Hazardous Substance.
(c) The representations and warranties contained in Section 5.18
hereof and the covenants contained in this Section 6.17 shall be deemed
continuing covenants for the benefit of Lender, the Indemnified Parties and
their respective successors and/or assigns, except the rights and remedies of
Lender and the Indemnified Parties under such Sections 5.18 and 6.17 of this
Agreement shall not inure to the benefit of (i) any purchaser of the Property
at a foreclosure sale, (ii) any Person taking title to the Property by deed in
lieu of foreclosure or (iii) any successor or assign of any Person described in
clauses (i) and (ii) above, except that Lender's and Indemnified Parties'
rights shall inure to the benefit of the parties described in clauses (i), (ii)
and (iii) hereof if such parties are Lender (including, for these purposes, its
successors and assigns as holder of the Loan Documents), any beneficiaries of
any Loan Pool, and any Participant's or any of Lender's (or such successors,
assigns, beneficiaries or Participant's) Affiliates or nominees.
(d) Borrower shall give prompt written notice to Lender of:
(i) any proceeding or inquiry by any Governmental
Authority with respect to the presence of any Hazardous Substance on
the Premises or the migration thereof from or to other property;
(ii) all claims made or threatened by any third party
against Borrower or the Premises relating to any loss or injury
resulting from any Hazardous Substance;
(iii) the storage, production, release, discharge or
disposal of any Hazardous Substances on the Premises other than in
accordance with all applicable Environmental Laws; and/or
(iv) Borrower's discovery of any occurrence or condition
on any real property adjoining or in the vicinity of the Premises that
could cause the Premises or any part thereof to be subject to any
restrictions on the ownership, occupancy, transferability or use of
the Premises under any Environmental Law or to be otherwise subject to
any restrictions on the ownership, occupancy, transferability or use
of the Premises under any Environmental Law.
52
<PAGE> 60
(e) Borrower shall keep Lender apprised of the status of, and any
material developments in, any governmental investigation relating to
Environmental Matters at or about the Property, any and all enforcement, clean-
up, removal or other governmental or regulatory actions instituted, completed
or threatened pursuant to any Environmental Law with respect to the Property
and any other claims, actions or proceedings with respect to the Property
relating to Environmental Matters. Borrower shall provide Lender with copies of
all communications with all Governmental Authorities relating to Hazardous
Substances Claims. Without Lender's prior written consent, Borrower shall not
enter into any settlement agreement, consent decree or other compromise with
respect to any such governmental investigation or action, or other claim,
action or proceeding relating to Hazardous Substances which Borrower does not
have the funds available to pay or which may adversely affect Lender's Lien on,
or the value of, the Property.
(f) The foregoing rights and remedies contained in this Section
6.17 are cumulative with, and in addition to, any rights and remedies Lender
may have against Borrower under the other terms and provisions of this
Agreement, under any other Loan Document or under any Environmental Law,
including, without limitation, CERCLA.
6.18 REPORT UPDATES.
(a) Lender reserves the right at any time during the Term to
conduct or require Borrower to conduct, at Borrower's expense, such
environmental inspections, audits and tests as Lender shall deem reasonably
necessary or advisable from time to time utilizing a company acceptable to
Lender; provided, however, that Borrower shall not be required to pay for such
environmental inspections, audits and tests so long as: (i) no Event of Default
exists under this Agreement or any other Loan Document or Facility Document;
(ii) Lender has no cause to believe, in Lender's sole but good faith judgment,
that there has been a release or a threatened release of Hazardous Substances
at the Property or that Borrower or the Property is in violation of any
applicable Environmental Law; (iii) such inspections, audits and tests are not
being obtained in satisfaction of the provisions of Section 9.26 hereof; and
(iv) such inspection, audit or test has not been recommended in any other
audit, inspection, test or consultants report previously conducted with respect
to the Property. In the event that any environmental site assessment report
prepared for the Property recommends that an operations and maintenance plan be
implemented for any Hazardous Substance, including, without limitation,
asbestos, Borrower shall cause such operations and maintenance plan to be
prepared and implemented at Borrower's expense upon request of Lender and in
accordance with the recommendation.
(b) Lender shall have the right from time to time throughout the
Tenn to order engineering reports with respect to any Property. Such
engineering reports shall be paid for by Borrower in accordance with Section
9.4 hereof; provided, however, that Borrower shall not be required to pay for
such engineering reports unless (i) an Event of Default has occurred, (ii) any
such engineering report is being obtained pursuant to Section 9.26 hereof,
(iii) any such engineering report is required by applicable Legal Requirements
to be obtained, or (iv) in Lender's sole but good faith judgment, an adverse
change in the condition of any Property has occurred.
53
<PAGE> 61
(c) Lender shall not be liable for any action or inaction by
Borrower with respect to any remedial or other response activity in connection
with any Hazardous Substance or any repair or replacement recommended in any
engineering report, notwithstanding any review or approval of Borrower's method
of remediation or repair or replacement, as applicable, or any response by
Lender.
6.19 LENDER ACCESS TO PROPERTY. Borrower will permit Lender and
its agents, consultants or representatives, to enter upon the Property on
reasonable notice (which may be given orally or in writing) at reasonable times
to inspect the Property and/or the Improvements. Lender or its agents,
consultants or representatives as part of any inspection may take soil, air,
water, building material and other samples, subject to the rights of tenants
under Leases.
6.20 DELIVERY OF DOCUMENTS REGARDING OWNERSHIP. Borrower will
deliver to Lender, on demand made therefor by Lender, copies of all documents
which evidence Borrower's title in or to any materials, fixtures or articles
incorporated in the Improvements or subject to the Lien of any of the Loan
Documents.
6.21 USE OF PROPERTY. Unless required by applicable law,
Borrower shall not permit changes in the use of any part of any Property from
the use existing on the date hereof, except for the conversion of any Property
into a Timeshare Property. Borrower shall not initiate or acquiesce in a change
in the plat of subdivision or zoning classification of any Property without
Lender's prior written consent, except that Lender's prior written consent for
such change shall not be required with respect to the conversion of any
Property into a Timeshare Property.
6.22 INSURANCE. Borrower shall at all times maintain all
Insurance Policies required to be obtained and maintained by Borrower pursuant
to the terms of the Mortgages.
6.23 BORROWER'S MINIMUM EQUITY. Borrower's Minimum Equity shall
remain invested in each Property for the remainder of the Term.
6.24 CAPITAL OFFERING PROCEEDS. Upon the occurrence of a
Capital Offering, Borrower shall repay the Outstanding Principal Balance with
the proceeds of such Capital Offering in accordance with the provisions of
Sections 2.11.2 hereof.
6.25 RESORT UTILITIES. With respect to each Timeshare Property,
Borrower, to the extent provided for pursuant to the Declaration, shall use its
best efforts to insure that the Timeshare Owner's Association will cause,
electric, sanitary and stormwater sewer, water facilities, drainage facilities,
solid waste disposal, telephone and other necessary utilities to be available
to the Resort in sufficient capacity to serve said Resort.
6.26 RESORT MAINTENANCE AND AMENITIES. With respect to each
Timeshare Property, Borrower, to the extent provided for pursuant to the
Declaration, shall use its best efforts to insure that the Timeshare Owner's
Association will cause the Resort to be maintained in good condition and
repair, in accordance with the provisions of the applicable Timeshare
Documents.
54
<PAGE> 62
Borrower will cause each purchaser of an Interval at the Resort to have
continuing access to, and use of, to the extent of such purchaser's time-share
periods, the Common Elements and related or appurtenant services, rights and
benefits, all as provided for in the Declaration and the Timeshare Documents.
6.27 TIMESHARE REGIME. With respect to each Timeshare Property,
Borrower shall not (i) assign any of its rights as "developer" under the
Declaration, nor (ii) materially modify any Timeshare Documents, without
notifying Lender of such modification.
6.28 MARKETING/SALES. With respect to each Timeshare Property,
Borrower shall not market, attempt to sell or sell or permit or justify any
sales or attempted sales of any Intervals, except in compliance with the
applicable Timeshare Acts, and applicable laws in the state and other
jurisdictions where marketing, sales or solicitation activities occur.
6.29 TANGIBLE CONSOLIDATED NET WORTH Throughout the Term,
Borrower shall maintain at all times a Tangible Consolidated Net Worth of not
less than an amount equal to $67,000,000.00, which shall be determined as of
the first day of each month during the Term. Borrower shall promptly deliver to
Lender, from time to time, all information requested by Lender to substantiate
Borrower's then Tangible Consolidated Net Worth which shall be certified by a
Designated Officer to be true, correct and complete.
ARTICLE 7
EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT; DEFAULTS. The term "DEFAULT" as used
herein shall mean any one or more of the events set forth below prior to the
expiration of the applicable notice or grace period, if any. The term "EVENT OF
DEFAULT", wherever used in this Agreement, shall mean any one or more of the
events set forth below after the expiration of the applicable notice or grace
period, if any.
7.1.1 NON-PAYMENT. Failure by Borrower to pay (i) any
periodic installment of interest or principal when the same shall become due
and payable hereunder or under the Notes and the continuation of such failure
for a period of five (5) days after written notice thereof is given to
Borrower; provided, however, that such notice shall not be required to be given
to Borrower more than two (2) times in any twelve (12) month period, and/or
(ii) the Outstanding Principal Balance, together with the interest accrued on
the Note and all other sums which may then be owed by Borrower to Lender, at
maturity or upon prepayment of the Note in full, and/or (iii) any other sums to
be paid by Borrower hereunder or under any other Loan Documents or Facility
Documents within ten (10) days following the date on which Lender gives
Borrower written notice of such failure.
7.1.2 AFFIRMATIVE COVENANTS. Failure by Borrower or any
other Person to duly keep, perform and observe any Affirmative Covenant or
agreement in this Agreement, the Note or any other Loan Document (unless same
constitutes a Default under any other clause of this
55
<PAGE> 63
Section 7.1 or any other Loan Document or Facility Document, in which case, the
grace or cure period, if any, set forth in such other clause shall govern)
within thirty (30) days after Lender gives Borrower written notice of such
failure; provided, however, that in the event such failure is not susceptible
of cure within ten (10) days following the date on which Lender gives Borrower
written notice of such failure within such thirty (30) day period, it shall not
be an Event of Default hereunder if such failure is curable, Borrower commences
to cure such failure within such thirty (30) day period, and thereafter
diligently prosecutes such cure to completion within thirty (30) days following
the expiration of such sixty (60) day period.
7.1.3 NEGATIVE COVENANTS. If Borrower or any other
Person shall breach or otherwise not comply with any Negative Covenant set
forth herein or in any other Loan Document (unless same constitutes a Default
under any other clause of this Section 7.1 or any other Loan Document, in which
case, the grace or cure period, if any, set forth in such other clause shall
govern) and such Default shall continue for five (5) Domestic Business Days
after written notice thereof by Lender to Borrower, provided that no such
notice and grace shall be required with respect to a knowing, intentional and
willful breach of a Negative Covenant.
7.1.4 FINANCIAL STATEMENTS. If any material
inaccuracy shall exist in any of the Financial Statements or in any other
financial statement or other information (i) furnished to Lender by Borrower,
any officer of Borrower, or any other Person on behalf of Borrower, pursuant to
the provisions of this Agreement or any other Loan Document, or (ii) furnished
to or to be furnished to Lender to induce Lender to make any Loan or any
advance hereunder or to consent to any matter hereunder or under any other Loan
Document.
7.1.5 REPRESENTATIONS. If, at any time, any
representation, warranty or certification made by Borrower in this Agreement,
the Note or any other Loan Document, or in any document delivered pursuant to
any Loan Document, or otherwise delivered in connection with the Loan, shall be
untrue, incorrect or misleading in any material respect when made, materiality
to be reasonably determined by Lender.
7.1.6 OTHER LOAN DOCUMENTS. If an "Event of
Default" shall occur under any other Loan Document or Facility Document (or
under any document evidencing or securing or delivered in connection with any
loan (other than the Loan) which Lender may have made or hereafter elect to
make to Borrower, including, but not limited to, a certain $40,000,000.00 line
of credit facility, as the same may be amended from time to time) or any other
default shall occur and continue beyond the applicable notice or grace period,
if any, under or with respect to any other Loan Document or Facility Document
(or under or with respect to any of the documents evidencing or securing any
such other loan).
7.1.7 FAILURE TO DELIVER ESTOPPEL CERTIFICATE. If
Borrower shall fail to deliver any estoppel certificate required by Section
6.13 hereof within the time period provided in said Section.
7.1.8 CESSATION OF BORROWER. If Borrower ceases to
exist.
56
<PAGE> 64
7.1.9 TRANSFER. If a Transfer shall occur in
violation of Section 6.2 hereof.
7.1.10 LIENS. If, in violation of Section 6.3
hereof, the Collateral or any part thereof is mortgaged or any other Lien is
voluntarily placed thereon by Borrower.
7.1.11 INVOLUNTARY BANKRUPTCY, ETC. The entry by a
court of (i) a decree or order for relief in respect of any Borrower in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law, or (ii) a decree
or order adjudging Borrower a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or composition
of or in respect of Borrower under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official
of Borrower or of any substantial part of the property of Borrower, or ordering
the winding up or liquidation of the affairs of, Borrower, and the continuance
of any such decree or order for relief or any such other decree or order
unstayed and in effect for a period of sixty (60) days.
7.1.12 VOLUNTARY BANKRUPTCY ETC. (i) The
commencement by Borrower of a voluntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other similar law,
or of any other case or proceeding, to be adjudicated a bankrupt or insolvent;
(ii) the consent by Borrower (A) to the entry of a decree or order for relief
in respect of Borrower in an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law, or (B) to the commencement of any bankruptcy or insolvency case or
proceeding against Borrower; (iii) the filing by Borrower of a petition or
answer or consent seeking reorganization or relief under any applicable federal
or state bankruptcy, insolvency, reorganization or other similar law against
it; (iv) the consent by Borrower to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of Borrower, or of any
substantial part of any property of Borrower; (v) the making by Borrower of an
assignment for the benefit of creditors; or (vi) the admission by Borrower in
writing of its inability to pay its debts generally as they become due.
7.1.13 JUDGMENTS. If, at any time, a judgment shall
be rendered against Borrower which could adversely affect the ability of
Borrower to perform any of its Loan Obligations or Facility Obligations, if
any, under this Agreement, the Notes or any other Loan Document or Facility
Document; provided, however, that if Borrower appeals said judgment and (i)
said appeal (A) is timely filed, (B) is diligently pursued, (C) is permitted by
law, and (D) has the effect of staying any action on such judgment, (ii)
Borrower posts any security required by law or required by Lender in respect of
said judgment, (iii) said judgment does not subject Lender, the Collateral or
the Property to any civil or criminal penalties, and (iv) such judgment is not
a Lien on the Collateral, the Property, then it shall not be an Event of
Default hereunder until such judgment is final and non-appealable.
7.1.14 DELIVERY OF FINANCIAL STATEMENTS. If Borrower
fails to deliver to Lender any Financial Statement required to be delivered
hereunder or under any other Loan Document,
57
<PAGE> 65
and such failure continues for fifteen (15) days after notice thereof is given
by Lender to Borrower.
7.1.15 ERISA. If Borrower shall breach any of the
provisions of Section 6.8 hereof.
7.1.16 OTHER CONDITIONS FOR ACCELERATION. The
occurrence of any conditions set forth herein, in the Note or any other Loan
Document or Facility Document permitting Lender to accelerate the Loans.
7.1.17 DENIAL OF OBLIGATION. If Borrower shall take
the position in any written communication with Lender or in any litigation that
any Loan Document or Facility Document is no longer the valid, binding and
enforceable obligation of Borrower or any other party thereto, or that such
Person's obligations to Lender, if any, pursuant to such Person's
Organizational Documents are no longer the valid, binding and enforceable.
7.1.18 FAILURE TO PROVIDE FURTHER ASSURANCES. If,
after fifteen (15) days notice from Lender to Borrower that Borrower has failed
to comply with any of the provisions of Section 9.24 hereof, Borrower fails to
cure such Default.
7.1.19 PRIORITY OF LIENS UNDER LOAN DOCUMENTS. The
Liens created by the Loan Documents or Facility Documents shall at any time,
except by reason of the acts of Lender, not constitute a valid and perfected
first (or second in the case of the Second Mortgage) lien on the Collateral
intended to be covered thereby in favor of Lender, free and clear of all other
Liens (other than Liens permitted under the Loan Documents), or, except for
expiration in accordance with its terms, any of the Loan Documents shall for
whatever reason be terminated or cease to be in full force and effect, or the
enforceability thereof shall be contested by Borrower or any other Person, and
any such action by any such other Person is not being contested by Borrower in
good faith and by appropriate proceedings diligently conducted.
7.1.20 CERTAIN COVENANTS. Borrower has failed to
comply with any of the provisions of Sections 6.4 (Indebtedness) or 6.22
(Insurance) hereof.
7.1.21 DEFAULT IN PAYMENT OF INDEBTEDNESS. Borrower
shall default in the payment of any Indebtedness (other than any Loan
Obligations or Facility Obligations) in excess of $250,000.00 and such default
is declared and is not cured within the time, if any, specified therefor in any
agreement governing the same.
7.1.22 ENVIRONMENTAL CLAIMS. There shall have been
asserted against Borrower, or any predecessor in interest of Borrower, an
Environmental Claim that, in the judgment of Lender is reasonably likely to be
determined adversely to Borrower and such Environmental Claim arises with
respect to or may affect any Collateral or the value thereof (either
individually or in the aggregate) and is reasonably likely in the opinion of
Lender to have a Material Adverse Effect.
58
<PAGE> 66
7.1.23 CONTINUOUS OPERATION. The loss, revocation or
failure to renew or file for renewal of any registration, approval, license,
permit or franchise now held or hereafter acquired by Borrower or with respect
to any Resort, or the failure to pay any fee which is necessary for the
continued operation of any Resort or Borrower's business in the same manner as
is being conducted at the time of such loss, revocation, failure to renew or
failure to pay.
7.1.24 SUSPENSION OF SALES. The issuance of any
stay, order, cease and desist order, injunction, temporary restraining order or
similar judicial or non-judicial sanction, which is not dismissed with
prejudice within ninety (90) days, limiting or otherwise adversely affecting
any Interval sales activities, or other business operations in respect of the
Resorts located at any Property or the enforcement of Lender's remedies.
7.2 TERMINATION OF COMMITMENT AND RIGHTS UPON EVENT OF DEFAULT.
(a) Upon the occurrence and during the continuance of any
Event of Default, other than one referred to in Section 7.1.12 or 7.1.13
hereof, Lender may, by notice to Borrower, terminate the Commitment and it
shall thereupon terminate in its entirety. Upon the occurrence of an Event of
Default referred to in Section 7.1.12 or 7.1.13 hereof, the Commitment shall
automatically be terminated.
(b) Upon the occurrence and during the continuance of any
Event of Default, Lender shall, in addition to all other remedies conferred
upon Lender at law or in equity or by the terms of the Note and the other Loan
Documents and Facility Documents, have the right, but not the obligation, to
pursue any one or more of the following remedies, concurrently or successively,
it being the intent hereof that all such remedies shall be cumulative and that
no such remedy shall be to the exclusion of any other:
(i) take any action which, in
Lender's sole judgment, is necessary or appropriate to effect
observance and performance of the covenants, agreements and Loan
Obligations and Facility Obligations (under this Agreement and the
other Loan Documents and Facility Documents) of Borrower or any
other Person providing collateral pursuant to, or obligated to
perform any of the terms and provisions of, this Agreement or the
other Loan Documents or Facility Documents (each, an "OBLIGATED
PARTY");
(ii) declare any and/or all of the
Notes to be immediately due and payable;
(iii) use and apply (i) any receipts or
proceeds from any Property, (ii) any Tax and Insurance Deposits
deposited with Lender or (iii) any other monies deposited by
Borrower with Lender, regardless of the purpose for which the same
were deposited, to cure any Default or Event of Default, or apply
any such receipts or proceeds from any Property and/or such monies
on account of any indebtedness under this Agreement or any of the
other Loan Obligations or Facility Obligations, or for any other
purposes described herein or in any other Loan Document or
Facility Document, in such order or priority as Lender shall
determine in its sole discretion;
59
<PAGE> 67
(iv) institute an action, suit or
proceeding at law or in equity for the specific performance of any
covenant, condition or agreement contained herein or in the Note
or in any other Loan Document or Facility Document, or in aid of
the execution of any power granted hereunder or for the
enforcement of any other appropriate legal or equitable remedy;
and/or
(v) setoff against the Loan
Obligations and/or Facility Obligations to Lender of Borrower or
any other Obligated Party, any sum owed by Lender or any Affiliate
of Lender in any capacity to Borrower or such other Obligated
Party, or any property of any of them in the possession of Lender
or any Affiliate of Lender.
7.3 WAIVER OF STAY, EXTENSION AND MORATORIUM LAWS, APPRAISAL AND
VALUATION, REDEMPTION AND MARSHALLING.
(a) Borrower shall not at any time insist upon, or plead,
or in any manner whatever claim or take any benefit or advantage OF ANY stay or
extension or moratorium law, any exemption from execution or sale of any of the
Collateral, or any part of any thereof, wherever enacted, which may affect the
covenants and terms of performance of the Loan Documents and/or the Facility
Documents, nor claim, take or insist upon any benefit or advantage of any law
now or hereafter in force providing for the valuation or appraisal of any of
the Collateral, or any part of any thereof, prior to any sale or sales thereof
which may be made pursuant to any provision of any Loan Document and/or
Facility Document, or pursuant to the decree, judgment or order of any court of
competent jurisdiction; nor, after any such sale or sales, claim or exercise
any right under any statute to redeem the property so sold, or any part
thereof, and Borrower hereby expressly waives all benefit or advantage of any
such law or laws, and covenant not to hinder, delay or impede the execution of
any power herein granted or delegated to Lender, but to suffer and permit the
execution of every power as though no such law or laws had been made or
enacted. Borrower, for itself and all who may claim under it, waives, to the
extent that they lawfully may, all right to have the Collateral marshaled upon
any foreclosure.
(b) In the event that any bankruptcy or insolvency
proceeding under any federal, state or local law is filed by or against
Borrower or any of their assignees or designees at any time prior to full
satisfaction of the Loan, Lender shall, to the extent permitted by law, be
absolutely and unconditionally entitled to relief from any automatic stay
imposed with respect to Borrower or its assignees or designees and/or the
Collateral by the filing of such bankruptcy or insolvency proceeding,
including, but not limited to, the stay imposed by Section 362(a) of the
Bankruptcy Code effective as of any such filing, without further action by
Lender or order of any court, and Lender shall be authorized to exercise all of
its rights and remedies with respect to the Collateral, including, but not
limited to, commencing a foreclosure action, seeking the appointment of a
receiver therein and selling the Collateral therein, and Borrower hereby
irrevocably consents to the foregoing. Without limiting the previous sentence,
Borrower hereby irrevocably consents to, shall not oppose or contest, and
shall not request or cause any creditors' committee or any party in interest to
oppose or contest, any application for relief from the automatic stay or for
"adequate protection," as that term is defined in the Bankruptcy Code, which
may be filed by Lender in any future bankruptcy or insolvency proceeding with
respect to Borrower and/or the Collateral. No
60
<PAGE> 68
other action, inaction or agreement by Lender in any future bankruptcy or
insolvency proceeding shall be deemed to be a waiver of the rights given to
Lender hereby.
7.4 PREFERENCES. Lender shall have no obligation to
marshal any assets in favor of Borrower or any other party or against or in
payment of the Loans. To the extent Borrower makes a payment to Lender, which
payment or the proceeds or any part thereof are subsequently invalidated,
declared to be fraudulent, preferential or avoidable, set aside or required to
be repaid to a trustee, receiver or any other party having requisite authority
under any bankruptcy law, state or federal law, common law or equitable cause,
then, to the extent of such payment or proceeds received, the obligation
hereunder or part thereof intended to be satisfied shall be revived and
continue in full force and effect, as if such payment or proceeds had not been
received.
7.5 WAIVER OF CROSS-DEFAULT AND CROSS-COLLATERALIZATION.
Borrower acknowledges and agrees that Lender may unilaterally waive, release
and/or terminate any provisions of the Facility Documents relating to
cross-defaults and/or cross-collateralization. In any such event, Lender shall
have the right to record one or more declaration(s) or other instrument(s) with
respect to the Facility Documents referring to this Section and stating that
from and after the date of such declaration(s) or other instrument(s), the
Facility Documents designated therein shall no longer secure the Facility
Obligations (other than the designated Loan Obligations) and that any default
that may thereafter occur in the payment, performance or observance of any
Facility Obligations (other than the designated Loan Obligations) shall no
longer constitute an Event of Default under the Facility Documents. Upon the
recording of any such declaration(s) or instrument(s), (a) the Facility
Obligations shall no longer be deemed to include the designated Loan
Obligations, (b) the designated Facility Documents shall no longer evidence
and/or secure the Facility Obligations (other than the Loan designated
Obligations), (c) the Facility Documents (other than the designated Loan
Documents) shall no longer be deemed to evidence or secure the designated Loan
Obligations, and (d) the Facility Documents shall thereafter be construed,
interpreted and enforced for all purposes in the same manner and to the same
extent and on the same terms as if the Facility Documents had never contained
any reference to the designated Facility Documents or the designated Loan
Obligations. Borrower shall cooperate with Lender in connection with any such
waiver, release and/or termination and shall, within three (3) Domestic Business
Days after request by Lender, execute and deliver such documents as Lender shall
reasonably request confirming such waiver, release and/or termination. Each
Borrower hereby irrevocably appoints Lender as its attorney-in-fact, coupled
with an interest, to execute any document required in connection with the
foregoing if such Borrower shall fail to execute any such document within three
(3) Domestic Business Days after request by Lender.
ARTICLE 8
RELEASES OF COLLATERAL; RIGHT OF FIRST REFUSAL
8.1 RELEASE PROVISIONS.
8.1.1 RELEASE CONDITIONS. Borrower may, from
time to time, obtain a release of any Units (each, a "RELEASE") from the
Mortgages and the other Loan Documents or Facility
61
<PAGE> 69
Documents encumbering such Timeshare Property provided that Borrower shall have
complied with all of the following conditions (collectively, the "RELEASE
CONDITIONS"):
(a) Borrower shall have submitted to Lender a written
request for such Release (each, a "RELEASE REQUEST") at least five (5)
Domestic Business Days prior to the anticipated date of such Release,
including therein a certification that, as of the date of the Release
Request, (i) the number of Units which shall be the subject of such
Release, and (ii) no Event of Default shall have occurred and be
continuing;
(b) All accrued and unpaid interest and any unpaid or
unreimbursed amounts in respect of the Loans and any other sum then due
hereunder or under any of the other Loan Documents or Facility Documents
shall have been paid in full or shall have been arranged to be paid in
full contemporaneously with the Release;
(c) Borrower shall have paid, or caused to be paid, to
Lender by wire transfer or otherwise in immediately available funds, an
amount equal to (i) the release price per Unit set forth in the Loan
Supplement in respect of the Timeshare Property identified in the
Release Request, multiplied by (ii) the number of Units set forth in
such Release Request (collectively, the "RELEASE PRICE");
(d) No Default shall have occurred and be continuing at
the time of the submission by Borrower of the Release Request or at the
time of the Release; and
(e) Borrower shall have paid, in connection with each
Release, all of the reasonable legal and administrative fees and
expenses incurred by Lender in connection with preparing, reviewing,
processing and delivering each such Release.
8.1.2 DEFINITION OF PROPERTY. Upon the recordation of any
Release, all references herein to the term "Properties" shall be deemed to
exclude the Property or any portion thereof covered under such Release.
8.1.3 RELEASE. Upon satisfaction of the Release Conditions,
Lender, at the sole cost and expense of Borrower, shall execute and deliver to
Borrower partial releases, satisfactions, discharges and/or assignments, as
applicable and as reasonably requested by Borrower, of the Loan Documents and
the other Facility Documents relating to the Timeshare Property or any portion
thereof set forth in the Release Request.
8.2 RIGHT OF FIRST REFUSAL. Borrower shall, from time to time during
the Term, give Lender a written notice (a "FINANCING NOTICE") setting forth a
description in reasonable detail of any proposal by another Person to provide a
new loan to Borrower to be secured by the Properties or any portion thereof
whether by way of a credit facility, mortgage repurchase facility or otherwise
(each, a "PROPOSED FINANCING"), including a copy of any term sheet, and/or
draft commitment letter and draft agreements for any such proposed transaction
to the extent permitted by applicable confidentiality requirements. The
Financing Notice shall be delivered within five (5) Domestic Business Days
following Borrower's and such Person's agreement with respect to
62
<PAGE> 70
the terms of the Proposed Financing. Borrower shall not enter into a binding
agreement with respect to a Proposed Financing prior to giving the Financing
Notice or, after the Financing Notice is given, until such time as the
Financing Notice is deemed revoked pursuant to this Section 8.2.
During the ten (10) day period commencing on the date Lender receives a
Financing Notice, Lender shall have the option (but not the obligation) to
provide financing for Borrower on terms which shall match the material terms of
the Proposed Financing ("LENDER'S PROPOSED FINANCING") by giving Borrower
written notice (the "EXERCISE NOTICE"); PROVIDED, however, that the terms of
Lender's Proposed Financing may differ from the non-material terms of the
Proposed Financing. Upon Lender giving the Exercise Notice, Borrower and
Lender shall negotiate in good faith the non-material terms of Lender's
Proposed Financing, and Borrower shall take all action reasonably required by
it or its agents to consummate a financing with Lender on the terms of Lender's
Proposed Financing, or such other terms as such Person and Lender may agree.
For the purposes of this Section 8.2. "material" terms shall include interest
rate, term of the facility, principal amount of the facility, recourse, if any,
to Borrower, amortization, collateral, advance rate, points and other fees,
transferability and assumption.
If (i) Lender fails to give the Exercise Notice during such ten (10)
calendar day period, or (ii) Lender gives the Exercise Notice during such ten
(10) calendar day period but Lender and Borrower shall fail to consummate the
Lender's Proposed Financing within thirty (30) days (or such longer period as
shall be agreed to in a writing signed by Borrower and Lender) after the giving
of the Exercise Notice (other than by reason of Borrower failing to perform its
obligations under the preceding paragraph), the Financing Notice shall be
deemed revoked and of no further force and effect, and Borrower may thereafter
proceed with the Proposed Financing with the Person referred to in the related
Financing Notice upon the terms thereof. If Borrower shall fail to consummate
such Proposed Financing in accordance with the terms thereof and the Financing
Notice, such Persons shall continue to comply with the provisions of this
Section 8.2 and provide Lender with a Financing Notice of any Proposed
Financing prior to consummating a Proposed Financing with any Person.
ARTICLE 9
GENERAL PROVISIONS
9.1 RIGHTS CUMULATIVE; WAIVERS.
(a) Each right, power and remedy conferred upon
Lender herein or in any of the other Loan Documents or Facility Documents is
cumulative and in addition to every other right, power or remedy, express or
implied, now or hereafter provided by law or in equity, and each and every
right, power and remedy herein set forth or otherwise so existing may be
exercised, concurrently or independently, from time to time as often and in such
order as may be deemed expedient to Lender. The exercise of one right, power or
remedy shall not be a waiver of the right to exercise at the same time or
thereafter any other right, power or remedy; and no delay or omission of Lender
in the exercise of any right, power or remedy accruing hereunder or arising
otherwise shall impair any
63
<PAGE> 71
such right, power or remedy, or be construed to be a waiver of any Default or
acquiescence therein. Enumeration of special rights or powers herein or in the
other Loan Documents or Facility Documents shall not be construed to limit any
grant of general rights or powers herein or in the other Loan Documents or
Facility Documents or to limit Lender's exercise of any and all rights granted
under the laws of the State of New York, the state where any Property is
located, or the United States of America. No act of Lender shall be construed
as an election to proceed under any provision herein or in any other Loan
Document or Facility Document to the exclusion of any other provision herein or
in any other Loan Document or Facility Document. Except as otherwise
specifically required herein, notice of the exercise of any right, remedy or
power granted to Lender by this Agreement or any other Loan Document or
Facility Document is not required to be given. Lender shall be entitled to
enforce payment of the Loans and any other amount payable under the Loan
Documents or Facility Documents, and performance of this Agreement and the
other Loan Documents and Facility Documents, and to exercise all rights and
remedies under this Agreement or the other Loan Documents or Facility Documents
or otherwise at law or in equity, notwithstanding that some or all of the
indebtedness secured thereby may now or hereafter be otherwise secured, whether
by mortgage, security agreement, pledge, lien, assignment or otherwise.
Neither the acceptance of this Agreement nor its enforcement shall prejudice or
in any manner affect Lender's right to realize upon or enforce any other
security now or hereafter held by Lender, it being agreed that Lender shall be
entitled to enforce this Agreement and any other security now or hereafter held
by Lender hereunder, under any of the other Loan Documents, Facility Documents
or otherwise, in such order and manner as Lender may determine in its absolute
discretion.
(b) Lender may, by written notice to Borrower, at any time
and from time to time, waive in whole or in part, and absolutely or
conditionally, any Default or Event of Default hereunder. Any such waiver shall
be subject to such conditions or limitations as shall be specified in any such
notice. In the case of any such waiver, the rights of Borrower shall be
otherwise unaffected, and any Default or Event of Default so waived shall be
deemed to be cured and not continuing only to the extent, and only on the
conditions or limitations, set forth in such waiver, but no such waiver shall
extend to any subsequent or other Default or Event of Default, or impair any
right, remedy or power consequent thereupon.
9.2 LENDER'S ACTION FOR ITS OWN PROTECTION ONLY. The authority herein
conferred upon Lender, and any action taken by Lender, to inspect the Property,
to review and/or approve all documents and instruments submitted to Lender, or
otherwise, will be exercised and taken by Lender and by Lender's employees,
agents, consultants and representatives for their own protection only and may
not be relied upon by Borrower or any other party for any purposes whatever; and
neither Lender nor Lender's employees, agents, consultants or representatives
shall be deemed to have assumed any responsibility to Borrower or any other
party with respect to any such action herein or under any of the other Loan
Documents or Facility Documents authorized to be taken by Lender or Lender's
employees, agents and representatives. Any review, investigation or inspection
conducted by Lender, any architect, engineer or other consultant retained by
Lender, or any agent or representative of Lender, in order to verify
independently Borrower's satisfaction of the covenants, agreements and Loan
Obligations and/or Facility Obligations of Borrower under this Agreement or any
of the other Loan Documents or Facility Documents or the validity of any
representations and warranties made by Borrower or any other
64
<PAGE> 72
party (regardless of whether or not the party conducting such review,
investigation or inspection should have discovered that any of such conditions
precedent were not satisfied or that any such covenants, agreements, Loan
Obligations or Facility Obligations were not performed or that any such
representations or warranties were not true) shall not affect (or constitute,
except as may specifically be provided in this Agreement or in the other Loan
Documents or Facility Documents to the contrary, a waiver by Lender of) (i) any
representations and warranties under this Agreement or the other Loan Documents
or Facility Documents or Lender's reliance thereon, or (ii) Lender's reliance
upon any certifications of Borrower or any other party in connection with the
Loan, or any other facts, information or reports furnished to Lender by
Borrower or any other party in connection with the Loans. Lender neither
undertakes nor assumes any responsibility or duty to Borrower to select,
review, inspect, supervise, pass judgment upon or inform Borrower of any matter
in connection with the Property or the Collateral, and Borrower shall rely
entirely upon their own judgment with respect to such matters, and any review,
inspection, supervision, exercise of judgment or supply of information to
Borrower by Lender in connection with such matters is for the protection of
Lender only and neither Borrower nor any third party is entitled to rely
thereon.
9.3 NO THIRD PARTY BENEFICIARIES. All conditions to the obligations of
Lender hereunder and under the other Loan Documents and Facility Documents are
imposed solely and exclusively for the benefit of Lender and its Assignees and
Participants, if any, and its or their successors and assigns, and no other
Person (other than Servicer) shall have standing to require satisfaction of
such conditions in accordance with their terms, or be entitled to assume that
Lender will refuse to advance proceeds of the Loans or refuse to agree or
consent to any matter in the absence of strict compliance with any or all
thereof, and no other Person (other than Servicer) shall, under any
circumstances, be deemed to be the beneficiary of such conditions, any or all
of which may be freely waived in whole or in part by Lender at any time if, in
its sole discretion, it deems it advisable to do so.
9.4 PAYMENT OF EXPENSES, ETC.
9.4.1 PAYMENT OF EXPENSES. BORROWER will, on the Closing
Date and at all times thereafter, pay all costs and fees incurred by Lender in
connection with (i) the preparation, negotiation, consummation, execution,
administration, repayment, collection and enforcement of the Loans and the Loan
Documents, and (ii) any approval, consent, amendment or modification requested
by Borrower or waiver related to any of the foregoing. Without limiting the
generality of the foregoing, Borrower will pay:
(a) all Lender's Counsel Fees in connection with
the foregoing;
(b) all taxes AND RECORDING FEES AND EXPENSES,
INCLUDING, without limitation, stamp and/or mortgage taxes AND
TRANSFER TAXES, if any;
(c) all fees and out-of-pocket expenses incurred
by Lender, including all expenses of Lender and its respective
agents and representatives, in connection
65
<PAGE> 73
with any Default or Event of Default hereunder, under the Note or
under any other Loan Document or the collection or enforcement
thereof,
(d) subject to Sections 6.18 and 9.26 hereof, all
fees and expenses of any environmental, engineering, appraisal,
construction, insurance or other consultants retained by Lender in
connection with any Loan or the administration, enforcement or
collection thereof; and
(e) all brokers' fees and commissions relative to
any Loan, any the Property, the Collateral and/or any Lease or
purchase contract affecting same.
Without limiting the generality of the foregoing, to the extent
that Lender, after the Closing Date, deems it necessary to employ counsel
and/or any other consultant for whatever purpose relative to any Loan or
Lender's interest in the Collateral, including, without limitation, all future
amendments requested by Borrower, supplements, notices, recordings, approvals,
consents and waivers with respect to the Loan Documents (or any proposal by
Borrower therefor), whether or not consummated, the adjustment and collection
of any and all insurance proceeds with respect to any insurance coverage
required hereunder, or obtaining any and all awards in connection with any
condemnation, the fees and expenses of such counsel and/or consultants shall be
borne by Borrower. Any fees and expenses referred to in this Section 9.4.1
which are incurred by Lender are to be paid by Borrower within five (5) days
after demand is made by Lender therefor. Borrower hereby agrees to indemnify,
defend and hold Lender harmless from and against any loss, cost (including
attorneys' fees) or damage whatsoever incurred by Lender as a result of
Borrower's failure to pay any cost or expense contemplated hereby. The
provisions of this Section 9.4.1 are not intended to limit any other obligation
of Borrower or any other Obligated Party to pay fees and expenses of Lender or
other Persons contained herein or in any other Loan Document.
9.4.2 ADVANCES SECURED. All costs and expenses incurred and
payments made by Lender under this Agreement or any of the other Loan Documents
from time to time, which are to be paid or reimbursed by Borrower as described
herein or in any of the other Loan Documents shall, as and when advanced or
incurred by Lender, constitute protective advances evidenced by the Note and
secured by the Loan Documents to the same extent and with the same effect as if
the terms and provisions of this Agreement were set forth therein, whether or
not the principal balance of the Note plus such protective advances shall
exceed the face amount of the Note. If Borrower shall fail to reimburse or pay
to Lender the amount of such protective advances by the applicable due date
therefor, interest at the Default Rate shall accrue on such protective advances
from the date such protective advances were made by Lender to and including the
date that such protective advances are reimbursed or paid to Lender in full,
together with all such accrued interest thereon.
9.5 INDEMNIFICATION.
(a) In addition to any other indemnifications provided herein or
in the other Loan Documents or Facility Documents, Borrower shall protect,
defend, indemnify and save harmless the Indemnified Parties from and against all
liabilities, obligations, claims, demands, damages,
66
<PAGE> 74
penalties, causes of action, losses, fines, costs, expenses (including, without
limitation, attorneys' fees and disbursements) and Environmental Costs, imposed
upon or incurred by or asserted against any Indemnified Party (other than by
reason of such Indemnified Party's active gross negligence or willful
misconduct, provided that such active gross negligence or willful misconduct is
determined to have occurred by a final and appealable decision of a court of
competent jurisdiction) by reason of (i) ownership or holding of this
Agreement, the other Loan Documents or any Collateral, including any funds
deposited with Lender, (ii) any accident, injury to or death of Persons or loss
of or damage to property occurring on or about the Property or any part thereof
or on the adjoining sidewalks, curbs, adjacent property or adjacent parking
areas, streets or ways, (iii) any design, construction, alteration, operation,
maintenance, use, nonuse or condition of the Property or any part thereof or on
adjoining sidewalks, curbs, adjacent property or adjacent parking areas,
streets or ways, (iv) any failure on the part of Borrower to perform or comply
with any of the terms of this Agreement or any other Loan Document or Facility
Document, (v) performance of any labor or services or the furnishing of any
materials or other property in respect of the Property or any part thereof,
(vi) any failure of the Property to comply with any Legal Requirements, (vii)
the presence in, at or under the Property of any Hazardous Substance, or any
release or discharge on or from the Property of any Hazardous Substance,
(viii) any representation or warranty made in the Note, this Agreement or any
of the other Loan Documents or Facility Documents being false or misleading in
any material respect as of the date such representation or warranty was made,
(ix) except to the extent any such claims are made solely as a result of any
dealings between Lender and any broker, finder or similar Person claiming to be
entitled to a commission in connection with the Loan, and with whom Borrower
has had no dealings in connection with the Loan, any claim by brokers, finders
or similar Persons claiming to be entitled to a commission in connection with
the Loan, the Collateral, any Lease or any other action involving the Property
or any part thereof, (x) the claims of any tenant of any portion of the
Property or any Person acting through or out of any tenant or otherwise arising
out of or as a consequence of any Lease, (xi) any claim that the relationship
of Lender and Borrower is other than that of lender and borrower, and/or (xii)
the execution and delivery of this Agreement and the other Loan Documents and
Facility Documents, the transactions contemplated hereby or thereby, and the
performance by the parties hereto of their respective Loan Obligations and
Facility Obligations hereunder or thereunder. Any amounts payable to any
Indemnified Party by reason of the application of this Section 9.5 shall become
immediately due and payable and shall bear interest at the Default Rate from
the date such loss or damage is sustained by any Indemnified Party until paid.
The Loan Obligations, the Facility Obligations and liabilities of Borrower
under this Section 9.5 shall survive any termination, satisfaction or
assignment of this Agreement and the exercise by Lender of any of its rights or
remedies hereunder, including, but not limited to, the acquisition of the
Collateral or the Property by foreclosure or a conveyance in lieu of
foreclosure.
