<PAGE> 1
As filed with the Securities and Exchange Commission on April 8, 1999
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ]Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or 240.14a-12
SILVERLEAF RESORTS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
LOGO
SILVERLEAF RESORTS, INC.
1221 RIVER BEND DRIVE
SUITE 120
DALLAS, TEXAS 75247
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
Dear Shareholder:
The 1999 Annual Meeting of Shareholders of Silverleaf Resorts, Inc. (the
"Company") will be held at the Omni Mandalay Hotel at Las Colinas, 221 East Las
Colinas Boulevard, Irving, Texas 75039 on Tuesday, May 18, 1999, at 9:00 a.m.
to:
1. elect two Class II Directors of the Company to serve until the Annual
Meeting of Shareholders in 2002 and until their successors are elected
and qualified;
2. ratify the appointment of Deloitte & Touche LLP as the Company's
independent public accountants for the year ending December 31, 1999; and
3. transact such other business as may properly be brought before the 1999
Annual Meeting or any adjournments or postponements thereof.
The Board of Directors has nominated two individuals for election to serve
as the Class II Directors. The Board of Directors recommends that you vote FOR
these nominees and FOR ratification of the appointment of the independent public
accountants.
Only shareholders of record at the close of business on March 19, 1999 are
entitled to notice of and to vote at the 1999 Annual Meeting or any adjournments
or postponements thereof. A complete list of shareholders entitled to vote at
the 1999 Annual Meeting will be maintained in the Company's offices at 1221
River Bend Drive, Suite 120, Dallas, Texas for ten days prior to the meeting.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE 1999 ANNUAL MEETING.
YOU ARE REQUESTED, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, TO COMPLETE,
DATE, SIGN AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
IF YOU ATTEND THE MEETING IN PERSON, YOU MAY REVOKE THE PROXY AND VOTE THE
SHARES.
By Order of the Board of Directors,
/s/ SANDRA G. CEARLEY
SANDRA G. CEARLEY
Secretary
Dallas, Texas
April 14, 1999
<PAGE> 3
SILVERLEAF RESORTS, INC.
PROXY STATEMENT
1999 ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Silverleaf Resorts, Inc. ("Silverleaf" or
the "Company") for use at the Annual Meeting of Shareholders to be held at 9:00
a.m., on Tuesday, May 18, 1999, at the Omni Mandalay Hotel at Las Colinas, 221
East Las Colinas Boulevard, Irving, Texas 75039 or at any adjournment or
postponement thereof, (the "1999 Annual Meeting").
The Company's principal executive offices are located at 1221 River Bend
Drive, Suite 120, Dallas, Texas 75247. A copy of the Company's 1998 Annual
Report to Shareholders and this Proxy Statement and accompanying proxy card will
be first mailed to shareholders on or about April 14, 1999.
VOTING PROCEDURES
A proxy card is enclosed for your use. You are solicited on behalf of the
Board of Directors to sign, date and return the proxy card in the accompanying
envelope, which is postage prepaid if mailed in the United States.
Concerning the election of the Class II directors, you may: (a) vote for
each of the director nominees; or (b) withhold authority to vote for either or
both nominees according to the way you mark your proxy card. Concerning the
ratification of Deloitte & Touche LLP as the Company's independent public
accountants, by checking the appropriate box you may: (a) vote "For" the item;
(b) vote "Against" the item; or (c) "Abstain" from voting on the item. With
respect to the election of directors, cumulative voting is not permitted.
Shareholders may vote by either completing and returning the enclosed proxy
card prior to the 1999 Annual Meeting, voting in person at the 1999 Annual
Meeting or submitting a signed proxy card at the 1999 Annual Meeting.
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO SIGN AND RETURN THE
ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
You may revoke your proxy at any time before it is actually voted at the
1999 Annual Meeting by delivering written notice of revocation to the Secretary
of the Company at 1221 River Bend Drive, Suite 120, Dallas, Texas 75247; by
submitting a later dated proxy; or by attending the 1999 Annual Meeting and
voting in person. Attendance at the 1999 Annual Meeting will not, by itself,
constitute revocation of the proxy. You may also be represented by another
person present at the 1999 Annual Meeting by executing a form of proxy
designating such person to act on your behalf.
Each unrevoked proxy card properly signed and received prior to the close of
the 1999 Annual Meeting will be voted as indicated. Unless otherwise specified
on the proxy, the shares represented by a signed proxy card will be voted FOR
items 1 and 2 on the proxy card and will be voted in the discretion of the
persons named as proxies on any other business that may properly come before the
1999 Annual Meeting.
If a proxy card indicates an abstention or a broker non-vote on a particular
matter, then the shares represented by such proxy will be counted for quorum
purposes, but will not be counted as a vote "For" or "Against" any proposal.
Therefore, if a quorum is present, an abstention or a broker non-vote will have
no effect on the outcome of the voting.
The presence at the 1999 Annual Meeting, in person or by proxy, of a
majority of the shares of the Company's Common Stock ("Common Stock") issued and
outstanding on March 19, 1999, will constitute a quorum.
Votes cast at the 1999 Annual Meeting will be tabulated by the persons
appointed by the Company to act as inspectors of election for the 1999 Annual
Meeting.
<PAGE> 4
The expense, if any, of soliciting proxies and the cost of preparing,
assembling and mailing material in connection with the solicitation of proxies
will be paid by the Company. In addition to the use of mails, certain directors,
officers or employees of the Company and its subsidiaries, who receive no
compensation for their services other than their regular salaries, may solicit
and tabulate proxies. The Company may request banks, brokers and other
custodians, nominees and fiduciaries to forward copies of the proxy materials to
their principals and to request authority for the execution of proxies. The
Company may reimburse such persons for their expenses incurred in doing so.
SHARES ENTITLED TO VOTE AND REQUIRED VOTE
Shareholders of record at the close of business on March 19, 1999 are
entitled to vote at the 1999 Annual Meeting. At that date, 12,889,417 shares of
Common Stock were outstanding. 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
1999 Annual Meeting. Each share of Common Stock is entitled to one vote.
2
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Set forth in the following table is the beneficial ownership of the
Company's Common Stock as of March 19, 1999 by (i) those persons known to the
Company to be the beneficial owners of more than five percent of the outstanding
shares, (ii) each current director and the five executive officers of the
Company named under the table titled "Executive Compensation" and (iii) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER(a) POSITION OWNED CLASS(b)
------------------------------------ ---------------------- ----------- --------
<S> <C> <C> <C>
Robert E. Mead(c)................... Chairman of the Board 6,750,100 52.37%
and
Chief Executive Officer
Sharon K. Brayfield(c).............. President and Director 86,517 *
David T. O'Connor(c)(d)............. Executive Vice *
50,000
President -- Sales
James J. Oestreich (c)(e)........... Vice *
President--Marketing 25,000
Allen L. Hudson (c)(f).............. Vice President-- *
8,750
Architecture and
Engineering Services
Stuart Marshall Bloch(g)(h)......... Director 35,666 *
James B. Francis, Jr.(h)(i)......... Director 28,666 *
Michael A. Jenkins(h)(j)............ Director 26,666 *
All Directors and Executive Officers
as a
Group (16 persons)......................................... 7,064,125 53.91%
</TABLE>
- ----------
* Less than 1%.