(b) In case any claim, action or proceeding (a "CLAIM") is
brought against any Indemnified Party in respect of which indemnification may
be sought by such Indemnified Party pursuant to this Section 9.5, such
Indemnified Party shall give notice thereof to Borrower, provided, however,
that the failure of such Indemnified Party to so notify Borrower shall not
limit or affect such Indemnified Party's rights to be indemnified pursuant to
this Section 9.5 hereof, except to the extent such delay shall materially and
adversely prejudice Borrower's defense of such Claim. Upon receipt of such
notice of Claim, Borrower shall, at its sole cost and expense, diligently
defend any
67
<PAGE> 75
such Claim with counsel satisfactory to such Indemnified Party (it being
understood that counsel selected by Borrower's insurance carrier shall be
deemed to be acceptable to such Indemnified Party, provided that such insurer
is an acceptable insurer under this Agreement and the other Loan Documents or
otherwise was accepted by Lender as an insurer), which counsel may, without
limiting the rights of Indemnified Party pursuant to the next succeeding
sentence, also represent Borrower in such Claim. In the alternative, the
Indemnified Parties may elect to conduct their own defense through counsel of
their own choosing, and at the expense of Borrower, if (i) the Indemnified
Parties reasonably determine that the conduct of its defense by Borrower
presents a conflict or potential conflict between Borrower and Lender that
would make separate representation advisable or otherwise could be prejudicial
to its interests, (ii) Borrower refuses to defend, or (iii) Borrower (or, if
applicable, its insurance carrier) shall have failed, in Lender's reasonable
judgment, to diligently defend the Claim. Except as provided in the preceding
sentence, Borrower shall not be responsible for the fees of counsel for any
Indemnified Party incurred in connection with the indemnification contained in
this Section 9.5. Borrower may settle any Claim against Indemnified Parties
without such Indemnified Parties' consent, provided that (A) such settlement is
without any liability, cost or expense whatsoever to such Indemnified Parties,
(B) the settlement does not include or require any admission of liability or
culpability by such Indemnified Parties under any Legal Requirement, whether
criminal or civil in nature, and (C) Borrower obtains an effective written
release of liability for such Indemnified Parties from the party to the Claim
with whom such settlement is being made, which release must be reasonably
acceptable to such Indemnified Parties, and a dismissal with prejudice with
respect to all claims made by the party with whom such settlement is being
made, with respect to any pending legal action against such Indemnified Parties
in connection with such Claim. If the Indemnified Parties are conducting their
own defense as provided above, Borrower shall be responsible for any good faith
settlement of such Claim entered into by such Indemnified Parties, provided
such Indemnified Parties shall obtain Borrower's consent to any such
settlement, which consent shall not be unreasonably withheld or delayed.
Nothing contained herein shall be construed as requiring any Indemnified
Parties to expend funds or incur costs to defend any Claim in connection with
the matters for which such Indemnified Parties are entitled to indemnification
pursuant to this Section 9.5 hereof.
9.6 NOTICES. Any notice, report, demand or other instrument authorized
or required to be given or furnished ("NOTICES") shall be in writing and shall
be given as follows: (i) by hand delivery; (ii) by deposit in the United States
mail as first class certified mail, return receipt requested, postage paid;
(iii) by overnight nationwide commercial courier service; or (iv) by telecopy
transmission with a confirmation copy to be delivered by duplicate notice in
accordance with any of clauses (i) through (iii) above, in each case, to the
party intended to receive the same at the following address(es):
68
<PAGE> 76
Lender: Credit Suisse First Boston Mortgage
Capital LLC
Principal Transactions
11 Madison Avenue
New York, New York 10010
Attention: David Arzi
Re: Silverleaf Resorts, Inc.
Telecopier: (212) 325-8299
with a copy to: Credit Suisse First Boston Mortgage
Capital LLC
Legal & Compliance Department
11 Madison Avenue
New York, New York 10010
Attention: Colleen Graham, Esq.
Re: Silverleaf Resorts, Inc./David Arzi
Telecopier: (212) 325-8220
and
Midland Loan Services LP
210 West 10th Street
Kansas City, Missouri 64105
Attention: Jan Sternin
Telecopier: (816) 435-2326
and
Brown Raysman Millstein Felder & Steiner LLP
120 West 45th Street
New York, New York 10036
Attention: Jeffrey B. Steiner, Esq.
Telecopier: (212) 840-2429
Borrower: Silverleaf Resorts, Inc.
1221 Riverbend - Suite 120
Dallas, Texas 75247
Attention: Robert Mead
Telecopier: (214) 905-0514
69
<PAGE> 77
with a copy to: Meadows, Owens, Collier, Reed, Cousins & Blau, LLP
901 Main Street, Suite 3700
Dallas, Texas 75202-3792
Attention: George Bedell, Esq.
Telecopier: (214) 747-3732
Any party may change the address to which any such Notice is to be
delivered, by furnishing ten (10) days written notice of such change to the
other parties in accordance with the provisions of this Section 9.6. Notices
shall be deemed to have been given on the date they are actually received;
provided, however, that the inability to deliver Notices because of a changed
address of which no Notice was given, or rejection or refusal to accept any
Notice offered for delivery shall be deemed to be receipt of the Notice as of
the date of such inability to deliver or rejection or refusal to accept
delivery. Notice for either party may be given by its respective counsel.
Additionally, notice from Lender may also be given by Servicer.
9.7 NO ORAL MODIFICATION. Borrower recognizes that, in
general, borrowers who experience difficulties in honoring their loan
obligations, in an effort to inhibit or impede lenders from exercising the
rights and remedies available to lenders pursuant to mortgages, notes, loan
agreements or other instruments evidencing or affecting loan transactions,
frequently present in court the argument, often without merit, that some loan
officer or administrator of lender made an oral modification or made some
statement which could be interpreted as an extension or modification or
amendment of one or more debt instruments and that the borrower relied to its
detriment upon such "oral modification of the loan document." For that reason,
and in order to protect Lender from such allegations in connection with the
transaction contemplated by this Agreement, Borrower acknowledges that this
Agreement, the Note and the other Loan Documents and Facility Documents and all
instruments referred to in any of them can be extended, modified or amended
only in a writing executed by Lender and Borrower, and that none of the rights
or benefits of Lender can be waived permanently except in a written document
executed by Lender. Borrower further acknowledges its understanding that no
officer or administrator of Lender has the power or the authority from Lender
to make an oral extension or modification or amendment of any such instrument
or agreement on behalf of Lender.
9.8 ASSIGNMENT BY LENDER.
9.8.1 ASSIGNMENT. Lender may assign (and thereafter,
at any time and from time to time, repurchase) all or a portion of its rights
and obligations under this Agreement and the other Loan Documents to one or
more Persons ("ASSIGNEES"; the term "ASSIGNEE" or "ASSIGNEES" shall, unless
otherwise expressly indicated, include Lender) and, with respect to any
Assignee, be released from its rights and obligations as Lender in respect of
such portion of the Loan, this Agreement and the other Loan Documents.
9.8.2 PARTICIPATIONS. Lender and each of the other
Assignees may sell participations in the Loans to one or more Persons
(collectively, the "PARTICIPANTS"). Notwithstanding such sale, (i) the selling
party's obligations to Borrower under this Agreement and the other Loan
Documents and Facility Documents shall remain unchanged by reason
70
<PAGE> 78
thereof, and (ii) the selling party shall remain solely responsible to Borrower
for the performance of such obligations. In order to assist Lender in any
sales of interests in the Loan, Borrower agrees to reasonably cooperate with
Lender in connection with any efforts by Lender to obtain one or more Assignees
or Participants, to provide additional information and to execute and deliver
such further documents, instruments or agreements, in each case, as Lender or
any Assignee or Participant may reasonably require.
9.8.3 ASSIGNMENT AND ACCEPTANCE. From and after the
effective date of any assignment to an Assignee, (i) such Assignee shall be a
party hereto and to each of the other Loan Documents and Facility Documents to
the extent of the applicable percentage or percentages assigned to such
Assignee and, except as otherwise specified herein, shall succeed to the rights
and obligations of Lender hereunder in respect of such applicable percentage or
percentages, and (ii) Lender shall relinquish its rights and be released from
its obligations hereunder and under the Loan Documents and Facility Documents
to the extent of such applicable percentage or percentages. The liabilities of
Lender and each of the other Assignees shall be separate and not joint and
several. Neither Lender nor any Assignee shall be responsible for the
obligations of any other Assignee.
9.8.4 OTHER BUSINESS. Lender, each Assignee and each
Participant and their respective Affiliates may accept deposits from, lend
money to, act as trustee under indentures of, and generally engage in any kind
of business with, Borrower, any Affiliate of Borrower, any of Borrower's
subsidiaries and any Person who may do business with or own interests in or
securities of Borrower or any such Affiliate or subsidiary, without any duty to
account therefor to each other.
9.8.5 PRIVITY OF CONTRACT. This Agreement is being
entered into by Lender individually and as agent for all present and future
Assignees, and privity of contract is hereby created among Lender, all present
and future Assignees and Borrower.
9.8.6 AVAILABILITY OF RECORDS. Borrower acknowledges and
agrees that Lender may provide to any Assignees or prospective Assignees, and
that Lender and each of the Assignees may provide to any Participants or
prospective Participants, originals or copies of this Agreement, all other Loan
Documents and Facility Documents and all other documents, instruments,
certificates, opinions, insurance policies, letters of credit, reports,
requisitions and other materials and information of every nature or
description, and may communicate all oral information, at any time submitted by
or on behalf of Borrower or any Affiliate of Borrower.
9.9 SEVERABILITY. In the event that any of the covenants,
agreements, terms or provisions contained in the Note, this Agreement or any
other Loan Document or Facility Document shall be invalid, illegal or
unenforceable in any respect, the validity of the remaining covenants,
agreements, terms or provisions contained herein or in the Note or any other
Loan Document or Facility Document shall be in no way affected, prejudiced or
diminished thereby.
71
<PAGE> 79
9.10 NO ASSIGNMENT BY BORROWER. Borrower shall not assign or
transfer any of its rights hereunder without the prior written consent of
Lender. Any assignment made without Lender's prior written consent shall be
void.
9.11 GOVERNING LAW. The place of negotiation, execution and
delivery of this Agreement is the State of New York. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of New York. It is the intent of the parties hereto that the provisions of
Section 5-1401 of the General obligations Law of the State of New York apply to
this Agreement.
9.12 SUCCESSORS AND/OR ASSIGNS. Subject to the restrictions
on transfer and assignment contained in this Agreement and the other Loan
Documents and Facility Documents, whenever in this Agreement any of the parties
hereto is referred to, such reference shall be deemed to include the permitted
successors and/or assigns of such party, and this Agreement shall inure to the
benefit of and shall be binding on the parties hereto and the successors and/or
assigns of such party.
9.13 ENTIRE CONTRACT. This Agreement and the other Loan
Documents and Facility Documents, including all annexes, schedules and exhibits
hereto and all other documents furnished to Lender in connection with this
Agreement and/or the Loan, constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and thereof and shall
supersede and take the place of any other instruments purporting to be an
agreement of the parties hereto relating to the transactions contemplated
hereby, including, without limitation, any letter of intent or loan commitment
letter.
9.14 LIABILITY. If Borrower consists of more than one Person,
the obligations and liabilities of each such Person hereunder and under the
other Loan Documents and Facility Documents shall be joint and several.
9.15 COUNTERPARTS; HEADINGS. This Agreement may be executed in
counterparts, each of which shall constitute an original, and all of which,
when taken together, shall constitute but one instrument. The captions and
headings of the various sections of this Agreement are for purposes of
reference only and are not to be construed as confining or limiting in any way
the scope or intent of the provisions hereof. Whenever the context requires or
permits, the singular shall include the plural, the plural shall include the
singular, and the masculine, feminine and neuter shall be freely
interchangeable.
9.16 TIME OF THE ESSENCE. Time is of the essence as to
Borrower's obligations under this Agreement and the other Loan Documents and
Facility Documents.
9.17 CONSENTS.
9.17.1 NO SUBSEQUENT CONSENT. Any consent or approval by
Lender in any single instance shall not be deemed or construed to be Lender's
consent or approval in any like matter arising at a subsequent date. Any
consent or approval requested of and granted by Lender
72
<PAGE> 80
pursuant hereto or pursuant to any of the other Loan Documents or Facility
Documents shall be narrowly construed to be applicable only to Borrower and to
the matter identified in such consent or approval and no third party shall
claim any benefit by reason thereof. Wherever this Agreement or any other Loan
Document or Facility Documents refers to the consent or approval of Lender, or
provides that any document or Person will be satisfactory or acceptable to
Lender or words of similar import, (i) such consent or approval may be given or
withheld by Lender, and such document or Person must be satisfactory or
acceptable to Lender, in its sole and absolute discretion, unless otherwise
expressly provided herein or therein, and (ii) such consent or approval shall
not be effective unless given in writing. Wherever this Agreement or any other
Loan Document or Facility Document refers to the provision of documents or
other items being as Lender may require, provides for the selection by Lender
of any person to provide reports or other items hereunder or thereunder or for
the selection by Lender of any means of determining any matter, or otherwise
refers to terms and conditions hereof or thereof being as Lender deems
appropriate, any such requirement, selection or determination of
appropriateness shall be made by Lender in its sole and absolute discretion,
unless expressly provided otherwise herein or therein. The foregoing provisions
are intended to be effective whether or not the applicable provision hereof or
of any other Loan Document or Facility Document specifies that the applicable
consent, approval or other matter is to be determined by Lender in its "sole
and absolute discretion" or words of similar import.
9.17.2 WITHHOLDING OF CONSENT. Wherever in this Agreement
or any other Loan Document or Facility Document, reference is made to any
consent or approval not being "unreasonably withheld" or words of similar
import, the same shall be deemed to include within its meaning (unless
expressly provided otherwise) that if such consent or approval is to be
granted, the same will occur within a commercially reasonable period of time.
If Borrower believes that Lender has improperly failed to grant its consent or
approval (or otherwise improperly failed to act as requested by Borrower as
described in Section 9.17.1 hereof (e.g., determined that a document is not
acceptable to Lender) hereunder or any other Loan Document or Facility Document
(including, without limitation, by failing to respond within a commercially
reasonable period of time) where such consent or approval is required to be
given by (or such action which was not taken is in breach of) the terms of this
Agreement or such other Loan Document or Facility Document, Borrower's sole
remedy shall be to obtain declaratory relief in a final, non-appealable
judgment determining such withholding to have been improper, whereupon such
consent or approval shall be deemed given (or such other action described in
Section 9.17.1 hereof shall be deemed taken), and Borrower hereby waives all
claims for damages or set-off resulting from any withholding of consent or
approval (or failure to take any other action described in Section 9.17.1
hereof) by Lender.
9.18 NO PARTNERSHIP. Nothing contained in this Agreement or the
other Loan Documents or Facility Documents shall be deemed to create an equity
investment in Borrower or the Collateral on the part of Lender or a joint
venture or partnership between Lender and Borrower, it being the intent of the
parties hereto that only the relationship of lender and borrower shall exist
with respect to the Collateral. Borrower agrees that it shall report this
transaction for income tax purposes, and file all related tax returns, in a
manner consistent with the form of this transaction as a loan.
73
<PAGE> 81
9.19 WAIVER OF JURY TRIAL. EACH OF BORROWER AND LENDER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY AND ALL RIGHTS IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN),
OR ACTIONS OF BORROWER OR LENDER RELATING TO THE LOANS AND/OR THE LENDING
RELATIONSHIP WHICH IS THE SUBJECT OF THIS AGREEMENT. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR LENDER ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
9.20 LIMITATION ON LIABILITY. In no event shall Lender be liable
to Borrower for consequential damages, whatever the nature of a breach by
Lender of its obligations under this Agreement or any of the other Loan
Documents or Facility Documents, and Borrower, for itself and all of its
Affiliates, hereby waives all claims for consequential damages. Unless, within
ninety (90) days after Borrower first has actual knowledge of the occurrence of
any event about which Borrower has a dispute or claim, such Person notifies
Lender in writing of the general nature of its dispute or claim, such Person
shall be deemed to have waived any and all rights to raise such dispute or
claim in any lawsuit, action or proceeding of any kind.
9.21 JURISDICTION, VENUE, SERVICE OF PROCESS. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE
BROUGHT, AT LENDER'S OPTION, IN THE COURTS OF THE STATE OF NEW YORK, NEW YORK
COUNTY OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW
YORK. BORROWER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS. BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF
THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER AT
ITS ADDRESS FOR NOTICES PURSUANT TO SECTION 9.6 HEREOF. BORROWER HEREBY
IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF
OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BROUGHT IN THE
COURTS REFERRED TO ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT
TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING CONTAINED
HEREIN SHALL AFFECT THE RIGHT OF LENDER TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
BORROWER IN ANY OTHER JURISDICTION.
74
<PAGE> 82
9.22 APPOINTMENT OF AGENT FOR SERVICE OF PROCESS.
Borrower hereby designates Robert Mead ("DESIGNEE") as its agent and
attorney-in-fact to accept service of process in any action or proceeding
arising under or in connection with this Agreement and/or the other Loan
Documents or Facility Documents. The foregoing designation is irrevocable and
coupled with an interest. If Designee is not personally available, process may
be served upon Designee by United States registered or certified mail, which
service will be effective five (5) days after mailing, to the address of
Designee set forth below:
c/o Silverleaf Resorts, Inc.
1221 Riverbend - Suite 120
Dallas, Texas 75247
9.23 RULE OF CONSTRUCTION. This Agreement and the other Loan
Documents shall not be construed more strictly against one party than against
the other merely by virtue of the fact that it may have been prepared by
counsel for one of the parties, it being recognized that both Lender and
Borrower have contributed substantially and materially to the preparation of
this Agreement and the other Loan Documents or Facility Documents.
9.24 FURTHER ASSURANCES.
(a) Borrower will, at their sole cost and expense, do, execute,
acknowledge and deliver or cause to be done, executed, acknowledged and
delivered all such further acts, conveyances, notes, mortgages, assignments,
security agreements, financing statements and assurances as Lender shall from
time to time require or deem advisable (i) to carry into effect the purposes of
this Agreement and the other Loan Documents and Facility Documents, (ii) for
the better assuring, conveying, mortgaging, assigning and confirming unto
Lender of all property and rights mortgaged, granted, bargained, alienated,
confirmed, pledged, hypothecated, conveyed or assigned by this Agreement or any
of the other Loan Documents or Facility Documents or property intended now or
hereafter to be, or which Borrower may be or may hereafter become bound to
convey or assign to Lender, (iii) for facilitating the placement of a Loan
Interest in a Loan Pool as described in Section 9.26 hereof, (iv) for the
perfection of any Lien or security interest granted herein or in the other Loan
Documents or Facility Documents, and (v) for the better assuring and confirming
of all of Lender's rights, powers and remedies hereunder. Borrower, on demand,
will execute and deliver, and hereby authorizes Lender to execute in the name
of Borrower or without the signature of Borrower to the extent Lender may
lawfully do so, one or more financing statements, chattel mortgages or other
instruments, to evidence more effectively the security interest of Lender in
the Collateral under the Loan Documents or the Facility Documents.
(b) Borrower forthwith upon the execution and delivery of this
Agreement and thereafter, from time to time, will cause the Mortgages and any
security instrument creating a Lien or security interest or evidencing the
Liens of the Mortgages and the other applicable Loan Documents and Facility
Documents upon the Property or other property and each instrument of further
assurance to be filed, registered or recorded in such manner and in such places
as may be required by any present or future Legal Requirement in order to
publish notice of and fully to
75
<PAGE> 83
protect the Lien or security interest of, and the priority of the Mortgages and
the other Loan Documents and Facility Documents upon, and the interest of
Lender in, the Property or other applicable property. Borrower will pay all
filing, registration or recording fees, and all expenses incident to the
foregoing and all taxes, duties, assessments and charges of any Governmental
Authority arising out of or in connection with the execution and delivery of
the Mortgages any other security instrument, any instrument of further
assurance or any other Loan Document or Facility Document. Upon Lender's
request, Borrower shall, from time to time, furnish Lender with evidence
reasonably satisfactory to Lender that the Property is free of Liens and
security interests (except as permitted hereunder), including searches of
applicable public records.
(c) Upon any failure by Borrower to do so, Lender may make,
execute, record, file, re-record or refile any and all such mortgages,
instruments, certificates and documents for and in the name of Borrower, and
Borrower hereby irrevocably appoints (which appointment is coupled with an
interest and with full power of substitution) Lender the agent and
attorney-in-fact of Borrower to do so, and Borrower shall reimburse Lender, on
demand, for all reasonable costs and expenses (including reasonable attorneys'
fees) incurred by Lender in connection therewith. Upon foreclosure, the
appointment of a receiver or any other relevant action, Borrower will, at the
reasonable cost of Borrower and without expense to Lender, cooperate fully and
completely to effect the assignment or transfer of any Permit, agreement or any
other right necessary or useful to the operation of the Property and shall
deliver to Lender all books and records relating to the Property.
9.25 RECITALS. The Recitals set forth at the beginning of
this Agreement are hereby incorporated into the substantive provisions of this
Agreement.
9.26 PLACEMENT OF LOAN.
9.26.1 LOAN POOL. Borrower acknowledges that Lender,
any Assignee or any Participant (each of Lender, any Assignee or any
Participant, a "PLACEMENT PARTY") may elect to place the Loan, or its
participation interest in the Loan, as the case may be (whichever of the Loans
or such participation is to be so placed, is called the "LOAN INTEREST") in a
pool of loans, participation interests and/or notes secured by or dependent on
the cash flow of mortgage loans, which will constitute security for a rated
securities offering (such pool is called a "LOAN POOL"; and such rated
securities offering is called a "SECURITIZATION").
9.26.2 RATING AGENCY REQUIREMENTS. At the request of
Lender, Borrower will, at its sole cost and expense, use its best efforts to
satisfy the market standards to which Lender customarily adheres or which may
be required in the marketplace or by any Rating Agency in order to enable a
Placement Party to place a Loan Interest in a Loan Pool, including, without
limitation, to:
(i) provide such financial and other information with
respect to the Collateral and Borrower as may be reasonably requested
by Lender or any Rating Agency or annual rating reviews, including,
without limitation, occupancy statistics, average rents and
76
<PAGE> 84
periodic and annual financial statements (including cash flow
statements) for the Property (reviewed and, in the case of annual
financial statements, audited) by a firm of certified public
accountants reasonably acceptable to Lender and each Rating Agency
(Lender acknowledges that the Approved Accountant is an accounting
firm acceptable to Lender);
(ii) prepare and deliver such agreements and instruments
relating to the Note, the Loan Interest, the Collateral and Borrower,
including (A) agreements to indemnify Lender and any servicer or
trustee (except to the extent that any requested indemnification for
any loss, claim, damage, cost, expense or liability results solely
from the negligent, or with respect to Lender, grossly negligent acts
or omissions by such indemnified party in performing the duties,
functions and activities undertaken by it in connection with the
placement of the Loan Interest in a Loan Pool, including, without
limitation, any failure by the indemnified party or parties to comply
with all applicable securities laws and regulations), and (B)
amendments of any of the Loan Documents or Facility Documents that are
necessary to effect the placement of the Loan Interest in a Loan Pool,
as may be reasonably requested by, and in form and scope satisfactory
to, Lender and each Rating Agency; provided, however, that such
amendments shall not, without the consent of Borrower, affect the
terms and conditions of the Note or any other material obligation of
Borrower under the Loan Documents;
(iii) cause to be performed such site inspections,
appraisals, market studies, environmental reviews and reports (Phase I
assessments and, where appropriate, Phase 11 assessments), engineering
reports and other due diligence investigations of the Property
customarily and reasonably requested by Lender or any Rating Agency in
connection with the placement of the Loan Interest in a Loan Pool and
the rating of any securities issued in connection therewith;
(iv) provide such business plans and budgets relating to
the Property as may be reasonably requested by Lender or any Rating
Agency;
(v) cause counsel to render opinions as to "true sale"
and other matters customary in securitization transactions with
respect to the Collateral, Borrower, the Loan Interest, Loan Documents
and the Facility Documents, which counsel shall be satisfactory to,
and which opinion shall be satisfactory to, Lender and each Rating
Agency; provided, however, that Borrower shall not be responsible for
providing a "true sale" opinion,that relates solely to the sale by
Lender of the Loans or a Loan Interest into a Loan Pool; and
(vi) make the representations and warranties contained in
the Loan Documents and Facility Documents as of the date of the
closing of the transfer of the Loan Interest and make such other
representations with respect to the Property, Borrower, the Loan
Interest, the Loan Documents and Facility Documents as are customarily
provided in securitization transactions and as may be reasonably
requested by Lender or any Rating Agency in connection with such
closing.
77
<PAGE> 85
9.26.3 DISCLOSURE; INDEMNIFICATION. At Lender's
request, Borrower shall cooperate with Lender's preparation of a private
placement memorandum or registration statement and amendments and supplements
thereto (the "DISCLOSURE DOCUMENT") to privately place or publicly distribute
the Note or the Loan Interest or securities issued in connection therewith in a
manner that satisfies the requirements of the Securities Act and applicable
state Legal Requirements. At the time of Lender's preparation of such
Disclosure Document, Borrower shall execute and deliver to Lender and any
underwriter or placement agent an instrument (a "SECURITIZATION
INDEMNIFICATION") (in form and substance satisfactory to Lender) (i) certifying
as to the veracity of all written information that it supplied and which was
incorporated in such Disclosure Document, and (ii) indemnifying and holding each
of them, and any Person who controls any of them, within the meaning of Section
15 of the Securities Act or Section 70 of the Exchange Act (each, a
"SECURITIZATION INDEMNIFIED PARTY"), harmless against all costs, expenses and
damages incurred by any Securitization Indemnified Party as a result of any
untrue statement of a material fact made or supplied by Borrower as contained
in such Disclosure Document or the failure by Borrower (after receipt of a
draft of the Disclosure Statement) to specify for inclusion in the Disclosure
Document any material fact regarding Borrower, the Collateral or the Loans
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, but only to the
extent that such statement of material fact is made in reliance upon and in
conformity with written information Borrower furnished for use therein or the
omission of such a material fact is based upon Borrower's failure to specify
such material fact or upon Borrower's furnishing inaccurate information that
shows that such material fact is not material. If Lender (or a placement agent
or underwriter acting on behalf of Lender) shall deliver a draft of the
Disclosure Document to Borrower for its review, Borrower shall provide Lender
(or the placement agent or underwriter acting on behalf of Lender) with their
comments, if any, on such Disclosure Document as soon as practicable, but in
all events within fifteen (15) days after receipt thereof, in the case of the
first draft of such Disclosure Document, and within three (3) Domestic Business
Days after receipt of any subsequent draft of such Disclosure Document. If, in
connection with such review, Borrower advises Lender of the existence of a fact
regarding Borrower, the Collateral or the Loans and advises Lender that it
deems such fact material, Lender shall include such fact in the Disclosure
Document or shall waive the rights of the Indemnified Parties with respect to
such fact. Upon receipt of the Securitization Indemnification, Lender shall
execute and deliver to Borrower an instrument (in form and substance
satisfactory to Borrower) indemnifying and holding Borrower harmless against
all costs, expenses and damages incurred by them as a result of the preparation
or distribution of, and any untrue statement of a material fact contained in,
such Disclosure Document or the failure to include therein any material fact in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading; provided, however, that such
indemnification shall not apply if any such costs, expenses or damages arise
out of or are based upon an untrue statement of a material fact or an omission
to state a material fact in such Disclosure Document made in reliance upon and
in conformity with written information furnished by Borrower expressly for use
therein or (after receipt of a draft of the Disclosure Statement) the omission
of a material fact concerning Borrower, the Collateral or the Loans (other than
the express terms of the Loan Documents) necessary to make the statements in
the Disclosure Statement not misleading. Borrower shall notify Lender if it is
necessary to amend or supplement such Disclosure Document at any time in
78
<PAGE> 86
order that such Disclosure Document does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Lender shall prepare as soon as may be reasonably
practicable an amendment or supplement to such Disclosure Document correcting
such statement or omission. At the request of Lender, in connection with any
sale of the Note or any Loan Interest, Borrower shall confirm, as of the date
of such sale, that such Disclosure Document, as it may be so amended or
supplemented, does not contain any untrue statement of a material fact
concerning Borrower, the Collateral or the Loans or omit to state a material
fact concerning Borrower, the Collateral or the Loans necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
9.26.4 TRUSTEE. It is expressly understood hereunder
that in connection with the placement of any Loan Interest in a Loan Pool,
Lender intends to transfer the Loan Interest to a trustee which shall hold such
Loan Interest for the benefit of the holders of the interests in the Loan Pool.
In connection therewith, Borrower shall execute and deliver or cause to be
executed and delivered, all such additional instruments, and do, or cause to be
done, all such additional acts as (i) may be necessary or proper to carry out
such transfer, including, without limitation, the delivery of such instruments
and documents, including assignments of mortgage (and similar documents),
assignments of Loan Documents and/or Facility Documents and the delivery of
such mortgagee's title insurance endorsements in favor of the trustee as may be
required to confirm and/or evidence the transfer to the trustee of the title
insurance issued to Lender in respect of the Collateral, including payment of
all fees, title insurance premiums and other insurance premiums, and/or (ii)
Lender may reasonably request.
9.26.5 INFORMATION ACCESS. Lender shall be permitted to
share any information provided by Borrower pursuant to this Section 9.26 in
connection with the placement of a Loan Interest in a Loan Pool with the
investment banking firms, each Rating Agency, accounting firms, law firms and
other third-party advisory firms involved with any transfer of the Loan, the
Loan Documents, the Facility Documents or the applicable Securitization. It is
understood that the information provided by Borrower to Lender may ultimately
be incorporated into the offering documents for the Securitization and thus
various investors may also see some or all of the information.
9.26.6 TIME OF TRANSFER OR PLACEMENT. Borrower
acknowledges that any transfer of the Loans or the placement of a Loan Interest
in a Loan Pool may occur at any time during the term of this Agreement and the
provisions of this Section 9.26 shall be applicable throughout the Term.
9.27 DISCLOSURE OF INFORMATION BY LENDER. Lender
shall have the right (but shall be under no obligation) to make available to
any party for the purpose of granting participations in or selling,
transferring, assigning or conveying all or any part of the Loans (including
any governmental agency or authority and any prospective bidder at any
foreclosure sale of any Collateral) any and all information which Lender may
have with respect to any Collateral, the Property, Borrower and/or any of the
Related Persons, whether provided by Borrower, any of the Related Persons or
any third party or obtained as a result of any third party reports. Except for
79
<PAGE> 87
the foregoing, Lender shall use its reasonable best efforts not to disclose any
such information, except to its lawyers, accountants and consultants (including
the Servicer), and except if required by law to do so, and Lender shall also
use its reasonable best efforts to cause anyone to whom it discloses any such
information as referred to in this Section 9.27, not to disclose the same to
any other Person, except its lawyers, accountants and consultants, and except
if required by law to do so. Borrower agrees that Lender shall have no
liability whatsoever as a result of delivering any such information to any
third party, and Borrower, on behalf of itself and its successors and assigns,
hereby release and discharge Lender from any and all liability, claims, damages
or causes of action, arising out of, connected with or incidental to the
delivery of any such information to any third party.
ARTICLE 10
SPECIAL PROVISIONS
10.1 TAX AND INSURANCE ESCROW. In order to assure the
payment of Taxes and premiums with respect to all insurance coverage required
pursuant to Section 8 of the Mortgages (collectively, "INSURANCE PREMIUMS") as
and when the same shall become due and payable, the following provisions shall
apply with respect to each Property:
10.1.1 TAX AND INSURANCE DEPOSITS. At any time that
Lender shall request, Borrower shall pay to Lender, on each Payment Date
following such request in immediately available funds, an amount equal to
one-twelfth (1/12) of the Taxes and Insurance Premiums to become due during the
period commencing on the first day of the first month following such Payment
Date and ending twelve (12) months following such first day. In all cases, if
required by Lender, there must be paid hereunder, to be deposited with and held
by Lender, an amount sufficient to pay such Taxes and Insurance Premiums, one
month prior to the date when they are due and payable. The amounts of all of
the foregoing deposits with respect to Taxes and Insurance Premiums (together
with all interest accruing thereon from time to time, being herein collectively
called "TAX AND INSURANCE DEPOSITS") shall be determined by Lender in its
reasonable discretion. Borrower shall promptly, upon the demand of Lender, make
additional Tax and Insurance Deposits as Lender may from time to time require
due to (i) failure of Borrower to make Tax and Insurance Deposits in previous
months, (ii) underestimation of the amounts of Taxes and/or Insurance Premiums,
(iii) the particular due dates and amounts of Taxes and/or Insurance Premiums,
or (iv) application of the Tax and Insurance Deposits pursuant to this
Agreement. Borrower agrees that, upon request by Lender, Borrower shall execute
and deliver a cash management agreement, in form and substance satisfactory to
Lender, which shall govern the deposit and disbursement of the Tax and
Insurance Deposits in accordance with the terms hereof.
10.1.2 PAYMENT OF TAXES AND INSURANCE PREMIUMS. Provided
that no Event of Default has then occurred and is continuing, Lender will, out
of the Tax and Insurance Deposits (provided such funds are sufficient for such
purpose), upon the presentation to Lender by Borrower of the bills therefor,
pay the Taxes and Insurance Premiums or will, upon the presentation of official
receipted bills therefor, reimburse Borrower for such payments made by
80
<PAGE> 88
Borrower. If the total Tax and Insurance Deposits on deposit with Lender shall
not be sufficient to pay all of the Taxes and Insurance Premiums when the same
shall become due, then Borrower shall pay to Lender on demand the amount
necessary to make up the deficiency. Lender shall be entitled, without request
of Borrower, but, prior to an Event of Default upon two (2) Business Days
notice to Borrower, to apply any Tax and Insurance Deposits on deposit with
Lender to the payment of any Taxes (other than any Taxes which Borrower has
notified Lender that it is contesting and such contest is then permitted under
the Mortgages) and Insurance Premiums which have become due and have not yet
been paid. Borrower and Lender acknowledge and agree that Borrower shall not be
in default under the Mortgages for failure to pay Taxes or Insurance Premiums,
if such failure arises by reason of Lender's failure to comply with its
agreement contained in this Section 10.1.2.
10.1.3 APPLICATION UPON EVENT OF DEFAULT. Upon the
occurrence and during the continuance of an Event of Default, Lender may, at
its option, without being required to do so, apply any Tax and Insurance
Deposits on hand to pay Taxes or Insurance Premiums, or to pay principal,
interest and other amounts payable to Lender hereunder or under the other Loan
Documents or the Facility Documents, all in such order and manner as Lender, in
its sole discretion, may elect. When the principal and interest under the Notes
and all prepayment premiums, if any, in connection therewith and all other Loan
Obligations and Facility Obligations have been fully and properly paid, any
remaining Tax and Insurance Deposits shall be returned to Borrower.
10.1.4 RELIANCE. Lender shall be absolutely entitled
to rely on any statements of any Governmental Authority with respect to Taxes
and any statement of Borrower's insurance carrier or its agent with respect to
Insurance Premiums.
10.1.5 No THIRD PARTY BENEFICIARY. No provision of
this Agreement, the Mortgages or any other Loan Document or Facility Documents
shall be construed as creating in any party other than Borrower and Lender (and
Servicer), any rights in and to the Tax and Insurance Deposits or any rights to
have the Tax and Insurance Deposits applied to payment of Taxes and Insurance
Premiums. Lender shall have no obligation or duty to any third party to collect
or apply Tax and Insurance Deposits.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
81
<PAGE> 89
IN WITNESS WHEREOF, the parties have executed under seal this
Agreement as of the day and year first above written.
LENDER:
CREDIT SUISSE FIRST BOSTON MORTGAGE
CAPITAL LLC, a Delaware limited
liability company
By: /s/ DAVID ARZI
-----------------------------------
Name: David Arzi
Authorized Signatory
BORROWER:
SILVERLEAF RESORTS, INC., a Texas
corporation
By: /s/ ROBERT E. MEAD
-----------------------------------
Name: Robert E. Mead
Title: Chief Executive Officer
82
<PAGE> 90
LIST OF EXHIBITS TO EXHIBIT 10.31
<TABLE>
<S> <C>
Schedule A Approved Loans
Exhibit A Form of Loan Supplement
Exhibit B Form of Mortgage Note
Exhibit C Form of First Mortgage
Exhibit D Form of Second Mortgage
Exhibit E Form of Environmental Indemnity
Exhibit F-1 Form of Corporate Opinion
Exhibit F-2 Form of Local Counsel Opinion
</TABLE>
The above-listed exhibits are omitted from this filing. Registrant agrees to
furnish supplementally a copy of any omitted exhibit to the Commission upon
request.
83
<PAGE> 1
EXHIBIT 10.32
AMENDMENT TO LOAN DOCUMENTS
This Amendment to Loan Documents ("AMENDMENT") is made as of the 22nd
of December, 1997, by and among SILVERLEAF RESORTS, INC., a Texas corporation,
whose address is 1221 Riverbend Drive, Dallas, Texas 75247, f/k/a SILVERLEAF
VACATION CLUB, INC. ("BORROWER") and CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL
LLC, a Delaware limited liability company, as successor by merger to CS FIRST
BOSTON MORTGAGE CAPITAL CORP., a Delaware corporation, whose address is 11
Madison Avenue, New York, New York 10010-3629 ("LENDER").
RECITALS
A Lender and Borrower have heretofore entered into that certain Loan and
Security Agreement dated October 9, 1996 (the "LOAN AGREEMENT"),
pursuant to which Lender agreed to loan Borrower an aggregate sum not
to exceed at any one time Forty Million and 00/100 Dollars
($40,000,000.00) (the "LOAN"). Those certain documents shown on the
attached Table of Contents as incorporated as Exhibit A hereto and made
a part hereof by this reference were executed in connection with the
Loan.
B. The Loan Agreement was amended on November 8, 1996 by Amendment No. 1
to Revolving Loan and Security Agreement ("AMENDMENT NO. 1").
C. Borrower has requested that Lender modify, extend and increase the
Loan by an additional Twenty Million and 00/100 Dollars
($20,000,000.00) ("FIRST LOAN INCREASE").
D. Said documents, as set forth on Exhibit A hereto, as amended, and all
as further amended by this Amendment and the Amended and Restated
Promissory Note No. 1 dated of even date herewith in the principal
amount of Sixty Million and 00/100 Dollars ($60,000,000.00) attached
hereto as Exhibit B and made a part hereof by this reference ("AMENDED
NOTE") are hereinafter collectively referred to as the "LOAN
DOCUMENTS".
E. In consideration of Borrower's ratification and confirmation of the
Loan Documents, Lender has been induced by Borrower to amend and
modify certain terms and conditions of the Loan Documents as set forth
hereinbelow:
NOW, THEREFORE, for Ten ($10.00) Dollars and other good and valuable
consideration, the receipt and sufficiency of which are acknowledged by
Borrower and Lender, said parties agree as follows:
The recitals above set forth are true and correct and are incorporated
within this Amendment as though set forth herein at length. All defined terms
used herein and not otherwise defined shall have the meanings set forth in
the Loan Documents.
1. Borrower acknowledges the validity, enforceability, and due
execution and delivery of each and every of the Loan Documents executed by
Borrower or delivered on behalf of said party. Borrower hereby further warrants
and represents to Lender that in addition to having no defense to
non-performance of any of the covenants, agreements, warranties or any defense
to any failure or omission in terms of any representation made in any of the
Loan Documents, that Lender has performed in each and every respect under said
Loan Documents and that said Loan Documents are binding and enforceable in
accordance with their terms against Borrower.
<PAGE> 2
2. Section 1 of the Loan Agreement is amended so that the following
defined terms shall have the indicated meanings:
1.3A "Amended Note". That certain Amended and Restated Promissory
Note No. 1 dated December 22nd, 1997 made by Borrower payable to the order of
Lender in the original principal sum of $60,000,000.
1.3B "Amendment". That certain Amendment to Loan Documents, dated
as of December 22, 1997 among Borrower and Lender.
1.10 "Borrowing Term". The period commencing on the date of this
Amendment and ending on the close of Lender's normal business hours on the date
(or if not a Business Day the first Business Day thereafter) which is
twenty-four (24) months from the date of this Amendment. The Borrowing Term
shall be extended for a period of twelve (12) months provided the Maturity Date
has been extended at least twelve (12) months.
1.15 "Custodian" or "Custodian Agent". Bank One, Texas, National
Association, or its successors as Custodian, under the Custodian Agreement.
1.30 "First Loan Increase". The increase in the Original Loan of
Twenty Million and 00/100 Dollars ($20,000,000.00).
1.33 "Management Agreement(s)". That certain Management Agreement
entered into as of March 28, 1990, by and between Master Club and Borrower as
amended by First Amendment to Management Agreement entered into as of January
1, 1993 and further amended by the Second Amendment to Management Agreement
entered into as of December 18 1997; and Master Club Agreement entered into as
of March 28, 1990, by and between Master Club and Ozark Mountain Resort Club, a
Missouri non-profit corporation, Holiday Hills Resort Club, a Missouri
non-profit corporation, The Holly Lake Resort Club, a Texas non-profit
unincorporated association, The Villages Resort Club, a Texas non-profit
unincorporated association, The Villages Club, an unincorporated association,
Piney Shores Resort Club, a Texas non-profit unincorporated association, and
Hill Country Resort Club, a Texas non-profit unincorporated association as
amended by First Amendment to Master Club Agreement entered into as of March
28, 1990; and Master Club Agreement entered into as of November 20, 1997
between Master Club and Fox River Resort Club, an Illinois non-profit
corporation, and Master Club Agreement entered into September 29, 1997 between
Master Club and Timber Creek Resort Club, a Missouri non-profit corporation.
1.34 "Master Deed(s)". The Master Deeds whereby the Resorts were
conveyed from Freedom Financial Corporation to Borrower:
(a) Warranty Deed dated May 31, 1989, and recorded in
Volume 2915, Page 215 of the Real Property Records of
Smith County, Texas, and an Assignment of Development
and Contract Rights, dated May 31, 1989, and recorded
in Volume 2915, Page 274 of the Real Property Records
of Smith County, Texas;
(b) Warranty deed Dated May 31, 1989, and recorded in
Book 194, Page 854 of the Deed Records of Stone
County, Missouri, and an Assignment of Development
2
<PAGE> 3
Rights, Warranties, Service Contracts, and Trade Name
dated May 31, 1989, and recorded in Book 135, Page
360 of the Deed Records of Stone County, Missouri;
(c) Warranty Deed dated May 31, 1989, and recorded in
Volume 1162, Page 519 of the Real Property Records of
Wood County, Texas, and an Assignment of Development
Rights, Warranties, Service Contracts, and Trade Name
dated May 31, 1989, and recorded in Volume 1162, Page
526 of the Real Property Records of Wood County,
Texas;
(d) Warranty Deed dated May 31, 1989, and recorded under
Clerk's File No. 8922886 of the Real Property Records
of Montgomery County, Texas, and an Assignment of
Development Rights, Warranties, Service Contracts,
and Trade Name dated May 31, 1989, and recorded under
Clerk's File No. 8922887 of the Real Property Records
of Montgomery County, Texas.
(e) Warranty Deed dated May 31, 1989, and recorded in
Book 300, Page 650 of the Recorder of Deeds of Taney
County, Missouri, and an Assignment of Development
Rights, Warranties, Service Contracts, and Trade Name
dated May 31, 1989, and recorded in Book 301, Page
331 of the Recorder of Deeds of Taney County,
Missouri;
(f) Warranty Deed dated May 31, 1989 and recorded in
Volume 679, Page 29 of the Real Property Records of
Comal County, Texas, and an Assignment of Development
Rights, Warranties, Service Contracts and Trade Name
dated May 31, 1989, and recorded in Volume 679, Page
36 of the Real Property Records of Comal County,
Texas.
(g) Special Warranty Deed dated August 1, 1997, recorded
in Book 784 at Page 1189 of the Deed Records of
Jefferson County, Missouri, on August 8, 1997; and
(h) Special Warranty Deed dated August 1, 1997 bearing
Document No. R97-12710, Pages 1-6, recorded in the
LaSalle County, Illinois Property Records on August
11, 1997.
1.35 "Maturity Date". Twenty-four (24) months after the date
of this Amendment, which may be extended for an additional period of one year
upon a request of Lender accompanied by a payment of one percent (1%) of the
difference between the Maximum Loan Amounts and the then principal balance of
the Loan.
1.36 "Maximum Loan Amount". Sixty Million and 00/100 Dollars
($60,000,000.00).
1.40 "Note". The Amended Note of even date herewith from
Borrower to Lender in the original principal amount of $60,000,000 as it may be
from time to time be renewed, amended, restated or replaced.
1.62 "Time-Share Associations" or sometimes "Associations".
Ozark Mountain Resort Club, a Missouri non-profit corporation; Holiday Hills
Resort Club, a Missouri non-profit corporation; Hill Country Resort Club, a
Texas non-profit unincorporated organization; Piney Shores Resort Club, a Texas
non-profit
3
<PAGE> 4
unincorporated association; Holly Lake Resort Club, a Texas non-profit
unincorporated association; The Villages Resort Club, a Texas non-profit
unincorporated association; Timber Creek Resort Club, a Missouri non-profit
corporation; and Fox River Resort Club, an Illinois non-profit corporation.
3. Each and every reference in the Loan Agreement and each and
every other of the Loan Documents to (a) Forty Million ($40,000,000) Dollars
shall be and are amended to Sixty Million Dollars ($60,000,000) Dollars, and
(b) the Note shall be deemed a reference to the Amended Note.
4. Borrower shall pay Lender an additional Structuring
Advisory Fee payable in accordance with a separate letter agreement between the
parties.
5. Section 6.17 of the Loan Agreement shall be amended in its entirety
as follows:
"6.17 Borrower shall maintain an aggregate minimum net
worth of not less than $17,500,000."
6. Exhibit "K" to the Loan Agreement shall be amended by
adding the legal descriptions, attached hereby as Exhibit "K", of Fox River
Resort and Timber Creek Resort.
7. Borrower shall provide Lender with such other documents and
take such actions as Lender and its counsel deem reasonably necessary to
preserve Lender's security and priority and enforceability of the Loan
Documents and shall reconfirm and redeliver any document, instrument and
information set forth in Section 4.1 of the Loan Agreement prior to any
Advance, at Lender's request.
8. This Amendment shall control and prevail in the event of
any conflict or inconsistency between any of the Loan Documents and this
Amendment.
9. (a) Borrower does hereby acknowledge, confirm and agree to the
prompt and immediate payment of all sums due Lender from Borrower and of all
indebtedness of Borrower to Lender, and for the immediate performance and prompt
compliance by Borrower of all obligations of Borrower.
(b) Borrower does hereby waive, discharge and release forever
any and all existing claims, counterclaims, defenses, demands, and rights of
set-off that it or they may have against Lender or with regard to Loan Documents
as modified thereby, or which may affect the validity or enforceability by
Lender of its various rights and remedies under the Loan Documents, and each
further acknowledges and agrees that the waiver, discharge and release herein
contained represent an essential part of the consideration bargained for and
received by Lender in consideration of its agreements hereunder.
(c) Borrower represents and warrants that the Loan Documents,
as modified herein, constitute a good and valid lien on the Collateral as more
particularly described in the Loan Documents.
(d) As additional consideration for Lender's agreements
hereunder, Borrower does hereby reconfirm and does re-grant to Lender a security
interest in the personal property making up the Collateral, if any, as security
for all indebtedness now or hereafter due from Borrower to Lender under the Loan
Documents and the Collateral for the Loan.
4
<PAGE> 5
(e) The terms, conditions, covenants, and agreements hereof
shall be binding upon the heirs, personal representatives, successors, and
assigns of the parties hereto and shall inure to the benefit of the successors
and assigns of Lender.
(f) Borrower hereby acknowledges that under no circumstances
is Lender obligated to make additional financing available, for any purpose,
after the Availability Period.
(g) Borrower shall pay all costs and expenses, including
attorneys fees, incurred for the preparation, recording and implementation of
this Amendment.
(h) This Amendment shall be governed by and shall be
construed in accordance with the laws of the State of New York.
(i) Whenever the singular number is used herein, the same
shall include the plural, and the masculine and/or feminine and the natural
and/or artificial persons shall include all genders, whenever and wherever the
context so requires or admits.
(j) Lender may, at any time and from time to time, waive any
one or more of the provisions of this Amendment, but any such waiver shall be
deemed to be made in pursuance of this Amendment and not in modification
thereof, and any such waiver in any instance or under any particular
circumstances shall not be considered a waiver of such condition in any other
instance or other circumstances.
(k) Any waiver or modification of the terms of this Amendment
by Lender shall be in writing and shall be signed by an authorized officer of
Lender. No delay or omission of the part of Lender in exercising any right
hereunder shall operate as a waiver of that right or of any other right
thereunder or hereunder.
(l) Time is of the essence under this Amendment with respect
to Borrower's performance hereunder.
(m) In the event any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall, at the
option of the Lender, not affect any provisions herein, but this Amendment shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
(n) This Amendment may be executed in any number of
counterparts, each of which shall be an original, but such shall together
constitute but one and the same instrument.
(o) In the event governmental entities, agencies
or department determine that this Amendment requires that additional
documentary or intangible stamps taxes are necessary, Borrower hereby agrees to
immediately pay such taxes. Borrower shall further pay any interest or
penalties which may accrue due to the requirement of additional documentary or
intangible stamp taxes and shall indemnify, defend and save and hold harmless
Lender from and against any and all claims or liabilities arising from the
requirements of such additional taxes. Failure on the part of Borrower to pay
these additional taxes when due shall be constitute an additional default under
the Loan Documents.
5
<PAGE> 6
(p) Waiver of Jury Trial. LENDER AND BORROWER HEREBY
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE THE RIGHT ANY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AMENDMENT TO LOAN DOCUMENTS AND ANY AGREEMENT
CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OR CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTION OF ANY PARTY
HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO
THIS AMENDMENT TO LOAN DOCUMENTS.
6. The execution, delivery and performance by Borrower of the
Amendment and ratification of the Loan Documents has been duly authorized by all
necessary corporate action and does not and will not (i) violate any provision
of the Borrower's Articles of Incorporation or By-Laws or any agreement, law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award presently in effect to which Borrower is a party or is subject; (ii)
result in, or require the creation or imposition of, any lien upon or with
respect to any asset of Borrower other than liens and security interests in
favor of Lender; and (iii) result in a breach of, or constitute a default by
Borrower under, any indenture, loan or credit agreement or any other agreement,
document, instrument or certificate to which Borrower is a party or by which it
or any of its assets are bound or affected.
Except as above expressly amended, the terms and conditions of the
Loan Documents remain in continuing full force and effect and are ratified and
confirmed by Borrower and Lender.
Executed as of the 22nd day of December, 1997.
BORROWER:
SILVERLEAF RESORTS, INC.,
a Texas corporation
By: /s/ ROBERT MEAD
-------------------------------------
ROBERT MEAD, Chief Executive
Officer
(Corporate Seal)
LENDER:
CREDIT SUISSE FIRST BOSTON
MORTGAGE CAPITAL LLC., a Delaware
limited liability company, as successor by
merger to CS FIRST BOSTON MORTGAGE
CAPITAL CORP., a Delaware corporation
By: /s/ DAVID ARZI
-------------------------------------
DAVID ARZI, Vice President
(Corporate Seal)
6
<PAGE> 7
LIST OF EXHIBITS TO EXHIBIT 10.32
Exhibit A Table of Contents of Loan Documents
Exhibit B Amended and Restated Promissory Note No. 1
The above-listed exhibits are omitted from this filing. Registrant agrees to
furnish supplementally a copy of any omitted exhibit to the Commission upon
request.
7
<PAGE> 1
EXHIBIT 10.33
SECOND AMENDMENT TO MANAGEMENT AGREEMENT
THIS SECOND AMENDMENT TO MANAGEMENT AGREEMENT (the "Second Amendment")
is entered into as of this 31st day of December, 1997, by and between Master
Club, formerly known as Master Endless Escape Club, a Texas non-profit
corporation ("Master Club"), and Silverleaf Resorts, Inc., a Texas corporation,
f/k/a Silverleaf Vacation Club, Inc., f/k/a Ascension Capital Corporation,
successor by merger to Ascension Resorts, Ltd. ("Manager").
RECITALS
WHEREAS, Master Club and Manager entered into that certain Management
Agreement dated as of the 28th day of March, 1990 (the "Management Agreement"),
for purposes of establishing certain management services to be provided by
Manager to Master Club and certain resorts, as designated in the Management
Agreement (the "Resorts"); and
WHEREAS, on December 28, 1993, Master Club and Manager executed that
certain First Amendment to Management Agreement effective as of January 1, 1993
(the "First Amendment") to modify the compensation payable to Manager under the
Management Agreement and to amend certain other provisions of the Management
Agreement;
WHEREAS, Master Club and Manager now desire to amend the Management
Agreement further to provide for the addition of two additional Resorts to be
subject to the Management Agreement;
NOW, THEREFORE, for and in consideration of Ten and No/100 Dollars
($10.00), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Master Club and Manager hereby
agree as follows;
A. The first two paragraphs of the Recitals of the Management
Agreement are hereby deleted in their entirety and replaced with the following
new paragraphs:
WHEREAS, Manager is the current owner and developer of eight
(8) resorts, four (4) of which are located in Texas and are known as
Hill Country Resort, Holly Lake, Piney Shores Resort and The Villages,
three (3) of which are located in Missouri and are known as Holiday
Hills Resort, Ozark Mountain Resort and Timber Creek Resort, and one
of which is located in Illinois and is known as Fox River Resort
(collectively the "Resorts"); and
WHEREAS, pursuant to (i) that certain Master Club Agreement
dated March 28, 1997, executed by and between Master Club and Holiday
Hills Resort Club, a Missouri non-profit corporation, Ozark Mountain
Resort Club, a Missouri non-profit corporation, Hill Country Resort
Club, a Texas non-profit unincorporated association, Holly Lake Resort
Club, a Texas non-profit
<PAGE> 2
unincorporated association, Piney Shores Resort Club, a Texas
non-profit unincorporated association, and Villages Resort Club, a
Texas non-profit unincorporated association, (ii) that certain Master
Club Agreement dated September 25, 1997, by and between Master Club
and Timber Creek Resort Club, a Missouri non-profit corporation, and
(iii) that certain Master Club Agreement dated November 13th, 1997, by
and between Fox River Resort Club, an Illinois non-profit corporation
(Ozark Mountain Resort Club, Holiday Hills Resort Club, Hill Country
Resort Club, Holly Lake Resort Club, Piney Shores Resort Club,
Villages Resort Club, Timber Creek Resort Club and Fox River Resort
Club are hereinafter collectively referred to as the "Clubs"), the
Master Club is authorized and appointed by each of the Clubs to
arrange for centralized management of the Resorts and to implement the
Program (hereinafter defined) for the benefit of the Clubs; and
B. Except as expressly amended hereby, the original terms and
conditions of the Management Agreement and the First Amendment are hereby
ratified and confirmed by Master Club and Manager. This Second Amendment
inures to the benefit, and is binding upon, the Master Club and Manager and
their respective successors, legal representatives, and assigns.
C. This Second Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument, and all such
counterparts shall be deemed one and the same instrument.
EXECUTED the 31st day of December, 1997.
MASTER CLUB:
MASTER CLUB, a Texas non-profit corporation
By: /s/ ROBERT G. LEVY
------------------------------------------
Name: Robert G. Levy
----------------------------------------
Its: President
-----------------------------------------
MANAGER:
SILVERLEAF RESORTS, INC., a Texas corporation
By: /s/ SHARON K. BRAYFIELD
------------------------------------------
Name: Sharon K. Brayfield
----------------------------------------
Its: President
-----------------------------------------
- 2 -
<PAGE> 1
EXHIBIT 10.34
MASTER CLUB AGREEMENT
THIS MASTER CLUB AGREEMENT ("Agreement") is entered into as of the
5th day of January, 1998, by and between Master Club, a Texas non-profit
corporation (the "Master Club"), and Oak N'Spruce Resort Club, a Texas
non-profit corporation (the "Club").
R E C I T A L S :
WHEREAS, Silverleaf Resorts, Inc., a Texas corporation ("Silverleaf")
owns and operates eight (8) resorts, four (4) of which are located in Texas and
are known as Hill Country Resort, Holly Lake, Piney Shores Resort and The
Villages, three (3) of which are located in Missouri and are known as Holiday
Hills Resort, Ozark Mountain Resort and Timber Creek Resort, and one (1) of
which is located in Illinois and is known as Fox River Resort (collectively the
"Resorts" and individually a "Resort"); and
WHEREAS, each of the Resorts formed an association to govern, maintain
and administer each Resort and are known as Hill Country Resort Club, a Texas
non-profit unincorporated association, Holly Lake Resort Club, a Texas
non-profit unincorporated association, Piney Shores Resort Club, a Texas
non-profit unincorporated association, Villages Resort Club, a Texas non-profit
unincorporated association, Holiday Hills Resort Club, a Missouri non-profit
corporation, Ozark Mountain Resort Club, a Missouri non-profit corporation,
Timber Creek Resort Club, a Missouri non-profit corporation, and Fox River
Resort Club, an Illinois non-profit corporation (the "Other Clubs");
WHEREAS, Silverleaf created and established a program referred to as
the Endless Escape Bonus Time Program (the "Program") pursuant to which each
member of the Other Clubs is entitled, at no additional charge, (i) to vacation
at each member's respective Resort more frequently and, under certain
circumstances, during use periods not already owned by that member, and (ii) to
vacation at the other Resorts owned by Silverleaf and participating in the
Program; and
<PAGE> 2
WHEREAS, Silverleaf created the Master Club for the purpose of
implementing and administering the Program and more efficiently managing the
various Resorts owned by Silverleaf which participate in the Program;
WHEREAS, on March 28, 1990, September 25, 1997, and November 13,
1997, the Master Club entered into Master Club Agreements with the Other Clubs
setting forth the duties and responsibilities of the Master Club with regard to
the Other Clubs; and
WHEREAS, on January 6, 1998, pursuant to an Amended and Restated
Declaration of Trust of Oak N'Spruce Resort Trust more particularly described
in Exhibit "A" attached hereto and made a part hereof for all purposes (the
"Declaration"), a ninth timeshare project was created called "Oak N'Spruce
Resort" ("Oak N'Spruce"), and the Club was created for the care, maintenance
and administration of the New Units (as defined in the Declaration) constructed
at Oak N'Spruce (the New Units at Oak N'Spruce shall hereinafter be referred
to as the "Project"); and
WHEREAS, the Club desires to enter into a Master Club Agreement with
the Master Club similar to the March 28, 1990, September 25, 1997, and November
13, 1997, Master Club Agreements between the Master Club and the Other Clubs;
and
WHEREAS, the Club acknowledges and agrees that membership in the
Master Club and the execution of this Agreement are to its benefit and
advantage; and
WHEREAS, the Club and the Master Club desire to enter into this
Agreement in order to set forth the responsibilities and duties of the Master
Club with regard to the Club and the Project;
NOW, THEREFORE, in order to carry out the desire of the Club and the
Master Club, and for and in consideration of Ten and No/100 Dollars ($10.00),
the covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Club and the Master Club hereby covenant and agree as follows:
- 2 -
<PAGE> 3
1. The Master Club shall have the following responsibilities and
duties for the benefit of the Club and the Project governed
thereby:
(a) Maintain a centralized reservation system for the
Project and all Resorts;
(b) Achieve costs savings by purchasing goods and
services for the Project and all Resorts as a group rather
than having the Project and each Resort purchase its goods and
services on an individual basis;
(c) Maintain a centralized management of the Project and
the entire Resort system;
(d) Provide accounting, legal and other administrative
services for the Project and entire Resort system;
(e) Implement and administer the Program in accordance
with the rules and regulations of the Program; and
(f) Pay all costs and expenses incurred at the Project
and each Resort individually as well as any system-wide costs
and expenses.
2. In order to enable the Master Club to perform the
responsibilities and duties described hereinabove, the Club
agrees to pay to the Master Club the following amounts as a
fee to the Master Club for the services rendered by the Master
Club for the benefit of the Club: (i) all dues, assessments,
late charges and other amounts levied against and collected
from its respective members pursuant to the Declaration, plus
(ii) all other income generated by the Club. The Master Club
will use its fee collected from the Club to pay (i) the
individual common expenses of the Project, and (ii) the
system-wide costs and expenses of administering and
maintaining the Master Club and operating and managing the
Club including, but not limited to, expenses for accounting,
legal services, administration, payroll, and management of the
entire resort system.
- 3 -
<PAGE> 4
3. This Agreement shall be in full force and effect in
perpetuity. Notwithstanding the foregoing, however, this
Agreement shall be terminated upon the cessation of legal
existence of the Master Club or, alternatively, of the Club,
and the surviving party or parties, if any, shall in such
event have no further obligations hereunder.
4. This Agreement inures to the benefit of, and is binding upon,
the Master Club and the Club and their respective successors,
legal representatives and assigns.
5. This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same
instrument, and all such counterparts shall be deemed on and
the same instrument.
6. All capitalized terms not otherwise defined herein shall have
the meaning given to such terms in the Declarations.
MASTER CLUB:
MASTER CLUB, a Texas non-profit
corporation
By: /s/ ROBERT G. LEVY
---------------------------------
Its: President
--------------------------------
- 4 -
<PAGE> 5
CLUB:
OAK N'SPRUCE RESORT CLUB, a Texas
non-profit corporation
By: /s/ TERRY BLEVINS
---------------------------------
Terry Blevins, Director
By: /s/ ROBERT G. LEVY
---------------------------------
Robert G. Levy, Director
By: /s/ BRUCE HAGEDORN
---------------------------------
Bruce Hagedorn, Director
By: /s/ DANA CALLAWAY
---------------------------------
Dana Callaway, Director
By: /s/ DOUG RICHIE
---------------------------------
Doug Richie, Director
- 5 -
<PAGE> 6
LIST OF EXHIBITS TO EXHIBIT 10.34
Exhibit A Amended and Restated Declaration of Trust
(Oak N' Spruce Resort)
The above-listed exhibit is omitted from this filing. Registrant agrees to
furnish supplementally a copy of any omitted exhibit to the Commission upon
request.
6
<PAGE> 1
EXHIBIT 10.35
CONTRACT OF SALE
This Agreement is entered into by and between OAK N'SPRUCE MANAGEMENT,
INC., a Massachusetts corporation, as Trustee of Oak N'Spruce Resort Trust
under Declaration of Trust dated August 4, 1997 ("Trust"), BEARTOWN
DEVELOPMENT, INC., a Pennsylvania Corporation ("Beartown"), BRUCE HAGEDORN and
DOUG RICHIE (Messrs. Hagedorn and Richie are sometimes hereinafter collectively
referred to as the "Shareholders") (Beartown, Trust and the Shareholders are
sometimes hereinafter collectively referred to as "Seller"), and SILVERLEAF
RESORTS, INC., a Texas corporation ("Purchaser").
W I T N E S S E T H :
FOR AND IN CONSIDERATION of the promises, undertakings, and mutual
covenants of the parties herein set forth, Seller hereby agrees to sell and
Purchaser hereby agrees to purchase and pay for all that certain property
hereinafter described in accordance with the following terms and conditions:
ARTICLE I
PROPERTY
The conveyance by Seller to Purchaser of Seller's assets and the
assignment of all of Seller's beneficial interest in the Trust shall include
certain tracts or parcels of land situated in Berkshire County, Massachusetts,
which tracts are more particularly described in Exhibit "A" attached hereto and
made a part hereof for all purposes, together with all and singular the rights
and appurtenances pertaining to such property including any right, title and
interest of Seller in and to adjacent strips or gores, streets, alleys or
rights-of-way and all rights of ingress and egress thereto (the foregoing
property is herein referred to collectively as the "Land").
The conveyance by Seller to Purchaser referred to hereinabove shall
also include all buildings and other improvements on the Land, including
specifically, without limitation, the hotel and timeshare units, all unsold
timeshare inventory, health and fitness facilities and all other amenities
located thereon and commonly known as "Oak N' Spruce Resort" (the foregoing
property is herein referred to collectively as the "Hotel").
<PAGE> 2
The conveyance by Seller to Purchaser shall also include all fixtures
and personal property, tangible or intangible, of any kind whatsoever owned by
Seller and used in connection with the operation of the Hotel, including but
not limited to, the following items:
a. All contracts for the use or occupancy of guest rooms
and/or the banquet facilities of the Hotel;
b. All engineering, maintenance, and housekeeping
supplies, including soap, cleaning materials and matches; stationery
and printing; and other supplies of all kinds, whether used, unused or
held in reserve storage for future use in connection with the
maintenance and operation of the Hotel, which are on hand on the date
hereof, subject to such depletion and including such resupplies as
shall occur and be made in the normal course of business;
c. All machinery, equipment, fixtures, furniture,
artwork and other decorative items, signage and other personal
property of every kind and character owned by Seller and located in or
used in connection with the operation of the Hotel including, without
limitation, (i) any furnishings, equipment or other personalty located
in any business or management offices located in the Hotel; (ii)
maintenance equipment and tools owned by Seller and used in connection
with the Hotel; and (iii) switchboards, computers and other machinery,
equipment, fixtures, and keys;
d. The name "Oak N' Spruce Resort" and any other names,
logos and designs used in the ownership or operation of the Hotel
including, without limitation, the names, logos and designs now used
in connection with the restaurants, cocktail lounges, night clubs,
banquet rooms and meeting rooms in and/or about the Hotel, together
with the goodwill appurtenant to each of such names, logos and
designs;
e. All food and beverage (alcoholic and non-alcoholic)
which is on hand on the date hereof, whether issued to the food and
beverage department or held in reserve storage, subject to such
depletion and including such resupplies as shall occur and be made in
the normal course of business;
f. All service, maintenance, union, employment
(including pension and other employee benefit plans), purchase orders
and other contracts respecting the ownership, maintenance, operation,
provisioning or equipping of the Hotel, including warranties and
guaranties relating thereto;
g. All oral or written agreements pursuant to which any
portion of the Land or Hotel is used or occupied by anyone other than
Seller (the property described in this clause is herein referred to
collectively as the "Leases");
h. Any working capital reserves maintained by Seller,
any reserves maintained by Seller for the purpose of replacing
furniture, fixtures and equipment, all utility and similar deposits,
and all prepaid license and permit fees, all of the foregoing to be
determined as of the date of closing and to be transferred at closing;
i. All china, glassware, linens, silverware and
uniforms, whether in use or held in reserve storage for future use, in
connection with the operation of the Hotel, which are on hand on the
date hereof, subject to such depletion and including such resupplies
as shall be made in the normal course of business;
- 2 -
<PAGE> 3
j. All licenses, franchises and permits used in or
relating to the ownership, occupancy or operation of any part of the
Hotel, including any liquor license maintained by Seller in connection
with the operation of the Hotel, if and to the extent transferable to
Purchaser;
k. All software programs for accounting functions for
the general ledger, accounts payable, accounts receivable, and
payroll for the Hotel;
l. The owner's interest under all construction,
development and design contracts entered into in connection with the
construction of the Hotel and all transferable warranties, guaranties
and bonds relating to the Hotel or the acquisition, construction,
fabrication or installation thereof;
m. All outstanding receivables owned by Seller which
have been generated from the sale of memberships in the timeshare
program being operated by Seller on the Land;
n. Any developer's, declarant's, or owner's interests
under any operating agreements or reciprocal easement agreements or
other similar agreements affecting and/or benefiting the Hotel; and
o. All brochures, literature and other such materials
used by Seller in connection with the marketing of the Hotel which are
on hand on the date hereof, subject to such depletion and including
such resupplies as shall occur and be made in the normal course of
business.
The foregoing items are hereinafter collectively referred to as the "Hotel
Assets."
Hereinafter all property being conveyed to Purchaser by Seller
pursuant to this Contract including the Land, the Hotel and the Hotel Assets
are sometimes referred to collectively as the "Subject Property."
ARTICLE II
PURCHASE PRICE
The purchase price to be paid by Purchaser to Seller for the Subject
Property shall be the sum of Five Million and No/100 Dollars ($5,000,000.00);
provided, however, that if the closing of this Contract occurs at any time
after December 5, 1997, then the purchase price for the Subject Property shall
be the sum of Five Million One Hundred Thousand and No/100 Dollars
($5,100,000.00). The purchase price shall be payable all in cash at the
closing. Prior to the expiration of the Inspection Period (as described and
defined hereinbelow), Seller and Purchaser, each acting reasonably, shall agree
upon an allocation of the purchase price for the Subject Property in compliance
with the reporting requirements of Section 1060 of the Internal Revenue Code of
1986, as amended, and the Treasury Regulations promulgated thereunder, and all
- 3 -
<PAGE> 4
applicable tax returns (including I.R.S. Form 8594) will reflect the
allocations that have been agreed upon by and between Seller and Purchaser.
ARTICLE III
EARNEST MONEY
Within two (2) business days after final execution of this Contract by
all parties hereto, Purchaser shall deliver Purchaser's check in the amount of
One Hundred Thousand and No/100 Dollars ($100,000.00) to Safeco Land Title of
Dallas, 5220 Renaissance Tower, 1201 Elm Street, Dallas, Texas 75270, Attn:
Bobbie Irwin (the "Title Company"). The Title Company shall immediately cash
the earnest money check and deposit the proceeds thereof in an interest bearing
account, the earnings from which shall accrue to the benefit of Purchaser
(hereinafter the proceeds of the earnest money check shall be referred to as
the "earnest money").
In the event that this Contract is closed, then all earnest money
shall be applied in partial satisfaction of the purchase price. In the event
that this Contract is not closed, then the earnest money shall be disbursed in
the manner provided for elsewhere herein. Notwithstanding the foregoing or
anything to the contrary contained elsewhere in this Contract, it is understood
and agreed that One Hundred Dollars ($100.00) of the earnest money shall in all
events be delivered to Seller as valuable consideration for the inspection
period described in Article VI hereinbelow and the execution of this Contract
by Seller.
ARTICLE IV
PRE-CLOSING OBLIGATIONS OF SELLER
Within ten (10) days from the date of execution of this Contract,
Seller shall furnish to Purchaser each of the following (collectively, the "Due
Diligence Items"):
a. An as-built survey of the Subject Property dated subsequent to the
date of execution of this Contract and prepared by a licensed professional
engineer or surveyor acceptable to Purchaser, which survey shall: (a) include a
metes and bounds legal description of the Land; (b) accurately show all
improvements, encroachments and uses and accurately show all easements and
encumbrances visible or listed on the Title Commitment (identifying each by
recording reference if applicable); (c) recite the exact number of square feet
included within the Land and the dimensions of the surface perimeter of all
improvements; (d) state whether the Land (or any portion thereof) lies within a
flood zone or flood prone area; (e) state the number of parking
- 4 -
<PAGE> 5
spaces situated on the Land; (f) contain a certificate verifying that the
survey was made on the ground, that the survey is correct, that there are no
improvements, encroachments, easements, uses or encumbrances except as shown on
the survey plat, that the area represented for the Land and all improvements
has been certified by the surveyor as being correct and that the Land does not
lie within any flood zone or flood prone area, except as indicated thereon,
that the Land has access to public streets as indicated thereon, and otherwise
be in the form of Exhibit "B" attached hereto and made a part hereof; and (g)
otherwise be in form satisfactory to Purchaser. Unless otherwise agreed by
Seller and Purchaser, the metes and bounds description contained in the survey
shall be the legal description employed in the documents of conveyance of the
Subject Property; all costs incurred in obtaining the survey shall be paid by
Purchaser;
b. A current commitment (the "Title Commitment") for the
issuance of an owner's policy of title insurance to the Purchaser from
the Title Company, together with good and legible copies of all
documents constituting exceptions to Seller's title as reflected in
the Title Commitment;
c. Copies of all leases presently in effect with respect
to the Subject Property, if any, together with any amendments or
modifications thereof and other documents such as lien waivers and
non-disturbance and subordination agreements which affect the rights
of the parties expressed in the leases;
d. A schedule showing (i) all current members of the
timeshare program being operated at the Subject Property by Seller,
and (ii) the date through which monthly membership dues have been paid
by each such member;
e. A list of all service contracts, warranties,
management, maintenance, or other agreements affecting the Subject
Property, if any, together with copies of same. Seller agrees not to
enter into any additional contracts, warranties, or agreements prior
to closing which would be binding on Purchaser and which cannot be
cancelled by Purchaser upon thirty (30) days written notice without
cost, penalty, or obligation unless such service contracts or other
agreements are approved in writing by Purchaser;
f. Copies of all licenses, permits, applications,
authorizations, certificates of occupancy, governmental approvals and
other entitlements relating to the Subject Property and the operation
thereof in the possession of Seller, if any;
g. All site plans, drawings, environmental, mechanical,
electrical, structural, soils and similar reports and/or audits and
plans and specifications relative to the Subject Property in the
possession of Seller, if any;
h. True and correct copies of the tax statements
covering the Subject Property or any part thereof for each of the two
(2) years prior to the current year and, if available, for the current
year;
i. True and correct copies of any existing option
contracts, construction contracts, and architectural contracts
relating to all or any portion of the Subject Property;
j. A schedule of all current or pending litigation with
respect to the Subject Property or any part thereof, if any, together
with a brief description of each such proceeding;
k. The most recent operating statements for the Subject
Property prepared by Seller or in Seller's possession;
l. A schedule of all Hotel Assets (specifying if any
such Hotel Assets are leased);
- 5 -
<PAGE> 6
m. A list of any unwritten agreements affecting the
Subject Property to which Seller is a party or of which Seller has
acknowledge; and
n. All other information of any kind whatsoever in the
possession of Seller and pertaining to the ownership and operation of
the Subject Property.
ARTICLE V
TITLE INSPECTION PERIOD
Purchaser shall have a period of thirty (30) days following the date
on which Purchaser receives the last of the items to be provided to Purchaser
pursuant to paragraphs (a) and (b) of Article IV hereinabove in which to review
and approve each such item (the "Title Review Period"). If the information to
be provided pursuant to subparagraphs (a) and (b) of Article IV reflect or
discloses any defect, exception or other matter affecting the Subject Property
("Title Defects") that is unacceptable to Purchaser, then prior to the
expiration of the Title Review Period Purchaser shall provide Seller with
written notice of Purchaser's objections. Seller may, at its sole option,
elect to cure or remove the objections raised by Purchaser; provided, however,
that Seller shall have no obligation to do so. Should Seller elect to attempt
to cure or remove the objections, Seller shall have five (5) days from the date
of Purchaser's written notice of objections (the "Cure Period") in which to
accomplish the cure. In the event Seller either elects not to cure or remove
the objections or is unable to accomplish the cure prior to the expiration of
the Cure Period, then Seller shall so notify Purchaser in writing specifying
which objections Seller does not intend to cure, and then Purchaser shall be
entitled, as Purchaser's sole and exclusive remedies, either to terminate this
Agreement by providing written notice of termination to Seller within five (5)
days from the date on which Purchaser receives Seller's no-cure notice or waive
the objections and close this transaction as otherwise contemplated herein. If
Purchaser shall fail to notify Seller in writing of any objections to the state
of Seller's title to the Subject Property as shown by the Survey and Title
Commitment, then Purchaser shall be deemed to have no objections to the state
of Seller's title to the Subject Property as shown by the Survey and Title
Commitment, and any exceptions to Seller's title which have not been objected
to by Purchaser and which are shown on the Survey or described in the Title
Commitment shall be considered to be "Permitted Exceptions." It is understood
and agreed that the Subject Property will be conveyed to Purchaser subject to
all tenant leases affecting the Subject Property, if any, and that such leases
shall be Permitted Exceptions.
- 6 -
<PAGE> 7
ARTICLE VI
INSPECTION PERIOD
Purchaser, at Purchaser's sole expense, shall have the right to
conduct a feasibility, environmental, engineering and physical study of the
Subject Property for a period of time commencing on the date of execution of
this Contract and expiring thirty (30) days following the date on which
Purchaser receives the last of the items to be provided to Purchaser pursuant
to Article IV hereinabove (the "Inspection Period"). Purchaser and Purchaser's
duly authorized agents or representatives shall be permitted to enter upon the
Subject Property at all reasonable times during the Inspection Period in order
to conduct engineering studies, soil tests and any other inspections and/or
tests that Purchaser may deem necessary or advisable. In the event that the
review and/or inspection conducted pursuant to this paragraph shows any fact,
matter or condition to exist with respect to the Subject Property that is
unacceptable to Purchaser, in Purchaser's sole discretion, or if for any reason
Purchaser determines that purchase of the Subject Property is not feasible,
then Purchaser shall be entitled, as Purchaser's sole remedy, to cancel this
Contract by providing written notice of cancellation to Seller prior to the
expiration of the Inspection Period. If Purchaser shall provide written notice
of cancellation prior to the expiration of the Inspection Period, then this
Contract shall be cancelled, all earnest money (less $100.00) shall be
immediately returned to Purchaser by the Title Company, and thereafter neither
Seller nor Purchaser shall have any continuing obligations one unto the other.
- 7 -
<PAGE> 8
ARTICLE VII
REPRESENTATIONS, WARRANTIES, AND COVENANTS OF SELLER
Seller makes the following warranties and representations to
Purchaser:
a. Seller has good and marketable title to the Subject
Property subject only to the interests of timeshare purchasers and to
the Permitted Exceptions; and Seller will convey such title to
Purchaser on the closing date free and clear of all options, rights,
covenants, easements, liens and other rights in favor of third parties
except the interests of timeshare purchasers and the Permitted
Exceptions. All mechanic's liens, liens, mortgages or encumbrances of
any nature presently affecting the Subject Property will be paid off
and released on or before the date of closing so that at closing
Seller will be in a position to convey the Subject Property to
Purchaser free and clear of any such liens and mortgages. To enable
Seller to convey the Subject Property to Purchaser as provided herein
and to close this transaction, Seller may, at the time of closing, use
the purchase money for the Subject Property or any portion thereof to
clear Seller's title to the Subject Property of any or all liens,
mortgages, or encumbrances, provided that releases of all such liens,
mortgages, or encumbrances are recorded simultaneously with the
closing or in accordance with accepted conveyancing practices.
b. None of the Hotel Assets is held by Seller under a
lease or installment sale contract except as has been disclosed to
Purchaser in writing or will be disclosed to Purchaser in writing
during the Inspection Period.
c. There is no action, suit, proceeding or claim
presently pending in any court or before any federal, state, county or
municipal department, commission, board, bureau or agency or other
governmental instrumentality or before any arbitration tribunal or
panel, (i) affecting the Subject Property, or any portion thereof, or
Seller's use, operation or ownership of the Subject Property, or (ii)
affecting Seller's ability to perform its obligations under this
Contract, nor, to the best knowledge and belief of Seller, is any such
action, suit, proceeding or claim threatened.
d. Seller is not aware of any attachments, executions,
assignments for the benefit of creditors, or voluntary or involuntary
bankruptcy proceedings, or proceedings under any debtor relief laws,
contemplated by or pending or threatened against Seller or the Subject
Property.
e. No condemnation, eminent domain or similar
proceedings have been instituted or, to the best of Seller's
knowledge, threatened against the Subject Property.
f. Seller has not received notice of, and has no other
knowledge or information of, any pending or contemplated change in any
regulation, code, ordinance or law, or private restriction applicable
to the Subject Property, or any natural or artificial condition upon
or affecting the Subject Property, or any part thereof, which would
result in any material change in the condition of the Subject Property
or any part thereof, or would in any way limit or impede the operation
of the Subject Property.
g. Except for the list of service contracts, warranties,
management, maintenance or other agreements to be delivered to
Purchaser pursuant to Article IV hereinabove, there are no contracts
of construction, employment, management, service or supply which would
affect the Subject Property or operation of the Subject Property after
closing;
- 8 -
<PAGE> 9
h. To the best knowledge of Seller, the Subject Property
and the current operation thereof comply with all laws, regulations,
ordinances, rules, orders and other requirements of all governmental
authorities having jurisdiction over the Subject Property or affecting
all or any part thereof or bearing on its construction or operation,
and with all private covenants or restrictions;
i. To Seller's knowledge, Seller has acquired all
licenses, permits, easements, rights-of-way, including, without
limitation, all building and occupancy permits from all governmental
authorities having jurisdiction over the Subject Property or from
private parties for the normal use, maintenance, occupancy, and
operation of the Subject Property and to insure unimpeded access,
ingress and egress to and from the Land as required to permit normal
usage of the Hotel;
j. Seller currently has in place the public liability,
casualty and other insurance coverage with respect to the Subject
Property in the amounts reflected in the insurance policies included
in the Due Diligence Items. Each of such policies is in full force
and effect, and all premiums due and payable thereunder have been, and
on the Closing Date will be, fully paid when due. No notice of
cancellation has been received or threatened with respect thereto. No
insurance company insuring the Hotel or Board of Fire Underwriters has
delivered to Seller oral or written notice (i) that any insurance
policy now in effect would not be renewed or (ii) that Seller or
tenant under the Leases has failed to comply with insurance
requirements or (iii) that defects or inadequacies exist in the
Subject Property, or in any part thereof, which could adversely affect
the insurability thereof or the cost of such insurance;
k. Present zoning regulations, if any, permit the use of
the Subject Property as a hotel and timeshare resort, the Subject
Property complies with all applicable parking regulations, and, to the
best knowledge of Seller, there are no governmental or private
regulations, orders, agreements or instruments restricting the current
use and operation of the Land, except as may be shown in the Title
Commitment;
l. From the date of execution of this Contract through
the date of closing, Seller shall continue to maintain the Subject
Property in its present condition, subject to ordinary wear and tear
and Article XIV hereof, and shall continue to manage the Subject
Property in the same manner as it is currently being managed; Seller
shall not remove any fixtures, equipment, furnishings or other
personal property from the Subject Property unless replaced with items
of equal or greater quality and quantity, nor shall Seller in any
manner neglect the Subject Property;
m. That, at closing, there will be no unpaid bills,
claims, or liens in connection with any construction or repair of the
Subject Property except for ones which will be paid in the ordinary
course of business or which have been bonded around or the payment of
which has otherwise been adequately provided for to the complete
satisfaction of Purchaser;
n. Neither the Subject Property nor Seller is in
violation of any Environmental Law or is subject to any pending or
threatened litigation or inquiry by any governmental authority or to
any remedial action or obligations under any Environmental Law; (i) no
underground storage tanks have been or are now located on the Subject
Property; and (ii) no hazardous substances or toxic wastes have been
disposed of or are now located upon the Subject Property in violation
of applicable Environmental Law. As used herein, the term
"Environmental Law" will mean any law, statute, ordinance, rule,
regulation, order or determination of any governmental authority or
agency affecting the Subject Property and pertaining to health or the
environment including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act of 1982 and the
Resource Conservation and Recovery Act of 1986. Prior to Closing,
Seller agrees to promptly notify Purchaser of any fact of which Seller
acquires actual knowledge which
- 9 -
<PAGE> 10
would cause this representation to become false and of any written
notice that Seller receives regarding the matters set forth in this
Section;
o. Except for the sale of timeshare interests in the
ordinary course of business, there are no contracts or other material
obligations, other than those matters set forth in the Title
Commitment, Survey, Due Diligence Items and Leases, outstanding (i)
for the sale, exchange or transfer of the Subject Property or any
portion thereof or the business operated thereon by Seller, or (ii)
creating or imposing any burdens, obligations or restrictions on the
use or operation of the Subject Property and the business conducted
thereon;
p. Neither the Leases nor any other contract or
agreement delivered by Seller to Purchaser has been amended, modified
or supplemented in any way that will not be disclosed to Purchaser in
writing at the time of delivery to Purchaser pursuant to Article IV.
Except for the sale of timeshare interests in the ordinary course of
business, there are no written or oral agreements of any kind that
could constitute a lease or contract relating to the Subject Property
(including any agreements for free rent, rent reduction or abatement,
expense reimbursement, construction or remodelling allowances, lease
takeover or rent reimbursement, or other agreements of a tenant
inducement nature) that will not be disclosed to Purchaser in writing
at the time of delivery pursuant to Article IV. There exists no
circumstance or state of facts that constitutes a default by Seller or
any tenant under the Leases, or that would, with the passage of time
or the giving of notice, or both, constitute a default on the part of
Seller or by any tenant under any of the Leases, or that entitles any
tenant under the Leases to defenses against the prompt, current
payment and performance of rent and/or other payments and obligations
thereunder. Seller has no knowledge of any pending or threatened
litigation by any tenant against the Seller with regard to any Lease.
There do not exist any unpaid leasing commissions due with regard to
any of the Leases. Seller is the owner of the entire lessor's
interest in and to each of the Leases. Seller has performed all of
the duties, liabilities and obligations imposed upon Seller by the
terms, provisions and conditions contained in the Leases and accruing
on or prior to the date hereof;
q. Except for the sale of timeshare interests in the
ordinary course of business, from the date of execution of this
Contract through the date of closing, Seller will not enter into any
new lease of any portion of the Subject Property or modify any
existing lease covering space in the Subject Property without first
obtaining the written consent of Purchaser;
r. There are no unpaid assessments for public
improvements against the Subject Property. The Subject Property is
not subject to assessments for any street paving or curbing heretofore
laid. All sewer, water, gas, electric, telephone and drainage lines
and facilities required by law and for the normal operation of the
Subject Property are fully installed, function properly and are
adequate to service the Subject Property and there are no unpaid
assessments or charges for the installation of such utilities or for
making connection thereto that have not been fully paid;
s. To the best knowledge of Seller, (i) there are no
public plans or proposals for changes in road grade, access or other
municipal improvements which would affect the Subject Property or
result in any assessments, (ii) no ordinance authorizing improvements,
the cost of which might be assessed against Purchaser or the Subject
Property is pending, and (iii) no tax proceeding is pending for the
reduction or increase of the assessed real estate tax evaluation to
the Subject Property or any portion thereof;
t. Seller is duly organized, validly existing and in
good standing under the laws of the state of its organization and is
qualified to transact business in the state in which the Subject
Property is situated. This Contract has been duly and validly
executed and delivered by Seller to Purchaser and constitutes a legal,
valid and binding agreement
- 10 -
<PAGE> 11
of Seller, enforceable against Seller in accordance with its terms,
except as such enforcement may be limited by bankruptcy,
conservatorship, receivership, insolvency, moratorium or similar laws
affecting creditors' rights generally or by general principles of
equity;
u. Seller has the capacity and complete authority to
enter into and perform this Contract, and no consent, approval or
other action by any other party or entity will be needed thereafter to
authorize Seller's execution and performance of this Contract. None
of the execution and delivery of this Contract by Seller, the
consummation by Seller of the transaction contemplated hereby or
compliance by Seller with any of the provisions hereof will (i)
conflict with or result in any breach of any provisions of the
formation documents of Seller; (ii) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right to termination,
cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which Seller
is a party or by which Seller or the Subject Property may be bound; or
(iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Seller or the Subject Property; except in the
cases of clauses (ii) or (iii) above, for violations, breach or
defaults (A) that would not in the aggregate have a material adverse
effect on the business or financial condition of Seller and on the
effectiveness of the transaction contemplated hereby or (B) for which
waivers or consents have been or will be obtained prior to the closing
date;
v. Seller is not a "foreign person" or "foreign trust"
within the meaning of the United States Foreign Investment and Real
Property Tax Act of 1980 and the Internal Revenue Code of 1986, as
subsequently amended;
w. All books and records relating to operating income
and expenses of the Subject Property furnished or made available to
Purchaser by Seller were and shall be those maintained by Seller in
regard to the Subject Property in the normal course of business. The
operating statements covering the Subject Property for the period of
Seller's ownership furnished by Seller to Purchaser are, in all
material respects, accurate, complete and have been prepared in
accordance with the books and records of Seller and present fairly the
financial position of the operations of the Subject Property for the
period then ended. Without limiting the generality of the foregoing,
all of the financial statements referred to above fully reflect all
material costs of operations of the Subject Property. Since the date
of the operating statements covering the Subject Property, there has
been no material adverse change in the business or financial condition
of Seller or the Subject Property;
x. All documents and records delivered pursuant to
Article IV will be true, correct and complete copies of the documents
and records required to be delivered and will accurately reflect the
matters contained therein;
y. None of the employees of the Subject Property is
covered by a union contract or collective bargaining agreement or is
represented by a union;
z. Seller has the right to terminate any existing
employee benefit plan on or prior to the Closing;
aa. From the date of execution of this Contract through
the date of closing, Seller will not make or pay any distributions,
dividends, bonuses, increases in compensation, capital expenditures,
asset sales, or affiliate transactions other than the salaries payable
to its shareholders or their affiliates in the ordinary course of
business and consistent with past practices;
- 11 -
<PAGE> 12
bb. There are no defects, faults or other problems in
connection with the soils, subsoils, grading or compaction of the
Land, other than as set forth in any soil reports to be delivered to
Purchaser; and
cc. The assets and other items to be conveyed to
Purchaser by Seller pursuant to this Contract comprise all of the
assets and properties of Seller that are necessary in the operation of
the Subject Property in the ordinary course of business and consistent
with current practice and are completely adequate for the operation,
after the closing, of the Subject Property in the ordinary course of
business and consistent with current practice; notwithstanding
anything to the contrary contained herein, in the event that either
Seller or Purchaser discovers after closing that any asset or item
needed or useful in connection with the operation of the Subject
Property has not been conveyed to Purchaser at closing, then Seller
will immediately, upon demand by Purchaser, convey such asset or other
item to Purchaser for no additional consideration of any kind
whatsoever.