(a) Except as otherwise indicated, each beneficial owner has the sole power to
vote and to dispose of all shares of Common Stock owned by such beneficial
owner.
(b) Pursuant to the rules of the Securities and Exchange Commission, in
calculating percentage ownership, each person is deemed to beneficially own
his own shares subject to options exercisable within sixty days, but options
owned by others (even if exercisable within sixty days) are deemed not to be
outstanding shares. In calculating the percentage ownership of the directors
and officers as a group, the shares subject to options exercisable by
directors and officers within sixty days are included within the number of
shares beneficially owned.
(c) The address of such person is 1221 River Bend Drive, Suite 120, Dallas,
Texas 75247.
(d) Includes options to purchase 50,000 shares of stock which options are
exercisable within sixty days from the date hereof.
(e) Includes options to purchase 25,000 shares which options are exercisable
within sixty days from the date hereof.
(f) Includes options to purchase 8,750 shares which options are exercisable
within sixty days from the date hereof.
(g) The address of such person is 1300 N Street N.W., Washington, D.C. 20005.
(h) Includes options to purchase 26,666 shares which options are exercisable
within sixty days from the date hereof. Messrs. Bloch, Francis and Jenkins
were each granted options to purchase 40,000 shares of Common Stock as
directors' fees. Such options vest over a term of three years, with the
vesting of the second one-third (13,333 shares each) occurring in May 1999.
(i) The address of such person is 2911 Turtle Creek Boulevard, Suite 925,
Dallas, Texas 75219.
(j) The address of such person is 2151 Fort Worth Avenue, Dallas, Texas
75211-1812.
3
<PAGE> 6
COMPLIANCE WITH SECTION 16(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and persons who
own more than 10% of a registered class of the Company's equity securities
("Insiders"), to file with the Commission initial reports of ownership and
reports of changes in ownership of Common Stock. Insiders are required by the
Commission's regulations to furnish to the Company copies of all Section 16(a)
reports filed by such persons.
To the Company's knowledge, based solely on its review of the copies of such
reports furnished to the Company and written representations from the Insiders
two Insiders did not timely report grants of options under the Company's 1997
Stock Option Plan (the "Plan"). Allen L. Hudson, Vice President - Architecture
and Engineering Services, inadvertently omitted on the Initial Statement of
Beneficial Ownership of Securities filed on May 26, 1998 on Form 3 an option to
purchase 10,000 shares of the Company's common stock which was granted to him
prior to his election as an officer of the Company. James Oestreich, Vice
President - Marketing Development, did not timely report the grant of an option
to purchase 25,000 shares granted under the Plan to him in May 1998. In February
1999, Messrs. Hudson and Oestreich each filed a Form 5 for 1998 to report these
options. Each Form 5 was filed on a timely basis. All other Insiders complied
with all applicable Section 16(a) filing requirements.
PROPOSAL 1
ELECTION OF CLASS II DIRECTORS
GENERAL INFORMATION -- ELECTION OF DIRECTORS
Pursuant to the Company's Articles of Incorporation, as amended (the
"Articles"), the Bylaws, as amended (the "Bylaws"), and resolutions adopted by
the Company's Board of Directors, the Company currently has five directors. The
Company's Articles provide for its Board of Directors to be divided into three
classes and one class of directors will be elected each year for a three-year
term. Mr. Bloch has been classified as a Class I Director of the Company and was
re-elected at the 1998 Annual Meeting to serve until the annual meeting of
shareholders in 2001. Ms. Brayfield and Mr. Jenkins have been classified as
Class II Directors whose initial terms will expire at the 1999 Annual Meeting.
Messrs. Mead and Francis have been classified as Class III Directors whose
initial terms will expire at the 2000 annual meeting of shareholders. Directors
elected at each annual meeting will serve until his or her respective successor
shall have been elected or appointed.
Ms. Brayfield and Mr. Jenkins have been nominated by the Board of Directors
for election to serve as the Class II Directors. Ms. Brayfield has served as a
Director since 1989 and as President of the Company since 1992. Mr. Jenkins has
served as a director of the Company since July 1997. For a description of the
background and qualifications of Ms. Brayfield and Mr. Jenkins see "Directors
and Executive Officers."
In the absence of instructions to the contrary, votes will be cast FOR the
election of Ms. Brayfield and Mr. Jenkins as Class II Directors pursuant to the
proxies solicited hereby. In the event either is unable or declines to serve as
a Class II Director at the time of the 1999 Annual Meeting, the proxy will be
voted for any substitute nominee selected by the current Board of Directors.
Management has no reason to believe, at this time, that either Ms. Brayfield or
Mr. Jenkins will be unable or will decline to serve if elected. Each nominee has
informed the Company that he or she will serve if elected.
DIRECTOR COMPENSATION
In June 1997, the Company granted to each Independent Director (Messrs.
Bloch, Francis, and Jenkins), as directors' fees, options to purchase 40,000
shares of Common Stock at $16.00 per share. Such options vest in three equal
portions over a term of three years, with the first vesting date occurring in
May 1998, the second in May 1999, and the third in May 2000. The options expire
in June 2007. In addition to such option grants, each of the Independent
Directors receives a stipend (currently $1,000) for attending meetings of the
Board of Directors.
4
<PAGE> 7
Officers of the Company who are directors are not paid any directors' fees but
are reimbursed for expenses of attending meetings of the Board of Directors.
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
Board of Directors. The Board of Directors met five times during the year
ended December 31, 1998. The Audit Committee met two times in 1998. The
Executive Committee and Compensation Committees (as each are defined below) did
not have any meetings during 1998 but took action by unanimous written consent
on 67 and 11 different times, respectively. During 1998, attendance at Board of
Directors meetings was 100% for all members, except Ms.
Brayfield who attended all but one meeting.