All of the foregoing representations and warranties of Seller are made by
Seller both as of the date hereof and as of the date of the closing hereunder
and shall survive the closing hereunder. Notwithstanding the foregoing or
anything to the contrary contained herein, it is understood and agreed that the
representations and warranties set forth hereinabove shall survive the closing
of this Contract only for a period of one (1) year following the closing date,
but not thereafter, and Seller shall have no liability of any kind whatsoever
for any breach thereof except to the extent a claim is asserted against Seller
within such one (1) year period. It is further understood and agreed that the
execution of this Contract shall impose upon Shareholders no personal liability
whatsoever for breach of any of the representations and warranties set forth
hereinabove, and, in the event of a breach of any such representations and
warranties, Purchaser shall seek no personal judgement against Shareholders for
payment of any damages incurred by Purchaser as a result of such breach; the
sole recourse of Purchaser for collection of any such damages shall be against
Trust and Beartown.
ARTICLE VIII
CONDITIONS PRECEDENT TO CLOSING
The obligation of Purchaser to close this Contract shall, at the
option of Purchaser, be subject to the following conditions precedent:
a. All of the representations, warranties and agreements of Seller set
forth in this Contract shall be true and correct in all material respects as of
the date hereof and at closing, and Seller shall not have on or prior to
closing, failed to meet, comply with or perform in any material respect any
conditions or agreements on Seller's part as required by the terms of this
Contract.
- 12 -
<PAGE> 13
b. There shall be no change in the matters reflected in
the Title Commitment, and there shall not exist any encumbrance or
title defect affecting the Subject Property not described in the Title
Commitment except for the Permitted Exceptions.
c. There shall be no changes in the matters reflected in
the Survey, and there shall not exist any easement, right-of-way,
encroachment, waterway, pond, flood plain, conflict or protrusion with
respect to the Subject Property not shown on the Survey.
d. No material and substantial change shall have
occurred with respect to the Subject Property which would in any way
affect the findings made in the inspection of the Subject Property
described in Article VI hereinabove or which would materially and
adversely impact the income that Purchaser expects to be generated by
the Subject Property; and
e. Purchaser's receipt on or before the date of closing
of a legal opinion from legal counsel for Seller to the effect that
upon closing Purchaser will have acquired from Seller, or will be in a
position to receive at closing upon prior application, all licenses
and permits necessary to conduct all the resort operations engaged in
by Seller prior to closing without the need of any further
governmental regulatory consents or approvals.
If any such condition is not fully satisfied by closing, Purchaser may
terminate this Contract by written notice to Seller whereupon this Contract
shall be cancelled, the earnest money deposit (less $100.00) shall be returned
to Purchaser by the Title Company and thereafter neither Seller nor Purchaser
shall have any continuing obligations one unto the other.
ARTICLE IX
CLOSING
The closing hereunder shall take place at the offices of the Title
Company. The closing shall occur on or before December 31, 1997.
ARTICLE X
SELLER'S OBLIGATIONS AT CLOSING
At the closing, Seller shall do the following:
a. Deliver to Purchaser an assignment by Beartown of all of its
beneficial interest in the Trust and a resignation of Oak N'Spruce Management,
Inc. as Trustee of the Trust, duly signed and acknowledged, which instruments
shall be in form reasonably acceptable to Purchaser for recording and shall
vest in Purchaser as successor trustee and successor beneficiary good and
marketable title to the Subject Property, free and clear of all liens,
rights-of-way, easements, and other matters affecting title to the Subject
Property, except for the Permitted Exceptions and the interests of timeshare
purchasers.
b. Deliver or cause to be delivered to Purchaser an ALTA
owner's form of title insurance policy (the "Title Policy") insuring
Purchaser in the amount of the purchase
- 13 -
<PAGE> 14
price that Purchaser has acquired good and marketable title to the
Subject Property, subject only to the Permitted Exceptions. Purchaser
shall be entitled to request the Title Company to provide, at Seller's
sole cost and expense, such endorsements (or amendments) to the Title
Policy as Purchaser may reasonably require so long as such
endorsements or amendments impose no additional liability on Seller or
delay the closing. Purchaser acknowledges and agrees that the Title
Policy may be actually delivered within a reasonable time following
the closing so long as Purchaser has received at closing a current
binding title commitment obligating the Title Company to deliver the
Title Policy. Purchaser shall pay the premium for a standard owner's
form of title insurance policy in the amount of the purchase price,
the cost of any title endorsements issued to insure over Title Defects
or reasonably required by Purchaser, and the cost of reinsurance
reasonably required by Purchaser.
c. Deliver a bill of sale and a blanket assignment in
form reasonably acceptable to Purchaser, duly executed and
acknowledged by Seller, conveying and/or assigning to Purchaser the
Hotel Assets.
d. Deliver an assignment and assumption agreement, in
form reasonably acceptable to Seller and Purchaser, duly executed and
acknowledged by Seller, assigning all of Seller's interest in and to
the Leases, together with executed originals of the Leases;
e. Deliver such evidence or other documents that may be
reasonably required by the Title Company evidencing the status and
capacity of Seller and the authority of the person or persons who are
executing the various documents on behalf of Seller in connection with
the sale of the Subject Property.
f. Deliver a non-withholding statement that will satisfy
the requirements of Section 1445 of the Internal Revenue Code so that
Purchaser is not required to withhold any portion of the purchase
price for payment to the Internal Revenue Service.
g. Deliver to Purchaser all keys to all buildings and
other improvements located on the Subject Property, combinations to
any safes thereon, and security devices therein in Seller's
possession.
h. Deliver to Purchaser any other documents or items
necessary or convenient in the reasonable judgment of Purchaser to
carry out the intent of the parties under this Contract.
In addition to delivery of the foregoing items, at closing, Shareholders and
Purchaser shall enter into the Employment Agreements, Stock Option Agreements
and Confidentiality, Non-Interference and Non-Competition Agreements which are
attached hereto and made a part hereof for all purposes as Exhibits "C," "D,"
"E," "F," "G", and "H", respectively; in addition, Seller and Purchaser shall
enter into the Confidentiality Non-Interference and Non-Competition Agreement
which is attached hereto and made a part hereof for all purposes as Exhibit
"I". The stock options shall be at an exercise price equal to the higher of
(i) the New York Stock Exchange average trading price, based on the high and
low prices, for Purchaser's common stock on the date of closing and (ii) the
closing price of such common stock on such date.
- 14 -
<PAGE> 15
ARTICLE XI
PURCHASER'S OBLIGATIONS AT CLOSING
At the closing, Purchaser shall deliver to Seller the purchase price
in cash.
ARTICLE XII
COSTS AND ADJUSTMENTS
At closing, the following items shall be adjusted or prorated between
Seller and Purchaser:
a. Any real estate transfer taxes or sales taxes payable in connection
with the sale of the Subject Property shall be paid in full by Seller.
b. Seller shall pay to Purchaser, in cash at closing (i)
any security deposits held by Seller pursuant to the Leases, and (ii)
all 1998 membership dues for the timeshare program being operated at
the Subject Property (being a budgeted total of approximately
$1,660,000) which have been collected by Seller on or before the date
of closing less any amounts that have been expended by Seller for 1998
timeshare maintenance or for any other prepaid items or charges
attributable to the 1998 calendar year or thereafter; in addition, at
closing Seller shall assign to Purchaser any funds and bank accounts
representing working capital reserves and/or furniture, fixtures and
equipment reserves.
c. Ad valorem taxes for the Subject Property for the
current calendar year shall be prorated as of the date of closing, and
Seller shall pay to Purchaser in cash at closing Seller's prorata
portion of such taxes. Seller's prorata portion of such taxes shall
be based upon taxes actually assessed for the current calendar year
or, if for any reason such taxes for the Subject Property have not
been actually assessed, such proration shall be based upon the amount
of such taxes for the immediately preceding calendar year, and
adjusted by cash settlement when exact amounts are available.
d. All other income and ordinary operating expenses for
or pertaining to the Subject Property including, but not limited to,
public utility charges, maintenance, service charges, and all other
normal operating charges of the Subject Property shall be prorated as
of the closing date. Seller will assign to Purchaser all of Seller's
right, title and interest in and to utility deposits and other
deposits heretofore made by Seller in connection with the operation of
the Subject Property.
e. All other closing costs, including but not limited
to, recording and escrow fees shall be paid by Seller; provided,
however, that Seller and Purchaser each will be responsible for the
fees and expenses of their respective attorneys.
As soon as practicable after closing, and in any event within 90 days
thereafter, Seller and Purchaser shall cooperate in preparing and reaching a
post-closing settlement, accounting for any additional credits or debits
between the parties as necessary to carry out the intent of this Contract,
including the general principle that from and after the closing date, the
revenues accruing from the operation of the Subject Property and the expenses
associated with those revenues shall be credited or charged to Purchaser, and
before the closing date, such sums shall be credited or charged to Seller.
- 15 -
<PAGE> 16
Seller agrees to indemnify and hold Purchaser harmless of and from any
and all liabilities, claims, demands, suits, and judgments, of any kind or
nature (except those items which under the terms of this Contract specifically
become the obligation of Purchaser), brought by third parties and based on
events occurring on or before the date of closing and which are in any way
related to the ownership, maintenance, or operation of the Subject Property,
and all expenses related thereto, including, but not limited to, court costs
and attorneys' fees.
Purchaser agrees to indemnify and hold Seller harmless of and from any
and all liabilities, claims, demands, suits, and judgments, of any kind or
nature, brought by third parties and based on events occurring subsequent to
the date of closing and which are in any way related to the ownership,
maintenance or operation of the Subject Property, and all expenses related
thereto, including, but not limited to, court costs and attorneys' fees.
ARTICLE XIII
ENTRY ON PROPERTY
Purchaser, Purchaser's agents, employees, servants, or nominees, are
hereby granted the right to enter upon the Subject Property at any time prior
to closing for the purpose of inspecting the Subject Property and conducting
such engineering and mechanical tests as Purchaser may deem necessary or
advisable, any such inspections and tests to be made at Purchaser's sole
expense. Purchaser agrees to promptly discharge any liens that may be imposed
against the Subject Property as a result of Purchaser's investigations and to
defend, indemnify and hold Seller harmless from and against any and all claims,
suits, losses, damages, liabilities, judgments, costs, or expenses (including
without limitation court costs and attorneys' fees) incurred by Seller as a
result of any inspections or tests made by Purchaser.
- 16 -
<PAGE> 17
ARTICLE XIV
DAMAGE OR DESTRUCTION PRIOR TO CLOSING
In the event that the Subject Property should be damaged by any
casualty prior to closing, then if the cost of repairing such damage, as
estimated by an architect or contractor retained pursuant to the mutual
agreement of Seller and Purchaser, is:
a. Less than Two Hundred Thousand Dollars ($200,000.00),
then at Purchaser's option, either (i) the Seller shall repair such
damage as promptly as is reasonably possible, restoring the damaged
property at least to its condition immediately prior to such damage;
and, in the event such repairs have not been completed prior to
closing, then the closing shall nevertheless proceed as scheduled, and
Purchaser may have the Title Company withhold from Seller the funds
necessary to make such repairs until Seller has repaired such damage
pursuant to the provisions hereof, at which time such funds shall be
distributed to Seller or (ii) Purchaser may take an assignment of
Seller's insurance proceeds and a credit for Seller's deductible (as
described in paragraph [b] below) and repair such damage itself;
or if said cost is:
b. greater than Two Hundred Thousand Dollars
($200,000.00), then, at Purchaser's election, Seller shall pay to
Purchaser, at closing, all insurance proceeds payable for such damage,
and the sale shall be closed without Seller's repairing such damage
but with Purchaser receiving a credit for the amount of any deductible
provided for in the applicable insurance policy, or, if Purchaser does
not elect to accept such insurance proceeds, then either Seller or
Purchaser may elect to terminate this Contract, in which case the
earnest money (less $100.00) shall be returned to Purchaser and
thereafter neither party shall have any further obligations one unto
the other.
ARTICLE XV
POSSESSION OF PROPERTY
Possession of the Property free and clear of all uses and
encroachments, except the Permitted Exceptions, shall be delivered to Purchaser
at closing.
ARTICLE XVI
NOTICES
All notices, demands, or other communications of any type given by the
Seller to the Purchaser, or by the Purchaser to the Seller, whether required by
this Contract or in any way related to the transaction contracted for herein,
shall be void and of no effect unless given in accordance with the provisions
of this paragraph. All notices shall be in writing and delivered
- 17 -
<PAGE> 18
to the person to whom the notice is directed, either in person, by facsimile
transmission, or by United States Mail, as a registered or certified item,
return receipt requested. Notices delivered by mail shall be deemed given when
deposited in a post office or other depository under the care or custody of the
United States Postal Service, enclosed in a wrapper with proper postage
affixed, addressed as follows:
Seller: Beartown Development, Inc.
R.R. 4, Box 4402
Stroudsburg, Pennsylvania 18360
Attn: Bruce Hagedorn
Telephone No.: (717) 992-5008
Facsimile No.: (717) 992-6913
With Required Copy to: Elizabeth A. McNichols
Dunning, Forman, Kirrane & Terry, L.L.P.
Shellback Place
133 Route 28
Box 560
Mashpee, MA 02649
Telephone No.: (508) 477-6500
Facsimile No.: (508) 477-5697
Purchaser: Silverleaf Resorts, Inc.
1221 Riverbend Drive
Suite 120
Dallas, Texas 75247
Attn: Robert E. Mead
Telephone No.: (214) 631-1166
Facsimile No.: (214) 905-0514
With Required Copy to: Meadows, Owens, Collier, Reed,
Cousins & Blau, L.L.P.
3700 NationsBank Plaza
901 Main Street
Dallas, Texas 75202
Attn: George R. Bedell, Esq.
Telephone No.: (214) 749-2448
Facsimile No.: (214) 747-3732
ARTICLE XVII
REMEDIES
In the event that Seller fails to timely comply with all conditions,
covenants and obligations of Seller hereunder, it shall be an event of default
and Purchaser shall have the option (i) to terminate this Contract by providing
written notice thereof to Seller, in which event the earnest money (less
$100.00) shall be returned immediately to Purchaser by the Title Company and
the parties hereto shall have no further liabilities or obligations one unto
the other; (ii) to waive any defect or requirement and close this Contract; or
(iii) to sue Seller for specific performance or for
- 18 -
<PAGE> 19
damages. The exercise of any of the foregoing remedies of Purchaser shall not
in any manner be construed as a waiver of Purchaser's right to seek specific
performance or to sue for damages, and in the event of a default by Seller
hereunder, Purchaser shall be entitled to enforce specific performance
hereunder or sue Seller for damages.
In the event that Purchaser fails to timely comply with all
conditions, covenants, and obligations Purchaser has hereunder, such failure
shall be an event of default, and Seller's sole remedy shall be to receive the
Earnest Money. The Earnest Money is agreed upon by and between the Seller and
Purchaser as liquidated damages due to the difficulty and inconvenience of
ascertaining and measuring actual damages, and the uncertainty thereof, and no
other damages, rights, or remedies shall in any case be collectible,
enforceable, or available to the Seller other than in this paragraph defined,
and Seller shall accept the Earnest Money as Seller's total damages and relief.
ARTICLE XVIII
ASSIGNMENT
Purchaser may not assign its rights under this Contract to anyone
other than a Permitted Assignee without first obtaining Seller's prior written
approval. Purchaser may assign its rights under this Agreement to a Permitted
Assignee without prior written consent of Seller. For purposes of this
Contract, a "Permitted Assignee" shall mean any partnership, corporation,
limited liability company or other business entity controlled by one or more of
the following which has the financial ability to perform Purchaser's
obligations hereunder: (a) Silverleaf Resorts, Inc., or (b) Robert E. Mead.
For purposes of the preceding sentence an entity shall be deemed to be
controlled by a person if such person owns 50% or more of the ownership
interest in such entity, or has the right to control 50% or more of such
ownership interest through a contract or otherwise. Notwithstanding any
assignment of this Contract by Purchaser in accordance with the terms of this
Article XVIII, any stock options to be issued to the Shareholders at closing
shall only be those of Purchaser and not those of any assignee.
- 19 -
<PAGE> 20
ARTICLE XIX
INTERPRETATION AND APPLICABLE LAW
Except as otherwise expressly provided herein, this Agreement shall be
construed and interpreted in accordance with the laws of the State of
Massachusetts. Where required for proper interpretation, words in the singular
shall include the plural; the masculine gender shall include the neuter and the
feminine, and vice versa. The terms "successors and assigns" shall include the
heirs, administrators, executors, successors, and assigns, as applicable, of
any party hereto.
ARTICLE XX
AMENDMENT
This Contract may not be modified or amended, except by an agreement
in writing signed by the Seller and the Purchaser. The parties may waive any
of the conditions contained herein or any of the obligations of the other party
hereunder, but any such waiver shall be effective only if in writing and signed
by the party waiving such conditions and obligations.
ARTICLE XXI
AUTHORITY
Each person executing this Contract warrants and represents that he is
fully authorized to do so.
ARTICLE XXII
ATTORNEYS' FEES
In the event it becomes necessary for either party to file a suit to
enforce this Contract or any provisions contained herein, the prevailing party
shall be entitled to recover, in addition to all other remedies or damages,
reasonable attorneys' fees and costs of court incurred in such suit.
- 20 -
<PAGE> 21
ARTICLE XXIII
DESCRIPTIVE HEADINGS
The descriptive headings of the several paragraphs contained in this
Contract are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
ARTICLE XXIV
ENTIRE AGREEMENT
This Contract (and the items to be furnished in accordance herewith)
constitutes the entire agreement between the parties pertaining to the subject
matter hereof and supersedes all prior and contemporaneous agreements and
understandings of the parties in connection therewith. No representation,
warranty, covenant, agreement, or condition not expressed in this Contract
shall be binding upon the parties hereto or shall affect or be effective to
interpret, change, or restrict the provisions of this Contract.
ARTICLE XXV
MULTIPLE ORIGINALS ONLY
Numerous copies of this Contract may be executed by the parties
hereto. Each such executed copy shall have the full force and effect of an
original executed instrument.
ARTICLE XXVI
ACCEPTANCE
Seller shall have until 5:00 o'clock p.m., November 14, 1997, to
execute and return a fully executed original of this Contract to Seller,
otherwise this Contract shall become null and void. Time is of the essence of
this Contract. The date of execution of this Contract by Seller shall be the
date of execution of this Contract. If the final date of any period falls upon
a Saturday, Sunday, or legal holiday under the laws of the State of
Massachusetts, then in such event the expiration date of such period shall be
extended to the next day which is not a Saturday, Sunday, or legal holiday
under the laws of the State of Massachusetts.
- 21 -
<PAGE> 22
ARTICLE XXVII
REAL ESTATE COMMISSION
Seller represents and warrants to Purchaser that Seller has not
contacted or entered into any agreement with any real estate broker, agent,
finder, or any other party in connection with this transaction, and that Seller
has not taken any action which would result in any real estate broker's,
finder's, or other fees or commissions being due and payable to any other party
with respect to the transaction contemplated hereby. Purchaser hereby
represents and warrants to Seller that Purchaser has not contracted or entered
into any agreement with any real estate broker, agent, finder, or any other
party in connection with this transaction, and that Purchaser has not taken any
action which would result in any real estate broker's, finder's, or other fees
or commissions being due or payable to any other party with respect to the
transaction contemplated hereby. Each party hereby indemnifies and agrees to
hold the other party harmless from any loss, liability, damage, cost, or
expense (including reasonable attorneys' fees) resulting to the other party by
reason of a breach of the representation and warranty made by such party
herein. Notwithstanding anything to the contrary contained herein, the
indemnities set forth in this Article XXVII shall survive the closing.
ARTICLE XXVIII
CONFIDENTIALITY
Purchaser agrees that, prior to the closing, all Property Information
shall be kept confidential as provided in this Article XXVIII. Without the
prior written consent of Seller, prior to the closing the Property Information
shall not be disclosed by Purchaser or Purchaser's Representatives, in any
manner whatsoever, in whole or in part, except (i) to Purchaser's
Representatives who need to know the Property Information for the purpose of
evaluating the Subject Property and who are informed by the Purchaser of the
confidential nature of the Property Information; (ii) as may be necessary for
Purchaser or Purchaser's Representatives to comply with applicable laws,
including, without limitation, governmental regulatory, disclosure, tax and
reporting requirements; to comply with other requirements and requests of
regulatory and supervisory authorities and self-regulatory organizations having
jurisdiction over Purchaser or
- 22 -
<PAGE> 23
Purchaser's Representatives; to comply with regulatory or judicial processes;
or to satisfy reporting procedures and inquiries of credit rating agencies in
accordance with customary practices of Purchaser or its affiliates; and (iii)
as otherwise permitted by this Article XXVIII.
Except as provided otherwise in this Article XXVIII, Purchaser and
Seller, for the benefit of each other, hereby agree that prior to the closing
neither of them will release or cause or permit to be released to the public
any press notices, publicity (oral or written) or advertising promotion
relating to, or otherwise publicly announce or disclose or cause or permit to
be publicly announced or disclosed, in any manner whatsoever, the terms,
conditions or substance of this Contract or the transactions contemplated
herein, without first obtaining the consent of the other party hereto (which
shall not be unreasonably withheld). Seller, being aware of Purchaser's status
as a publicly-held corporation, the securities of which are traded on a
national securities exchange, acknowledges that Purchaser may be compelled by
considerations of legal obligation, fiduciary and public responsibility,
commercial pragmatism and established corporate policy, to issue a public press
release announcing that it has entered into this Contract and stating the
material terms hereof; Purchaser agrees to send a copy of such press release
directly to Seller not later than the time when Purchaser issues such press
release to the public; and Seller consents to the dissemination of any such
press release and to all such additional statements and disclosures Purchaser
may reasonably make in responding to inquiries arising as a result of any such
press release.
Purchaser shall indemnify and hold Seller harmless, and Seller shall
indemnify and hold Purchaser and the affiliates of Purchaser harmless, from and
against any and all actual direct claims, demands, causes of action, losses,
damages, liabilities, costs and expenses (including, without limitation,
attorneys' fees and disbursements) suffered or incurred by the other party and
proximately caused by a breach by Purchaser or Purchaser's Representatives or
Seller, as the case may be, of the provisions of this Article XXVIII; but this
Article XXVIII will not entitle either Purchaser, Seller, Purchaser's
affiliates or Seller's affiliates to recover consequential damages.
As used in this Contract, the term "Property Information" shall mean
(i) all information and documents in any way relating to the Subject Property,
the operation thereof or the sale thereof (including, without limitation,
leases, contracts, licenses and any environmental reports)
- 23 -
<PAGE> 24
furnished to, or otherwise made available for review by, Purchaser or its
directors, officers, employees, affiliates, partners, brokers, agents or other
representatives, including, without limitation, attorneys, accountants,
contractors, consultants, engineers and financial advisors (collectively,
"Purchaser's Representatives"), under or in connection with this Contract by
Seller or any affiliate of Seller, or their agents or representatives,
including, without limitation, their contractors, engineers, attorneys,
accountants, consultants, brokers or advisors, and (ii) all analyses,
compilations, data, studies, reports or other information or documents prepared
or obtained by Purchaser or Purchaser's Representatives to the extent such
information or documents contain or are based on the information or documents
described in the preceding clause (i), or otherwise reflecting their review or
investigation of the Subject Property undertaken with Seller's required
approval; but notwithstanding the foregoing, the term "Property Information"
shall not be deemed to include any information or document which (1) is or
becomes generally available to the public other than as a result of a
disclosure by Purchaser or Purchaser's Representatives in violation of this
Agreement, (2) is in the possession of Purchaser or Purchaser's Representatives
prior to its disclosure to Purchaser by Seller or any affiliates of Seller or
their agents or representatives, (3) becomes available to Purchaser from a
source other than Seller or any affiliates of Seller or their agents or
representatives, or (4) is developed by Purchaser or Purchaser's
Representatives without reliance upon and independently of otherwise
confidential Property Information.
In addition to any other remedies available to Seller and Purchaser,
Seller and Purchaser shall each have the right to seek equitable relief,
including, without limitation, injunctive relief or specific performance,
against the other party or their representatives in order to enforce the
provisions of this Article XXVIII.
The provisions of this Article XXVIII shall survive the termination of
this Agreement prior to the closing for six months.
It is understood that the foregoing shall not preclude either party
from discussing the substance or any relevant details of the transactions
contemplated in this Agreement on a confidential basis with any of its
attorneys, accountants, professional consultants, financial advisors, rating
agencies, or potential lenders, as the case may be, or prevent either party
hereto
- 24 -
<PAGE> 25
from complying with applicable laws, including, without limitation,
governmental regulatory, disclosure, tax and reporting requirements.
EXECUTED on this the 13th day of November, 1997.
SELLER:
BEARTOWN DEVELOPMENT, INC.
By: /s/ BRUCE HAGEDORN
-------------------------------------
Bruce Hagedorn, President
OAK N'SPRUCE MANAGEMENT, INC.,
a Massachusetts Corporation,
as Trustee of Oak N'Spruce Resort Trust
under Declaration of Trust dated
August 4, 1997
By: /s/ BRUCE HAGEDORN
-------------------------------------
Bruce Hagedorn, President
/s/ BRUCE HAGEDORN
----------------------------------------
BRUCE HAGEDORN
/s/ DOUG RICHIE
----------------------------------------
DOUG RICHIE
EXECUTED on this the 11th day of November, 1997.
PURCHASER:
SILVERLEAF RESORTS, INC., a Texas
corporation
By: /s/ ROBERT E. MEAD
-------------------------------------
Robert E. Mead, Chief Executive
Officer
- 25 -
<PAGE> 26
RECEIPT OF EARNEST MONEY AND ONE (1) EXECUTED COUNTERPART OF THIS CONTRACT IS
HEREBY ACKNOWLEDGED:
TITLE COMPANY:
SAFECO LAND TITLE OF DALLAS
By: /s/ BOBBIE G. IRWIN
----------------------------------------
Name: Bobbie G. Irwin
------------------------------------
Its: Vice President
-------------------------------------
- 26 -
<PAGE> 27
LIST OF EXHIBITS TO EXHIBIT 10.35
<TABLE>
<S> <C>
Exhibit A Legal Descriptions
Exhibit B Surveyor's Certificate
Exhibit C Employment Agreement for Bruce Hagedorn
Exhibit D Employment Agreement for Doug Richie
Exhibit E Stock Option Agreement for Bruce Hagedorn
Exhibit F Stock Option Agreement for Doug Richie
Exhibit G Confidentiality, Non-Interference and Non-
Competition Agreement for Bruce Hagedorn
Exhibit H Confidentiality, Non-Interference and Non-
Competition Agreement for Doug Richie
Exhibit I Confidentiality, Non-Interference and Non-
Competition Agreement for Beartown
Development, Inc.
</TABLE>
The above-listed exhibits are omitted from this filing. Registrant agrees to
furnish supplementally a copy of any omitted exhibit to the Commission upon
request.
27
<PAGE> 1
EXHIBIT 10.36
CONTRACT OF SALE
This Agreement is entered into by and between CROWN RESORT CO. LLC, a
Delaware limited liability company ("Crown"), RICHARD W. DICKSON and ROBERT G.
GARNER (Messrs. Dickson and Garner are sometimes hereinafter collectively
referred to as the "Members") (Crown and the Members are sometimes hereinafter
collectively referred to as "Seller"), and SILVERLEAF RESORTS, INC., a Texas
corporation ("Purchaser").
W I T N E S S E T H :
FOR AND IN CONSIDERATION of the promises, undertakings, and mutual
covenants of the parties herein set forth, Seller hereby agrees to sell and
Purchaser hereby agrees to purchase and pay for all that certain property
hereinafter described in accordance with the following terms and conditions:
ARTICLE I
PROPERTY
The conveyance by Seller to Purchaser shall include the following:
a. All of Seller's right, title and interest, if any, in
and to all unsold timeshare inventory described in Exhibit "A";
b. All of Seller's right, title and interest, if any, in
and to the management agreements described in Exhibit "B";
c. The personal property described in Exhibit "C"; and
d. All assets of Seller of any kind whatsoever that were
acquired by Seller from National American Corporation, LML Resort
Corporation, Quail Hollow Village, Inc., The Kinston Corporation,
Foxwood Corporation, The Villas of Hickory Hills, Inc., Carriage Manor
Corporation, Lake Tansi Village, Inc., Wolf Run Manor Corporation and
Westwind Manor Corporation (hereinafter collectively referred to as
"NACO") in connection with Seller's acquisition of assets from NACO
other than timeshare inventory that has been sold by Seller subsequent
to such acquisition and any other assets or items that have been
disposed of by Seller subsequent to such acquisition in the ordinary
course of Seller's business. Included in the conveyance will be any
assets acquired from NACO at a secondary closing which is to occur on
or about January 7, 1998.
The foregoing items are hereinafter collectively referred to as the "Subject
Property."
<PAGE> 2
ARTICLE II
PURCHASE PRICE
The purchase price to be paid by Purchaser to Seller for the Subject
Property shall be the sum of Three Million Seven Hundred Fifty Thousand and
No/100 Dollars ($3,750,000.00). The purchase price shall be payable all in
cash at the closing. Seller and Purchaser hereby agree that the purchase price
for the Subject Property shall be allocated as set forth in Exhibit "D"
attached hereto and made a part hereof for all purposes.
ARTICLE III
EARNEST MONEY
Within two (2) business days after final execution of this Contract by
all parties hereto, Purchaser shall deliver Purchaser's check in the amount of
One Hundred Eighty-Seven Thousand Five Hundred and No/100 Dollars ($187,500.00)
to Safeco Land Title of Dallas, 5220 Renaissance Tower, 1201 Elm Street,
Dallas, Texas 75270, Attn: Bobbie Irwin (the "Title Company"). The Title
Company shall immediately cash the earnest money check and deposit the proceeds
thereof in an interest bearing account, the earnings from which shall accrue to
the benefit of Purchaser (hereinafter the proceeds of the earnest money check
shall be referred to as the "earnest money").
In the event that this Contract is closed, then all earnest money
shall be applied in partial satisfaction of the purchase price. In the event
that this Contract is not closed, then the earnest money shall be disbursed in
the manner provided for elsewhere herein. Notwithstanding the foregoing or
anything to the contrary contained elsewhere in this Contract, it is understood
and agreed that Twenty-Five Thousand Dollars ($25,000.00) of the earnest money
shall in all events be delivered to Seller as valuable consideration for the
inspection period described in Article V hereinbelow and the execution of this
Contract by Seller.
- 2 -
<PAGE> 3
ARTICLE IV
PRE-CLOSING OBLIGATIONS OF SELLER
Within ten (10) days from the date of execution of this Contract,
Seller shall furnish to Purchaser each of the following (collectively, the "Due
Diligence Items"):
a. Copies of all closing documents which were executed
by and between Seller and NACO at the time the Subject Property was
acquired by Seller from NACO, together with copies of all due
diligence items, if and to the extent available, that were delivered
by NACO to Seller in connection with such transaction;
b. A schedule showing (i) all current membership
accounts for the timeshare programs being operated by Seller, and (ii)
an accounts receivable aging report showing the current status of
payment of maintenance fees and membership dues at each of the
timeshare programs being operated by Seller, together with examples of
all membership contracts and related documentation which are currently
in effect with respect to the timeshare programs being operated by
Seller;
c. A list of all service contracts, warranties,
management, maintenance, or other agreements to which Seller is a
party, if any, together with copies of same. Seller agrees not to
enter into any additional contracts, warranties, or agreements prior
to closing which would be binding on Purchaser and which cannot be
cancelled by Purchaser upon thirty (30) days written notice without
cost, penalty, or obligation unless such service contracts or other
agreements are approved in writing by Purchaser;
d. Copies of all licenses, permits, applications,
authorizations, certificates of occupancy, governmental approvals and
other entitlements relating to the Subject Property and the operation
thereof in the name of and in the possession of Seller, if any;
e. True and correct copies of the tax statements
covering the Subject Property or any part thereof for each year since
the formation of Crown;
f. A schedule of all current or pending litigation with
respect to the Subject Property or any part thereof, if any, together
with a brief description of each such proceeding;
g. The most recent operating statements for the Subject
Property prepared by Seller or in Seller's possession; and
h. A list of any unwritten agreements affecting the
Subject Property to which Seller is a party or of which Seller has
acknowledge, if any.
Seller agrees to provide Purchaser with all additional documentation
pertaining to the Subject Property reasonably requested by Purchaser within ten
(10) days of Purchaser's request.
- 3 -
<PAGE> 4
ARTICLE V
INSPECTION PERIOD
Purchaser, at Purchaser's sole expense, shall have the right to
conduct a feasibility, environmental, engineering and physical study of the
Subject Property for a period of sixty (60) days commencing on the date of
execution of this Contract (the "Inspection Period"). Purchaser and
Purchaser's duly authorized agents or representatives shall be permitted to
enter upon the resorts to which the Subject Property appertains at all
reasonable times during the Inspection Period in order to conduct engineering
studies, soil tests and any other inspections and/or tests that Purchaser may
deem necessary or advisable. In the event that the review and/or inspection
conducted pursuant to this paragraph shows any fact, matter or condition to
exist with respect to the Subject Property that is unacceptable to Purchaser,
in Purchaser's sole discretion, or if for any reason Purchaser determines that
purchase of the Subject Property is not feasible, then Purchaser shall be
entitled, as Purchaser's sole remedy, to cancel this Contract by providing
written notice of cancellation to Seller prior to the expiration of the
Inspection Period. If Purchaser shall provide written notice of cancellation
prior to the expiration of the Inspection Period, then this Contract shall be
cancelled, all earnest money (less $25,000.00) shall be immediately returned to
Purchaser by the Title Company, and thereafter neither Seller nor Purchaser
shall have any continuing obligations one unto the other. A Crown
representative will have the right to be present during all inspections.
ARTICLE VI
REPRESENTATIONS, WARRANTIES, AND COVENANTS OF SELLER
Seller makes the following warranties and representations to
Purchaser:
a. Seller will convey title to the Subject Property to
Purchaser on the closing date subject to all matters of record and the
interests of timeshare purchasers but excluding monetary encumbrances.
All mechanic's liens, liens, mortgages or encumbrances of any nature
presently affecting the Subject Property including, in particular, any
liens held by NACO will be paid off and released on or before the date
of closing so that at closing Seller will be in a position to convey
the Subject Property to Purchaser free and clear of any such liens and
mortgages. To enable Seller to convey the Subject Property to
- 4 -
<PAGE> 5
Purchaser as provided herein and to close this transaction, Seller
may, at the time of closing, use the purchase money for the Subject
Property or any portion thereof to clear Seller's title to the Subject
Property of any or all liens, mortgages, or encumbrances, provided
that releases of all such liens, mortgages, or encumbrances are
recorded simultaneously with the closing or in accordance with
accepted conveyancing practices.
b. None of the Subject Property is held by Seller under
a lease or installment sale contract except as has been disclosed to
Purchaser in writing or will be disclosed to Purchaser in writing
during the Inspection Period.
c. There is no action, suit, proceeding or claim
presently pending in any court or before any federal, state, county or
municipal department, commission, board, bureau or agency or other
governmental instrumentality or before any arbitration tribunal or
panel, (i) affecting the Subject Property, or any portion thereof, or
Seller's use, operation or ownership of the Subject Property, or (ii)
affecting Seller's ability to perform its obligations under this
Contract, nor, to the best knowledge and belief of Seller, is any such
action, suit, proceeding or claim threatened.
d. Seller is not aware of any attachments, executions,
assignments for the benefit of creditors, or voluntary or involuntary
bankruptcy proceedings, or proceedings under any debtor relief laws,
contemplated by or pending or threatened against Seller or the Subject
Property.
e. Except for the list of service contracts, warranties,
management, maintenance or other agreements to be delivered to
Purchaser pursuant to Article IV hereinabove, Seller is not a party to
any contracts of construction, employment, management, service or
supply which would affect the Subject Property or operation of the
Subject Property after closing;
f. To the best knowledge of Seller, the Subject Property
and the current operation thereof comply with all laws, regulations,
ordinances, rules, orders and other requirements of all governmental
authorities having jurisdiction over the Subject Property or affecting
all or any part thereof or bearing on its construction or operation,
and with all private covenants or restrictions;
g. From the date of execution of this Contract through
the date of closing, Seller shall continue to maintain the Subject
Property in its present condition, subject to ordinary wear and tear
and shall continue to manage the Subject Property in the same manner
as it is currently being managed; Seller shall not remove any
fixtures, equipment, furnishings or other personal property from the
Subject Property unless replaced with items of equal or greater
quality and quantity, nor shall Seller in any manner neglect the
Subject Property;
h. Except for the sale of timeshare interests in the
ordinary course of business, there are no contracts or other material
obligations, other than those matters set forth in the Due Diligence
Items, outstanding (i) for the sale, exchange or transfer of the
Subject Property or any portion thereof or the business operated
thereon by Seller, or (ii) creating or imposing any burdens,
obligations or restrictions on the use or operation of the Subject
Property and the business conducted thereon;
i. No contract or agreement delivered by Seller to
Purchaser has been amended, modified or supplemented in any way that
will not be disclosed to Purchaser in writing at the time of delivery
to Purchaser pursuant to Article IV. Except for the sale of timeshare
interests in the ordinary course of business, there are no written or
oral agreements of any kind that constitute a lease or contract
relating to the Subject Property that will not be disclosed to
Purchaser in writing at the time of delivery pursuant to Article IV;
- 5 -
<PAGE> 6
j. Seller is duly organized, validly existing and in
good standing under the laws of the state of its organization and is
qualified to transact business in the state in which the Subject
Property is situated. This Contract has been duly and validly
executed and delivered by Seller to Purchaser and constitutes a legal,
valid and binding agreement of Seller, enforceable against Seller in
accordance with its terms, except as such enforcement may be limited
by bankruptcy, conservatorship, receivership, insolvency, moratorium
or similar laws affecting creditors' rights generally or by general
principles of equity;
k. Seller has the capacity and complete authority to
enter into and perform this Contract, and no consent, approval or
other action by any other party or entity will be needed thereafter to
authorize Seller's execution and performance of this Contract. None
of the execution and delivery of this Contract by Seller, the
consummation by Seller of the transaction contemplated hereby or
compliance by Seller with any of the provisions hereof will (i)
conflict with or result in any breach of any provisions of the
formation documents of Seller; (ii) result in a violation or breach
of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right to termination,
cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which Seller
is a party or by which Seller or the Subject Property may be bound; or
(iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Seller or the Subject Property; except in the
cases of clauses (ii) or (iii) above, for violations, breach or
defaults (A) that would not in the aggregate have a material adverse
effect on the business or financial condition of Seller and on the
effectiveness of the transaction contemplated hereby or (B) for which
waivers or consents have been or will be obtained prior to the closing
date;
l. Seller is not a "foreign person" or "foreign trust"
within the meaning of the United States Foreign Investment and Real
Property Tax Act of 1980 and the Internal Revenue Code of 1986, as
subsequently amended;
m. All books and records relating to operating income
and expenses of the Subject Property furnished or made available to
Purchaser by Seller were and shall be those maintained by Seller in
regard to the Subject Property in the normal course of business. The
operating statements covering the Subject Property for the period of
Seller's ownership furnished by Seller to Purchaser are, to the best
of Seller's knowledge, information and belief, in all material
respects, accurate, complete and have been prepared in accordance with
the books and records of Seller and present fairly the financial
position of the operations of the Subject Property for the period then
ended. Without limiting the generality of the foregoing, all of the
financial statements referred to above fully reflect all material
costs of operations of the Subject Property. Since the date of the
operating statements covering the Subject Property, there has been no
material adverse change in the business or financial condition of
Seller or the Subject Property;
n. To the best of Seller's knowledge, information and
belief, all documents and records delivered pursuant to Article IV
will be true, correct and complete copies of the documents and records
required to be delivered and will accurately reflect the matters
contained therein;
o. None of the employees of the Subject Property is
covered by a union contract or collective bargaining agreement or is
represented by a union;
p. To the best of Seller's knowledge, information and
belief, the assets and other items to be conveyed to Purchaser by
Seller pursuant to this Contract comprise all of the assets and
properties of Seller that are necessary in the operation of the
Subject Property in the ordinary course of business and consistent
with current practice and are completely adequate for the operation,
after the closing, of the Subject Property in the
- 6 -
<PAGE> 7
ordinary course of business and consistent with current practice;
notwithstanding anything to the contrary contained herein, in the
event that either Seller or Purchaser discovers after closing that any
asset or item needed or useful in connection with the operation of the
Subject Property has not been conveyed to Purchaser at closing, then
Seller will immediately, upon demand by Purchaser, convey such asset
or other item to Purchaser for no additional consideration of any kind
whatsoever; and
q. The timeshare inventory which will be conveyed to
Purchaser at closing will include not less than 1,700 weeks.
All of the foregoing representations and warranties of Seller are made by
Seller both as of the date hereof and as of the date of the closing hereunder
and shall survive the closing hereunder. Notwithstanding the foregoing or
anything to the contrary contained herein, it is understood and agreed that the
representations and warranties set forth hereinabove shall survive the closing
of this Contract only for a period of one (1) year following the closing date,
but not thereafter, and Seller shall have no liability of any kind whatsoever
for any breach thereof except to the extent a claim is pending against Seller
in any court within such one (1) year period.
ARTICLE VII
CONDITIONS PRECEDENT TO CLOSING
The obligation of Purchaser to close this Contract shall, at the
option of Purchaser, be subject to the following conditions precedent:
a. All of the representations, warranties and agreements
of Seller set forth in this Contract shall be true and correct in all
material respects as of the date hereof and at closing, and Seller
shall not have on or prior to closing, failed to meet, comply with or
perform in any material respect any conditions or agreements on
Seller's part as required by the terms of this Contract.
b. No material and substantial change shall have
occurred with respect to the Subject Property which would in any way
affect the findings made in the inspection of the Subject Property
described in Article V hereinabove or which would materially and
adversely impact the income that Purchaser expects to be generated by
the Subject Property.
If any such condition is not fully satisfied by closing, and such
condition remains unsatisfied for a period of ten (10) days after Purchaser has
provided Seller with written notice of such unsatisfactory condition, Purchaser
may terminate this Contract by written notice to Seller whereupon this Contract
shall be cancelled, the earnest money deposit (less $25,000.00) shall be
returned to Purchaser by the Title Company and thereafter neither Seller nor
Purchaser shall have any continuing obligations one unto the other.
- 7 -
<PAGE> 8
ARTICLE VIII
CLOSING
The closing hereunder shall take place at the offices of the Title
Company. The closing shall occur on or before one hundred twenty (120) days
from the date of execution of this Contract. Purchaser shall notify Seller at
least five (5) days in advance of the exact time and date of closing.
ARTICLE IX
SELLER'S OBLIGATIONS AT CLOSING
At the closing, Seller shall do the following:
a. Deliver to Purchaser a quit claim deed covering the
timeshare inventory described in Exhibit "A," duly signed and
acknowledged by Seller, which deed shall be in form reasonably
acceptable to Purchaser.
b. Deliver a bill of sale and a blanket assignment in
form reasonably acceptable to Purchaser, duly executed and
acknowledged by Seller, conveying and/or assigning to Purchaser the
remainder of the Subject Property.
c. Deliver such evidence or other documents that may be
reasonably required by the Title Company evidencing the status and
capacity of Seller and the authority of the person or persons who are
executing the various documents on behalf of Seller in connection with
the sale of the Subject Property.
d. Deliver a non-withholding statement that will satisfy
the requirements of Section 1445 of the Internal Revenue Code so that
Purchaser is not required to withhold any portion of the purchase
price for payment to the Internal Revenue Service.
e. Deliver to Purchaser any other documents or items
necessary or convenient in the reasonable judgment of Seller and
Purchaser to carry out the intent of the parties under this Contract.
In addition to delivery of the foregoing items at closing, Members and
Purchaser shall enter into the Employment Agreements which are attached hereto
and made a part hereof for all purposes as Exhibits "E" and "F," respectively.
ARTICLE X
PURCHASER'S OBLIGATIONS AT CLOSING
At the closing, Purchaser shall deliver to Seller the purchase price
in cash.
- 8 -
<PAGE> 9
ARTICLE XI
COSTS AND ADJUSTMENTS
At closing, the following items shall be adjusted or prorated between
Seller and Purchaser:
a. Any real estate transfer taxes or sales taxes payable
in connection with the sale of the Subject Property shall be paid in
full by Seller.
b. Seller shall pay to Purchaser, in cash at closing,
any prepaid but unearned management fees in Seller's possession. The
formula for the calculation of the amount is described in Exhibit "G."
c. All other income and ordinary operating expenses for
or pertaining to the Subject Property including, but not limited to,
public utility charges, maintenance, service charges, and all other
normal operating charges of the Subject Property shall be prorated as
of the closing date. Purchaser will pay for any title work.
d. All other normal and reasonable closing costs,
including but not limited to, recording and escrow fees shall be paid
by Seller; provided, however, that Seller and Purchaser each will be
responsible for the fees and expenses of their respective attorneys.
As soon as practicable after closing, and in any event within 90 days
thereafter, Seller and Purchaser shall cooperate in preparing and reaching a
post-closing settlement, accounting for any additional credits or debits
between the parties as necessary to carry out the intent of this Contract,
including the general principle that from and after the closing date, the
revenues accruing from the operation of the Subject Property and the expenses
associated with those revenues shall be credited or charged to Purchaser, and
before the closing date, such sums shall be credited or charged to Seller.
Seller agrees to indemnify and hold Purchaser harmless of and from any
and all liabilities, claims, demands, suits, and judgments, of any kind or
nature (except those items which under the terms of this Contract specifically
become the obligation of Purchaser), brought by third parties and based on
events occurring on or before the date of closing and which are in any way
related to the ownership, maintenance, or operation of the Subject Property,
and all expenses related thereto, including, but not limited to, court costs
and attorneys' fees.
Purchaser agrees to indemnify and hold Seller harmless of and from any
and all liabilities, claims, demands, suits, and judgments, of any kind or
nature, brought by third parties and based on events occurring subsequent to
the date of closing and which are in any way related to the
- 9 -
<PAGE> 10
ownership, maintenance or operation of the Subject Property, and all expenses
related thereto, including, but not limited to, court costs and attorneys'
fees.
ARTICLE XII
POSSESSION OF PROPERTY
Possession of the Subject Property shall be delivered to Purchaser at
closing.
ARTICLE XIII
NOTICES
All notices, demands, or other communications of any type given by the
Seller to the Purchaser, or by the Purchaser to the Seller, whether required by
this Contract or in any way related to the transaction contracted for herein,
shall be void and of no effect unless given in accordance with the provisions
of this paragraph. All notices shall be in writing and delivered to the person
to whom the notice is directed by facsimile transmission with a follow- up copy
to be delivered by United States Mail, as a registered or certified item,
return receipt requested. Notices shall be addressed as follows:
Seller: Crown Resorts Co. LLC
1278 FM 407, Suite 109
Lewisville, Texas 75067
Attn: Richard Dickson
Telephone No.: (972) 317-9540
Facsimile No.: (972) 317-3214
Crown Resorts Co. LLC
10500 Clara Drive, Suite B4
Roswell, Georgia 30075
Attn: Greg Garner
Telephone No.: (770) 518-6711
Facsimile No.: (770) 552-1206
With Copy to: Cofer, Beauchamp, Stradley & Hicks, LLP
99 West Paces Ferry Road, N.W.
Atlanta, Georgia 30305-1350
Attn: M. Maxine Hicks, Esq.
Telephone No.: (404) 233-6200
Facsimile No.: (404) 364-0044
- 10 -
<PAGE> 11
Purchaser: Silverleaf Resorts, Inc.
1221 Riverbend Drive
Suite 120
Dallas, Texas 75247
Attn: Robert E. Mead
Telephone No.: (214) 631-1166
Facsimile No.: (214) 905-0514
With Required Copy to: Meadows, Owens, Collier, Reed, Cousins &
Blau, L.L.P.
3700 NationsBank Plaza
901 Main Street
Dallas, Texas 75202
Attn: George R. Bedell, Esq.
Telephone No.: (214) 749-2448
Facsimile No.: (214) 747-3732
ARTICLE XIV
REMEDIES
In the event that Seller fails to timely comply with all conditions,
covenants and obligations of Seller hereunder, and such failure continues for a
period of ten (10) days after written notice thereof is provided Seller by
Purchaser, it shall be an event of default and Purchaser shall have the option
(i) to terminate this Contract by providing written notice thereof to Seller,
in which event the earnest money (less $25,000.00) shall be returned
immediately to Purchaser by the Title Company and the parties hereto shall have
no further liabilities or obligations one unto the other; (ii) to waive any
defect or requirement and close this Contract; or (iii) to sue Seller for
specific performance or for damages.
In the event that Purchaser fails to timely comply with all
conditions, covenants, and obligations Purchaser has hereunder, such failure
shall be an event of default, and Seller's sole remedy shall be to receive the
Earnest Money. The Earnest Money is agreed upon by and between the Seller and
Purchaser as liquidated damages due to the difficulty and inconvenience of
ascertaining and measuring actual damages, and the uncertainty thereof, and no
other damages, rights, or remedies shall in any case be collectible,
enforceable, or available to the Seller other than in this paragraph defined,
and Seller shall accept the Earnest Money as Seller's total damages and relief.
- 11 -
<PAGE> 12
ARTICLE XV
ASSIGNMENT
Purchaser may not assign its rights and obligations under this
Contract to anyone other than a Permitted Assignee without first obtaining
Seller's prior written approval. Purchaser may assign its rights and
obligations under this Agreement to a Permitted Assignee without prior written
consent of Seller. For purposes of this Contract, a "Permitted Assignee" shall
mean any partnership, corporation, limited liability company or other business
entity controlled by one or more of the following which has the financial
ability to perform Purchaser's obligations hereunder: (a) Silverleaf Resorts,
Inc., or (b) Robert E. Mead. For purposes of the preceding sentence an entity
shall be deemed to be controlled by a person if such person owns 50% or more of
the ownership interest in such entity, or has the right to control 50% or more
of such ownership interest through a contract or otherwise.
XVI
INTERPRETATION AND APPLICABLE LAW
Except as otherwise expressly provided herein, this Agreement shall be
construed and interpreted in accordance with the laws of the State of Texas.
Where required for proper interpretation, words in the singular shall include
the plural; the masculine gender shall include the neuter and the feminine, and
vice versa. The terms "successors and assigns" shall include the heirs,
administrators, executors, successors, and assigns, as applicable, of any party
hereto.
XVII
AMENDMENT
This Contract may not be modified or amended, except by an agreement
in writing signed by the Seller and the Purchaser. The parties may waive any
of the conditions contained herein or any of the obligations of the other party
hereunder, but any such waiver shall be effective only if in writing and signed
by the party waiving such conditions and obligations.
- 12 -
<PAGE> 13
ARTICLE XVIII
AUTHORITY
Each person executing this Contract warrants and represents that he is
fully authorized to do so.
ARTICLE XIX
ATTORNEYS' FEES
In the event it becomes necessary for either party to file a suit to
enforce this Contract or any provisions contained herein, the prevailing party
shall be entitled to recover, in addition to all other remedies or damages,
reasonable attorneys' fees and costs of court incurred in such suit.
ARTICLE XX
DESCRIPTIVE HEADINGS
The descriptive headings of the several paragraphs contained in this
Contract are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
ARTICLE XXI
ENTIRE AGREEMENT
This Contract (and the items to be furnished in accordance herewith)
constitutes the entire agreement between the parties pertaining to the subject
matter hereof and supersedes all prior and contemporaneous agreements and
understandings of the parties in connection therewith. No representation,
warranty, covenant, agreement, or condition not expressed in this Contract
shall be binding upon the parties hereto or shall affect or be effective to
interpret, change, or restrict the provisions of this Contract.
- 13 -
<PAGE> 14
ARTICLE XXII
COUNTERPARTS
This Contract may be executed in a number of identical counterparts.
Each such counterpart is deemed an original for all purposes and all such
counterparts shall, collectively, constitute one agreement, but, in making
proof of this Contract, it shall not be necessary to produce or account for
more than one counterpart.
ARTICLE XXIII
ACCEPTANCE
Seller shall have until 5:00 o'clock p.m., January 12, 1998, to
execute and return a fully executed original of this Contract to Seller,
otherwise this Contract shall become null and void. Time is of the essence of
this Contract. The date of execution of this Contract by Seller shall be the
date of execution of this Contract. If the final date of any period falls upon
a Saturday, Sunday, or legal holiday under the laws of the State of Texas, then
in such event the expiration date of such period shall be extended to the next
day which is not a Saturday, Sunday, or legal holiday under the laws of the
State of Texas.
ARTICLE XXIV
REAL ESTATE COMMISSION
Seller represents and warrants to Purchaser that Seller has not
contacted or entered into any agreement with any real estate broker, agent,
finder, or any other party in connection with this transaction, and that Seller
has not taken any action which would result in any real estate broker's,
finder's, or other fees or commissions being due and payable to any other party
with respect to the transaction contemplated hereby. Purchaser hereby
represents and warrants to Seller that Purchaser has not contracted or entered
into any agreement with any real estate broker, agent, finder, or any other
party in connection with this transaction, and that Purchaser has not taken any
action which would result in any real estate broker's, finder's, or other fees
or commissions being due or payable to any other party with respect to the
transaction contemplated hereby. Each party hereby indemnifies and agrees to
hold the other party harmless from any loss,
- 14 -
<PAGE> 15
liability, damage, cost, or expense (including reasonable attorneys' fees)
resulting to the other party by reason of a breach of the representation and
warranty made by such party herein. Notwithstanding anything to the contrary
contained herein, the indemnities set forth in this Article XXIV shall survive
the closing.
EXECUTED on this the 12th day of January, 1998.
SELLER:
CROWN RESORT CO. LLC, a Delaware limited
liability company
By: /s/ RICHARD W. DICKSON
-----------------------------------
Name: Richard W. Dickson
-----------------------------------
Its: Member
------------------------------------
/s/ RICHARD W. DICKSON
-------------------------------------------
RICHARD W. DICKSON
/S/ ROBERT G. GARNER
-------------------------------------------
ROBERT G. GARNER
EXECUTED on this the 12th day of January, 1998.
PURCHASER:
SILVERLEAF RESORTS, INC., a Texas
corporation
By: /s/ ROBERT E. MEAD
----------------------------------------
Robert E. Mead, Chief Executive Officer
- 15 -
<PAGE> 16
RECEIPT OF EARNEST MONEY AND ONE (1) EXECUTED COUNTERPART OF THIS CONTRACT IS
HEREBY ACKNOWLEDGED:
TITLE COMPANY:
SAFECO LAND TITLE OF DALLAS
By: /s/ BOBBIE IRWIN
---------------------------------
Name: BOBBIE IRWIN
----------------------------
Its: Vice President
-----------------------------
- 16 -
<PAGE> 17
LIST OF EXHIBITS TO EXHIBIT 10.36
Exhibit A Vacation Interval Inventory
Exhibit B Management Agreement List
Exhibit C Resort Group Inventory
Exhibit D Allocation of Purchase Price
Exhibit E Employment Agreement for Richard W. Dickson
Exhibit F Employment Agreement for Robert G. Garner
The above-listed exhibits are omitted from this filing. Registrant agrees
to furnish supplementally a copy of any omitted exhibit to the Commission
upon request.
17
<PAGE> 1
EXHIBIT 10.37
CONTRACT OF SALE
This Agreement is entered into by and between MICHAEL J. McDERMOTT and
ELIZABETH R. McDERMOTT (collectively "Seller"), and SILVERLEAF RESORTS, INC., a
Texas corporation ("Purchaser").
W I T N E S S E T H :
FOR AND IN CONSIDERATION of the promises, undertakings, and mutual
covenants of the parties herein set forth, Seller hereby agrees to sell and
Purchaser hereby agrees to purchase and pay for all that certain property
hereinafter described in accordance with the following terms and conditions:
ARTICLE I
PROPERTY
The conveyance by Seller to Purchaser shall include the following
described tracts or parcels of land, together with all and singular the rights
and appurtenances pertaining to such land including any right, title and
interest of Seller in and to adjacent strips or gores, streets, alleys, or
rights-of-way and all rights of ingress and egress thereto:
Sixty-one acres, more or less, off the north end of the east
half of the Northeast Quarter of Section 14, Township 53, Range 33,
being all that part of said half quarter section lying north of the
public road; also the Northwest Quarter of the Northeast Quarter of
Section 14, Township 53, Range 33; also all of the Southeast Quarter
of Section 11, Township 53, Range 33 in the City of Smithville, Clay
County, Missouri, containing 260 acres more or less.
Hereafter the aforesaid real property is referred to as the "Land."
The conveyance by Seller to Purchaser shall also include all
buildings, fixtures and other improvements on the Land (the "Improvements").
Hereinafter all property being conveyed to Purchaser by Seller
pursuant to this Contract including the Land and the Improvements are sometimes
referred to collectively as the "Subject Property."
<PAGE> 2
ARTICLE II
PURCHASE PRICE
The purchase price to be paid by Purchaser to Seller for the Subject
Property shall be the sum of One Million Five Hundred Sixty Thousand and No/100
Dollars ($1,560,000.00). The purchase price shall be payable all in cash at
the closing.
ARTICLE III
EARNEST MONEY
Within two (2) business days after final execution of this Contract by
all parties hereto, Purchaser shall deliver Purchaser's check in the amount of
Fifty Thousand and No/100 Dollars ($50,000.00) to Safeco Land Title of Dallas,
5220 Renaissance Tower, 1201 Elm Street, Dallas, Texas 75270, Attn: John Kerr
(the "Title Company"). The Title Company shall immediately cash the earnest
money check and deposit the proceeds thereof in an interest bearing account,
the earnings from which shall accrue to the benefit of Purchaser (hereinafter
the proceeds of the earnest money check shall be referred to as the "Earnest
Money").
In the event that this Contract is closed, then all Earnest Money
shall be applied in partial satisfaction of the purchase price. In the event
that this Contract is not closed, then the Earnest Money shall be disbursed in
the manner provided for elsewhere herein. Notwithstanding the foregoing or
anything to the contrary contained elsewhere in this Contract, it is understood
and agreed that Five Thousand Dollars ($5,000.00) of the Earnest Money shall in
all events be delivered to Seller as valuable consideration for the Inspection
Period described in Article VI hereinbelow and the execution of this Contract
by Seller.
ARTICLE IV
PRE-CLOSING OBLIGATIONS OF SELLER AND PURCHASER
Within ten (10) days from the date of execution of this Contract,
Seller shall furnish to Purchaser, the following information (collectively, the
"Due Diligence Items"):
a. All information of any kind whatsoever in the
possession of Seller concerning possible development of the Subject
Property including, but not limited to, any and all plans for the
development of the Subject Property, any engineering studies of the
Subject Property, any information relating to obtaining the approval
of local
- 2 -
<PAGE> 3
governing bodies for the development of the Subject Property, any
information as to when construction on the Subject Property may
commence, any information regarding present or future zoning of the
Subject Property, and any information concerning the availability of
utilities.
During the Inspection Period (defined hereinbelow), Purchaser, at its
sole cost and expense, shall obtain and deliver to Seller copies of the
following (collectively the "Purchaser Due Diligence Items"):
a. An updated survey of the Subject Property dated
subsequent to the date of execution of this Contract and prepared by a
licensed professional engineer or surveyor acceptable to Purchaser,
which Survey shall: (a) include a metes and bounds legal description
of the Subject Property; (b) accurately show all improvements,
encroachments and uses and accurately show all easements and
encumbrances visible or listed on the Title Commitment (identifying
each by recording reference if applicable); (c) recite the number of
acres included in the Subject Property; (d) state whether the Subject
Property (or any portion thereof) lies within a flood zone, or flood
prone area; (e) contain a certificate verifying that the Survey was
made on the ground, that the Survey is correct, that there are no
improvements, encroachments, easements, uses or encumbrances except as
shown on the survey plat, that the area represented for the Subject
Property has been certified by the surveyor as being correct, that the
Subject Property does not lie within any flood zone or flood prone
area, except as indicated thereon; and (f) otherwise be in form
sufficient for the amendment of the boundary exception by the Title
Company. Unless otherwise agreed by Seller and Purchaser, the metes
and bounds description contained in the Survey shall be the legal
description employed in the documents of conveyance of the Subject
Property; and
b. A current commitment (the "Title Commitment") for the
issuance of an owner's policy of title insurance to the Purchaser from
the Title Company, together with good and legible copies of all
documents constituting exceptions to Seller's title as reflected in
the Title Commitment.
ARTICLE V
TITLE INSPECTION PERIOD
Purchaser shall have a period of time commencing on the date of
execution of this Contract and expiring on the date of expiration of the
Inspection Period (as defined hereinbelow) within which to review and approve
the status of Seller's title to the Subject Property (the "Title Review
Period"). If the information to be provided to or obtained by Purchaser
pursuant to the provisions of Article IV hereinabove reflects or discloses any
defect, exception or other matter affecting the Subject Property ("Title
Defects") that is unacceptable to Purchaser, then prior to the expiration of
the Title Review Period Purchaser shall provide Seller with written notice of
Purchaser's objections. Seller may, at its sole option, elect to cure or
remove the objections raised by Purchaser; provided, however, that Seller shall
have no obligation to do so. Should Seller elect to attempt to cure or remove
the objections, Seller shall have ten (10) days from the
- 3 -
<PAGE> 4
date of Purchaser's written notice of objections (the "Cure Period") in which
to accomplish the cure. In the event Seller either elects not to cure or
remove the objections or is unable to accomplish the cure prior to the
expiration of the Cure Period, then Seller shall so notify Purchaser in writing
specifying which objections Seller does not intend to cure, and then Purchaser
shall be entitled, as Purchaser's sole and exclusive remedies, either to
terminate this Agreement by providing written notice of termination to Seller
within ten (10) days from the date on which Purchaser receives Seller's no-cure
notice or waive the objections and close this transaction as otherwise
contemplated herein. If Purchaser shall fail to notify Seller in writing of
any objections to the state of Seller's title to the Subject Property as shown
by the Survey and Title Commitment, then Purchaser shall be deemed to have no
objections to the state of Seller's title to the Subject Property as shown by
the Survey and Title Commitment, and any exceptions to Seller's title which
have not been objected to by Purchaser and which are shown on the Survey or
described in the Title Commitment shall be considered to be "Permitted
Exceptions." It is further understood and agreed that any Title Defects which
have been objected to by Purchaser and which are subsequently waived by
Purchaser shall be Permitted Exceptions.
ARTICLE VI
INSPECTION PERIOD
Purchaser, at Purchaser's sole expense, shall have the right to
conduct a feasibility, environmental, engineering and physical study of the
Subject Property for a period of time commencing on the date of execution of
this Contract and expiring sixty (60) days thereafter (the "Inspection
Period"). Purchaser and Purchaser's duly authorized agents or representatives
shall be permitted to enter upon the Subject Property at all reasonable times
during the Inspection Period in order to conduct engineering studies, soil
tests and any other inspections and/or tests that Purchaser may deem necessary
or advisable; provided, however, that no drilling or other ground penetrations
or physical sampling in any building shall be done without Seller's prior
written consent, which consent shall not be unreasonably withheld or delayed.
Purchaser further agrees to indemnify and hold Seller harmless from any claims
or damages, including reasonable attorneys' fees, resulting from Purchaser's
inspection of the Subject Property. In the event that
- 4 -
<PAGE> 5
the review and/or inspection conducted by this paragraph shows any fact, matter
or condition to exist with respect to the Subject Property that is unacceptable
to Purchaser, in Purchaser's sole discretion, or if for any reason Purchaser
determines that purchase of the Subject Property is not feasible, then
Purchaser shall be entitled, as Purchaser's sole remedy, to cancel this
Contract by providing written notice of cancellation to Seller prior to the
expiration of the Inspection Period. If Purchaser shall provide written notice
of cancellation prior to the expiration of the Inspection Period, then this
Contract shall be cancelled, all Earnest Money (less $5,000.00) shall be
immediately returned to Purchaser by the Title Company, and thereafter neither
Seller nor Purchaser shall have any continuing obligations one unto the other.
If no notice of cancellation is provided by Purchaser prior to the expiration
of the Inspection Period, then this Contract shall remain in full force and
effect and the Title Company shall immediately disburse the $50,000.00 Earnest
Money deposit to Seller; upon such disbursement the $50,000.00 Earnest Money
deposit shall be non-refundable to the Purchaser except in the event of default
by Seller hereunder, but, if this Contract closes, then the $50,000.00 Earnest
Money deposit shall be applied in partial satisfaction of the purchase price.
Purchaser agrees to pay or reimburse to Seller all damages occasioned by
Purchaser's inspection and testing of the Subject Property to the extent such
damages exceed $1,000.00 and in this connection Purchaser acknowledges that the
Subject Property is presently devoted to use as a sod farm and therefore any
damage thereto (such as tire ruts and tire tracks) shall constitute damage for
purposes of this paragraph.
ARTICLE VII
REPRESENTATIONS, WARRANTIES, AND COVENANTS OF SELLER
Seller represents and warrants to Purchaser that at closing Seller
will have good and indefeasible fee simple title to the Subject Property free
and clear of all liens, encumbrances, covenants, restrictions, rights-of-way,
easements, and any other matters affecting title to the Subject Property except
for the Permitted Exceptions, and at closing, Seller will be in a position to
convey the Subject Property to Purchaser free and clear of all liens,
encumbrances, covenants,
- 5 -
<PAGE> 6
restrictions, rights-of-way, easements and other such matters affecting title
except for the Permitted Exceptions.
Seller further covenants and agrees with Purchaser that, from the date
hereof until the closing, neither Seller nor its subsidiaries shall sell,
assign, or convey any right, title, or interest whatsoever in or to the Subject
Property, or create or permit to exist any lien, security interest, easement,
encumbrance, charge, or condition affecting the Subject Property (other than
the Permitted Exceptions) without promptly discharging the same prior to
closing.
Seller hereby further represents and warrants to Purchaser, to the
best of Seller's knowledge, as follows:
a. There are no actions, suits, or proceedings pending
or, to the best of Seller's knowledge, threatened against Seller or
otherwise affecting any portion of the Subject Property, at law or in
equity, or before or by any federal, state, municipal, or other
governmental court, department, commission, board, bureau, agency, or
instrumentality, domestic or foreign;
b. The execution by Seller of this Contract and the
consummation by Seller of the sale contemplated hereby have been duly
authorized, and do not, and, at the closing date, will not, result in
a breach of any of the terms or provisions of, or constitute a default
under any indenture, agreement, instrument, or obligation to which
Seller is a party or by which the Subject Property or any portion
thereof is bound, and do not, and at the closing date will not,
constitute a violation of any regulation affecting the Subject
Property; and
c. Seller has not received any notice of any violation
of any ordinance, regulation, law, or statute of any governmental
agency pertaining to the Subject Property or any portion thereof.
All of the foregoing representations and warranties of Seller are made by
Seller both as of the date hereof and as of the date of the closing hereunder.
Notwithstanding the foregoing or anything to the contrary contained herein, it
is understood and agreed that the representations and warranties set forth
hereinabove shall survive the closing of this Contract only for a period of two
(2) years following the closing date, but not thereafter, and Seller shall have
no liability of any kind whatsoever for any breach thereof except to the extent
a claim is asserted against Seller within such two (2) year period.
- 6 -
<PAGE> 7
ARTICLE VIII
CONDITIONS PRECEDENT TO CLOSING
The obligation of Purchaser to close this Contract shall, at the
option of Purchaser, be subject to the following conditions precedent:
a. All of the representations, warranties and agreements
of Seller set forth in this Contract shall be true and correct in all
material respects as of the date hereof and at closing, and Seller
shall not have on or prior to closing, failed to meet, comply with or
perform in any material respect any conditions or agreements on
Seller's part as required by the terms of this Contract;
b. There shall be no change in the matters reflected in
the Title Commitment, and there shall not exist any encumbrance or
title defect affecting the Subject Property not described in the Title
Commitment except for the Permitted Exceptions;
c. There shall be no changes in the matters reflected in
the Survey, and there shall not exist any easement, right-of-way,
encroachment, waterway, pond, flood plain, conflict or protrusion with
respect to the Subject Property not shown on the Survey; and
d. No material and substantial change shall have
occurred with respect to the Subject Property which would in any way
affect the findings made in the inspection of the Subject Property
described in Article VI hereinabove.
If any such condition is not fully satisfied by closing, Purchaser may
terminate this Contract by written notice to Seller whereupon this Contract
shall be cancelled, the Earnest Money deposit (less $5,000.00) shall be
returned to Purchaser and thereafter neither Seller nor Purchaser shall have
any continuing obligations one unto the other.
ARTICLE IX
CLOSING
The closing hereunder shall take place at the offices of the Title
Company. The closing shall occur on or before twenty (20) days from the date
of expiration of the Inspection Period. Purchaser shall notify Seller at least
five (5) days in advance of the exact time and date of closing. Purchaser
shall have the right to obtain one sixty (60) day extension of the deadline for
closing by delivering to Seller, prior to the then scheduled closing deadline,
an additional Twenty-Five Thousand and No/100 Dollars ($25,000.00) in
non-refundable Earnest Money. If Purchaser exercises this right, then the
deadline for closing of this Contract shall be extended by sixty (60) days; the
additional $25,000.00 in Earnest Money which is paid by Purchaser in order to
extend the deadline for closing of this Contract shall be non-refundable to
Purchaser
- 7 -
<PAGE> 8
except in the event of a default by Seller hereunder, but, if this Contract
closes, then such additional Earnest Money shall be applied in partial
satisfaction of the purchase price payable hereunder. Upon the expiration of
the first sixty (60) day extension, Purchaser shall have the right to obtain a
second sixty (60) day extension of the deadline for closing by delivering to
Seller, prior to the then scheduled closing deadline, an additional Twenty-Five
Thousand and No/100 Dollars ($25,000.00) in non-refundable Earnest Money. If
Purchaser exercises this right, then the deadline for closing of this Contract
shall be extended by sixty (60) days; the additional $25,000.00 in Earnest
Money which is paid by Purchaser in order to extend the deadline for closing of
this Contract a second time shall also be non-refundable to Purchaser except in
the event of a default by Seller hereunder, but, if this Contract closes, then
such additional Earnest Money shall also be applied in partial satisfaction of
the purchase price payable hereunder.
ARTICLE X
SELLER'S OBLIGATIONS AT CLOSING
At the closing, Seller shall do the following:
a. Deliver to Purchaser a deed covering the Subject
Property, duly signed and acknowledged by Seller, which deed shall be
in form reasonably acceptable to Purchaser for recording and shall
convey to Purchaser good and marketable title to the Subject Property,
free and clear of all liens, rights-of-way, easements, and other
matters affecting title to the Subject Property, except for the
Permitted Exceptions.
b. Deliver or cause to be delivered to Purchaser an ALTA
owner's form of title insurance policy (the "Title Policy") insuring
Purchaser in the amount of the purchase price that Purchaser has
acquired good and marketable title to the Subject Property, subject
only to the Permitted Exceptions. Purchaser shall be entitled to
request the Title Company to provide, at Purchaser's sole cost and
expense, such endorsements (or amendments) to the Title Policy as
Purchaser may reasonably require so long as such endorsements or
amendments impose no additional liability on Seller or delay the
closing. Purchaser acknowledges and agrees that the Title Policy may
be actually delivered within a reasonable time following the closing
so long as Purchaser has received at closing a current binding title
commitment obligating the Title Company to deliver the Title Policy.
Purchaser shall pay the premium for a standard owner's form of title
insurance policy in the amount of the purchase price; the cost of any
title endorsements required by Purchaser, and the cost of reinsurance
reasonably required by Purchaser shall also be paid by Purchaser.
c. Deliver a non-withholding statement that will satisfy
the requirements of Section 1445 of the Internal Revenue Code so that
Purchaser is not required to withhold any portion of the purchase
price for payment to the Internal Revenue Service.
- 8 -
<PAGE> 9
d. Deliver to Purchaser any other documents or items
necessary or convenient in the reasonable judgment of Purchaser to
carry out the intent of the parties under this Contract, so long as
such documents do not occasion any cost or charge to Seller.
ARTICLE XI
PURCHASER'S OBLIGATIONS AT CLOSING
At the closing, Purchaser shall deliver to Seller the purchase price
in cash.
ARTICLE XII
COSTS AND ADJUSTMENTS
At closing, the following items shall be adjusted or prorated between
Seller and Purchaser:
a. Any real estate transfer taxes or sales taxes payable
in connection with the sale of the Subject Property shall be paid in
full by Seller.
b. Ad valorem taxes for the Subject Property for the
current calendar year shall be prorated as of the date of closing, and
Seller shall pay to Purchaser in cash at closing Seller's pro rata
portion of such taxes. Seller's pro rata portion of such taxes shall
be based upon taxes actually assessed for the current calendar year
or, if for any reason such taxes for the Subject Property have not
been actually assessed, such proration shall be based upon the amount
of such taxes for the immediately preceding calendar year, and
adjusted by cash settlement when exact amounts are available.
However, anything herein to the contrary notwithstanding, any tax
abatement or refund for a period of time prior to closing shall belong
to Seller.
c. All other closing costs, including but not limited
to, recording and escrow fees shall be divided equally between Seller
and Purchaser; provided, however, that Seller and Purchaser shall each
be responsible for the fees and expenses of their respective
attorneys.
Seller agrees to indemnify and hold Purchaser harmless of and from any
and all liabilities, claims, demands, suits, and judgments, of any kind or
nature (except those items which under the terms of this Contract specifically
become the obligation of Purchaser), brought by third parties and based on
events occurring on or before the date of closing and which are in any way
related to the ownership, maintenance, or operation of the Subject Property,
and all expenses related thereto, including, but not limited to, court costs
and attorneys' fees.
Purchaser agrees to indemnify and hold Seller harmless of and from any
and all liabilities, claims, demands, suits, and judgments, of any kind or
nature, brought by third parties and based on events occurring subsequent to
the date of closing and which are in any way
- 9 -
<PAGE> 10
related to the ownership, maintenance or operation of the Subject Property, and
all expenses related thereto, including, but not limited to, court costs and
attorneys' fees.
Notwithstanding anything to the contrary contained herein, the
indemnities set forth in this Article XII shall survive the closing hereunder.
ARTICLE XIII
ENTRY ON PROPERTY
Purchaser, Purchaser's agents, employees, servants, or nominees, are
hereby granted the right to enter upon the Subject Property at any time prior
to closing for the purpose of inspecting the Subject Property and conducting
such engineering and mechanical tests as Purchaser may deem necessary or
advisable, any such inspections and tests to be made at Purchaser's sole
expense. Purchaser agrees to indemnify and hold Seller harmless from and
against any and all losses, damages, costs, or expenses incurred by Seller as a
result of any inspections or tests made by Purchaser.
ARTICLE XIV
POSSESSION OF PROPERTY
Possession of the Property free and clear of all uses and
encroachments, except the Permitted Exceptions, shall be delivered to Purchaser
at closing.
ARTICLE XVI
NOTICES
All notices, demands, or other communications of any type given by the
Seller to the Purchaser, or by the Purchaser to the Seller, whether required by
this Contract or in any way related to the transaction contracted for herein,
shall be void and of no effect unless given in accordance with the provisions
of this paragraph. All notices shall be in writing and delivered to the person
to whom the notice is directed, either in person, by facsimile transmission, or
by United States Mail, as a registered or certified item, return receipt
requested. Notices delivered by mail shall be deemed given when deposited in a
post office or other depository under the care
- 10 -
<PAGE> 11
or custody of the United States Postal Service, enclosed in a wrapper with
proper postage affixed, addressed as follows:
Seller: Michael J. McDermott
Elizabeth R. McDermott
8114 N.W. Hillside Drive
Weatherby Lake, Missouri 64152
Telephone No.: (816) 587-9238
With Required Copy to: R. Michael Gunn
3000 Brooktree Lane
Gladstone, Missouri 04117
Telephone No.: (816) 454-5600
Facsimile No.: (816) 454-3678
Purchaser: Silverleaf Resorts, Inc.
1221 Riverbend Drive
Suite 120
Dallas, Texas 75247
Attn: Robert E. Mead
Telephone No.: (214) 631-1166
Facsimile No.: (214) 905-0514
With Required Copy to: Meadows, Owens, Collier, Reed,
Cousins & Blau, L.L.P.
3700 NationsBank Plaza
901 Main Street
Dallas, Texas 75202
Attn: George R. Bedell, Esq.
Telephone No.: (214) 749-2448
Facsimile No.: (214) 747-3732
ARTICLE XVII
REMEDIES
In the event that Seller fails to timely comply with all conditions,
covenants and obligations of Seller hereunder, it shall be an event of default
and Purchaser shall have the option (i) to terminate this Contract by providing
written notice thereof to Seller, in which event the Earnest Money (less
$5,000.00) shall be returned immediately to Purchaser by the Title Company and
the parties hereto shall have no further liabilities or obligations one unto
the other; (ii) to waive any defect or requirement and close this Contract; or
(iii) to sue Seller for specific performance. Except as otherwise set forth
herein, in no event shall Purchaser have the right to sue Seller for damages.
In the event that Purchaser fails to timely comply with all
conditions, covenants, and obligations Purchaser has hereunder, such failure
shall be an event of default, and Seller's sole remedy shall be to receive the
Earnest Money. The Earnest Money is agreed upon by and
- 11 -
<PAGE> 12
between the Seller and Purchaser as liquidated damages due to the difficulty
and inconvenience of ascertaining and measuring actual damages, and the
uncertainty thereof, and no other damages, rights, or remedies shall in any
case be collectible, enforceable, or available to the Seller other than in this
paragraph defined (except for damages to sod as discussed in Article VI
hereof), and Seller shall accept the Earnest Money as Seller's total damages
and relief.
ARTICLE XVIII
ASSIGNMENT
Purchaser shall have the right to nominate who shall take title and
who shall succeed to Purchaser's duties and obligations hereunder, or assign
this Contract to any person, firm, corporation, or other entity which Purchaser
may, at Purchaser's sole option, choose, and from and after such nomination or
assignment, wherever in this Contract reference is made to Purchaser such
reference shall mean the nominee or assignee who shall succeed to all the
rights of Purchaser hereunder. Any such assignment shall not be effective
until Seller has received written notice thereof; further, such assignment
shall not relieve Purchaser of any of its obligations or liabilities hereunder.
ARTICLE XIX
INTERPRETATION AND APPLICABLE LAW
This Agreement shall be construed and interpreted in accordance with
the laws of the State of Missouri and venue for all suits shall be in Circuit
Court in Clay County, Missouri. Where required for proper interpretation,
words in the singular shall include the plural; the masculine gender shall
include the neuter and the feminine, and vice versa. The terms "successors and
assigns" shall include the heirs, administrators, executors, successors, and
assigns, as applicable, of any party hereto.
- 12 -
<PAGE> 13
ARTICLE XX
AMENDMENT
This Contract may not be modified or amended, except by an agreement
in writing signed by the Seller and the Purchaser. The parties may waive any
of the conditions contained herein or any of the obligations of the other party
hereunder, but any such waiver shall be effective only if in writing and signed
by the party waiving such conditions and obligations.
ARTICLE XXI
AUTHORITY
Each person executing this Contract warrants and represents that he is
fully authorized to do so.
ARTICLE XXII
ATTORNEYS' FEES
In the event it becomes necessary for either party to file a suit to
enforce this Contract or any provisions contained herein, the prevailing party
shall be entitled to recover, in addition to all other remedies or damages,
reasonable attorneys' fees and costs of court incurred in such suit.
ARTICLE XXIII
DESCRIPTIVE HEADINGS
The descriptive headings of the several paragraphs contained in this
Contract are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
ARTICLE XXIV
ENTIRE AGREEMENT
This Contract (and the items to be furnished in accordance herewith)
constitutes the entire agreement between the parties pertaining to the subject
matter hereof and supersedes all prior
- 13 -
<PAGE> 14
and contemporaneous agreements and understandings of the parties in connection
therewith. No representation, warranty, covenant, agreement, or condition not
expressed in this Contract shall be binding upon the parties hereto or shall
affect or be effective to interpret, change, or restrict the provisions of this
Contract.
ARTICLE XXV
MULTIPLE ORIGINALS ONLY
Numerous copies of this Contract may be executed by the parties
hereto. Each such executed copy shall have the full force and effect of an
original executed instrument.
ARTICLE XXVI
ACCEPTANCE
Seller shall have until 5:00 o'clock p.m., February 18, 1998, to
execute and return a fully executed original of this Contract to Purchaser,
otherwise this Contract shall become null and void. Time is of the essence of
this Contract. The date of execution of this Contract by Seller shall be the
date of execution of this Contract. If the final date of any period falls upon
a Saturday, Sunday, or legal holiday under the laws of the State of Missouri,
then in such event the expiration date of such period shall be extended to the
next day which is not a Saturday, Sunday, or legal holiday under the laws of
the State of Missouri.
ARTICLE XXVII
REAL ESTATE COMMISSION
In the event that this Contract closes, but not otherwise, Seller
agrees to pay at closing a real estate commission to Basswood Realty
("Broker"), such commission to be in the amount of five percent (5%) of the
purchase price payable hereunder. Seller represents and warrants to Purchaser
that Seller has not contacted or entered into any agreement with any other real
estate broker, agent, finder, or any other party in connection with this
transaction, and that Seller has not taken any action which would result in any
other real estate broker's, finder's, or other fees or commissions being due
and payable to any other party with respect to the
- 14 -
<PAGE> 15
transaction contemplated hereby. Purchaser hereby represents and warrants to
Seller that Purchaser has not contracted or entered into any agreement with any
other real estate broker, agent, finder, or any other party in connection with
this transaction, and that Purchaser has not taken any action which would
result in any other real estate broker's, finder's, or other fees or
commissions being due or payable to any other party with respect to the
transaction contemplated hereby. Each party hereby indemnifies and agrees to
hold the other party harmless from any loss, liability, damage, cost, or
expense (including reasonable attorneys' fees) resulting to the other party by
reason of a breach of the representation and warranty made by such party
herein. Notwithstanding anything to the contrary contained herein, the
indemnities set forth in this Article XXVII shall survive the closing.
ARTICLE XXVIII
NON-RECORDATION
Purchaser agrees and warrants that it will not place of record with
the Clay County Recorder of Deeds Office this Contract or any part of this
agreement or any instrument, memorandum or notice making reference to this
Contract and in the event of any recordation in violation of this Article then
Purchaser shall forfeit any and all rights Purchaser has in the Earnest Money
and further this Contract shall, at Seller's option, be void.
ARTICLE XXIX
TAX FREE EXCHANGE
a. Notwithstanding any terms in this Contract to the
contrary, Seller shall have the right to exchange the Subject Property
to qualify as a tax-deferred exchange under the provision of Section
1031 of the Internal Revenue Code of 1986, as amended (the "Code"),
and the Treasury Regulations thereunder.
b. Purchaser agrees to cooperate with Seller with
respect to any tax-deferred exchange pursuant to the provisions of
Section 1031 of the Code and the Treasury Regulations thereunder,
provided that (i) Purchaser incurs no additional cost, expense or
delay attributable to the exchange, including attorneys' fees, deed
excise taxes and recording fees; (ii) Seller agree to indemnify and
hold Purchaser harmless from and against all liability arising out of
its cooperation in effecting the exchange as requested by Seller; and
(iii) Purchaser shall have no personal liability with respect to the
deferred exchange and shall not be required to purchase any
replacement property (the "Replacement Property").
- 15 -
<PAGE> 16
c. Seller and Purchaser acknowledge that Purchaser shall
not be deemed Seller's agent in connection with said exchange. Seller
and Purchaser further acknowledge that all agreements in connection
with performing the Exchange shall be prepared at Seller's expense by
Seller's counsel.
d. Seller shall have the right to transfer its interests
under the Agreement to a qualified intermediary (the "Intermediary")
in accordance with the provisions of Section 1031 of the Code and the
Treasury Regulations thereunder, and, as a result of that transfer,
the Intermediary will acquire an equitable interest in the title to
the Subject Property.
EXECUTED on this the 18th day of February, 1998.
SELLER:
/s/ MICHAEL J. MCDERMOTT
-------------------------------------------
MICHAEL J. MCDERMOTT
/s/ ELIZABETH R. MCDERMOTT
-------------------------------------------
ELIZABETH R. MCDERMOTT
EXECUTED on this the 18th day of February, 1998.
PURCHASER:
SILVERLEAF RESORTS, INC., a Texas corporation
By: /s/ ROBERT E. MEAD
----------------------------------------
Name: Robert E. Mead
--------------------------------------
Its: CEO
---------------------------------------
RECEIPT OF EARNEST MONEY AND ONE (1) EXECUTED COUNTERPART OF THIS CONTRACT IS
HEREBY ACKNOWLEDGED:
TITLE COMPANY:
SAFECO LAND TITLE OF DALLAS
By: /s/ J. G. KERR
--------------------------
Name: J. G. Kerr, V.P.
------------------------
Its: Special Projects
-------------------------
Senior Commercial Escrow Officer
- 16 -
<PAGE> 1
EXHIBIT 10.38
CONTRACT OF SALE
This Agreement is entered into by and between LEE R. ROPER ("Seller")
and SILVERLEAF RESORTS, INC. ("Purchaser").
W I T N E S S E T H :
FOR AND IN CONSIDERATION of the promises, undertakings, and mutual
covenants of the parties herein set forth, Seller hereby agrees to sell and
Purchaser hereby agrees to purchase and pay for all that certain property
hereinafter described in accordance with the following terms and conditions:
ARTICLE I
PROPERTY
The conveyance by Seller to Purchaser shall be of all the following:
A. The following described real property, together with all
right, title and interest of Seller in and to any all strips or gores, roads,
easements, streets, and ways bounding said property, and all rights of ingress
and egress thereto, and shall include all improvements and fixtures located or
to be located on said property:
46.3286 acres, more or less, located in Canyon Lake, Comal
County, Texas, and being depicted in Exhibit "A" attached
hereto and made a part hereof for all purposes.