Executive Committee. The Board of Directors has established an executive
committee (the "Executive Committee"), which is authorized in the intervals
between meetings of the Board of Directors to perform all of the rights and
duties of the Board of Directors, except the power to declare dividends or
distributions on stock, approve any merger or share exchange which does not
require shareholder approval, amend the Bylaws, issue stock other than as
permitted by statute, recommend to the shareholders any action that requires
shareholder approval, or exercise rights delegated to the Audit Committee or
Compensation Committee. The current members of the Executive Committee are Ms.
Brayfield and Messrs. Francis and Mead.
Audit Committee. The Board of Directors has established an audit committee
(the "Audit Committee"), which consists of two or more directors who meet the
independence requirements imposed by the NYSE's Audit Committee Policy. The
Audit Committee makes recommendations concerning the engagement of independent
public accountants, reviews the plans and results of the audit engagement,
approves professional services provided by the independent public accountants,
reviews the independence of the independent public accountants and the adequacy
of the Company's internal accounting controls, and considers the range of audit
and non-audit fees. The current members of the Audit Committee are Messrs. Bloch
and Jenkins.
Compensation Committee. The Board of Directors has established a
compensation committee (the "Compensation Committee"), which consists of two
directors who are non-employee directors within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934 (an "Independent Director") to determine
compensation for the Company's senior executive officers and to administer the
Company's 1997 Stock Option Plan. The current members of the Compensation
Committee are Messrs. Francis and Jenkins. For the period ending December 31,
1998, the Compensation Committee made all decisions regarding executive
compensation and administration of the 1997 Stock Option Plan.
See "Executive Compensation -- Report of Compensation Committee."
The Board of Directors of the Company does not have a nominating committee
or any other committee except as set forth above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE CLASS II DIRECTORS
NOMINATED IN PROPOSAL 1.
PROPOSAL 2
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
GENERAL
The Board of Directors, upon recommendation of the Audit Committee, has
appointed Deloitte & Touche LLP as the Company's independent public accountants
for the year ending December 31, 1999. A representative of Deloitte & Touche LLP
will be present at the 1999 Annual Meeting and will be given an opportunity to
make a statement and answer questions. This appointment is being submitted for
ratification at the 1999 Annual Meeting. If the appointment is not ratified, the
appointment will be reconsidered by the Board of Directors, although the Board
of Directors will not be required to appoint different independent auditors for
the Company. Reconsideration by the Board of Directors could result in a delay
of the appointment of independent auditors due to the difficulty and expense of
the selection process.
5
<PAGE> 8
In the absence of instructions to the contrary, votes will be cast FOR
the ratification of Deloitte & Touche LLP as the Company's independent public
accountants for the year ending December 31, 1999.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1999 AS DESCRIBED IN PROPOSAL 2.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each person
who is a director or executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------- --- -------------------------------
<S> <C> <C>
Robert E. Mead......... 52 Chairman of the Board and Chief
Executive Officer
Sharon K. Brayfield.... 38 Director and President
David T. O'Connor...... 57 Executive Vice President-- Sales
Thomas C. Franks....... 45 Executive Vice President--
Corporate
Affairs; President of Silverleaf
Resort.
Acquisitions, Inc
Harry J. White, Jr..... 44 Chief Financial Officer,
Treasurer
Larry H. Fritz......... 46 Vice President-- Marketing
Ioannis N. Gioldasis... 48 Vice President-- Promotions
Allen L. Hudson........ 52 Vice President--Architecture and
Engineering Services
Carla R. Kienast ...... 46 Vice President--Investor
Relations
Edward L. Lahart....... 34 Vice President--Corporate
Operations
Robert G. Levy......... 50 Vice President-- Resort
Operations
James J. Oestreich..... 58 Vice President -- Marketing
Development
Sandra G. Cearley...... 37 Secretary
Stuart Marshall Bloch.. 56 Director
James B. Francis, Jr... 49 Director
Michael A. Jenkins..... 56 Director
</TABLE>
Robert E. Mead founded the Company, has served as its Chairman of the Board
since its inception, and has served as its Chief Executive Officer since May
1990. Mr. Mead began his career in hotel and motel management and also operated
his own construction company. Mr. Mead currently serves as a Trustee member of
the American Resort Developers Association ("ARDA") and has over 19 years of
experience in the timeshare industry, with special expertise in the areas of
consumer finance, hospitality management and real estate development.
Sharon K. Brayfield has served as the President of the Company since 1992
and manages all of the Company's day to day activities. Ms. Brayfield began her
career with an affiliated company in 1982 as the Public Relations Director of
Ozark Mountain Resort. In 1989, she was promoted to Executive Vice President of
Resort Operations for an affiliated company and in 1991 was named Chief
Operations Officer of the Company.
David T. O'Connor has over 20 years of experience in real estate and
timeshare sales and has worked periodically with Mr. Mead over the past 14
years. Mr. O'Connor has served as the Company's Executive Vice President --
Sales for the past two years and as Vice President -- Sales since 1991. In such
capacities he directeD 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."
Thomas C. Franks was hired in August 1997 as President of a newly-formed,
wholly-owned subsidiary of the Company, Silverleaf Resort Acquisitions, Inc. In
February 1998, Mr. Franks was named as Vice President -- Investor Relations and
Governmental Affairs for the Company, and in October 1998 he was named Executive
Vice President--Corporate Affairs. Mr. Franks has more than 16 years of
experience in the timeshare industry and is
6
<PAGE> 9
responsible for acquisitions and industry and governmental relations. Mr. Franks
served as the President of ARDA from February 1991 through July 1997.
Harry J. White, Jr. joined the Company in June 1998 as Chief Financial
Officer and Treasurer and has responsibility for all accounting, financial
reporting and taxation issues. From 1992 to 1998, Mr. White served as Vice
President and Chief Financial Officer of Thousand Trails, Inc. and as a senior
manager with Deloitte & Touche LLP.
Larry H. Fritz has been employed by the Company (or an affiliated company)
periodically over the past nine years and has served in various marketing
management positions. Since 1991, Mr. Fritz has served as the Company's chief
marketing officer, with responsibility for daily marketing operations, and
currently serves as the Company's Vice President -- Marketing.
Ioannis N. Gioldasis has been with the Company since May 1993 and currently
serves as Vice President --Promotions. Mr. Gioldasis is responsible for the
design and implementation of marketing strategies and promotional concepts for
lead generation in Texas and other markets. Prior to joining the Company, Mr.
Gioldasis was a national field director for Resort Property Consultants, Inc.