B. The following described personal property individually owned
by Seller and currently located on the 46.3286 acres described in paragraph A
above and as further described and depicted in Exhibit "B":
2 shed rows with 7 stalls
1 shed row with 3 stalls
2 hot walkers
1 wash rack
12 outer stalls with moveable fence panels
rubber mats for concrete floors in stall barn
2 travel trailers.
Hereafter the aforesaid real and personal property are referred to collectively
as the "Subject Property."
<PAGE> 2
ARTICLE II
PURCHASE PRICE
The purchase price to be paid by Purchaser to Seller for the Subject
Property shall be the sum of Two Hundred Eighteen Thousand and No/100 Dollars
($218,000.00). The purchase price shall be payable all in cash at the closing.
ARTICLE III
EARNEST MONEY
Within two (2) business days after final execution of this Contract by
all parties hereto, Purchaser shall deliver Purchaser's check in the amount of
Ten Thousand and No/100 Dollars ($10,000.00) to Safeco Land Title of Dallas,
5220 Renaissance Tower, 1201 Elm Street, Dallas, Texas 75270, Attn: Bobbie
Irwin (the "Title Company"). The Title Company shall immediately cash the
earnest money check and deposit the proceeds thereof in an interest bearing
account, the earnings from which shall accrue to the benefit of Purchaser
(hereinafter the proceeds of the earnest money check shall be referred to as
the "earnest money").
In the event that this Contract is closed, then the earnest money
shall be applied as a credit toward payment of the purchase price. In the
event that this Contract is not closed, then the earnest money shall be
disbursed in the manner provided for elsewhere herein. Notwithstanding the
foregoing or anything to the contrary contained elsewhere in this Contract, it
is understood and agreed that One Hundred Dollars ($100.00) of the earnest
money shall in all events be delivered to Seller as valuable consideration for
the Inspection Period described in Article VI hereinbelow and the execution of
this Contract by Seller.
ARTICLE IV
PRE-CLOSING OBLIGATIONS OF SELLER
Within thirty (30) days from the date of execution of this Contract,
Seller shall furnish to Purchaser, each of the following (collectively, the
"Due Diligence Items"):
a. An updated survey of the Subject Property dated
subsequent to the date of execution of this Contract and prepared by a
licensed professional engineer or surveyor acceptable to Purchaser,
which Survey shall: (a) include a metes and bounds legal description
of the Subject Property; (b) accurately show all improvements,
encroachments
- 2 -
<PAGE> 3
and uses and accurately show all easements and encumbrances visible or
listed on the Title Commitment (identifying each by recording
reference if applicable); (c) recite the number of acres included in
the Subject Property; (d) state whether the Subject Property (or any
portion thereof) lies within a flood zone, or flood prone area; (e)
contain a certificate verifying that the Survey was made on the
ground, that the Survey is correct, that there are no improvements,
encroachments, easements, uses or encumbrances except as shown on the
survey plat, that the area represented for the Subject Property has
been certified by the surveyor as being correct, that the Subject
Property does not lie within any flood zone or flood prone area,
except as indicated thereon; (f) constitute a category 1A Condition II
Land Title Survey pursuant to the Texas Surveyor's Association Manual
of Practice for Land Surveying in Texas, Revised Seventh Ed. (1988);
and (g) otherwise be in form sufficient for the amendment of the
boundary exception by the Title Company. Unless otherwise agreed by
Seller and Purchaser, the metes and bounds description contained in
the Survey shall be the legal description employed in the documents of
conveyance of the Subject Property;
b. A current commitment (the "Title Commitment") for the
issuance of an owner's policy of title insurance to the Purchaser from
the Title Company, together with good and legible copies of all
documents constituting exceptions to Seller's title as reflected in
the Title Commitment; and
c. All information of any kind whatsoever in the
possession of Seller concerning possible development of the Subject
Property including, but not limited to, any and all plans for the
development of the Subject Property, any engineering studies of the
Subject Property, and information relating to obtaining the approval
of local governing bodies for the development of the Subject Property,
any information as to when construction on the Subject Property may
commence, any information regarding present or future zoning of the
Subject Property, and any information concerning the availability of
the utilities.
ARTICLE V
TITLE INSPECTION PERIOD
Purchaser shall have a period of sixty (60) days following the date on
which Purchaser receives the last of the items to be provided to Purchaser
pursuant to subparagraphs (a) and (b) of Article IV hereinabove in which to
review and approve each such item (the "Title Review Period"). If the
information to be provided pursuant to subparagraphs (a) and (b) of Article IV
reflect or discloses any defect, exception or other matter affecting the
Subject Property ("Title Defects") that is unacceptable to Purchaser, then
prior to the expiration of the Title Review Period Purchaser shall provide
Seller with written notice of Purchaser's objections. Seller may, at its sole
option, elect to cure or remove the objections raised by Purchaser; provided,
however, that Seller shall have no obligation to do so. Should Seller elect to
attempt to cure or remove the objections, Seller shall have ten (10) days from
the date of Purchaser's written notice of objections (the "Cure Period") in
which to accomplish the cure. In the event Seller either elects
- 3 -
<PAGE> 4
not to cure or remove the objections or is unable to accomplish the cure prior
to the expiration of the Cure Period, then Seller shall so notify Purchaser in
writing specifying which objections Seller does not intend to cure, and then
Purchaser shall be entitled, as Purchaser's sole and exclusive remedies, either
to terminate this Agreement by providing written notice of termination to
Seller within ten (10) days from the date on which Purchaser receives Seller's
no-cure notice or waive the objections and close this transaction as otherwise
contemplated herein. If Purchaser shall fail to notify Seller in writing of
any objections to the state of Seller's title to the Subject Property as shown
by the Survey and Title Commitment, then Purchaser shall be deemed to have no
objections to the state of Seller's title to the Subject Property as shown by
the Survey and Title Commitment, and any exceptions to Seller's title which
have not been objected to by Purchaser and which are shown on the Survey or
described in the Title Commitment shall be considered to be "Permitted
Exceptions." It is further understood and agreed that any Title Defects which
have been objected to by Purchaser and which are subsequently waived by
Purchaser shall be Permitted Exceptions.
ARTICLE VI
INSPECTION PERIOD
Purchaser, at Purchaser's sole expense, shall have the right to
conduct a feasibility, environmental, engineering and physical study of the
Subject Property for a period of time commencing on the date of execution of
this Contract and expiring sixty (60) days from the date on which Purchaser
receives the last of the items to be provided to Purchaser pursuant to Article
IV hereinabove (the "Inspection Period"). Purchaser and Purchaser's duly
authorized agents or representatives shall be permitted to enter upon the
Subject Property at all reasonable times during the Inspection Period in order
to conduct engineering studies, soil tests and any other inspections and/or
tests that Purchaser may deem necessary or advisable. Purchaser further agrees
to indemnify and hold Seller harmless from any claims or damages, including all
reasonable attorneys' fees, resulting from Purchaser's inspection of the
Subject Property. In the event that the review and/or inspection conducted by
this paragraph shows any fact, matter or condition to exist with respect to the
Subject Property that is unacceptable to Purchaser, in
- 4 -
<PAGE> 5
Purchaser's sole discretion, or if for any reason Purchaser determines that
purchase of the Subject Property is not feasible, then Purchaser shall be
entitled, as Purchaser's sole remedy, to cancel this Contract by providing
written notice of cancellation to Seller prior to the expiration of the
Inspection Period. If Purchaser shall provide written notice of cancellation
prior to the expiration of the Inspection Period, then this Contract shall be
cancelled, all earnest money (less $100.00) shall be immediately returned to
Purchaser by the Title Company, and thereafter neither Seller nor Purchaser
shall have any continuing obligations one unto the other.
ARTICLE VII
REPRESENTATIONS, WARRANTIES, AND COVENANTS OF SELLER
Seller represents and warrants to Purchaser that Seller will have at
closing good and indefeasible fee simple title to the Subject Property free and
clear of all liens, encumbrances, covenants, restrictions, rights-of-way,
easements, and any other matters affecting title to the Subject Property except
for the Permitted Exceptions.
Seller further covenants and agrees with Purchaser that, from the date
hereof until the closing, Seller shall not sell, assign, or convey any right,
title, or interest whatsoever in or to the Subject Property, or create or
permit to exist any lien, security interest, easement, encumbrance, charge, or
condition affecting the Subject Property (other than the Permitted Exceptions)
without promptly discharging the same prior to closing.
Seller hereby further represents and warrants to Purchaser, to the
best of Seller's knowledge, as follows:
a. There are no actions, suits, or proceedings pending
or, to the best of Seller's knowledge, threatened against Seller or
otherwise affecting any portion of the Subject Property, at law or in
equity, or before or by any federal, state, municipal, or other
governmental court, department, commission, board, bureau, agency, or
instrumentality, domestic or foreign;
b. The execution by Seller of this Contract and the
consummation by Seller of the sale contemplated hereby have been duly
authorized, and do not, and, at the closing date, will not, result in
a breach of any of the terms or provisions of, or constitute a default
under any indenture, agreement, instrument, or obligation to which
Seller is a party or by which the Subject Property or any portion
thereof is bound, and do not, and at the closing date will not,
constitute a violation of any regulation affecting the Subject
Property; and
- 5 -
<PAGE> 6
c. Seller has not received any notice of any violation
of any ordinance, regulation, law, or statute of any governmental
agency pertaining to the Subject Property or any portion thereof.
All of the foregoing representations and warranties of Seller are made by
Seller both as of the date hereof and as of the date of the closing hereunder.
Notwithstanding the foregoing, or anything to the contrary contained herein, it
is understood and agreed that the representations and warranties set forth
hereinabove shall survive the closing of this Contract only for a period of two
(2) years following the closing date, but not thereafter, and Seller shall have
no liability of any kind whatsoever for any breach thereof except to the extent
a claim is asserted against Seller within such two (2) year period. If any
representations and warranties set forth herein are determined at any time on
or before the date of closing to be untrue or unfulfilled, then Purchaser, as
Purchaser's sole and exclusive remedy, may terminate this Contract by providing
written notice of such termination to Seller, in which event the earnest money
(less $100.00) shall be returned to Purchaser and thereafter neither Seller nor
Purchaser shall have any further liabilities or obligations one unto the other.
ARTICLE VIII
CONDITIONS PRECEDENT TO CLOSING
The obligation of Purchaser to close this Contract shall, at the
option of Purchaser, be subject to the following conditions precedent:
a. All of the representations, warranties and agreements
of Seller set forth in this Contract shall be true and correct in all
material respects as of the date hereof and at closing, and Seller
shall not have on or prior to closing, failed to meet, comply with or
perform in any material respect any conditions or agreements on
Seller's part as required by the terms of this Contract;
b. There shall be no change in the matters reflected in
the Title Commitment, and there shall not exist any encumbrance or
title defect affecting the Subject Property not described in the Title
Commitment except for the Permitted Exceptions;
c. There shall be no changes in the matters reflected in
the Survey, and there shall not exist any easement, right-of-way,
encroachment, waterway, pond, flood plain, conflict or protrusion with
respect to the Subject Property not shown on the Survey; and
d. No material and substantial change shall have
occurred with respect to the Subject Property which would in any way
affect the findings made in the inspection of the Subject Property
described in Article VI hereinabove.
- 6 -
<PAGE> 7
If any such condition is not fully satisfied by closing, Purchaser may
terminate this Contract by written notice to Seller whereupon this Contract
shall be cancelled, the earnest money deposit (less $100.00) shall be returned
to Purchaser by the Title Company and thereafter neither Seller nor Purchaser
shall have any continuing obligations one unto the other.
ARTICLE IX
CLOSING
The closing hereunder shall take place at the offices of the Title
Company. The closing shall occur on the same day as the closing of that
certain Contract of Sale dated December 3, 1997, by and between Jimmy Polley
and Edith R. Smith, as seller, and Lee Roper, as purchaser (the "Smith
Contract").
ARTICLE X
SELLER'S OBLIGATIONS AT CLOSING
At the closing, Seller shall do the following:
a. Deliver to Purchaser a Special Warranty Deed covering
the real property described in Exhibit "A," duly signed and
acknowledged by Seller, which deed shall be in form reasonably
acceptable to Purchaser for recording and shall convey to Purchaser
good and marketable title to the Subject Property, free and clear of
all liens, rights-of-way, easements, and other matters affecting title
to the Subject Property, except for the Permitted Exceptions.
b. Deliver a bill of sale in form reasonably acceptable
to Purchaser, duly executed by Seller, conveying and/or assigning to
Purchaser the personal property described in Exhibit "B."
c. Deliver or cause to be delivered to Purchaser an
Owner Policy of Title Insurance (the "Title Policy") covering the
Subject Property, in the amount of the purchase price, in the form
prescribed by the Texas State Board of Insurance. Such Title Policy
may contain as exceptions only the Permitted Exceptions and the
standard printed exceptions except that: (i) the exception relating
to restrictions against the Subject Property shall be deleted, except
for such restrictions as may be included in the Permitted Exceptions;
(ii) the exception relating to discrepancies, conflicts, or shortages
in area or boundary lines, or any encroachment or overlapping of
improvements which a survey might show shall be deleted except for
shortages in area; and (iii) the exception relating to standby fees
and ad valorem taxes shall except only to taxes owing for the current
year and subsequent assessments for prior years due to change in land
usage or ownership. The premium charged by the Title Company for the
Title Policy shall be paid by Purchaser.
d. Deliver such evidence or other documents that may be
reasonably required by the Title Company evidencing the status and
capacity of Seller and the authority of
- 7 -
<PAGE> 8
the person or persons who are executing the various documents on
behalf of Seller in connection with the sale of the Subject Property.
e. Deliver a non-withholding statement that will satisfy
the requirements of Section 1445 of the Internal Revenue Code so that
Purchaser is not required to withhold any portion of the purchase
price for payment to the Internal Revenue Service.
ARTICLE XI
PURCHASER'S OBLIGATIONS AT CLOSING
At the closing, Purchaser shall deliver to Seller the purchase price
for the Subject Property in cash.
ARTICLE XII
COSTS AND ADJUSTMENTS
At closing, the following items shall be adjusted or prorated between
Seller and Purchaser:
a. Ad valorem taxes for the Subject Property for the
current calendar year shall be prorated as of the date of closing, and
Seller shall pay to Purchaser in cash at closing Seller's prorata
portion of such taxes. Seller's prorata portion of such taxes shall
be based upon taxes actually assessed for the current calendar year.
b. All other closing costs, including but not limited
to, recording and escrow fees shall be divided equally between Seller
and Purchaser; provided, however, that Seller and Purchaser shall each
be responsible for the fees and expenses of their respective
attorneys.
Seller agrees to indemnify and hold Purchaser harmless of and from any
and all liabilities, claims, demands, suits, and judgments, of any kind or
nature (except those items which under the terms of this Contract specifically
become the obligation of Purchaser), brought by third parties and based on
events occurring on or before the date of closing and which are in any way
related to the ownership, maintenance, or operation of the Subject Property,
and all expenses related thereto, including, but not limited to, court costs
and attorneys' fees.
Purchaser agrees to indemnify and hold Seller harmless of and from any
and all liabilities, claims, demands, suits, and judgments, of any kind or
nature, brought by third parties and based on events occurring subsequent to
the date of closing and which are in any way related to the ownership,
maintenance or operation of the Subject Property, and all expenses related
thereto, including, but not limited to, court costs and attorneys' fees.
- 8 -
<PAGE> 9
ARTICLE XIII
ENTRY ON PROPERTY
Purchaser, Purchaser's agents, employees, servants, or nominees, are
hereby granted the right to enter upon the Subject Property at any reasonable
time (after first notifying Edith R. Smith) prior to closing for the purpose of
inspecting the Subject Property and conducting such engineering and mechanical
tests as Purchaser may deem necessary or advisable, any such inspections and
tests to be made at Purchaser's sole expense. Purchaser agrees to indemnify
and hold Seller harmless from and against any and all losses, damages, costs,
or expenses incurred by Seller as a result of any inspections or tests made by
Purchaser.
ARTICLE XIV
POSSESSION OF PROPERTY
Possession of the Subject Property free and clear of all uses and
encroachments, except the Permitted Exceptions, shall be delivered to Purchaser
at closing.
ARTICLE XV
NOTICES
All notices, demands, or other communications of any type given by the
Seller to the Purchaser, or by the Purchaser to the Seller, whether required by
this Contract or in any way related to the transaction contracted for herein,
shall be void and of no effect unless given in accordance with the provisions
of this paragraph. All notices shall be in writing and delivered to the person
to whom the notice is directed, either in person, by facsimile transmission, or
by United States Mail, as a registered or certified item, return receipt
requested. Notices delivered by mail shall be deemed given when deposited in a
post office or other depository under the care or custody of the United States
Postal Service, enclosed in a wrapper with proper postage affixed, addressed as
follows:
Seller: Lee R. Roper
P.O. Box 2202
Canyon Lake, Texas 78130-2202
Telephone No.: (830) 935-2807
Facsimile No.: (830) 935-2729
- 9 -
<PAGE> 10
Purchaser: Silverleaf Resorts, Inc.
1221 Riverbend Drive, Suite 120
Dallas, Texas 75202
Telephone No.: (214) 631-1166
Facsimile No.: (214) 905-0514
With a copy to: Meadows, Owens, Collier, Reed, Cousins &
Blau, L.L.P.
901 Main Street, Suite 3700
Dallas, Texas 75202
Attn: George R. Bedell, Esq.
Telephone No.: (214) 744-3700
Facsimile No.: (214) 747-3732
ARTICLE XVI
REMEDIES
In the event that Seller fails to timely comply with all conditions,
covenants and obligations of Seller hereunder, such failure shall be an event
of default and Purchaser shall have the option (i) to terminate this Contract
by providing written notice thereof to Seller, in which event the earnest money
(less $100.00) shall be returned immediately to Purchaser by the Title Company
and the parties hereto shall have no further liabilities or obligations one
unto the other; (ii) to waive any defect or requirement and close this
Contract; or (iii) sue Seller for specific performance; provided, however, that
in the event that Seller violates its obligations pursuant to this Contract and
the closing does not occur as a result thereof, Purchaser's right to obtain any
damages hereunder shall be limited to the recovery of Purchaser's out-of-pocket
expenses, and in no event shall Purchaser have the right to sue for any other
damages, including consequential damages, lost profits or punitive damages.
In the event that Purchaser fails to timely comply with all
conditions, covenants, and obligations Purchaser has hereunder, such failure
shall be an event of default, and Seller's sole remedy shall be to receive the
earnest money. The earnest money is agreed upon by and between the Seller and
Purchaser as liquidated damages due to the difficulty and inconvenience of
ascertaining and measuring actual damages, and the uncertainty thereof, and no
other damages, rights, or remedies shall in any case be collectible,
enforceable, or available to the Seller other than in this paragraph defined,
and Seller shall accept the earnest money as Seller's total damages and relief.
- 10 -
<PAGE> 11
ARTICLE XVII
ASSIGNMENT
This Contract may be assigned by the Purchaser to any person, firm,
corporation or other entity which the Purchaser may, at its sole discretion,
chose, but only on condition that any such assignee must assume and agree to
perform all of Purchaser's obligations hereunder. Purchaser shall promptly
provide Seller with written notice of any assignment made pursuant to this
paragraph.
ARTICLE XVIII
INTERPRETATION AND APPLICABLE LAW
This Agreement shall be construed and interpreted in accordance with
the laws of the State of Texas. Where required for proper interpretation,
words in the singular shall include the plural; the masculine gender shall
include the neuter and the feminine, and vice versa. The terms "successors and
assigns" shall include the heirs, administrators, executors, successors, and
assigns, as applicable, of any party hereto.
ARTICLE XIX
AMENDMENT
This Contract may not be modified or amended, except by an agreement
in writing signed by the Seller and the Purchaser. The parties may waive any
of the conditions contained herein or any of the obligations of the other party
hereunder, but any such waiver shall be effective only if in writing and signed
by the party waiving such conditions and obligations.
ARTICLE XX
AUTHORITY
Each person executing this Contract warrants and represents that he is
fully authorized to do so.
- 11 -
<PAGE> 12
ARTICLE XXI
ATTORNEYS' FEES
In the event it becomes necessary for either party to file a suit to
enforce this Contract or any provisions contained herein, the prevailing party
shall be entitled to recover, in addition to all other remedies or damages,
reasonable attorneys' fees and costs of court incurred in such suit.
ARTICLE XXII
DESCRIPTIVE HEADINGS
The descriptive headings of the several paragraphs contained in this
Contract are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
ARTICLE XXIII
ENTIRE AGREEMENT
This Contract (and the items to be furnished in accordance herewith)
constitutes the entire agreement between the parties pertaining to the subject
matter hereof and supersedes all prior and contemporaneous agreements and
understandings of the parties in connection therewith. No representation,
warranty, covenant, agreement, or condition not expressed in this Contract
shall be binding upon the parties hereto or shall affect or be effective to
interpret, change, or restrict the provisions of this Contract.
ARTICLE XXIV
MULTIPLE ORIGINALS ONLY
Numerous copies of this Contract may be executed by the parties
hereto. Each such executed copy shall have the full force and effect of an
original executed instrument.
- 12 -
<PAGE> 13
ARTICLE XXV
ACCEPTANCE
Seller shall have until 5:00 o'clock p.m., February 18, 1998, to
execute and return a fully executed original of this Contract to Purchaser,
otherwise this Contract shall become null and void. Time is of the essence of
this Contract. The date of execution of this Contract by Seller shall be the
date of execution of this Contract. If the final date of any period falls upon
a Saturday, Sunday, or legal holiday under the laws of the State of Texas, then
in such event the expiration date of such period shall be extended to the next
day which is not a Saturday, Sunday, or legal holiday under the laws of the
State of Texas.
ARTICLE XXVI
REAL ESTATE COMMISSION
In the event that this Contract closes, but not otherwise, Purchaser
agrees to reimburse Seller with respect to the 10% real estate commission that
Seller is obligated to pay Rinco of Texas, Inc., in connection with the closing
of the Smith Contract. Seller represents and warrants to Purchaser that Seller
has not contacted or entered into any agreement with any other real estate
broker, agent, finder, or any other party in connection with this transaction,
and that Seller has not taken any action which would result in any other real
estate broker's, finder's, or other fees or commissions being due and payable
to any other party with respect to the transaction contemplated hereby.
Purchaser hereby represents and warrants to Seller that Purchaser has not
contracted or entered into any agreement with any other real estate broker,
agent, finder, or any other party in connection with this transaction, and that
Purchaser has not taken any action which would result in any other real estate
broker's, finder's, or other fees or commissions being due or payable to any
other party with respect to the transaction contemplated hereby. Each party
hereby indemnifies and agrees to hold the other party harmless from any loss,
liability, damage, cost, or expense (including reasonable attorneys' fees)
resulting to the other party by reason of a breach of the representation and
warranty made by such party herein.
- 13 -
<PAGE> 14
Notwithstanding anything to the contrary contained herein, the indemnities set
forth in this Article XXVI shall survive the closing.
ARTICLE XXVII
CONDITION PRECEDENT
Notwithstanding anything to the contrary contained herein, it is
understood and agreed that Purchaser's obligation to purchase the Subject
Property pursuant to this Agreement is conditioned upon the closing of the
Smith Contract. In the event that Seller is unable to close the Smith Contract
for any reason other than that caused by the Seller, then this Contract shall
automatically be cancelled, in which event all earnest money (less $100.00)
shall be immediately returned to Purchaser by the Title Company, and thereafter
neither Seller nor Purchaser shall have a continuing obligations one unto the
other.
EXECUTED on this the 11th day of February, 1998.
SELLER:
/s/ LEE R. ROPER
--------------------------------------------
Lee R. Roper
EXECUTED on this the 19th day of February, 1998.
PURCHASER:
SILVERLEAF RESORTS, INC. a Texas corporation
By:/s/ ROBERT E. MEAD
-----------------------------------------
Name: Robert E. Mead
---------------------------------------
Its: CEO
----------------------------------------
- 14 -
<PAGE> 15
RECEIPT OF EARNEST MONEY AND ONE (1) EXECUTED COUNTERPART OF THIS CONTRACT IS
HEREBY ACKNOWLEDGED:
TITLE COMPANY:
SAFECO LAND TITLE OF DALLAS
By:
-----------------------------------------
Name:
---------------------------------------
Its:
----------------------------------------
- 15 -
<PAGE> 16
LIST OF EXHIBITS TO EXHIBIT 10.38
Exhibit A Copy of Land Survey
Exhibit B Listing and Description of Personal Property
The above-listed exhibits are omitted from this filing. Registrant agrees to
furnish supplementally a copy of any omitted exhibit to the Commission upon
request.
-16-
<PAGE> 1
EXHIBIT 10.39
CONTRACT OF SALE
This Agreement is entered into by and between J. PHILLIP BALLARD, JR.
("Seller") and SILVERLEAF RESORTS, INC., a Texas corporation ("Purchaser").
W I T N E S S E T H :
FOR AND IN CONSIDERATION of the promises, undertakings, and mutual
covenants of the parties herein set forth, Seller hereby agrees to sell and
Purchaser hereby agrees to purchase and pay for all that certain property
hereinafter described in accordance with the following terms and conditions:
ARTICLE I
PROPERTY
The conveyance by Seller to Purchaser shall include the following
described tracts or parcels of land, together with all and singular the rights
and appurtenances pertaining to such land including any right, title and
interest of Seller in and to adjacent strips or gores, streets, alleys, or
rights-of-way and all rights of ingress and egress thereto:
Those certain tracts of land located in the 12th Land
District, Habersham County, Georgia, commonly known as "Hollywood
Hills Golf Club," containing approximately 220 acres, more or less,
and being more particularly described in Exhibit "A" attached hereto
and made a part hereof for all purposes.
Hereafter the aforesaid real property is referred to as the "Land."
The conveyance by Seller to Purchaser shall also include all buildings
and other improvements on the Land, including specifically, without limitation,
the club house, all storage buildings, all recreational facilities, lakes and
parks located thereon (the foregoing property is herein referred to
collectively as the "Improvements").
The conveyance by Seller to Purchaser shall also include all fixtures
and personal property, tangible or intangible, of any kind whatsoever owned by
Seller and used in connection with the Land and/or Improvements, including but
not limited to, the following items:
a. All machinery, equipment, fixtures, furniture and
other personal property of every kind and character owned by Seller
and located on or used in connection with the operation of the Land
and Improvements including all golf carts;
b. If and to the extent owned by Seller, the name
"Hollywood Hills Golf Club," as used in the ownership or operation of
the Land and Improvements;
<PAGE> 2
c. All licenses, franchises and permits used in or
relating to the ownership, occupancy or operation of the golf club
being operated by Seller on the Land including, in particular, any
water permits or other utility permits;
d. Any developer's, declarant's, or owner's interests
under any operating agreements or reciprocal easement agreements or
other similar agreements affecting and/or benefiting the Land;
e. All service, maintenance, management or other
contracts respecting the ownership, maintenance, operation,
provisioning or equipping of the golf club being operated on the Land
by Seller, including warranties and guaranties relating thereto; and
f. All outstanding receivables and membership
agreements, if any, owned by Seller which have been generated from the
sale of membership or use rights at the golf club being operated by
Seller on the Land.
The foregoing items are hereinafter collectively referred to as the "Golf
Course Assets."
Hereinafter all property being conveyed to Purchaser by Seller
pursuant to this Contract including the Land, the Improvements and the Golf
Course Assets are sometimes referred to collectively as the "Subject Property."
ARTICLE II
PURCHASE PRICE
The purchase price to be paid by Purchaser to Seller for the Subject
Property shall be the sum of Three Million Five Hundred Twenty-Five Thousand
and No/100 Dollars ($3,525,000.00). The purchase price shall be payable all in
cash at the closing.
ARTICLE III
EARNEST MONEY
Within two (2) business days after final execution of this Contract by
all parties hereto, Purchaser shall deliver Purchaser's check in the amount of
Fifty Thousand and No/100 Dollars ($50,000.00) to Safeco Land Title of Dallas,
5220 Renaissance Tower, 1201 Elm Street, Dallas, Texas 75270, Attn: Bobbie
Irwin (the "Title Company"). The Title Company shall immediately cash the
earnest money check and deposit the proceeds thereof in an interest bearing
account, the earnings from which shall accrue to the benefit of Purchaser
(hereinafter the proceeds of the earnest money check shall be referred to as
the "earnest money"). If Purchaser does not terminate this Contract during the
Inspection Period (as defined in Article VI
- 2 -
<PAGE> 3
hereinbelow), then, within two (2) business days after the expiration of the
Inspection Period, the Title Company shall immediately disburse the entire
$50,000.00 earnest money deposit to Seller; upon such disbursement the
$50,000.00 earnest money deposit shall be non-refundable to the Purchaser
except in the event of a default by Seller hereunder, but, if this Contract
closes, then the entire $50,000.00 earnest money deposit shall be applied in
partial satisfaction of the purchase price payable at closing.
In the event that this Contract is closed, then all earnest money
shall be applied in partial satisfaction of the purchase price. In the event
that this Contract is not closed, then the earnest money shall be disbursed in
the manner provided for elsewhere herein. Notwithstanding the foregoing or
anything to the contrary contained elsewhere in this Contract, it is understood
and agreed that One Hundred Dollars ($100.00) of the earnest money shall in all
events be delivered to Seller as valuable consideration for the Inspection
Period described in Article VI hereinbelow and the execution of this Contract
by Seller.
ARTICLE IV
PRE-CLOSING OBLIGATIONS OF SELLER AND PURCHASER
Within ten (10) days from the date of execution of this Contract,
Seller shall furnish to Purchaser, each of the following (collectively, the
"Due Diligence Items"):
a. Copies of all licenses, permits, applications,
authorizations, certificates of occupancy, governmental approvals and
other entitlements relating to the Subject Property and the operation
thereof in the possession of Seller, if any, including, in particular,
copies of all permits relating to utilities;
b. A schedule of all current or pending litigation with
respect to the Subject Property or any part thereof, if any, together
with a brief description of each proceeding;
c. An accurate and complete schedule reflecting with
respect to the golf club being operated by Seller at the Subject
Property for the calendar year ending immediately preceding the date
of this Contract: (i) ad valorem taxes, (ii) expenses incurred for
such period for water, electricity, natural gas and other utility
charges, and (iii) all other income or expenses of operation of the
golf club being operated on the Land by Seller. Said operating
schedule shall be accompanied by Seller's statement that said
operating schedule is true, complete and correct as of the date
provided;
d. A list of all service contracts, warranties,
management, maintenance, or other agreements affecting the Subject
Property, if any, together with copies of same. Seller agrees not to
enter into any additional contracts, warranties, or agreements prior
to closing which would be binding on Purchaser and which cannot be
cancelled by Purchaser upon thirty (30) days written notice without
cost, penalty, or obligation unless such service contracts or other
agreements are approved in writing by Purchaser;
- 3 -
<PAGE> 4
e. All site plans, drawings, environmental, mechanical,
electrical, structural, soils and similar reports and/or audits and
plans and specifications relative to the Subject Property in the
possession of Seller, if any;
f. True and correct copies of the tax statements
covering the Subject Property or any part thereof for each of the two
(2) years prior to the current year and, if available, for the current
year;
g. A schedule of all Golf Course Assets (specifying if
any such Golf Course Assets are leased);
h. A list of any unwritten agreements affecting the
Subject Property to which Seller is a party or of which Seller has
knowledge; and
i. All other information of any kind whatsoever in the
possession of Seller and pertaining to the ownership and operation of
the Subject Property.
During the Inspection Period (defined hereinbelow), Purchaser, at its
sole cost and expense, shall obtain and deliver to Seller copies of the
following (collectively the "Purchaser Due Diligence Items"):
a. An updated survey of the Subject Property dated
subsequent to the date of execution of this Contract and prepared by a
licensed professional engineer or surveyor acceptable to Purchaser,
which Survey shall: (a) include a metes and bounds legal description
of the Subject Property; (b) accurately show all improvements,
encroachments and uses and accurately show all easements and
encumbrances visible or listed on the Title Commitment (identifying
each by recording reference if applicable); (c) recite the number of
acres included in the Subject Property; (d) state whether the Subject
Property (or any portion thereof) lies within a flood zone, or flood
prone area; (e) contain a certificate verifying that the Survey was
made on the ground, that the Survey is correct, that there are no
improvements, encroachments, easements, uses or encumbrances except as
shown on the survey plat, that the area represented for the Subject
Property has been certified by the surveyor as being correct, that the
Subject Property does not lie within any flood zone or flood prone
area, except as indicated thereon; and (f) otherwise be in form
sufficient for the amendment of the boundary exception by the Title
Company. Unless otherwise agreed by Seller and Purchaser, the metes
and bounds description contained in the Survey shall be the legal
description employed in the documents of conveyance of the Subject
Property; and
b. A current commitment (the "Title Commitment") for the
issuance of an owner's policy of title insurance to the Purchaser from
the Title Company, together with good and legible copies of all
documents constituting exceptions to Seller's title as reflected in
the Title Commitment.
ARTICLE V
TITLE INSPECTION PERIOD
Purchaser shall have a period of time commencing on the date of
execution of this Contract and expiring on the date of expiration of the
Inspection Period (as defined hereinbelow) within which to review and approve
the status of Seller's title to the Subject Property (the "Title Review
Period"). If the information to be provided to or obtained by Purchaser
pursuant to the
- 4 -
<PAGE> 5
provisions of Article IV hereinabove reflects or discloses any defect,
exception or other matter affecting the Subject Property ("Title Defects") that
is unacceptable to Purchaser, then prior to the expiration of the Title Review
Period Purchaser shall provide Seller with written notice of Purchaser's
objections. Seller may, at its sole option, elect to cure or remove the
objections raised by Purchaser; provided, however, that Seller shall have no
obligation to do so. Should Seller elect to attempt to cure or remove the
objections, Seller shall have ten (10) days from the date of Purchaser's
written notice of objections (the "Cure Period") in which to accomplish the
cure. In the event Seller either elects not to cure or remove the objections
or is unable to accomplish the cure prior to the expiration of the Cure Period,
then Seller shall so notify Purchaser in writing specifying which objections
Seller does not intend to cure, and then Purchaser shall be entitled, as
Purchaser's sole and exclusive remedies, either to terminate this Agreement by
providing written notice of termination to Seller within ten (10) days from the
date on which Purchaser receives Seller's no-cure notice or waive the
objections and close this transaction as otherwise contemplated herein. If
Purchaser shall fail to notify Seller in writing of any objections to the state
of Seller's title to the Subject Property as shown by the Survey and Title
Commitment, then Purchaser shall be deemed to have no objections to the state
of Seller's title to the Subject Property as shown by the Survey and Title
Commitment, and any exceptions to Seller's title which have not been objected
to by Purchaser and which are shown on the Survey or described in the Title
Commitment shall be considered to be "Permitted Exceptions." It is further
understood and agreed that any Title Defects which have been objected to by
Purchaser and which are subsequently waived by Purchaser shall be Permitted
Exceptions.
ARTICLE VI
INSPECTION PERIOD
Purchaser, at Purchaser's sole expense, shall have the right to
conduct a feasibility, environmental, engineering and physical study of the
Subject Property for a period of time commencing on the date of execution of
this Contract and expiring sixty (60) days from the date on which Purchaser
receives the last of the due diligence items to be provided to Purchaser by
Seller pursuant to Article IV hereinabove (the "Inspection Period"). Purchaser
and Purchaser's
- 5 -
<PAGE> 6
duly authorized agents or representatives shall be permitted to enter upon the
Subject Property at all reasonable times during the Inspection Period in order
to conduct engineering studies, soil tests and any other inspections and/or
tests that Purchaser may deem necessary or advisable; provided, however, that
no drilling or other ground penetrations or physical sampling in any building
shall be done without Seller's prior written consent, which consent shall not
be unreasonably withheld or delayed. Purchaser further agrees to indemnify and
hold Seller harmless from any claims or damages, including reasonable
attorneys' fees, resulting from Purchaser's inspection of the Subject Property.
In the event that the review and/or inspection conducted by this paragraph
shows any fact, matter or condition to exist with respect to the Subject
Property that is unacceptable to Purchaser, in Purchaser's sole discretion, or
if for any reason Purchaser determines that purchase of the Subject Property is
not feasible, then Purchaser shall be entitled, as Purchaser's sole remedy, to
cancel this Contract by providing written notice of cancellation to Seller
prior to the expiration of the Inspection Period. If Purchaser shall provide
written notice of cancellation prior to the expiration of the Inspection
Period, then this Contract shall be cancelled, all earnest money (less $100.00)
shall be immediately returned to Purchaser by the Title Company, and thereafter
neither Seller nor Purchaser shall have any continuing obligations one unto the
other. If no notice of cancellation is provided by Purchaser prior to the
expiration of the Inspection Period, then this Contract shall remain in full
force and effect.
ARTICLE VII
REPRESENTATIONS, WARRANTIES, AND COVENANTS OF SELLER
Seller represents and warrants to Purchaser that at closing Seller
will have good and indefeasible fee simple title to the Subject Property free
and clear of all liens, encumbrances, covenants, restrictions, rights-of-way,
easements, and any other matters affecting title to the Subject Property except
for the Permitted Exceptions, and at closing, Seller will be in a position to
convey the Subject Property to Purchaser free and clear of all liens,
encumbrances, covenants, restrictions, rights-of-way, easements and other such
matters affecting title except for the Permitted Exceptions.
- 6 -
<PAGE> 7
Seller further covenants and agrees with Purchaser that, from the date
hereof until the closing, Seller shall not sell, assign, or convey any right,
title, or interest whatsoever in or to the Subject Property, or create or
permit to exist any lien, security interest, easement, encumbrance, charge, or
condition affecting the Subject Property (other than the Permitted Exceptions)
without promptly discharging the same prior to closing.
Seller hereby further represents and warrants to Purchaser, to the
best of Seller's knowledge, as follows:
a. There are no actions, suits, or proceedings pending
or, to the best of Seller's knowledge, threatened against Seller or
otherwise affecting any portion of the Subject Property, at law or in
equity, or before or by any federal, state, municipal, or other
governmental court, department, commission, board, bureau, agency, or
instrumentality, domestic or foreign;
b. The execution by Seller of this Contract and the
consummation by Seller of the sale contemplated hereby have been duly
authorized, and do not, and, at the closing date, will not, result in
a breach of any of the terms or provisions of, or constitute a default
under any indenture, agreement, instrument, or obligation to which
Seller is a party or by which the Subject Property or any portion
thereof is bound, and do not, and at the closing date will not,
constitute a violation of any regulation affecting the Subject
Property;
c. Seller has not received any notice of any violation
of any ordinance, regulation, law, or statute of any governmental
agency pertaining to the Subject Property or any portion thereof;
d. The Subject Property and the current operation
thereof comply in all material respects with all laws, regulations,
ordinances, rules, orders and other requirements of all governmental
authorities having jurisdiction over the Subject Property or affecting
all or any part thereof or bearing on its construction or operation,
and with all private covenants or restrictions;
e. From the date of execution of this Contract through
the date of closing, Seller shall continue to maintain the Subject
Property in its present condition, subject to ordinary wear and tear
and Article XV hereof, and shall continue to manage the Subject
Property in the same manner as it is currently being managed; Seller
shall not remove any fixtures, equipment, furnishings or other
personal property from the Subject Property unless replaced with items
of equal or greater quality and quantity, nor shall Seller in any
manner neglect the Subject Property;
f. That, at closing, there will be no unpaid bills,
claims, or liens in connection with any construction or repair of the
Subject Property except for ones which will be paid in the ordinary
course of business or which have been bonded around or the payment of
which has otherwise been adequately provided for to the complete
satisfaction of Purchaser; and
g. The assets and other items to be conveyed to
Purchaser by Seller pursuant to this Contract comprise all of the
assets and properties of Seller that are used in the operation of the
Subject Property in the ordinary course of business and consistent
with current practice; notwithstanding anything to the contrary
contained herein, in the event that either Seller or Purchaser
discovers after closing that any asset or item used in connection with
the operation of the Subject Property has not been conveyed to
Purchaser
- 7 -
<PAGE> 8
at closing, then Seller will immediately, upon demand by Purchaser,
convey such asset or other item to Purchaser for no additional
consideration of any kind whatsoever.
All of the foregoing representations and warranties of Seller are made by
Seller both as of the date hereof and as of the date of the closing hereunder.
Notwithstanding the foregoing or anything to the contrary contained herein, it
is understood and agreed that the representations and warranties set forth
hereinabove shall survive the closing of this Contract only for a period of two
(2) years following the closing date, but not thereafter, and Seller shall have
no liability of any kind whatsoever for any breach thereof except to the extent
a claim is asserted against Seller within such two (2) year period.
ARTICLE VIII
CONDITIONS PRECEDENT TO CLOSING
The obligation of Purchaser to close this Contract shall, at the
option of Purchaser, be subject to the following conditions precedent:
a. All of the representations, warranties and agreements
of Seller set forth in this Contract shall be true and correct in all
material respects as of the date hereof and at closing, and Seller
shall not have on or prior to closing, failed to meet, comply with or
perform in any material respect any conditions or agreements on
Seller's part as required by the terms of this Contract;
b. There shall be no change in the matters reflected in
the Title Commitment, and there shall not exist any encumbrance or
title defect affecting the Subject Property not described in the Title
Commitment except for the Permitted Exceptions;
c. There shall be no changes in the matters reflected in
the Survey, and there shall not exist any easement, right-of-way,
encroachment, waterway, pond, flood plain, conflict or protrusion with
respect to the Subject Property not shown on the Survey; and
d. No material and substantial change shall have
occurred with respect to the Subject Property which would in any way
affect the findings made in the inspection of the Subject Property
described in Article VI hereinabove.
If any such condition is not fully satisfied by closing, Purchaser may
terminate this Contract by written notice to Seller whereupon this Contract
shall be cancelled, the earnest money deposit (less $100.00) shall be returned
to Purchaser and thereafter neither Seller nor Purchaser shall have any
continuing obligations one unto the other.
- 8 -
<PAGE> 9
ARTICLE IX
CLOSING
The closing hereunder shall take place at the offices of the Title
Company. The closing shall occur on or before sixty (60) days from the date of
expiration of the Inspection Period. Purchaser shall notify Seller at least
five (5) days in advance of the exact time and date of closing. Purchaser
shall have the right to obtain one sixty (60) day extension of the deadline for
closing by delivering directly to Seller, prior to the then scheduled closing
deadline, an additional Twenty-Five Thousand and No/100 Dollars ($25,000.00) in
non-refundable earnest money. If Purchaser exercises this right, then the
deadline for closing of this Contract shall be extended by sixty (60) days; the
additional $25,000.00 in earnest money which is paid by Purchaser in order to
extend the deadline for closing of this Contract shall be non-refundable to
Purchaser except in the event of a default by Seller hereunder, but, if this
Contract closes, then such additional earnest money shall be applied in partial
satisfaction of the purchase price payable hereunder. Upon the expiration of
the first sixty (60) day extension, Purchaser shall have the right to obtain a
second sixty (60) day extension of the deadline for closing by delivering
directly to Seller, prior to the then scheduled closing deadline, an additional
Twenty-Five Thousand and No/100 Dollars ($25,000.00) in non-refundable earnest
money. If Purchaser exercises this right, then the deadline for closing of
this Contract shall be extended by sixty (60) days; the additional $25,000.00
in earnest money which is paid by Purchaser in order to extend the deadline for
closing of this Contract shall be non-refundable to Purchaser except in the
event of default by Seller hereunder, but if this Contract closes, then such
additional earnest money shall be applied in partial satisfaction of the
purchase price payable hereunder.
ARTICLE X
SELLER'S OBLIGATIONS AT CLOSING
At the closing, Seller shall do the following:
a. Deliver to Purchaser a deed covering the Subject
Property, duly signed and acknowledged by Seller, which deed shall be
in form reasonably acceptable to Purchaser for recording and shall
convey to Purchaser good and marketable title to the Subject Property,
free and clear of all liens, rights-of-way, easements, and other
matters affecting title to the Subject Property, except for the
Permitted Exceptions.
- 9 -
<PAGE> 10
b. Deliver or cause to be delivered to Purchaser an ALTA
owner's form of title insurance policy (the "Title Policy") insuring
Purchaser in the amount of the purchase price that Purchaser has
acquired good and marketable title to the Subject Property, subject
only to the Permitted Exceptions. Purchaser shall be entitled to
request the Title Company to provide, at Purchaser's sole cost and
expense, such endorsements (or amendments) to the Title Policy as
Purchaser may reasonably require so long as such endorsements or
amendments impose no additional liability on Seller or delay the
closing. Purchaser acknowledges and agrees that the Title Policy may
be actually delivered within a reasonable time following the closing
so long as Purchaser has received at closing a current binding title
commitment obligating the Title Company to deliver the Title Policy.
Seller shall pay the premium for a standard owner's form of title
insurance policy in the amount of the purchase price, and Purchaser
shall pay the cost of any title endorsements required by Purchaser and
the cost of any reinsurance required by Purchaser.
c. Deliver a bill of sale and a blanket assignment in
form reasonably acceptable to Purchaser, duly executed and
acknowledged by Seller, conveying and/or assigning to Purchaser the
Golf Course Assets.
d. Deliver a non-withholding statement that will satisfy
the requirements of Section 1445 of the Internal Revenue Code so that
Purchaser is not required to withhold any portion of the purchase
price for payment to the Internal Revenue Service.
e. Deliver to Purchaser any other documents or items
necessary or convenient in the reasonable judgment of Purchaser to
carry out the intent of the parties under this Contract.
ARTICLE XI
PURCHASER'S OBLIGATIONS AT CLOSING
At the closing, Purchaser shall deliver to Seller the purchase price
in cash. In addition, if Purchaser elects to continue to use the Yamaha golf
carts now leased by Seller for use at the Subject Property, then Purchaser must
assume all obligations outstanding under any such lease at the time of closing.
ARTICLE XII
COSTS AND ADJUSTMENTS
At closing, the following items shall be adjusted or prorated between
Seller and Purchaser:
a. Any real estate transfer taxes or sales taxes payable
in connection with the sale of the Subject Property shall be paid in
full by Seller.
b. Ad valorem taxes for the Subject Property for the
current calendar year shall be prorated as of the date of closing, and
Seller shall pay to Purchaser in cash at closing Seller's pro rata
portion of such taxes. Seller's pro rata portion of such taxes shall
be based upon taxes actually assessed for the current calendar year
or, if for any reason such taxes for the Subject Property have not
been actually assessed, such proration
- 10 -
<PAGE> 11
shall be based upon the amount of such taxes for the immediately
preceding calendar year, and adjusted by cash settlement when exact
amounts are available. However, anything herein to the contrary
notwithstanding, any tax abatement or refund for a period of time
prior to closing shall belong to Seller.
c. All other income and ordinary operating expenses for
or pertaining to the Subject Property including, but not limited to,
public utility charges, maintenance, service charges, and all other
normal operating charges of the Subject Property shall be prorated as
of the closing date. Seller will assign to Purchaser all of Seller's
right, title and interest in and to utility deposits and other
deposits heretofore made by Seller in connection with the operation of
the Subject Property.
d. All other closing costs, including but not limited
to, recording and escrow fees shall be divided equally between Seller
and Purchaser; provided, however, that Seller and Purchaser shall each
be responsible for the fees and expenses of their respective
attorneys.
Seller agrees to indemnify and hold Purchaser harmless of and from any
and all liabilities, claims, demands, suits, and judgments, of any kind or
nature (except those items which under the terms of this Contract specifically
become the obligation of Purchaser), brought by third parties and based on
events occurring on or before the date of closing and which are in any way
related to the ownership, maintenance, or operation of the Subject Property,
and all expenses related thereto, including, but not limited to, court costs
and attorneys' fees.
Purchaser agrees to indemnify and hold Seller harmless of and from any
and all liabilities, claims, demands, suits, and judgments, of any kind or
nature, brought by third parties and based on events occurring subsequent to
the date of closing and which are in any way related to the ownership,
maintenance or operation of the Subject Property, and all expenses related
thereto, including, but not limited to, court costs and attorneys' fees.
Notwithstanding anything to the contrary contained herein, the
indemnities set forth in this Article XII shall survive the closing hereunder.
ARTICLE XIII
ENTRY ON PROPERTY
Purchaser, Purchaser's agents, employees, servants, or nominees, are
hereby granted the right to enter upon the Subject Property at any time prior
to closing for the purpose of inspecting the Subject Property and conducting
such engineering and mechanical tests as Purchaser may deem necessary or
advisable, any such inspections and tests to be made at Purchaser's sole
expense. Purchaser agrees to indemnify and hold Seller harmless from and
against any and all
- 11 -
<PAGE> 12
losses, damages, costs, or expenses incurred by Seller as a result of any
inspections or tests made by Purchaser.
ARTICLE XIV
POSSESSION OF PROPERTY
Possession of the Property free and clear of all uses and
encroachments, except the Permitted Exceptions, shall be delivered to Purchaser
at closing.
ARTICLE XV
DAMAGE OR DESTRUCTION PRIOR TO CLOSING
In the event that the Subject Property should be damaged by any
casualty prior to closing, then if the cost of repairing such damage, as
estimated by an architect or contractor retained pursuant to the mutual
agreement of Seller and Purchaser, is:
a. Less than One Hundred Thousand Dollars ($100,000.00),
then at Purchaser's option, either (i) the Seller shall repair such
damage as promptly as is reasonably possible, restoring the damaged
property at least to its condition immediately prior to such damage;
and, in the event such repairs have not been completed prior to
closing, then the closing shall nevertheless proceed as scheduled, and
Purchaser may have the Title Company withhold from Seller the funds
necessary to make such repairs until Seller has repaired such damage
pursuant to the provisions hereof, at which time such funds shall be
distributed to Seller or (ii) Purchaser may take an assignment of
Seller's insurance proceeds and a credit for Seller's deductible and
repair such damage itself;
or if said cost is:
b. greater than One Hundred Thousand Dollars
($100,000.00), then, at Purchaser's election, Seller shall pay to
Purchaser, at closing, all insurance proceeds payable for such damage,
and the sale shall be closed without Seller's repairing such damage,
or, if Purchaser does not elect to accept such insurance proceeds,
then either Seller or Purchaser may elect to terminate this Contract,
in which case the earnest money (less $100.00) shall be returned to
Purchaser and thereafter neither party shall have any further
obligations one unto the other.
ARTICLE XVI
NOTICES
All notices, demands, or other communications of any type given by the
Seller to the Purchaser, or by the Purchaser to the Seller, whether required by
this Contract or in any way related to the transaction contracted for herein,
shall be void and of no effect unless given in
- 12 -
<PAGE> 13
accordance with the provisions of this paragraph. All notices shall be in
writing and delivered to the person to whom the notice is directed, either in
person, by facsimile transmission, or by United States Mail, as a registered or
certified item, return receipt requested. Notices delivered by mail shall be
deemed given when deposited in a post office or other depository under the care
or custody of the United States Postal Service, enclosed in a wrapper with
proper postage affixed, addressed as follows:
Seller: J. Phillip Ballard, Jr.
P.O. Box 520
330 Foster Street
Cornelia, Georgia 30531
Purchaser: Silverleaf Resorts, Inc.
1221 Riverbend Drive
Suite 120
Dallas, Texas 75247
Attn: Robert E. Mead
Telephone No.: (214) 631-1166
Facsimile No.: (214) 905-0514
With Required Copy to: Meadows, Owens, Collier, Reed, Cousins &
Blau, L.L.P.
3700 NationsBank Plaza
901 Main Street
Dallas, Texas 75202
Attn: George R. Bedell, Esq.
Telephone No.: (214) 749-2448
Facsimile No.: (214) 747-3732
ARTICLE XVII
REMEDIES
In the event that Seller fails to timely comply with all conditions,
covenants and obligations of Seller hereunder, it shall be an event of default
and Purchaser shall have the option (i) to terminate this Contract by providing
written notice thereof to Seller, in which event the earnest money (less
$100.00) shall be returned immediately to Purchaser by the Title Company and
the parties hereto shall have no further liabilities or obligations one unto
the other; (ii) to waive any defect or requirement and close this Contract; or
(iii) to sue Seller for specific performance or for damages. The exercise of
any of the foregoing remedies of Purchaser shall not in any manner be construed
as a waiver of Purchaser's right to seek specific performance or to sue for
damages, and in the event of a default by Seller hereunder, Purchaser shall be
entitled to enforce specific performance hereunder or sue Seller for damages.
- 13 -
<PAGE> 14
In the event that Purchaser fails to timely comply with all
conditions, covenants, and obligations Purchaser has hereunder, such failure
shall be an event of default, and Seller's sole remedy shall be to receive the
Earnest Money. The Earnest Money is agreed upon by and between the Seller and
Purchaser as liquidated damages due to the difficulty and inconvenience of
ascertaining and measuring actual damages, and the uncertainty thereof, and no
other damages, rights, or remedies shall in any case be collectible,
enforceable, or available to the Seller other than in this paragraph defined,
and Seller shall accept the Earnest Money as Seller's total damages and relief.
ARTICLE XVIII
ASSIGNMENT
Purchaser shall have the right to nominate who shall take title and
who shall succeed to Purchaser's duties and obligations hereunder, or assign
this Contract to any person, firm, corporation, or other entity which Purchaser
may, at Purchaser's sole option, choose, and from and after such nomination or
assignment, wherever in this Contract reference is made to Purchaser such
reference shall mean the nominee or assignee who shall succeed to all the
rights, duties, and obligations of Purchaser hereunder.
ARTICLE XIX
INTERPRETATION AND APPLICABLE LAW
This Agreement shall be construed and interpreted in accordance with
the laws of the State of Georgia. Where required for proper interpretation,
words in the singular shall include the plural; the masculine gender shall
include the neuter and the feminine, and vice versa. The terms "successors and
assigns" shall include the heirs, administrators, executors, successors, and
assigns, as applicable, of any party hereto.
- 14 -
<PAGE> 15
ARTICLE XX
AMENDMENT
This Contract may not be modified or amended, except by an agreement
in writing signed by the Seller and the Purchaser. The parties may waive any
of the conditions contained herein or any of the obligations of the other party
hereunder, but any such waiver shall be effective only if in writing and signed
by the party waiving such conditions and obligations.
ARTICLE XXI
AUTHORITY
Each person executing this Contract warrants and represents that he is
fully authorized to do so.
ARTICLE XXII
ATTORNEYS' FEES
In the event it becomes necessary for either party to file a suit to
enforce this Contract or any provisions contained herein, the prevailing party
shall be entitled to recover, in addition to all other remedies or damages,
reasonable attorneys' fees and costs of court incurred in such suit.
ARTICLE XXIII
DESCRIPTIVE HEADINGS
The descriptive headings of the several paragraphs contained in this
Contract are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
ARTICLE XXIV
ENTIRE AGREEMENT
This Contract (and the items to be furnished in accordance herewith)
constitutes the entire agreement between the parties pertaining to the subject
matter hereof and supersedes all prior
- 15 -
<PAGE> 16
and contemporaneous agreements and understandings of the parties in connection
therewith. No representation, warranty, covenant, agreement, or condition not
expressed in this Contract shall be binding upon the parties hereto or shall
affect or be effective to interpret, change, or restrict the provisions of this
Contract.
ARTICLE XXV
MULTIPLE ORIGINALS ONLY
Numerous copies of this Contract may be executed by the parties
hereto. Each such executed copy shall have the full force and effect of an
original executed instrument.
ARTICLE XXVI
ACCEPTANCE
Seller shall have until 5:00 o'clock p.m., February 25, 1998, to
execute and return a fully executed original of this Contract to Purchaser,
otherwise this Contract shall become null and void. Time is of the essence of
this Contract. The date of execution of this Contract by Seller shall be the
date of execution of this Contract. If the final date of any period falls upon
a Saturday, Sunday, or legal holiday under the laws of the State of Georgia,
then in such event the expiration date of such period shall be extended to the
next day which is not a Saturday, Sunday, or legal holiday under the laws of
the State of Georgia.
ARTICLE XXVII
REAL ESTATE COMMISSION
In the event that this Contract closes, but not otherwise, Seller
agrees to pay at closing a real estate commission to Steven Farish ("Broker"),
such commission to be in the amount of four percent (4%) of the purchase price
payable hereunder. Seller represents and warrants to Purchaser that Seller has
not contacted or entered into any agreement with any real estate broker, agent,
finder, or any other party in connection with this transaction, and that Seller
has not taken any action which would result in any real estate broker's,
finder's, or other fees or commissions being due and payable to any other party
with respect to the transaction contemplated hereby.
- 16 -
<PAGE> 17
Purchaser hereby represents and warrants to Seller that Purchaser has not
contracted or entered into any agreement with any real estate broker, agent,
finder, or any other party in connection with this transaction, and that
Purchaser has not taken any action which would result in any real estate
broker's, finder's, or other fees or commissions being due or payable to any
other party with respect to the transaction contemplated hereby. Each party
hereby indemnifies and agrees to hold the other party harmless from any loss,
liability, damage, cost, or expense (including reasonable attorneys' fees)
resulting to the other party by reason of a breach of the representation and
warranty made by such party herein. Notwithstanding anything to the contrary
contained herein, the indemnities set forth in this Article XXVII shall survive
the closing.
ARTICLE XXVIII
EXCHANGE
Seller wishes to have the option to effect an exchange of real
property pursuant to the provisions of Section 1031 of the Internal Revenue
Code, as amended, in connection with the sale of the Subject Property to
Purchaser. Consequently, if, prior to the closing hereunder, Seller designates
a property or properties as exchange property, Purchaser will use Purchaser's
best efforts to acquire the exchange property for use in an exchange with
Seller. Alternatively, in the event Seller has not identified the exchange
property by the date of closing, this transaction shall close in such manner as
will not defeat a like kind exchange with respect to property later identified
and purchased within the qualifying time period. Purchaser agrees to cooperate
with Seller in consummating a like kind exchange provided that in doing so
Purchaser incurs no additional cost and the closing of this Contract is not
thereby delayed.
EXECUTED on this the 25 day of February, 1998.
SELLER:
/s/ J. PHILLIP BALLARD, JR.
---------------------------------
J. PHILLIP BALLARD, JR.
- 17 -
<PAGE> 18
EXECUTED on this the 19TH day of February, 1998.
PURCHASER:
SILVERLEAF RESORTS, INC., a Texas
corporation
By: /s/ ROBERT E. MEAD
--------------------------------
Name: Robert E. Mead
------------------------------
Its: CEO
-------------------------------
RECEIPT OF EARNEST MONEY AND ONE (1) EXECUTED COUNTERPART OF THIS CONTRACT IS
HEREBY ACKNOWLEDGED:
TITLE COMPANY:
SAFECO LAND TITLE OF DALLAS
By:
--------------------------
Name:
------------------------
Its:
-------------------------
- 18 -
<PAGE> 19
LIST OF EXHIBITS TO EXHIBIT 10.39
Exhibit A Legal Description of Land
The above-listed exhibit is omitted from this filing. Registrant agrees to
furnish supplementally a copy of any omitted exhibit to the Commission upon
request.
19
<PAGE> 1
EXHIBIT 10.40
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BETWEEN
SILVERLEAF RESORTS, INC.
AND
JIM OESTREICH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
PURCHASE AND SALE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Sale of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1. Organization and Standing of Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4. Share Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6. No Liabilities at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7. Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.8. Tax Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.9 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.10. Buildings and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.11. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.12. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.13. Directors and Officers; Compensation; Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.14. Employment Laws and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.15. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.16. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.17. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.18. Licenses, Leases and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.19. Environmental and Safety Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.20. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
ACCESS, CONDUCT OF BUSINESS PENDING
STOCK PURCHASE AND COMPANY PERSONNEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2. Conduct of Business Pending Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3. Company Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV
CONDITIONS PRECEDENT FOR BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1. Representations and Warranties True At Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2. Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.3. Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.4. Board Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE V
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1. Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2. Misrepresentations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.3. Incidental Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VI
SURVIVAL OF REPRESENTATIONS AND OTHER AGREEMENTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.1. Nature and Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2. Commissions and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3. Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.4. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1. Notice Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.2. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.3. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.4. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.5. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.6. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.7. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.8. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.9. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.10. Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.11. Strict Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.12. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
(ii)
<PAGE> 4
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made between JIM
OESTREICH (the "Seller"), as the sole shareholder of BULL'S EYE MARKETING,
INC., a California corporation (the "Company"), and SILVERLEAF RESORTS, INC., a
Texas corporation (the "Buyer").
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the parties to this
Agreement mutually agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1. Sale of Stock. Seller shall sell to the Buyer 1,000 shares of
the common stock of the Company, such shares constituting all of the issued and
outstanding shares of the Company. As consideration for those shares and for
Seller entering into the Confidentiality, Non-Interference and Non-Competition
Agreement attached hereto as Exhibit "A" (the "Non-Competition Agreement"),
Purchaser shall pay Seller the total sum of Two Hundred Fifty Thousand and
No/100 Dollars ($250,000.00).
1.2. Closing. The closing of the sale shall take place at the
offices of Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P., 901 Main St.,
Suite 3700, Dallas, Texas 75202, on or before March 1, 1998, or such other
time and place as maybe mutually agreed on by the parties (the "Closing"). At
the Closing, Seller shall deliver to the Buyer, free and clear of all
encumbrances, certificates for the shares which he is required to sell in
negotiable form, with all requisite transfer stamps attached, along with two
(2) originals of the Non-Competition Agreement fully executed by Seller. Upon
such delivery, the Buyer shall deliver to Seller a certified or bank cashier's
check payable to the order of the Seller for the amount due Seller.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller represents and warrants to Buyer as follows:
2.1. Organization and Standing of Company. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of California. Copies of the Company's Certificate of Incorporation, and
all amendments thereof to date, certified by the Secretary of State of
California, and of the Company's By-laws as amended to date, certified by the
Company's Secretary, have been delivered to the Buyer, and are complete and
correct as of the date of this Agreement. The Company is not licensed or
qualified in any other state, and neither the character of the properties owned
by the Company or the nature of the business transacted by it require it to be
licensed or qualified in any other state.
<PAGE> 5
2.2. Subsidiaries. The Company has no subsidiaries.
2.3. Capitalization. The aggregate number of shares which the
Company is authorized to issue is 10,000 common shares, of which 1,000 shares
are issued and presently outstanding. All such issued shares have been validly
issued and are fully paid and nonassessable. The Company has no outstanding
subscriptions, contracts, options, warrants, or other obligations to issue,
sell, or otherwise dispose of, or to purchase, redeem or otherwise acquire any
of its shares.
2.4. Share Ownership. Seller is the owner, free and clear of any
encumbrances, of the Company's common shares being sold by Seller. Seller has
full right and authority to transfer said shares to Buyer, and there are no
other shares of the Company owned or claimed by any other person or entity.
2.5. Financial Statements. Seller has delivered to the Buyer
copies of the following financial statements, all of which are true and
complete and have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the period indicated:
(i) balance sheets of the Company as of June 30, 1997, and as of December 31,
1997 (the "1997 Balance Sheet"), both certified by the Company's Treasurer,
each of which presents a true and complete statement, as of its date, of the
Company's condition, financial and otherwise; and (ii) statements of the
Company's profits and loss accounts (including, without limitation, all taxable
income of every nature), and of its surplus for the fiscal year June 30, 1997,
and for the six (6) months ended December 31, 1997, certified by the Company's
Treasurer, each of which accurately presents the results of the Company's
operations for the period indicated.
2.6. No Liabilities at Closing. At Closing, the Company will have
no liabilities of any nature, whether accrued, absolute, contingent, or
otherwise, including without limitation, tax liabilities due or to become due,
and whether incurred in respect of or measured by the Company's income for any
period prior to Closing or arising out of transactions entered into, or any
state of facts existing, prior thereto, except for (i) liabilities for which
the Company has set aside sufficient cash reserves to pay and (ii) contractual
liabilities set forth on Schedule 2.12 hereof. Seller represents and warrants
that there will be no grounds or any basis for the assertion against the
Company, as of Closing, of any liability of any nature or in any amount, except
as expressly permitted by the immediately foregoing exceptions.
2.7. Absence of Certain Changes. Since December 31, 1997, there
has not been (i) any change in the Company's financial condition, assets,
liabilities, or business, other than changes in the ordinary course of
business, none of which has been materially adverse; (ii) any damage,
destruction, or loss, whether or not covered by insurance, materially and
adversely affecting the Company's properties or business; (iii) any
declaration, or setting aside, or payment of any dividend or other distribution
in respect of the Company's shares, or any direct or indirect redemption,
purchase, or other acquisition of any of such shares; (iv) any increase in the
compensation payable or to become payable by the Company to any of its
officers, employees, or agents, or any bonus payment or arrangement made to or
with any of them; or
2
<PAGE> 6
(iv) any labor trouble, or any event or condition of any character, materially
and adversely affecting the Company's business or prospects.
2.8. Tax Audits. The Company has accurately prepared and timely
filed all United States income tax returns and all state and municipal tax
returns that are required to be filed by it and has paid or made provision for
the payment of all taxes that have become due pursuant to such returns. The
United States income tax returns of the Company have not been audited by the
Internal Revenue Service. No deficiency assessment or proposed adjustment of
the Company's United States income tax or state or municipal taxes is pending,
and the Company has no knowledge of any proposed liability for any tax to be
imposed upon its properties or assets for which there is not an adequate
reserve reflected in the Financial Statements.
2.9 Title to Properties. The Company has good and marketable
title to all its properties and assets, including those reflected in the 1997
Balance Sheet (except as since sold or otherwise disposed of in the ordinary
course of business), subject to no security interests, mortgage, pledge, lien,
encumbrance, or charge, except for liens shown on the 1997 Balance Sheet as
securing specified liabilities set forth therein (with respect to which no
default exists), and except for minor imperfections of title and encumbrances,
if any, which are not substantial in amount, do not materially detract from the
marketability or the value of the properties subject thereto, or materially
impair the Company's operations, and have arisen only in the ordinary course of
business. The Company owns all of the marketing programs currently being used
by it in its business, including but not limited to the "People Really Win
Sweepstakes", the marketing programs do not infringe or misappropriate any
rights held or asserted by any other person, no payments are required for the
continued use of the marketing programs, and all commissions or fees payable by
customers for the marketing programs are payable solely to the Company.
2.10. Buildings and Equipment. The Company does not own or lease
any buildings or other real estate or any equipment.
2.11. Accounts Receivable. Accounts receivable of the Company that
are fully earned and due to the Company on or before Closing, as well as the
remaining proceeds thereof, shall be paid to Seller as a bonus on or before the
Closing. Any accounts receivable that are not fully earned prior to Closing
shall remain with the Company at Closing as assets of the Company.
2.12. Contracts. The Company has no contract or commitment
extending beyond December 31, 1997, or involving payment by the Company of more
than $2,000, except as described on Schedule 2.12 attached hereto. True and
complete copies of all of such contracts or commitments have been delivered to
the Buyer. The Company has complied with all the provisions of such contracts
and commitments to which it is a party, and is not in default under any of
them.
2.13. Directors and Officers; Compensation; Banks. Seller has
delivered to the Buyer a true and complete list, as of the date of this
Agreement, certified by the Company's Treasurer, showing: (i) the names of all
the Company's directors and officers; (ii) the names, social
3
<PAGE> 7
security number and current compensation rate of each employee of the Company;
(iii) the name of each bank in which the Company has an account, or safe
deposit box, and the names of all persons authorized to draw thereon, or to
have access thereto; and (iv) the names of all persons holding powers of
attorney from the Company, and a summary statement of the terms hereof.
2.14. Employment Laws and Contracts. The Company has complied with
all applicable federal and state laws relating to the employment of labor,
including the provisions relating to wages, hours, collective bargaining, and
the payment of social security taxes, and is not liable for any arrears of
wages, or any tax or penalties, for failure to comply with any of the
foregoing. The Company does not have any employment contracts not terminable
at will without severance pay and does not have any collective bargaining
agreements covering any of its employees.
2.15. Employee Benefit Plans. The Company does not maintain any
employee benefit plans or arrangements, including but not limited to any
employee pension benefit plans, as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), multiemployer
plans, as defined in Section 3(37) of ERISA, employee welfare benefit plans, as
defined in Section 3(1) of ERISA, deferred compensation plans, stock option
plans, bonus plans, stock purchase plans, hospitalization, disability and other
insurance plans, severance or termination pay plans and policies, whether or
not described in Section 3(3) of ERISA.
2.16. Insurance. Schedule 2.16 attached hereto contains (i) a
summary description of all insurance policies of the Company, copies of which
have been furnished to Buyer, (ii) a detailed description of each pending claim
under any of such policies for an amount in excess of $1,000.00. Such
insurance policies are in full force and effect, and all premiums due thereon
have been paid.
2.17. Litigation. There is no litigation or proceeding pending, or
to the Seller's knowledge threatened, against or relating to the Company, its
properties, or business, nor does the Seller know or have reasonable grounds to
know of any basis for any such action, or of any governmental investigation
relative to the Company, its properties, or business.
2.18. Licenses, Leases and Contracts. The Company possesses and is
in material compliance with all material licenses and required governmental
approvals, permits or authorizations necessary for the conduct of its business.
The transfer of Seller's shares in accordance with the terms of this Agreement
will not constitute a prohibited assignment or transfer of any of its licenses,
leases, or contracts, and all of the foregoing will remain in full force and
effect without acceleration as a result of the transfer.
2.19. Environmental and Safety Laws. The Company is not in
violation of any applicable statute, law, or regulation relating to the
environment or occupational health and safety, and no material expenditures are
or will be required in order to comply with any such existing statute, law or
regulations.
4
<PAGE> 8
2.20. Disclosure. No representation or warranty by the Seller in
this Agreement, nor any statement or certificate furnished or to be furnished
to the Buyer pursuant hereto, or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading.
ARTICLE III
ACCESS, CONDUCT OF BUSINESS PENDING
STOCK PURCHASE AND COMPANY PERSONNEL
3.1. Access to Information. The Seller shall cause the Company to
give to the Buyer and Buyer's counsel, accountants and other representatives
full access, during normal business hours throughout the period prior to the
Closing, to all of the Company's properties, books, contracts, commitments, and
records, and shall furnish the Buyer during such period with all such
information concerning the Company's affairs as the Buyer reasonably may
request.
3.2. Conduct of Business Pending Closing. The Seller covenants
that, pending the Closing and except as may be first approved in writing by the
Buyer:
(a) The Company's business will be conducted only in the ordinary
course.
(b) No change will be made in the Company's Certificate of
Incorporation or Bylaws.
(c) No change will be made in the Company's authorized or issued
corporate shares.
(d) No dividend or other distribution or payment will be declared
or made in respect of the Company's corporate shares.
(e) No increase will be made in the compensation payable or to
become payable by the Company to any officer, employee, or agent, nor
will any bonus payment or arrangement or other benefits be paid by the
Company to or with any officer, employee, or agent, except as
permitted by Section 2.11 hereof.
(f) No contract or commitment will be entered into by or on behalf
of the Company extending beyond the Closing, except normal commitments
which in any single case will not involve payment by the Company of
more than $2,000.
(g) No change will be made affecting the personnel, compensation
payments, or banking or safe deposit arrangements referred to in
Section 2.13.
(h) Except as otherwise requested by the Buyer, the Seller will
cause the Company to use its best efforts (without making any
commitment on the Buyer's behalf) to preserve the Company's business
organization intact; to keep available to the Company
5
<PAGE> 9
the services of its present officers and employees; and to preserve
for the Company the goodwill of its customers and others having
business relations with the Company.
(i) All debts will be paid as they become due.
(j) No contract right of the Company will be waived.
(k) No material physical damage for loss will occur to the assets
or business of the Company.
(l) No obligations except current liabilities under contracts
entered into the ordinary course of business will be incurred.
(m) The Company will not suffer any strike or labor dispute.
3.3. Company Personnel. At the Closing:
(a) The Seller shall make available to the Buyer, unless otherwise
requested by it, the written resignations of the Company's directors
and officers and shall take, or cause to be taken, such action as the
Buyer may request with respect to changes in directors and officers.
(b) The Seller shall have entered into the Employment Agreement
with Buyer in the in the form attached hereto as Exhibit "B".
ARTICLE IV
CONDITIONS PRECEDENT FOR BUYER
All obligations of the Buyer under this Agreement are, at its option,
subject to the fulfillment, prior to or at the Closing, of each of the
following conditions:
4.1. Representations and Warranties True At Closing. The Seller's
representations and warranties contained in this Agreement shall be true at the
time of Closing as though such representations and warranties were made at
Closing.
4.2. Performance. The Seller shall have performed and complied
with all agreements and conditions required by this Agreement to be performed
or complied with by him prior to or at the Closing.
4.3. Officers' Certificate. The Seller shall have delivered to the
Buyer a certificate of the Company's President and Treasurer, dated the Closing
date, certifying to the fulfillment of the conditions specified in Sections 4.1
and 4.2 above.
6
<PAGE> 10
4.4. Board Approval. The Board of Directors of Buyer shall have
authorized and approved this Agreement and the transactions contemplated
hereby.
ARTICLE V
INDEMNIFICATION
The Seller shall indemnify and hold harmless the Company and the
Buyer, at all times after the date of this Agreement, against and in respect
of:
5.1. Liabilities. All liabilities of the Company of any nature,
whether accrued, absolute, contingent, or otherwise, existing at Closing,
including, without limitation, any tax liabilities accrued in respect of, or
measured by the Company's income for any period prior to Closing or arising out
of transactions entered into, or any state of facts existing, prior to Closing,
subject, however, to the exceptions described in Section 2.6 hereof.
5.2. Misrepresentations. Any damage or deficiency resulting from
any misrepresentation, breach of warranty, or nonfulfillment of any agreement
on the part of the Seller under this Agreement, or from any misrepresentation
in or omission from any certificate or other instrument furnished or to be
furnished to the Buyer hereunder.
5.3. Incidental Expenses. All actions, suits, proceedings,
demands, assessments, judgment, costs, attorney fees, and expenses incident to
any of the foregoing.
The Seller shall reimburse the Company or the Buyer on demand, for any
payment made by the Company or the Buyer at any time after Closing in respect
of any liability or claim to which the foregoing indemnity relates.
ARTICLE VI
SURVIVAL OF REPRESENTATIONS AND OTHER AGREEMENTS OF THE PARTIES
6.1. Nature and Survival of Representations. All statements
contained in any certificate or other instrument delivered by or on behalf of
the Seller pursuant hereto, or in connection with the transactions contemplated
hereby, shall be deemed representations and warranties by the Seller hereunder.
All representations, warranties, and agreements made by the Seller in this
Agreement, or pursuant hereto, shall survive the Closing and any investigation
at any time made by or on behalf of the Buyer.
6.2. Commissions and Expenses. The Seller represents and warrants
that all negotiations relative to this Agreement have been carried on by him
directly with the Buyer, without the intervention of any person, and the Seller
shall indemnify the Buyer and hold it harmless against and in respect of any
claim for brokerage or other commissions relative to this Agreement, or to the
transactions contemplated hereby. Each party shall pay their own fees and
7
<PAGE> 11
expenses, including their counsel fees, incurred in connection with this
Agreement or any transaction contemplated hereby.
6.3. Purchase for Investment. The Buyer represents and warrants
that its purchase hereunder is being made for its own account for investment,
and with no present intention for resale.
6.4. Confidentiality. Except as provided herein, no party hereto
or their respective affiliates, employees, agents and representatives shall
disclose to any third party this Agreement or the subject matter or terms
hereof without the prior consent of the other party hereto. No press release
or other public announcement related to this Agreement or the transactions
contemplated hereby shall be issued by any party hereto without the prior
approval of the other party, except that Buyer may make such public disclosure
which it believes in good faith to be required by law or by the terms of any
listing agreement with or requirements of a securities exchange.
ARTICLE VII
MISCELLANEOUS
7.1. Notice Provision. Any notice, payment, demand or
communication required or permitted to be given by the provisions of this
Agreement shall be deemed to have been effectively given and received on the
date personally delivered to the respective party to whom it is directed, or
when deposited by registered or certified mail, with postage and charges
prepaid and addressed as follows:
(a) If to Buyer, they shall be addressed to:
Silverleaf Resorts, Inc.
Attention: Robert E. Mead, Chief Executive Officer
1221 Riverbend, Suite 120
Dallas, Texas 75247
(b) If to Seller, they shall be addressed to:
Jim Oestreich
1711 Muirfield Drive
Oxnard, California 93030
Any party may change its address by delivering a written change of address to
all of the other parties in the manner set forth in this Section.
7.2. Entire Agreement. This Agreement constitutes the entire
understanding of the parties and supersedes all prior understandings, whether
written or oral, between the parties with respect to the subject matter of this
Agreement.
8
<PAGE> 12
7.3. Severability of Provisions. If any term or provision of this
Agreement is illegal or invalid for any reason, such illegality or invalidity
shall not affect the validity or enforceability of the remainder of this
Agreement.
7.4. Headings. No heading or caption contained in this Agreement
shall be considered in interpreting any of its terms or provisions.
7.5. Applicable Law. This Agreement shall be governed exclusively
by the laws of the State of Texas, without regard to the conflicts of laws
principles thereof. The obligations of the parties to this Agreement are
performable in Dallas, Dallas County, Texas, and venue for any suit involving
this Agreement shall lie exclusively in Dallas County, Texas.
7.6. Execution in Counterparts. This Agreement and any amendment
may be executed in any number of counterparts, with the same effect as if all
parties had signed the same document.
7.7. Attorneys' Fees. If any action at law or in equity, including
an action for declaratory relief, is brought to enforce or interpret the
provisions of this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees and all other costs and expenses of litigation from
the other party, which amounts may be set by the court in the trial of such
action or may be enforced in a separate action brought for that purpose, and
which amounts shall be in addition to any other relief which may be awarded.
7.8. Amendment. No amendment, modification or alteration of the
terms of this Agreement shall be binding unless in writing, dated subsequent to
the date of this Agreement, and executed by the parties.
7.9. Binding Effect. Each and all of the covenants, terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
the successors, transferees, heirs and assigns of the respective parties.
7.10. Gender and Number. Wherever the context shall so require,
all words herein in the male gender shall be deemed to include the female or
neuter gender, all singular words shall include the plural and all plural words
shall include the singular.
7.11. Strict Construction. This Agreement shall not be strictly
construed against any party hereto.
9
<PAGE> 13
7.12. Effective Date. This Agreement is executed this 15th day
of January, effective as of the 30th day of December, 1997.
SELLER:
/s/ JIM OESTREICH
---------------------------------
Jim Oestreich
BUYER:
SILVERLEAF RESORTS, INC.
By: /s/ ROBERT E. MEAD
------------------------------
Robert E. Mead, Chief Executive
Officer
10
<PAGE> 1
EXHIBIT 10.41
CONTRACT OF SALE
This Agreement is entered into by and between THOUSAND TRAILS, INC., a
Delaware corporation ("Seller"), and SILVERLEAF RESORTS, INC., a Texas
corporation ("Purchaser").
W I T N E S S E T H :
FOR AND IN CONSIDERATION of the promises, undertakings, and mutual
covenants of the parties herein set forth, Seller hereby agrees to sell and
Purchaser hereby agrees to purchase and pay for all that certain property
hereinafter described in accordance with the following terms and conditions:
ARTICLE I
PROPERTY
The conveyance by Seller, or Seller's subsidiary corporation that
holds title, to Purchaser shall include the following described tracts or
parcels of land, together with all and singular the rights and appurtenances
pertaining to such land including any right, title and interest of Seller in
and to adjacent strips or gores, streets, alleys, or rights-of-way and all
rights of ingress and egress thereto:
Parcel 1: Those certain tracts of land located in LaSalle
County, Illinois, commonly known as the "Fox River Resort," in the
aggregate amount of approximately 178 acres, including (i) five (5)
tracts of land more particularly described in Exhibit "A" attached
hereto and made a part hereof for all purposes, which aggregate
approximately 138 acres, and (ii) a sixth tract of approximately 40
acres which will be surveyed and described prior to closing;
Parcel 2: Those certain tracts of land located in Jefferson
County, Missouri, commonly known as the "Jefferson Resort," and being
more particularly described in Exhibit "B" attached hereto and made a
part hereof for all purposes; and
Parcel 3: That certain tract of land located in Hardeman
County, Tennessee, commonly known as "Cherokee Landing Resort" and
being more particularly described in Exhibit "C" attached hereto and
made a part hereof for all purposes.
Hereafter the aforesaid real property is referred to collectively as the
"Land."
The conveyance by Seller to Purchaser shall also include all buildings
and other improvements on the Land, including specifically, without limitation,
all campsites, recreational
<PAGE> 2
and community facilities, comfort centers, lakes and parks located thereon (the
foregoing property is herein referred to collectively as the "Improvements").
The conveyance by Seller to Purchaser shall also include all fixtures
and personal property, tangible or intangible, of any kind whatsoever owned by
Seller and used in connection with the Land and/or Improvements, including but
not limited to, the following items:
a. All machinery, equipment, fixtures, furniture and
other personal property of every kind and character owned by Seller
and located on or used in connection with the operation of the Land
and Improvements;
b. The names "Fox River Resort," "Jefferson Resort," and
"Cherokee Landing Resort," as used in the ownership or operation of
the Land and Improvements;
c. All outstanding membership contracts which have been
generated from the sale of memberships at the campsites being operated
by Seller on the Land (except for Gold Card memberships), together
with certain receivables, hereinafter mentioned, which are payable to
Seller and which represent the unpaid portion of the purchase price
for such memberships;
d. All licenses, franchises and permits used in or
relating to the ownership, occupancy or operation of the resorts being
operated by Seller on the Land including, in particular, any water
permits or other utility permits; and
e. Any developer's, declarant's, or owner's interests
under any operating agreements or reciprocal easement agreements or
other similar agreements affecting and/or benefiting the Land.
The foregoing items are hereinafter collectively referred to as the "Resort
Assets."
Hereinafter all property being conveyed to Purchaser by Seller
pursuant to this Contract including the Land, the Improvements and the Resort
Assets are sometimes referred to collectively as the "Subject Property."
ARTICLE II
PURCHASE PRICE
The purchase price to be paid by Purchaser to Seller for the Subject
Property (less the receivables described in Article I, c.) shall be as
follows:
<TABLE>
<S> <C>
Fox River Resort $1,512,500.00
Jefferson Resort $1,100,000.00
Cherokee Landing Resort $ 570,000.00
-------------
Total Purchase Price $3,182,500.00
</TABLE>
The purchase price shall be payable all in cash at the closing.
- 2 -
<PAGE> 3
ARTICLE III
EARNEST MONEY
Within two (2) business days after final execution of this Contract by
all parties hereto, Purchaser shall deliver Purchaser's check in the amount of
Twenty-Five Thousand and No/100 Dollars ($25,000.00) to Safeco Land Title of
Dallas, 5220 Renaissance Tower, 1201 Elm Street, Dallas, Texas 75270, Attn:
Bobbie Irwin (the "Title Company"). The Title Company shall immediately cash
the earnest money check and deposit the proceeds thereof in an interest bearing
account, the earnings from which shall accrue to the benefit of Purchaser
(hereinafter the proceeds of the earnest money check shall be referred to as
the "earnest money"). If Purchaser does not terminate this Contract during the
Inspection Period (as defined in Article VI hereinbelow), then, within two (2)
business days after the expiration of the Inspection Period, Purchaser will
deposit with the Title Company the additional sum of Seventy-Five Thousand and
No/100 Dollars ($75,000.00) in cash, which sum shall be added to and become a
part of the earnest money. Upon receipt of the second earnest money deposit
from Purchaser, the Title Company shall immediately disburse the entire
$100,000.00 earnest money deposit to Seller; upon such disbursement the
$100,000.00 earnest money deposit shall be non-refundable to the Purchaser
except in the event of a default by Seller hereunder, but, if this Contract
closes, then the entire $100,000.00 earnest money deposit shall be applied in
partial satisfaction of the purchase price payable at closing.
In the event that this Contract is not closed, then the earnest money
shall be disbursed in the manner provided for elsewhere herein.
Notwithstanding the foregoing or anything to the contrary contained elsewhere
in this Contract, it is understood and agreed that One Hundred Dollars
($100.00) of the earnest money shall in all events be delivered to Seller as
valuable consideration for the Inspection Period described in Article VI
hereinbelow and the execution of this Contract by Seller.
- 3 -
<PAGE> 4
ARTICLE IV
PRE-CLOSING OBLIGATIONS OF SELLER AND PURCHASER
Within thirty (30) days from the date of execution of this Contract,
Seller shall furnish to Purchaser, each of the following (a-g) (collectively,
the "Due Diligence Items"):
a. A current commitment (the "Title Commitment") for the
issuance of an owner's policy of title insurance to the Purchaser from
the Title Company, together with good and legible copies of all
documents constituting exceptions to Seller's title as reflected in
the Title Commitment;
b. Copies of the most recent appraisals of each parcel
included within the Land that are in the possession of Seller, if any;
c. A schedule showing (i) all members of the resorts
being operated on the Land by Seller, and (ii) the date through which
monthly membership dues have been paid by each such member; provided,
however, that such schedule need not include the name, address and
phone number of each such member;
d. Copies of all licenses, permits, applications,
authorizations, certificates of occupancy, governmental approvals and
other entitlements relating to the Subject Property and the operation
thereof in the possession of Seller, if any, including, in particular,
copies of all permits relating to utilities;
e. A schedule of all current or pending litigation with
respect to the Subject Property or any part thereof, if any, together
with a brief description of each proceeding;
f. An accurate and complete schedule reflecting with
respect to each resort being operated by Seller on the parcels
comprising the Land for the calendar year ending immediately preceding
the date of this Contract: (i) ad valorem taxes, (ii) expenses
incurred for such period for water, electricity, natural gas and other
utility charges, (iii) total dues collected from members for such year
and (iv) all other income or expenses of operation of each resort
being operated on the Land by Seller. Said operating schedule shall
be accompanied by Seller's statement that said operating schedule is
true, complete and correct as of the date provided; and
g. All information of any kind whatsoever in the
possession of Seller concerning possible development of the Subject
Property including, but not limited to, any and all plans for the
development of the Subject Property, any engineering studies of the
Subject Property, any information relating to obtaining the approval
of local governing bodies for the development of the Subject Property,
any information as to when construction on the Subject Property may
commence, any information regarding present or future zoning of the
Subject Property, and any information concerning the availability of
utilities.