Allen L. Hudson joined the Company on June 1, 1998 as Vice President -
Architecture and Engineering Services. Prior to joining the Company, Mr. Hudson
was President and Chief Operating Officer of an architectural firm which
provided consultant design and project management services to the Company from
1995 until June 1998.
See "Certain Relationships and Related Transactions."
Carla R. Kienast joined the Company as Vice President - Investor Relations
in October 1998. With over fifteen total years of corporate communications
experience, and ten specifically focused on investor relations, Ms. Kienast had
her own consulting practice prior to joining the Company. Silverleaf had been a
client of her consulting practice immediately following its initial public
offering in June 1997. Before starting her own firm, Ms. Kienast served as
Manager of Investor Relations for Haggar Clothing Co. for four years following
its initial public offering, and also held various other investor relations and
corporate communications positions at Amtech Corporation.
Edward L. Lahart has served as Vice President - Corporate Operations since
June 1998. Prior to that time, Mr. Lahart served in various capacities in the
Credit and Collections Department since 1989.
Robert G. Levy was appointed Vice President -- Resort Operations in March
1997 and administers the Company's Management Agreement with the Silverleaf
Club. Since 1990, Mr. Levy has held a variety of managerial positions with the
Silverleaf Club including Project Manager, General Manager, Texas Regional
Manager, and Director of Operations. Prior thereto, Mr. Levy spent 18 years in
hotel, motel, and resort management, and was associated with the Sheraton,
Ramada Inn, and Holiday Inn hotel chains.
James J. Oestreich joined the Company in February 1998 as Vice President --
Marketing Development. 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
Marketing, Inc., a provider of marketing services to the resort and direct sales
industries. See "Certain Relationships and Related Transactions."
Sandra G. Cearley has served as Secretary of the Company since its
inception. Ms. Cearley maintains corporate minute books, oversees regulatory
filings, and coordinates legal matters with the Company's attorneys.
Stuart Marshall Bloch was elected as a Director of the Company in July
1997. Since 1972, Mr. Bloch has been a partner in the law firm of Ingersoll &
Bloch, in Washington, D.C. Ingersoll & Bloch has served as general counsel to
ARDA since 1972. Mr. Bloch is also currently serving as counsel to the law firm
of Holland & Knight, LLC. Mr. Bloch is the founding director and a past
president of the International Foundation for Timesharing. Mr. Bloch has
authored numerous articles dealing with real estate law and the timeshare
industry.
James B. Francis, Jr. was elected as a Director of the Company in July
1997. During 1996, Mr. Francis' company, Francis Enterprises, Inc., served as a
consultant to the Company in connection with governmental and
7
<PAGE> 10
public affairs. From 1980 to 1996, Mr. Francis was a partner in the firm of
Bright & Co., which managed various business investments, including the Dallas
Cowboys Football Club.
Michael A. Jenkins was elected as a Director of the Company in July 1997. In
1971, Mr. Jenkins founded and became the President of Leisure and Recreation
Concepts, Inc., which has planned and designed over 850 theme parks, resorts,
retail areas, and major attractions worldwide. Mr. Jenkins has more than 35
years in the leisure industry and serves on the Board of Directors of Leisure
and Recreational Concepts, Inc.
8
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual base salary and other annual
compensation earned in 1997 and 1998 by the Company's Chief Executive Officer
and each of the other four most highly compensated executive officers whose cash
compensation (salary and bonus) exceeded $100,000 (the "Named Executive
Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION ($) COMPENSATION
------------------------------------------- ------------
SECURITIES
OTHER UNDERLYING
NAME AND PRINCIPAL ANNUAL OPTIONS/SARS
POSITION YEAR SALARY (a) BONUS COMPENSATION (b) (#)
----------------------- ------ ------------ ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Robert E. Mead,........ 1997 $500,000 -- -- --
Chief Executive Officer 1998 $500,015 -- -- --
Sharon K. Brayfield,... 1997 $133,101 -- $ 298,761 --
President 1998 $267,503 $ 29,903 $ 343,803 125,000
David T. O'Connor,..... 1997 -- -- $ 726,310(c) 200,000
Executive Vice 1998 -- $209,216 $1,478,862(c) 100,000
President - Sales
James J. Oestreich, (d) 1997 -- -- -- --
Vice President-Marketing 1998 $284,149 $ 94,782 -- 125,000
Development
Allen L. Hudson, (e)...
Vice President- 1997 -- -- -- --
Architecture and 1998 $204,326 -- $ 200,000(f) 25,000
Engineering Services
</TABLE>
- ----------
(a) The amounts shown are before elective contributions by the Named
Executive Officers in the form of salary reductions under the Company's
Section 125 Flexible Benefit Plan. Such plan is available to all
employees, including the Named Executive Officers.
(b) Except as otherwise noted, these amounts represent additional
compensation based on sales of Vacation Intervals and other sales
related criteria. See "Executive Compensation -- Employment and
Noncompetition Agreements" for a discussion of other annual
compensation.
(c) A portion of this amount was paid as sales commissions to Recreational
Consultants, Inc., a corporation of which Mr. O'Connor is the
principal. See "Certain Relationships and Related Transactions."
(d) Mr. Oestreich was not employed by the Company in 1997; therefore, no
information is provided for this year.
(e) Mr. Hudson was not an employee of the Company during 1997; however, Mr.
Hudson's architectural firm, Hudson & Company, Inc., did provide
services to the Company during 1997 as an independent contractor.
During 1997, the Company paid Mr. Hudson's firm $401,000 for providing
such services. Between January 1998 and June 1998, when Mr. Hudson
became a full time employee of the Company, Mr. Hudson's firm received
an additional $246,000 for architectural services rendered to the
Company during 1998. See "Certain Relationships and Related
Transactions." During 1997, Mr. Hudson was also granted non-qualified
options to purchase 10,000 shares of the Company's stock under the 1997
Stock Option Plan.
(f) Mr. Hudson was paid $200,000 in 1998 under his employment contract with
the Company for the exclusivity of his services. See "Executive
Compensation - Employment and Noncompetition Agreements" and "Certain
Relationships and Related Transactions."
EMPLOYMENT AND NONCOMPETITION AGREEMENTS
Effective January 1, 1997, Mr. Mead entered into a three year employment
agreement with the Company which provides for an annual base salary of $500,000,
use of a company vehicle, and other fringe benefits such as health insurance,
vacation, and sick leave as determined by the Board of Directors of the Company
from time to time. Either party may terminate the agreement upon 30 days notice
to the other.