During the Inspection Period (defined hereinbelow), Purchaser shall
obtain and deliver to Seller copies of the following (collectively, the
"Purchaser Due Diligence Items"):
h. Updated surveys of each parcel of land included
within the Subject Property dated subsequent to the date of execution
of this Contract and prepared by a licensed professional engineer or
surveyor acceptable to Purchaser, which surveys shall: (a) include a
metes and bounds legal description of each parcel comprising the Land;
(b) accurately show all improvements, encroachments and uses and
accurately show all easements and encumbrances visible or listed on
the Title Commitments (identifying each
- 4 -
<PAGE> 5
by recording reference if applicable); (c) recite the number of gross
acres included within each parcel of land comprising the Land; (d)
state whether any portion of the Land lies within a flood zone, or
flood prone area or is designated as "wetlands," and identify the
exact number of square feet, if any, that lies within a flood zone or
flood prone area or is designated as "wetlands"; and (e) contain a
certificate verifying that each survey was made on the ground, that
the survey is correct, that there are no improvements, encroachments,
easements, uses or encumbrances except as shown on the survey plat,
that the area represented for each parcel comprising the Land has been
certified by the surveyor as being correct, that no portion of the
Land lies within any flood zone or flood prone area, except as
indicated thereon, and that each parcel comprising the Land has access
to public streets as indicated thereon. Unless otherwise agreed by
Seller and Purchaser, the metes and bounds descriptions contained in
the Surveys shall be the legal descriptions employed in the documents
of conveyance of the Subject Property provided that the Title Company
accepts such descriptions; and
i. A Phase I Environmental Report for each resort
included within the Subject Property.
ARTICLE V
TITLE INSPECTION PERIOD
Purchaser shall have a period of time commencing on the date of
execution of this Contract and expiring on the date of expiration of the
Inspection Period (as defined hereinbelow) within which to review and approve
the status of Seller's title to the Subject Property (the "Title Review
Period"). If the information to be provided to or obtained by Purchaser
pursuant to the provisions of Article IV hereinabove reflects or discloses any
defect, exception or other matter affecting the Subject Property ("Title
Defects") that is unacceptable to Purchaser, then prior to the expiration of
the Title Review Period Purchaser shall provide Seller with written notice of
Purchaser's objections. Seller may, at its sole option, elect to cure or
remove the objections raised by Purchaser; provided, however, that Seller shall
have no obligation to do so. Should Seller elect to attempt to cure or remove
the objections, Seller shall have ten (10) days from the date of Purchaser's
written notice of objections (the "Cure Period") in which to accomplish the
cure. In the event Seller either elects not to cure or remove the objections
or is unable to accomplish the cure prior to the expiration of the Cure Period,
then Seller shall so notify Purchaser in writing specifying which objections
Seller does not intend to cure, and then Purchaser shall be entitled, as
Purchaser's sole and exclusive remedies, either to terminate this Agreement by
providing written notice of termination to Seller within ten (10) days from the
date on which Purchaser receives Seller's no-cure notice or waive the
objections and close this transaction as otherwise contemplated herein. If
Purchaser shall fail to notify Seller in writing of any objections to the state
of Seller's title to the Subject Property as shown by the Survey and Title
Commitment, then Purchaser shall be deemed to have no objections to the state
- 5 -
<PAGE> 6
of Seller's title to the Subject Property as shown by the Survey and Title
Commitment, and any exceptions to Seller's title which have not been objected
to by Purchaser and which are shown on the Survey or described in the Title
Commitment shall be considered to be "Permitted Exceptions." It is further
understood and agreed that any Title Defects which have been objected to by
Purchaser and which are subsequently waived by Purchaser shall be Permitted
Exceptions.
ARTICLE VI
INSPECTION PERIOD
Purchaser, at Purchaser's sole expense, shall have the right to
conduct a feasibility, environmental, engineering and physical study of the
Subject Property for a period of time commencing on the date of execution of
this Contract and expiring one hundred twenty (120) days from the date on which
Purchaser receives the last of the due diligence items to be provided to
Purchaser by Seller pursuant to Article IV hereinabove (the "Inspection
Period"). Purchaser and Purchaser's duly authorized agents or representatives
shall be permitted to enter upon the Subject Property at all reasonable times
during the Inspection Period in order to conduct engineering studies, soil
tests and any other inspections and/or tests that Purchaser may deem necessary
or advisable; provided, however, that no drilling or other ground penetrations
or physical sampling in any building shall be done without Seller's prior
written consent, which consent shall not be unreasonably withheld or delayed.
Purchaser further agrees to indemnify and hold Seller harmless from any claims
or damages, including reasonable attorneys' fees, resulting from Purchaser's
inspection of the Subject Property. In the event that the review and/or
inspection conducted by this paragraph shows any fact, matter or condition to
exist with respect to the Subject Property that is unacceptable to Purchaser,
in Purchaser's sole discretion, or if for any reason Purchaser determines that
purchase of the Subject Property is not feasible, then Purchaser shall be
entitled, as Purchaser's sole remedy, to cancel this Contract by providing
written notice of cancellation to Seller prior to the expiration of the
Inspection Period. If Purchaser shall provide written notice of cancellation
prior to the expiration of the Inspection Period, then this Contract shall be
- 6 -
<PAGE> 7
cancelled, all earnest money (less $100.00) shall be immediately returned to
Purchaser by the Title Company, and thereafter neither Seller nor Purchaser
shall have any continuing obligations one unto the other. If no notice of
cancellation is provided by Purchaser prior to the expiration of the Inspection
Period, then this Contract shall remain in full force and effect.
ARTICLE VII
REPRESENTATIONS, WARRANTIES, AND COVENANTS OF SELLER
Seller represents and warrants to Purchaser that at closing Seller, or
a direct or indirect wholly-owned subsidiary of Seller, will have good and
indefeasible fee simple title to the Subject Property free and clear of all
liens, encumbrances, covenants, restrictions, rights-of-way, easements, and any
other matters affecting title to the Subject Property except for the Permitted
Exceptions, and at closing, Seller or its subsidiaries will be in a position to
convey the Subject Property to Purchaser (free and clear of all liens,
encumbrances, and other such matters affecting title except for the Permitted
Exceptions).
Seller further covenants and agrees with Purchaser that, from the date
hereof until the closing, neither Seller nor its subsidiaries shall sell,
assign, or convey any right, title, or interest whatsoever in or to the Subject
Property, or create or permit to exist any lien, security interest, easement,
encumbrance, charge, or condition affecting the Subject Property (other than
the Permitted Exceptions) without promptly discharging the same prior to
closing.
Seller hereby further represents and warrants to Purchaser, to the
best of Seller's knowledge, as follows:
a. There are no actions, suits, or proceedings pending
or, to the best of Seller's knowledge, threatened against Seller or
otherwise affecting any portion of the Subject Property, at law or in
equity, or before or by any federal, state, municipal, or other
governmental court, department, commission, board, bureau, agency, or
instrumentality, domestic or foreign;
b. The execution by Seller of this Contract and the
consummation by Seller of the sale contemplated hereby have been duly
authorized, and do not, and, at the closing date, will not, result in
a breach of any of the terms or provisions of, or constitute a default
under any indenture, agreement, instrument, or obligation to which
Seller is a party or by which the Subject Property or any portion
thereof is bound, and do not, and at the closing date will not,
constitute a violation of any regulation affecting the Subject
Property;
c. Seller has not received any notice of any violation
of any ordinance, regulation, law, or statute of any governmental
agency pertaining to the Subject Property
- 7 -
<PAGE> 8
or any portion thereof except with respect to Cherokee Landing and Fox
River; Seller hereby advises Purchaser that in 1985 Cherokee Landing
entered into an assurance of voluntary compliance with the State of
Tennessee the details of which will be disclosed to Purchaser and that
in 1988 Seller entered into a consent judgment with the State of
Illinois the details of which will also be disclosed to Purchaser;
d. The Subject Property and the current operation
thereof comply in all material respects with all laws, regulations,
ordinances, rules, orders and other requirements of all governmental
authorities having jurisdiction over the Subject Property or affecting
all or any part thereof or bearing on its construction or operation,
and with all private covenants or restrictions;
e. From the date of execution of this Contract through
the date of closing, Seller shall continue to maintain the Subject
Property in its present condition, subject to ordinary wear and tear
and Article XV hereof, and shall continue to manage the Subject
Property in the same manner as it is currently being managed; Seller
shall not remove any fixtures, equipment, furnishings or other
personal property from the Subject Property unless replaced with items
of equal or greater quality and quantity, nor shall Seller in any
manner neglect the Subject Property; and
f. That, at closing, there will be no unpaid bills,
claims, or liens in connection with any construction or repair of the
Subject Property except for ones which will be paid in the ordinary
course of business or which have been bonded around or the payment of
which has otherwise been adequately provided for to the complete
satisfaction of Purchaser.
All of the foregoing representations and warranties of Seller are made by
Seller both as of the date hereof and as of the date of the closing hereunder.
Notwithstanding the foregoing or anything to the contrary contained herein, it
is understood and agreed that the representations and warranties set forth
hereinabove shall survive the closing of this Contract only for a period of two
(2) years following the closing date, but not thereafter, and Seller shall have
no liability of any kind whatsoever for any breach thereof except to the extent
a claim is asserted against Seller within such two (2) year period.
Purchaser agrees that, having had the opportunity to inspect the
Subject Property for defects and having had the right to terminate this
Contract in the event any defects are found, Purchaser will accept at closing
the Subject Property in an "as is, where is" condition, and, except for the
representations and warranties set forth hereinabove, Seller shall not be
required to give any further representations or warranties at closing with
respect to the condition of the Subject Property or the income that may be
generated by the Subject Property.
- 8 -
<PAGE> 9
ARTICLE VIII
CONDITIONS PRECEDENT TO CLOSING
The obligation of Purchaser to close this Contract shall, at the
option of Purchaser, be subject to the following conditions precedent:
a. All of the representations, warranties and agreements
of Seller set forth in this Contract shall be true and correct in all
material respects as of the date hereof and at closing, and Seller
shall not have on or prior to closing, failed to meet, comply with or
perform in any material respect any conditions or agreements on
Seller's part as required by the terms of this Contract;
b. There shall be no change in the matters reflected in
the Title Commitment, and there shall not exist any encumbrance or
title defect affecting the Subject Property not described in the Title
Commitment except for the Permitted Exceptions;
c. There shall be no changes in the matters reflected in
the Survey, and there shall not exist any easement, right-of-way,
encroachment, waterway, pond, flood plain, conflict or protrusion with
respect to the Subject Property not shown on the Survey; and
d. No material and substantial change shall have
occurred with respect to the Subject Property which would in any way
affect the findings made in the inspection of the Subject Property
described in Article VI hereinabove.
If any such condition is not fully satisfied by closing, Purchaser may
terminate this Contract by written notice to Seller whereupon this Contract
shall be cancelled, the earnest money deposit (less $100.00) shall be returned
to Purchaser by the Title Company and thereafter neither Seller nor Purchaser
shall have any continuing obligations one unto the other.
ARTICLE IX
CLOSING
The closing hereunder shall take place at the offices of the Title
Company. The closing shall occur on or before thirty (30) days from the date
of expiration of the Inspection Period. Purchaser shall notify Seller at least
five (5) days in advance of the exact time and date of closing. Seller and
Purchaser hereby agree that Purchaser shall have the right to obtain one (1)
ninety (90) day extension of the deadline for closing hereunder by delivering
to Seller an additional One Hundred Thousand Dollars ($100,000) in earnest
money. If Purchaser exercises this right, then the deadline for closing of
this Contract shall be extended by ninety (90) days; the additional $100,000
earnest money deposit that must be made by Purchaser in order to extend the
deadline for closing of this Contract by ninety (90) days shall be
non-refundable to Purchaser except in the
- 9 -
<PAGE> 10
event of a default by Seller hereunder, but, if this Contract closes, shall be
applied in partial satisfaction of the purchase price payable hereunder.
ARTICLE X
SELLER'S OBLIGATIONS AT CLOSING
At the closing, Seller shall do the following:
a. Deliver, or cause its subsidiary to deliver, to
Purchaser a deed covering the Subject Property, duly signed and
acknowledged by Seller, or its subsidiary, which deed shall be in form
reasonably acceptable to Purchaser for recording and shall convey to
Purchaser good and marketable title to the Subject Property, free and
clear of all liens, rights-of-way, easements, and other matters
affecting title to the Subject Property, except for the Permitted
Exceptions.
b. Deliver or cause to be delivered to Purchaser an ALTA
Standard Owner Policy of Title Insurance (the "Title Policy") insuring
Purchaser in the amount of the purchase price that Purchaser has
acquired good and marketable title to the Subject Property, subject
only to the standard printed exceptions and the Permitted Exceptions.
Purchaser shall be entitled to request the Title Company to provide at
Purchaser's sole cost and expense, such endorsements (or amendments)
to the Title Policy as Purchaser may reasonably require so long as
such endorsements or amendments are at no cost to Seller nor impose
additional liability on Seller nor delay the closing. Purchaser shall
be responsible for paying the cost of the Title Policy.
c. Deliver a bill of sale and a blanket assignment in
form reasonably acceptable to Purchaser, duly executed and
acknowledged by Seller or its subsidiary, conveying and/or assigning
to Purchaser the Resort Assets.
d. Deliver such evidence or other documents that may be
reasonably required by the Title Company evidencing the status and
capacity of Seller and the authority of the person or persons who are
executing the various documents on behalf of Seller in connection with
the sale of the Subject Property.
e. Deliver a non-withholding statement that will satisfy
the requirements of Section 1445 of the Internal Revenue Code so that
Purchaser is not required to withhold any portion of the purchase
price for payment to the Internal Revenue Service.
f. Deliver to Purchaser any other documents or items
necessary or convenient in the reasonable judgment of Purchaser to
carry out the intent of the parties under this Contract.
ARTICLE XI
PURCHASER'S OBLIGATIONS AT CLOSING
At the closing, Purchaser shall deliver to Seller the purchase price
in cash.
- 10 -
<PAGE> 11
ARTICLE XII
COSTS AND ADJUSTMENTS
At closing, the following items shall be adjusted or prorated between
Seller and Purchaser:
a. Any real estate transfer taxes or sales taxes payable
in connection with the sale of the Subject Property shall be paid in
full by Purchaser.
b. Ad valorem taxes for the Subject Property for the
current calendar year shall be prorated as of the date of closing, and
Seller shall pay to Purchaser in cash at closing Seller's pro rata
portion of such taxes. Seller's pro rata portion of such taxes shall
be based upon taxes actually assessed for the current calendar year
or, if for any reason such taxes for the Subject Property have not
been actually assessed, such proration shall be based upon the amount
of such taxes for the immediately preceding calendar year, and
adjusted by cash settlement when exact amounts are available.
However, anything herein to the contrary notwithstanding, any tax
abatement or refund for a period of time prior to closing shall belong
to Seller.
c. Purchaser shall pay Seller in cash at closing an
amount equal to seventy percent (70%) of the then outstanding
principal balance of all receivables for the purchase of campground
memberships which are not then thirty-one (31) days or more past due
and which are being transferred to Purchaser by Seller at closing.
d. Membership dues which have already been collected by
Seller for the current calendar year shall be prorated as of the date
of closing, and Seller shall pay to Purchaser in cash at closing the
amount of any such dues which have already been paid to Seller by
members of the Subject Property for a period subsequent to the closing
date.
e. Purchaser shall have the right to collect all
membership dues which are past due as of the closing date; provided,
however, that Purchaser shall pay to Seller in cash at closing (i) an
amount equal to the full amount of all membership dues which are 365
days or less past due as of the date of closing, plus (ii) an amount
equal to twenty-one percent (21%) of all membership dues which are
more than 365 days past due as of the date of closing.
f. All other closing costs, including but not limited
to, recording and escrow fees shall be divided equally between Seller
and Purchaser; provided, however, that Seller and Purchaser shall each
be responsible for the fees and expenses of their respective
attorneys.
Seller agrees to indemnify and hold Purchaser harmless of and from any
and all liabilities, claims, demands, suits, and judgments, of any kind or
nature (except those items which under the terms of this Contract specifically
become the obligation of Purchaser), brought by third parties and based on
events occurring on or before the date of closing and which are in any way
related to the ownership, maintenance, or operation of the Subject Property,
and all expenses related thereto, including, but not limited to, court costs
and attorneys' fees.
Purchaser agrees to indemnify and hold Seller harmless of and from any
and all liabilities, claims, demands, suits, and judgments, of any kind or
nature, brought by third parties and based
- 11 -
<PAGE> 12
on events occurring subsequent to the date of closing and which are in any way
related to the ownership, maintenance or operation of the Subject Property, and
all expenses related thereto, including, but not limited to, court costs and
attorneys' fees.
Notwithstanding anything to the contrary contained herein, the
indemnities set forth in this Article XII shall survive the closing hereunder.
ARTICLE XIII
ENTRY ON PROPERTY
Purchaser, Purchaser's agents, employees, servants, or nominees, are
hereby granted the right to enter upon the Subject Property at any time prior
to closing for the purpose of inspecting the Subject Property and conducting
such engineering and mechanical tests as Purchaser may deem necessary or
advisable, any such inspections and tests to be made at Purchaser's sole
expense. Purchaser agrees to indemnify and hold Seller harmless from and
against any and all losses, damages, costs, or expenses incurred by Seller as a
result of any inspections or tests made by Purchaser.
ARTICLE XIV
POSSESSION OF PROPERTY
Possession of the Property free and clear of all uses and
encroachments, except the Permitted Exceptions which shall include the rights
of existing members, shall be delivered to Purchaser at closing.
ARTICLE XV
DAMAGE OR DESTRUCTION PRIOR TO CLOSING
In the event that the Subject Property should be damaged by any
casualty prior to closing, then if the cost of repairing such damage, as
estimated by an architect or contractor retained pursuant to the mutual
agreement of Seller and Purchaser, is:
a. Less than One Hundred Thousand Dollars ($100,000.00)
per resort, then at Purchaser's option, either (i) the Seller shall
repair such damage as promptly as is reasonably possible,
- 12 -
<PAGE> 13
restoring the damaged property at least to its condition immediately
prior to such damage; and, in the event such repairs have not been
completed prior to closing, then the closing shall nevertheless
proceed as scheduled, and Purchaser may have the Title Company
withhold from Seller the funds necessary to make such repairs until
Seller has repaired such damage pursuant to the provisions hereof, at
which time such funds shall be distributed to Seller or (ii) Purchaser
may take an assignment of Seller's insurance proceeds and repair such
damage itself;
or if said cost is:
b. greater than One Hundred Thousand Dollars
($100,000.00) per resort, then, at Purchaser's election, Seller shall
pay to Purchaser, at closing, all insurance proceeds payable for such
damage, and the sale shall be closed without Seller's repairing such
damage, or, if Purchaser does not elect to accept such insurance
proceeds, then either Seller or Purchaser may elect to terminate this
Contract, in which case the earnest money (less $100.00) shall be
returned to Purchaser and thereafter neither party shall have any
further obligations one unto the other.
ARTICLE XVI
NOTICES
All notices, demands, or other communications of any type given by the
Seller to the Purchaser, or by the Purchaser to the Seller, whether required by
this Contract or in any way related to the transaction contracted for herein,
shall be void and of no effect unless given in accordance with the provisions
of this paragraph. All notices shall be in writing and delivered to the person
to whom the notice is directed, either in person, by facsimile transmission, or
by United States Mail, as a registered or certified item, return receipt
requested. Notices delivered by mail shall be deemed given when deposited in a
post office or other depository under the care or custody of the United States
Postal Service, enclosed in a wrapper with proper postage affixed, addressed as
follows:
Seller: Thousand Trails, Inc.
2711 LBJ Freeway, Suite 200
Dallas, Texas 75234
Attn: Kenneth E. Hendrycy, Vice President
Telephone No.: (972) 243-2228
Facsimile No.: (972) 488-5030
Purchaser: Silverleaf Resorts, Inc.
1221 Riverbend Drive
Suite 120
Dallas, Texas 75247
Attn: Robert E. Mead
Telephone No.: (214) 631-1166
Facsimile No.: (214) 905-0514
- 13 -
<PAGE> 14
With Required Copy to: Meadows, Owens, Collier, Reed,
Cousins & Blau, L.L.P.
3700 NationsBank Plaza
901 Main Street
Dallas, Texas 75202
Attn: George R. Bedell, Esq.
Telephone No.: (214) 749-2448
Facsimile No.: (214) 747-3732
ARTICLE XVII
REMEDIES
In the event that Seller fails to timely comply with all conditions,
covenants and obligations of Seller hereunder, such failure shall be an event
of default and Purchaser shall have the option (i) to terminate this Contract
by providing written notice thereof to Seller, in which event the earnest money
(less $100.00) shall be returned immediately to Purchaser and the parties
hereto shall have no further liabilities or obligations one unto the other;
(ii) to waive any defect or requirement and close this Contract; or (iii) to
sue Seller for specific performance. Except as otherwise set forth herein, in
no event shall Purchaser have the right to sue Seller for damages.
In the event that Purchaser fails to timely comply with all
conditions, covenants, and obligations Purchaser has hereunder, such failure
shall be an event of default, and Seller's sole remedy shall be to receive the
earnest money. The earnest money is agreed upon by and between the Seller and
Purchaser as liquidated damages due to the difficulty and inconvenience of
ascertaining and measuring actual damages, and the uncertainty thereof, and no
other damages, rights, or remedies shall in any case be collectible,
enforceable, or available to the Seller other than in this paragraph defined,
and Seller shall accept the earnest money as Seller's total damages and relief.
- 14 -
<PAGE> 15
ARTICLE XVIII
ASSIGNMENT
Purchaser shall not, without Seller's prior written consent, assign
this Contract. Notwithstanding the foregoing, the consent of Seller need not
be obtained for an assignment of this Contract made in connection with the
merger, consolidation or a combination of Purchaser into or with any other
corporation or entity, whether by operation of law or otherwise; however,
Purchaser agrees to furnish Seller with prior written notice thereof, and
provided further that any such assignee must abide by the covenants appearing
in this Contract.
XIX
INTERPRETATION AND APPLICABLE LAW
This Agreement shall be construed and interpreted in accordance with
the laws of the State of Texas. Where required for proper interpretation, words
in the singular shall include the plural; the masculine gender shall include
the neuter and the feminine, and vice versa. The terms "successors and
assigns" shall include the heirs, administrators, executors, successors, and
assigns, as applicable, of any party hereto.
XX
AMENDMENT
This Contract may not be modified or amended, except by an agreement
in writing signed by the Seller and the Purchaser. The parties may waive any
of the conditions contained herein or any of the obligations of the other party
hereunder, but any such waiver shall be effective only if in writing and signed
by the party waiving such conditions and obligations.
- 15 -
<PAGE> 16
ARTICLE XXI
AUTHORITY
Each person executing this Contract warrants and represents that he is
fully authorized to do so.
ARTICLE XXII
ATTORNEYS' FEES
In the event it becomes necessary for either party to file a suit to
enforce this Contract or any provisions contained herein, the prevailing party
shall be entitled to recover, in addition to all other remedies or damages,
reasonable attorneys' fees and costs of court incurred in such suit.
ARTICLE XXIII
DESCRIPTIVE HEADINGS
The descriptive headings of the several paragraphs contained in this
Contract are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
ARTICLE XXIV
ENTIRE AGREEMENT
This Contract (and the items to be furnished in accordance herewith)
constitutes the entire agreement between the parties pertaining to the subject
matter hereof and supersedes all prior and contemporaneous agreements and
understandings of the parties in connection therewith. No representation,
warranty, covenant, agreement, or condition not expressed in this Contract
shall be binding upon the parties hereto or shall affect or be effective to
interpret, change, or restrict the provisions of this Contract.
- 16 -
<PAGE> 17
ARTICLE XXV
MULTIPLE ORIGINALS ONLY
Numerous copies of this Contract may be executed by the parties
hereto. Each such executed copy shall have the full force and effect of an
original executed instrument.
ARTICLE XXVI
ACCEPTANCE
Seller shall have until 5:00 o'clock p.m., May 5, 1997, to execute and
return a fully executed original of this Contract to Purchaser, otherwise this
Contract shall become null and void. Time is of the essence of this Contract.
The date of execution of this Contract by Seller shall be the date of execution
of this Contract. If the final date of any period falls upon a Saturday,
Sunday, or legal holiday under the laws of the State of Texas, then in such
event the expiration date of such period shall be extended to the next day
which is not a Saturday, Sunday, or legal holiday under the laws of the State
of Texas.
ARTICLE XXVII
REAL ESTATE COMMISSION
Seller represents and warrants to Purchaser that Seller has not
contacted or entered into any agreement with any real estate broker, agent,
finder, or any other party in connection with this transaction, and that Seller
has not taken any action which would result in any real estate broker's,
finder's, or other fees or commissions being due and payable to any other party
with respect to the transaction contemplated hereby. Purchaser hereby
represents and warrants to Seller that Purchaser has not contracted or entered
into any agreement with any real estate broker, agent, finder, or any other
party in connection with this transaction, and that Purchaser has not taken any
action which would result in any real estate broker's, finder's, or other fees
or commissions being due or payable to any other party with respect to the
transaction contemplated hereby. Each party hereby indemnifies and agrees to
hold the other party harmless from any loss, liability, damage, cost, or
expense (including reasonable attorneys' fees) resulting to the other party by
reason of a breach of the representation and warranty made by such party
herein. Notwithstanding anything
- 17 -
<PAGE> 18
to the contrary contained herein, the indemnities set forth in this Article
XXVII shall survive the closing.
ARTICLE XXVIII
POST-CLOSING OBLIGATIONS OF SELLER AND PURCHASER
Seller and Purchaser hereby agree that following the closing hereunder
Purchaser will (i) take over responsibility for the operation and maintenance
of the existing campsites and recreational facilities currently located at each
of the three resorts being sold to Purchaser hereunder, and (ii) assume
responsibility for the performance of all of Seller's obligations under the
outstanding membership contracts pertaining to these three resorts, except for
Seller's obligation to provide its "Gold Card" members with access to resorts
other than the three resorts being sold to Purchaser hereunder. Purchaser
hereby warrants and represents that at all times following the closing the
standard of operation and maintenance of the facilities at these three resorts
shall never be lower than the standard of operation and maintenance that is in
effect at these three resorts as of the date of this Contract, and Purchaser
agrees to indemnify and hold harmless Seller from any loss incurred by Seller
due to a breach of this warranty which is caused by Purchaser. At all times
following closing hereunder, at Purchaser's election, (i) Purchaser shall be
entitled to collect all of the dues that are payable by members of these three
resorts except for that portion of such dues which is paid by "Gold Card"
members in order to have access to other resorts in Seller's system, or (ii)
Seller shall collect the dues that are payable by members of these three
resorts and will remit to Purchaser on a regular and timely basis all of such
dues except for that portion of the dues which is paid by "Gold Card" members
in order to have access to other resorts in Seller's system; if Purchaser
elects to have Seller collect the dues, then Purchaser will pay Seller a
reasonable fee to cover the costs that will be incurred by Seller in collecting
the dues, the exact amount of such fee to be mutually agreed upon by and
between Seller and Purchaser. Purchaser further agrees that Purchaser will
accept reservations for the use of the campsites at the Fox River Resort from
any of Seller's system members provided that Purchaser is given the same
advance written notice of any such reservation that Seller currently requires
from its members. The obligations of Purchaser under this paragraph shall
survive closing and shall continue in full
- 18 -
<PAGE> 19
force and effect (i) for a period of five (5) years thereafter with respect to
the Jefferson and Cherokee Landing Resorts, and (ii) for a period of ten (10)
years thereafter with respect to the Fox River Resort (and for an additional
ten (10) years if Purchaser extends the term of the License described below).
Seller agrees to permit any existing Fox River Resort member (who is a
member as of the date of closing hereunder) to become a "Gold Card" member of
Seller provided that said member pays Seller the then required fees and
executes Seller's "Gold Card" contract. Both Seller and Purchaser also agree
to honor the usage rights of NACO Resort Club members.
Seller hereby agrees that for a period of one (1) year following the
date of closing hereunder, Seller will not hire any of the existing employees
at the resorts being purchased by Purchaser hereunder to work at other resorts
owned and operated by Seller.
Within thirty (30) days after the closing hereunder, both Purchaser
and Seller shall write a joint letter to all members of Jefferson Resort and
Cherokee Landing Resort advising of the sale and giving these members the
following options going forward: (i) for their membership to remain unchanged,
(ii) to become a member of Seller's entire campground system, in which case the
member must pay Seller the dues being charged by Seller for said system
membership, or (iii) to become a member of both Seller's campground system and
of the Jefferson or Cherokee Resort, in which case the member must pay Seller
the dues being charged by Seller for the system membership and must pay
Purchaser the dues being charged by Purchaser for membership at Jefferson or
Cherokee.
In order to secure performance of Purchaser's obligation to operate
and maintain the facilities at the three resorts in accordance with the
standards of operation and maintenance that are currently in effect, Purchaser
shall deliver to Seller at closing three (3) irrevocable and unconditional
letters of credit; the letter of credit for Fox River Resort shall be in the
amount of $300,000, and the letters of credit for the Jefferson and Cherokee
Landing Resorts shall each be in the amount of $100,000. The letters of credit
must be issued by a national banking association or other financial institution
satisfactory to Seller, must be payable directly to Seller and must expire no
earlier than (i) five (5) years from the date of closing in the case of the
letters of credit for the Jefferson and Cherokee Landing Resorts, and (ii) ten
(10) years from the date of closing
- 19 -
<PAGE> 20
in the case of the letter of credit for the Fox River Resort, and must provide
that the funds evidenced thereby will be disbursed to Seller upon presentation
of a draft therefor and a statement that Purchaser has defaulted in the
performance of its obligations regarding the operation and maintenance of the
facilities at the applicable resort. Seller hereby agrees that, if Purchaser
ever breaches its obligations regarding the operation and maintenance of the
facilities at one of the resorts, before drawing upon the letter of credit
pertaining to that resort, Seller will provide Purchaser with written notice
specifying the alleged breach and will allow Purchaser thirty (30) days from
the date of the written notice in which to cure the breach or, if the breach is
curable but cannot be cured within thirty (30) days, will allow Purchaser
sufficient time to cure the breach provided that Purchaser promptly commences
cure of such breach within the thirty (30) day period and continuously
thereafter pursues the cure until the breach is remedied.
At closing, Seller and Purchaser shall enter into a license agreement
(the "License") pursuant to which Seller will grant Purchaser a non-exclusive
license to use the name "Thousand Trails" in connection with the promotion and
operation of the campground facilities at the Fox River Resort. The License
shall endure for a term of ten (10) years; provided, however, Purchaser shall
have the option to extend such License for an additional ten (10) year period
by delivering to Seller written notice thereof within the ninety (90) day
period prior to the expiration of the original ten (10) year term. In return
for the right to use the name "Thousand Trails" in connection with its
operation of the campground facilities at Fox River Resort, Purchaser shall pay
Seller throughout the term (including the additional term, if applicable) of
the License annually in advance a fee of $30,000. The License shall be on the
terms and conditions and in form and substance identical to the License
Agreement attached hereto and made a part hereof for all purposes as Exhibit
"D." Upon the expiration of the License, the existing members will be required
by Seller to elect either (i) to be a member of Seller's entire campground
system, in which case the member must pay Seller the dues being charged by
Seller for system membership, (ii) to be a member of the Fox River Resort only,
in which case the member must pay Purchaser the dues being charged by Purchaser
for membership at that Resort, or (iii) to be a member both of Seller's entire
campground system and of the Fox River Resort, in which case the member must
- 20 -
<PAGE> 21
pay Seller the dues being charged by Seller for system membership and must pay
Purchaser the dues being charged by Purchaser for membership at Fox River
Resort.
EXECUTED on this the 2nd day of May, 1997.
SELLER:
THOUSAND TRAILS, INC., a Delaware corporation
By: /s/ W.J. SHAW
-------------------------------------------
Name: W.J. Shaw
-----------------------------------------
Its: CEO
------------------------------------------
EXECUTED on this the 1st day of May, 1997.
PURCHASER:
SILVERLEAF RESORTS, INC., a Texas corporation
By: /s/ ROBERT E. MEAD
-------------------------------------------
Name: Robert E. Mead
-----------------------------------------
Its: CEO
------------------------------------------
RECEIPT OF EARNEST MONEY AND ONE (1) EXECUTED COUNTERPART OF THIS CONTRACT IS
HEREBY ACKNOWLEDGED:
TITLE COMPANY:
SAFECO LAND TITLE OF DALLAS
By: /s/ BOBBIE IRWIN
----------------------
Name: Bobbie Irwin
--------------------
Its: V.P.
---------------------
- 21 -
<PAGE> 22
LIST OF EXHIBITS TO EXHIBIT 10.41
Exhibit A Legal Description of Land
Exhibit B Legal Description of Land
Exhibit C Legal Description of Land
Exhibit D License Agreement
The above-listed exhibits are omitted from this filing. Registrant agrees to
furnish supplementally a copy of any omitted exhibit to the Commission upon
request.
22
<PAGE> 1
EXHIBIT 10.42
FIRST AMENDMENT TO CONTRACT OF SALE
THIS FIRST AMENDMENT TO CONTRACT OF SALE (this "Amendment") is made
and entered into effective as of the 25th day of July, 1997, by and between
THOUSAND TRAILS, INC., a Delaware corporation ("Seller"), and SILVERLEAF
RESORTS, INC., a Texas corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, effective May 2, 1997, Seller and Purchaser entered into that
certain Contract of Sale pursuant to which Seller agreed to sell and Purchaser
agreed to purchase and pay for three resorts more particularly described
therein (herein the contract is referred to as the "Contract"); and
WHEREAS, Seller and Purchaser desire to amend the Contract;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and other good and valuable consideration, the receipt,
accuracy and sufficiency of which is hereby acknowledged, Seller and Purchaser
hereby agree as follows:
1. Notwithstanding anything to the contrary contained in the
Contract, Seller and Purchaser hereby agree that Purchaser shall have no
obligation to purchase the "Cherokee Landing Resort" pursuant to the Contract
and that all references to the "Cherokee Landing Resort" are hereby deleted
from the Contract. Accordingly, Article I of the Contract is hereby deleted
and replaced with the following new Article I:
ARTICLE I
PROPERTY
The conveyance by Seller, or Seller's subsidiary corporation
that holds title, to Purchaser shall include the following described
tracts or parcels of land, together with all and singular the rights
and appurtenances pertaining to such land including any right, title
and interest of Seller in and to adjacent strips or gores, streets,
alleys, or rights-of-way and all rights of ingress and egress thereto:
Parcel 1: Those certain tracts of land located in
LaSalle County, Illinois, commonly known as the "Fox River
Resort," in the aggregate amount of approximately 178 acres,
including (i) five (5) tracts of land more particularly
described in Exhibit "A" attached hereto and made a part
hereof for all purposes, which aggregate approximately 138
acres, and (ii) a sixth tract of
<PAGE> 2
approximately 40 acres which will be surveyed and described
prior to closing; and
Parcel 2: Those certain tracts of land located in
Jefferson County, Missouri, commonly known as the "Jefferson
Resort," and being more particularly described in Exhibit "B"
attached hereto and made a part hereof for all purposes.
Hereafter the aforesaid real property is referred to collectively as
the "Land."
The conveyance by Seller to Purchaser shall also include all
buildings and other improvements on the Land, including specifically,
without limitation, all campsites, recreational and community
facilities, comfort centers, lakes and parks located thereon (the
foregoing property is herein referred to collectively as the
"Improvements").
The conveyance by Seller to Purchaser shall also include all
fixtures and personal property, tangible or intangible, of any kind
whatsoever owned by Seller and used in connection with the Land and/or
Improvements, including but not limited to, the following items:
a. All machinery, equipment, fixtures, furniture
and other personal property of every kind and character owned
by Seller and located on or used in connection with the
operation of the Land and Improvements;
b. The names "Fox River Resort" and "Jefferson
Resort" as used in the ownership or operation of the Land and
Improvements;
c. All outstanding membership contracts which
have been generated from the sale of memberships at the
campsites being operated by Seller on the Land (except for
Gold Card memberships), together with certain receivables,
hereinafter mentioned, which are payable to Seller and which
represent the unpaid portion of the purchase price for such
memberships;
d. All licenses, franchises and permits used in
or relating to the ownership, occupancy or operation of the
resorts being operated by Seller on the Land including, in
particular, any water permits or other utility permits; and
- 2 -
<PAGE> 3
e. Any developer's, declarant's, or owner's
interests under any operating agreements or reciprocal
easement agreements or other similar agreements affecting
and/or benefiting the Land.
The foregoing items are hereinafter collectively referred to as the
"Resort Assets."
Hereinafter all property being conveyed to Purchaser by Seller
pursuant to this Contract including the Land, the Improvements and the
Resort Assets are sometimes referred to collectively as the "Subject
Property."
2. Seller and Purchaser further agree that Article II of the
Contract is hereby deleted and replaced with the following new Article II:
ARTICLE II
PURCHASE PRICE
The purchase price to be paid by Purchaser to Seller for the
Subject Property (less the receivables described in Article I, c.)
shall be as follows:
<TABLE>
<S> <C>
Fox River Resort $1,655,000.00
Jefferson Resort $1,242,500.00
-------------
Total Purchase Price $2,897,500.00
</TABLE>
The purchase price shall be payable all in cash at the closing.
3. All references to "Cherokee Landing Resort" in Articles VII
and XXVIII of the Contract are hereby deleted.
4. Except as specifically set forth above, all terms and
conditions of the Contract shall remain in full force and effect. All
capitalized terms not otherwise defined herein shall have the meaning given to
such terms in the Contract.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date and year first above written.
SELLER:
------
THOUSAND TRAILS, INC., a Delaware
corporation
By: /s/ KENNETH E. HENDRYCY
-------------------------------------
Name: Kenneth E. Hendrycy
-----------------------------------
Its: Vice President
------------------------------------
PURCHASER:
---------
SILVERLEAF RESORTS, INC., a Texas
corporation
By: /s/ ROBERT E. MEAD
-------------------------------------
Name: Robert E. Mead
-----------------------------------
Its: Chief Executive Officer
------------------------------------
- 4 -
<PAGE> 1
EXHIBIT 10.43
MASTER CLUB AGREEMENT
THIS MASTER CLUB AGREEMENT ("Agreement") is entered into as of the
13th day of November, 1997, by and between Master Club, a Texas non-profit
corporation (the "Master Club"), and Fox River Resort Club, an Illinois
non-profit corporation (the "Club").
R E C I T A L S :
WHEREAS, Silverleaf Resorts, Inc., a Texas corporation ("Silverleaf")
owns and operates seven (7) resorts, four (4) of which are located in Texas and
are known as Hill Country Resort, Holly Lake, Piney Shores Resort and The
Villages and three (3) of which are located in Missouri and are known as
Holiday Hills Resort, Ozark Mountain Resort and Timber Creek Resort
(collectively the "Resorts" and individually a "Resort"); and
WHEREAS, each of the Resorts formed an association to govern, maintain
and administer each Resort and are known as Hill Country Resort Club, a Texas
non-profit unincorporated association, Holly Lake Resort Club, a Texas
non-profit unincorporated association, Piney Shores Resort Club, a Texas
non-profit unincorporated association, Villages Resort Club, a Texas non-profit
unincorporated association, Holiday Hills Resort Club, a Missouri non-profit
corporation, Ozark Mountain Resort Club, a Missouri non-profit corporation, and
Timber Creek Resort Club, a Missouri non-profit corporation (the "Other
Clubs");
WHEREAS, Silverleaf created and established a program referred to as
the Endless Escape Bonus Time Program (the "Program") pursuant to which each
member of the Other Clubs is entitled, at no additional charge, (i) to vacation
at each member's respective Resort more frequently and, under certain
circumstances, during use periods not already owned by that member, and (ii) to
vacation at the other Resorts owned by Silverleaf and participating in the
Program; and
WHEREAS, Silverleaf created the Master Club for the purpose of
implementing and administering the Program and more efficiently managing the
various Resorts owned by Silverleaf which participate in the Program;
WHEREAS, on March 28, 1990, and September 25, 1997, the Master Club
entered into Master Club Agreements with the Other Clubs setting forth the
duties and responsibilities of the Master Club with regard to the Other Clubs;
and
WHEREAS, on November 11, 1997, pursuant to the Declaration of
Restrictions, Covenants and Conditions more particularly described in Exhibit
"A" attached hereto and made a part hereof for all purposes (the
"Declaration"), an eighth timeshare project
<PAGE> 2
was created called "Fox River Resort" (the "Project"), and the Club was created
for the care, maintenance and administration of the Project; and
WHEREAS, the Club desires to enter into a Master Club Agreement with
the Master Club similar to the March 28, 1990 and September 25, 1997 Master
Club Agreements between the Master Club and the Other Clubs; and
WHEREAS, the Club acknowledges and agrees that membership in the
Master Club and the execution of this Agreement are to its benefit and
advantage; and
WHEREAS, the Club and the Master Club desire to enter into this
Agreement in order to set forth the responsibilities and duties of the Master
Club with regard to the Club and the Project;
NOW, THEREFORE, in order to carry out the desire of the Club and the
Master Club, and for and in consideration of Ten and No/100 Dollars ($10.00),
the covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Club and the Master Club hereby covenant and agree as follows:
1. The Master Club shall have the following responsibilities and
duties for the benefit of the Club and the Project governed
thereby:
(a) Maintain a centralized reservation system for the
Project and all Resorts;
(b) Achieve costs savings by purchasing goods and
services for the Project and all Resorts as a group
rather than having the Project and each Resort
purchase its goods and services on an individual
basis;
(c) Maintain a centralized management of the Project and
the entire Resort system;
(d) Provide accounting, legal and other administrative
services for the Project and entire Resort system;
(e) Implement and administer the Program in accordance
with the rules and regulations of the Program; and
(f) Pay all costs and expenses incurred at the Project
and each Resort individually as well as any
system-wide costs and expenses.
- 2 -
<PAGE> 3
2. In order to enable the Master Club to perform the
responsibilities and duties described hereinabove, the Club
agrees to pay to the Master Club the following amounts as a
fee to the Master Club for the services rendered by the Master
Club for the benefit of the Club: (i) all dues, assessments,
late charges and other amounts levied against and collected
from its respective members pursuant to the Declaration, plus
(ii) all other income generated by the Club. The Master Club
will use its fee collected from the Club to pay (i) the
individual common expenses of the Project, and (ii) the
system- wide costs and expenses of administering and
maintaining the Master Club and operating and managing the
Club including, but not limited to, expenses for accounting,
legal services, administration, payroll, and management of the
entire resort system.
3. This Agreement shall be in full force and effect in
perpetuity. Notwithstanding the foregoing, however, this
Agreement shall be terminated upon the cessation of legal
existence of the Master Club or, alternatively, of the Club,
and the surviving party or parties, if any, shall in such
event have no further obligations hereunder.
4. This Agreement inures to the benefit of, and is binding upon,
the Master Club and the Club and their respective successors,
legal representatives and assigns.
5. This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same
instrument, and all such counterparts shall be deemed on and
the same instrument.
6. All capitalized terms not otherwise defined herein shall have
the meaning given to such terms in the Declarations.
MASTER CLUB:
MASTER CLUB, a Texas non-profit corporation
By:
Its: /s/ ROBERT G. LEVY
-------------------------------------
- 3 -
<PAGE> 4
CLUB:
FOX RIVER RESORT CLUB, an Illinois
non-profit corporation
By: /s/ HOWARD KITCHEN
------------------------------------------
Howard Kitchen, Director
By: /s/ ROBERT G. LEVY
------------------------------------------
Robert G. Levy, Director
By: /s/ DAN BERG
------------------------------------------
Dan Berg, Director
By: /s/ DANA CALLAWAY
-------------------------------------------
Dana Callaway, Director
By: /s/ MARIE RASSO
-------------------------------------------
Marie Rasso, Director
- 4 -
<PAGE> 5
LIST OF EXHIBITS TO EXHIBIT 10.43
Exhibit A Declaration of Restrictions, Covenants and Conditions
for Fox River Resort
The above-listed exhibit is omitted from this filing. Registrant agrees to
furnish supplementally a copy of any omitted exhibit to the Commission upon
request.
- 5 -
<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).
<TABLE> <S> <C>
<ARTICLE> 5
<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>