Effective January 1, 1997, Ms. Brayfield entered into a three year
employment agreement with the Company which was amended on July 31, 1998. See
"Certain Relationships and Related Transactions." The amended
9
<PAGE> 12
agreement provides for an annual base salary of $435,000 plus an incentive bonus
equal to .125% of the Company's net sales from Vacation Intervals. The agreement
also provides for the use of a company vehicle, and other fringe benefits such
as health insurance, vacation, and sick leave as determined by the Board of
Directors of the Company from time to time. Either party may terminate the
agreement upon 30 days notice to the other.
Effective May 12, 1997, Mr. O'Connor entered into an employment agreement
with the Company which was amended in August 1998. See "Certain Relationships
and Related Transactions." The agreement expires on December 31, 1999. Pursuant
to the amended agreement, Mr. O'Connor receives commissions equal to 1.0% of the
Company's net sales from Vacation Intervals generated by in-house sales efforts
and 0.6% of the Company's net sales from Vacation Sales generated by the
Company's outside sales force. Mr. O'Connor also receives additional commissions
based on weekly sales of upgrades and revenue per guest. The Company also
provides Mr. O'Connor with use of a company vehicle and other fringe benefits
such as health insurance, vacation, and sick leave as determined by the Board of
Directors of the Company from time to time. Either party may terminate the
agreement upon 30 days notice to the other.
In January 1998, Mr. Oestreich entered into an employment agreement with the
Company which was amended in June and September 1998. See "Certain Relationships
and Related Transactions." The amended agreement provides for an annual base
salary of $350,000 plus bonus compensation equal to 0.1% for contracts
attributable to tours under the Company's mini-vacation program and 0.2% for
contracts attributable to the Company's discovery program. The agreement also
provides for use of a company vehicle and other fringe benefits such as health
insurance, vacations and sick leave as determined by the Board of Directors of
the Company from time to time. Mr. Oestreich also received options to purchase
an additional 25,000 shares at an exercise price of $18.00 per share.
In January 1998, Mr. Hudson entered into an employment agreement with the
Company, pursuant to which he became an Executive Officer of the Company in May
1998. The agreement provides for Mr. Hudson's employment as Vice President of
Architecture and Engineering Services for a term of four years for an annual
base salary of $350,000, use of a company vehicle, and other fringe benefits
such as health insurance, vacations and sick leave as determined by the Board of
Directors of the Company from time to time. Mr. Hudson will also receive
$500,000 to be paid over a three year period as compensation for and in
consideration of the exclusivity of his services. The Company paid $200,000 of
this amount in 1998 and purchased his condominium in Branson, Missouri for a
purchase price of $108,000. See "Certain Relationships and Related
Transactions." The Company also granted Mr. Hudson nonqualified options to
purchase 25,000 shares of Common Stock pursuant to the 1997 Stock Option Plan at
an exercise price equal to $25.46875 per share.
In July 1997, Thomas C. Franks entered into an employment agreement with the
Company which provided for an annual base salary of $325,000, use of a company
vehicle, and other fringe benefits such as health insurance, vacation, and sick
leave as determined by the Board of Directors of the Company from time to time.
During 1998, Mr. Franks' salary was increased to $350,000. Either party may
terminate the agreement upon 30 days notice to the other; however, if the
Company terminates Mr. Franks for other than "good cause", the Company shall be
obligated to make a severance payment to him in an amount equal to his annual
base salary. In connection with Mr. Franks employment, in August 1997, the
Company purchased a house for $531,000 and leased the house to Mr. Franks for 13
months at a rental equal to (i) the Company's interest on a $418,000 mortgage
loan incurred in connection with the purchase, plus (ii) insurance and taxes,
which amount was approximately $3,124 per month. Mr. Franks exercised his option
to purchase the house at the end of the 13-month term for $531,000, plus 8% per
annum on the Company's down payment for the house ($113,000) which the Company
financed at a rate of eight percent per annum. See "Certain Relationships and
Related Transactions." The Company also granted Mr. Franks two nonqualified
options to purchase a total of 125,000 shares of Common Stock pursuant to the
1997 Stock Option Plan at $16.00 per share.
In June 1998, Harry J. White, Jr. entered into an employment agreement with
the Company pursuant to which Mr. White will be employed as the Chief Financial
Officer of the Company. The agreement provides for an annual base salary of
$200,000, use of a Company vehicle, and other fringe benefits such as health
insurance, vacations and sick leave as determined by the Board of Directors of
the Company from time to time. The Company has also granted to Mr. White
non-qualified options to purchase 50,000 shares of Common Stock pursuant to the
1997 Stock Option Plan at an exercise price of $16.46875 per share. The
agreement may be terminated by either party with
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<PAGE> 13
thirty days notice. In the event that Mr. White's employment is terminated
without good cause, the Company is obligated to pay him an amount equal to six
months of his annual base salary.
Each of the employment agreements discussed above provides that such persons
will not (i) influence any employee or independent contractor to terminate its
relationship with the Company, or (ii) disclose any confidential information of
the Company. The agreements with Mr. Mead, Ms. Brayfield, and Mr. O'Connor
provide that such persons will not directly or indirectly compete with the
Company in any county in which it conducts its business or markets its products
for a period of two years following the termination of the agreement. The
agreements with Messrs. Oestreich and Hudson contain substantially similar
restrictions which will be effective for a period of one year following
termination of the agreement.
EMPLOYEE BENEFIT PLANS
1997 Stock Option Plan
The Company adopted the 1997 Stock Option Plan (the "Plan") in May 1997 to
attract and retain directors, officers, and key employees of the Company. The
Plan was amended by the Company's shareholders at the 1998 Annual Meeting of
Shareholders to increase the number of options which may be granted under the
Plan to 1,600,000 and to modify the number of outside directors who, as members
of the Compensation Committee, may administer the Plan. The following is a
summary of the provisions of the Plan. This summary does not purport to be a
complete statement of the provisions of the Plan and is qualified in its
entirety by the full text of the Plan.
The purpose of the Plan is to afford certain of the Company's directors,
officers and key employees and the directors, officers and key employees of any
subsidiary corporation or parent corporation of the Company who are responsible
for the continued growth of the Company, an opportunity to acquire a proprietary
interest in the Company, and thus to create in such directors, officers and key
employees an increased interest in and a greater concern for the welfare of the
Company. The Company, by means of the Plan, seeks to retain the services of
persons now holding key positions and to secure the services of persons capable
of filling such positions. The Plan provides for the award to directors,
officers, and key employees of nonqualified stock options and provides for the
grant to salaried key employees of options intended to qualify as "incentive
stock options" under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). The Company has filed a Registration Statement to register
such shares.
Nonqualified stock options provide for the right to purchase common stock at
a specified price which may be less than fair market value on the date of grant
(but not less than par value). "Fair market value" per share shall be deemed to
be the average of the high and low quotations at which the Company's shares of
common stock are sold on a national securities exchange, or if not sold on a
national securities exchange, the closing bid and asked quotations in the
over-the-counter market for the Company's shares on such date. If no public
market exists for the Company's shares on any date on which the fair market
value per share is to be determined, the Compensation Committee shall, in its
sole discretion and best, good faith judgment, determine the fair market value
of a share. Nonqualified stock options may be granted for any term and upon such
conditions determined by the Compensation Committee.
Incentive stock options are designed to comply with the provisions of the
Code and are subject to restrictions contained therein, including exercise
prices equal to at least 100% of fair market value of common stock on the grant
date and a ten year restriction on their term; however, incentive stock options
granted to any person owning more than 10% of the voting power of the stock of
the Company shall have exercise prices equal to at least 110% of the fair market
value of the common stock on the grant date and shall not be exercisable after
five years from the date the option is granted. Except as otherwise provided
under the Code, to the extent that the aggregate fair market value of Shares
with respect to which Incentive Options are exercisable for the first time by an
employee during any calendar year exceeds $100,000, such Incentive Options shall
be treated as Non-Qualified Options.
The Plan may either be administered by the Compensation Committee or the
Board of Directors which selects the individuals to whom options are to be
granted and determines the number of shares granted to each optionee. For the
period ending December 31, 1998, the Compensation Committee and the Board of
Directors made all decisions concerning administration of the Plan. See
"Executive Compensation -- Report of Compensation Committee."
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<PAGE> 14
An optionee may exercise all or any portion of an option that is exercisable
by providing written notice of such exercise to the Corporate Secretary of the
Company at the principal business office of the Company, specifying the number
of shares to be purchased and specifying a business day not more than fifteen
days from the date such notice is given, for the payment of the purchase price
in cash or by certified check. Options are not transferable by the optionee
other than by will or the laws of descent and distribution, and an option may be
exercised only by the optionee.
The following are the federal tax rules generally applicable to options
granted under the Plan. The grant of a stock option will not be a taxable event
for the participant nor a tax deduction for the Company. The participant will
have no taxable income upon exercising an incentive stock option within the
meaning of section 422 of the Internal Revenue Code of 1986, as amended (except
that the alternative minimum tax may apply). Upon exercising a stock option that
is not an incentive option, the participant must recognize ordinary income in an
amount equal to the difference between the exercise price and the fair market
value of the stock on the exercise date and the Company receives a tax deduction
equal to the amount of ordinary income recognized by the participant. The tax
treatment upon disposition of shares of the Company's Common Stock acquired
under the Plan through the exercise of a stock option will depend on how long
such shares have been held, and on whether or not such shares were acquired by
exercising an incentive stock option.
An option shall terminate upon termination of the directorship, office or
employment of an optionee with the Company or its subsidiary, except that if an
optionee dies while serving as a director or officer or while in the employ of
the Company or one of its subsidiaries, the optionee's estate may exercise the
unexercised portion of the option. If the directorship, office or employment of
an optionee is terminated by reason of the optionee's retirement, disability, or
dismissal other than "for cause" while such optionee is entitled to exercise all
or any portion of an option, the optionee shall have the right to exercise the
option, to the extent not theretofore exercised, at any time up to and including
(i) three months after the date of such termination of directorship, office or
employment in the case of termination by reason of retirement or dismissal other
than for cause and (ii) one year after the date of termination of directorship,
office, or employment in the case of termination by reason of disability. If an
optionee voluntarily terminates his directorship, office or employment, or is
discharged for cause, any option granted shall, unless otherwise specified by
the Compensation Committee pursuant to the terms and condition of the grant of
the option, forthwith terminate with respect to any unexercised portion thereof.
All terminated options shall be returned to the Plan and shall be available for
future grants to other optionees.
The Plan will terminate on May 15, 2007 (the "Termination Date"), the tenth
anniversary of the day the Plan was adopted by the Board of Directors of the
Company and approved by its shareholders. Any options granted prior to the
Termination Date and which remain unexercised may extend beyond that date in
accordance with the terms of the grant thereof.
Under the Plan, the Board of Directors of the Company reserves the right to
exercise the powers and functions of the Compensation Committee. Also, the Board
of Directors reserves the right to amend the Plan at any time; however, the
Board of Directors may not, without the approval of the shareholders of the
Company (i) increase the total number of shares reserved for options under the
Plan (other than for certain changes in the capital structure of the Company),
(ii) reduce the required exercise price of any incentive stock options, or (iii)
modify the provisions of the Plan regarding eligibility.
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<PAGE> 15
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1998
The following table contains information concerning the grant of stock
options under the Plan made during the year ended December 31, 1998 to the Named
Executive Officers. The table also lists potential realizable values of such
options on the basis of assumed annual compounded stock appreciation rates of 5%
and 10% over the life of the options which are set for a maximum of ten years.
No options were exercised during 1998 by any of the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
--------------------------------------- REALIZABLE VALUE
AT ASSUMED ANNUAL
PERCENT OF RATE OF SHARE
NUMBER OF TOTAL PRICE APPRECIATION
SECURITIES OPTIONS GRANTED EXERCISE (IN THOUSANDS OF
UNDERLYING TO OR BASE DOLLARS) (b)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED(a) FISCAL YEAR SHARE DATE 5% 10%
------------------ ---------- ----------- ------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Mead........ -- -- -- -- -- --
Sharon K. Brayfield .. 125,000 18.25% $16.00 06/24/08 $1,245 $ 3,167
David T. O'Connor..... 100,000 14.60% $16.00 08/13/08 $ 360 $ 1,521
James C. Oestreich.... 100,000 14.60% $22.84375 12/30/07 $1,437 $ 3,641
25,000 3.65% $18.00 05/25/08 $ 283 $ 717
Allen L. Hudson....... 25,000 3.65% $25.46875 01/15/08 $ 400 $ 1,015
</TABLE>
- ----------
(a) These options will vest in four equal increments on the first,
second, third and fourth anniversaries of the date of the grant.
(b) The potential realizable value (in thousands of dollars) is reported
net of the option price, but before income taxes associated with
exercise. These amounts represent assumed annual compounded rates of
appreciation at 5% and 10% only from the date of grant to the
expiration date of the option. The rates of appreciation shown in
this table are required by the Securities and Exchange Commission
and are not intended to forecast or be indicative of possible future
performance of the Common Stock.
Options/SARs Exercises and Year-End Value Table.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES OPTIONS/SARS AT MONEY OPTIONS/SARS AT FISCAL
ACQUIRED ON FISCAL YEAR-END(#)(a) YEAR-END($)(a)
EXERCISE VALUE ---------------------------- -----------------------------
NAME (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------ ------------ ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Mead......... -- -- -- -- -- --
Sharon K. Brayfield.... -- -- -- 125,000 -- --
David T. O'Connor...... -- -- 50,000 250,000 -- --
James J. Oestreich..... -- -- 25,000 100,000 -- --
Allen L. Hudson........ -- -- 8,750 26,250 -- --
</TABLE>
- ----------
(a) The Unexercised Options of the Named Executive Officers were not
in-the-money at fiscal year end; therefore, the options had no value
as of December 31, 1998.
Section 162(m) Limitation. In general, under Section 162(m) of the Code,
income tax deductions of publicly-held corporations may be limited to the extent
total compensation (including base salary, annual bonus, stock option exercises
and non-qualified benefits paid) for certain executive officers exceeds $1
million (less the amount of any "excess parachute payments" as defined in
Section 280G of the Code) in any one year. However, under Section 162(m), the
deduction limit does not apply to certain "performance-based compensation"
established by an independent compensation committee which is adequately
disclosed to, and approved by, the shareholders.
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<PAGE> 16
Discretionary Performance Awards. Performance awards, including bonuses, may
be granted by the Compensation Committee on an individual or group basis.
Generally, these awards will be based upon specific agreements or performance
criteria and will be paid in cash.
401(k) Plan. Effective January 1, 1999, the Company established the
Silverleaf Resorts, Inc. 401(k) Plan (the "401(k) Plan"), a qualified defined
contribution retirement plan covering employees 21 years of age or older who
have completed one year of service. The Plan allows eligible employees to defer
receipt of up to 15% of their compensation and contribute such amounts to
various investment funds. The employee contributions vest immediately. Other
than normal costs of administration, the Company has no obligation to make any
payments under the 401(k) Plan.
REPORT ON EXECUTIVE COMPENSATION
Compensation Committee Interlocks and Insider Participation
The Board of Directors formed the Compensation Committee in July 1997
following the completion of the Company's initial offering of stock (the
"Initial Public Offering") in June 1997. Prior to the Initial Public Offering,
Mr. Mead and Ms. Brayfield constituted the entire Board of Directors of the
Company, and they approved all executive compensation agreements until the Board
was enlarged to add three outside directors in July 1997 following the Initial
Public Offering. There are no "interlocks" (as defined by the rules of the
Commission) with respect to any members of the Compensation Committee. During
1998, the Compensation Committee consisted of two members, Messrs. Francis and
Jenkins, who are non-employee, independent directors. For the period ending
December 31, 1998, all decisions concerning executive compensation and
administration of the Company's 1997 Stock Option Plan were made by the
Compensation Committee. Additionally, the Committee also reviews and makes
recommendations to the Board of Directors for the approval of all material
employee benefit plans, benefit and compensation structures for directors, and
oversees the criteria for performance based compensation. In acting upon these
matters, the Committee considers, among other information, recommendations from
the Chief Executive Officer and the President of the Company. The Board of
Directors has final approval authority over all matters considered by the
Committee other than the administration of and the issuance of stock option
grants under the Company's 1997 Stock Option Plan.
Report of Compensation Committee
Incorporation by Reference. The report of the Compensation Committee shall
not be deemed incorporated by reference by a general statement incorporating by
reference this Proxy Statement into any filing under the Securities Act of 1933
(the "Securities Act") or under the Exchange Act, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
General Compensation Policies
The Company's compensation program for executive officers is designed to
attract, motivate, and retain qualified individuals having the skills,
experience, and leadership necessary to manage the Company's present and future
business in a manner consistent with the interests of the shareholders.
Accordingly, the Company strives to provide compensation opportunities,
including current compensation and short and long-term incentive awards, that
are externally competitive and internally equitable. Because of the Company's
recent and anticipated growth in sales and its need to attract executives having
the skills necessary to build and manage a large business organization, the
Company attempts to establish compensation opportunities at levels that are
competitive not only with those of other companies of the same size in the
Company's industry, but also with those of larger companies in the same and
related industries with whom the Company believes it must compete for executive
talent. The Company strives to establish short and long-term compensation
opportunities that create compatibility between the interests of the Company's
executives and the interests of the Company's shareholders.
Executive Compensation Components
The Company's compensation program for its executive officers consists of
three principal components: (i) a base annual salary; (ii) a performance-based
annual cash bonus; and (iii) stock options. The Company believes that
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<PAGE> 17
the cash bonus and stock option components of the Company's executive
compensation provide short and long-term incentives that align the interests of
the Company's executive officers with the interests of its shareholders.
The Committee strives to set base salaries and bonus compensation at levels
necessary to attract and retain executive officers with skill and experience
needed by the Company in light of its current and anticipated business
activities. For the most recent fiscal year, the base salary and maximum cash
bonus opportunity for each of the Company's executive officers (including the
Named Executive Officers) were documented in an employment agreement that was
negotiated with each executive. See "Executive Officers - Employment
Agreements." The employment agreements for the Named Executive Officers except
Mr. Oestreich and Mr. Hudson were originally negotiated before the completion of
the Company's Initial Public Offering and the formation of the Committee, based
upon management's discussion with the Company's underwriters and its historic
compensation policies. Each executive employment agreement generally provides
for a minimum annual salary.
Factors considered during 1998 in setting compensation were primarily
subjective, such as the perceptions of the individual's performance, any planned
change in functional responsibility, and other factors which evidenced
contributions to the Company's long-term sales growth and profit objectives.
While the rapid growth in the Company's sales of vacation ownership intervals
was taken into consideration, a mix of objective factors, such as comparisons
with an identified industry peer group were not considered in setting executive
officer compensation.
At the beginning of 1998, Ms. Brayfield and Mr. O'Connor had written
employment agreements with the Company which were entered into prior to the
Initial Public Offering and had three year terms. At the time of the Initial
Public Offering, the Compensation Committee's and the Board's preference was to
emphasize, where appropriate, performance based incentive compensation over base
salary. The Compensation Committee and the Board of Directors believe that these
contractual incentive compensation arrangements, which are measured by strategic
elements of the Company's marketing and sales performance, benefit the Company
and are consistent with the Compensation Committee's and the Board's preference
to emphasize performance based incentive compensation over base salary for
certain key employees. While the Compensation Committee continues to prefer
performance based compensation, during 1998, it recognized that the significant
growth in the Company's revenues due to increased sales of Vacation Intervals
required adjustments to the compensation plans of Ms. Brayfield and Mr.
O'Connor. In May and August 1998, the employment agreements with Ms. Brayfield
and Mr. O'Connor were modified to reduce the percentage of performance based
incentive while continuing to provide fair and adequate compensation to each
officer.
Ms. Brayfield's amended employment agreement provides for a base salary plus
incentive-based compensation based on a percentage of the Company's net sales of
vacation intervals, determined on a weekly basis. Her base salary was increased
from $133,101 to $435,000, and the incentive-based compensation was decreased
from 0.35% of the Company's net sales to 0.125%. This incentive-based
compensation amounted to $343,803 for Ms. Brayfield in 1998. If Ms. Brayfield's
incentive-based compensation had not been modified, she would have received
$517,119 in incentive-based compensation in 1998. The combined result of the
increase in Ms. Brayfield's base salary coupled with the decrease in
incentive-based compensation resulted in a net savings to the Company of
approximately $8,966 in 1998. In May 1998, Ms. Brayfield was also awarded
options to purchase 125,000 shares of common stock at an exercise price of
$16.00 per share. The options will vest over a four-year period. This option
grant was intended to partially compensate Ms. Brayfield for the reduction in
the percentage of sales used to calculate her incentive-based compensation.
Mr. O'Connor receives no base salary but is compensated solely upon
incentive-based formulas related to sales revenues. Previously, Mr. O'Connor
received compensation equal to 1.35% of the Company's net sales of vacation
intervals, determined weekly, as well as additional incentive compensation based
upon upgrade sales and sales to existing vacation interval owners, determined
weekly, and average price per guest, determined monthly. The employment
agreement was amended in August 1998, to decrease incentive compensation to 1.0%
of the Company's net sales through December 31, 1998. Effective January 1, 1999,
the incentive compensation was further decreased to 1.0% of sales generated
through the Company's internal sales efforts and 0.6% of the Company's net sales
generated by the Company's outside sales force. This decrease in the
compensation paid to Mr. O'Connor resulted in a net savings to the Company of
approximately $432,833 in 1998. At the time the employment agreement was
amended, the Compensation Committee awarded Mr. O'Connor additional options to
purchase 100,000 shares of common stock at an exercise price of $16.00 per
share. The options will vest over a
15
<PAGE> 18
four-year period. This option grant was intended to partially compensate Mr.
O'Connor for the reduction in the percentage of sales used to calculate his
incentive-based compensation.
Mr. Oestreich's compensation plan was negotiated as a part of the Company's
purchase of a corporation owned by him. In 1998, the Company completed the
purchase of Bull's Eye Marketing, Inc., a California corporation, and hired Mr.
Oestreich to serve as Vice President - Marketing Development. His original
employment agreement provided for an annual base salary of $300,000, plus
incentive based compensation equal to 0.5% of Vacation Interval sales directly
attributable to his efforts. The agreement was amended in 1998 to increase his
annual base salary to $350,000, and to reduce the incentive based compensation
to 0.1% for sales attributable to tours under the Company's mini-vacation
program established at Mr. Oestreich's direction, plus 0.2% of sales
attributable to the discovery program established under his direction. These
modifications resulted in a net savings of approximately $78,507 to the Company
during 1998. Effective January 1, 1999, the agreement was amended to provide for
incentive based compensation equal to 0.075% of all sales attributable to the
Company's outside sales force in lieu of the percentages on the mini-vacation
and discovery programs. This modification was made solely to more accurately tie
Mr. Oestreich's compensation to the sales programs under his direction.
Mr. Hudson was hired by the Company in 1998 to serve as Vice-President -
Architecture and Engineering; however, Mr. Hudson had provided similar services
to the Company as an outside consultant since 1995. The term of his employment
contract is four years. In setting Mr. Hudson's compensation, consideration was
given to a number of factors, including the value to the Company of having Mr.
Hudson in-house on a full-time basis to supervise the rapid growth of the
Company's development and construction programs. Among other things, Mr. Hudson
agreed to give up his existing architectural and engineering consulting
practice, relocate to the Company's headquarters, and devote his exclusive
professional services to the Company. In return, Mr. Hudson receives an annual
salary of $350,000 from the Company. Mr. Hudson is to receive additional
compensation for the exclusivity of his services over the first three years of
the term of his employment contract equal to $200,000 in 1998 and $100,000 in
both 1999 and 2000. Mr. Hudson also received certain additional fringe benefits
related to his relocation to Dallas. See "Certain Relationships and Related
Transactions." Finally, Mr. Hudson received a grant of 25,000 options vesting
over four years under the Plan. The exercise price for the options is $25.46875
per share.
Because there were no formal compensation policies for laterally hired
executives in place during 1998, the Compensation Committee determined the
compensation levels of newly hired executive officers based generally on their
qualifications and prior experience and their perceived value to the Company.
In addition to the incentive compensation formulas used to remunerate
certain key executive officers, all executive officers are eligible for
consideration for discretionary bonuses. These bonuses are optional and based
solely on performance of the individual and his or her contribution towards
achieving corporate objectives.
The Company established the Plan to enable executive officers, other key
employees, Independent Directors and others to participate in the ownership of
the Company. The Plan is designed to attract, maintain, and provide incentives
to participants. As of March 19, 1999, options for 1,261,500 shares were
outstanding. These options were granted to individuals based primarily upon the
desirability of providing additional incentives to work to increase share value
and the potential for the individuals' contributions to affect the Company's
performance. For the year ended December 31, 1998, Ms. Brayfield was granted
125,000 options, Mr. O'Connor was granted 100,000 options, Mr. Oestreich was
granted two options for 125,000 shares, and Mr. Hudson was granted 25,000
options. Mr. Mead was not awarded any options.
A final component of total compensation for executive officers is Company
benefits and perquisites generally consisting of the furnishing of company
vehicles for all of the named Executive Officers and customary group life and
health benefits.
Compensation of the CEO during 1998. Mr. Mead's base salary of $500,000 per
year was not modified in 1998. This amount was established in May 1997, prior to
the Company's initial public offering of stock. Mr. Mead received no
incentive-based compensation during 1998, and none was provided for in his
employment agreement. During 1998, the Company's revenues increased from
approximately $85 million for the year ended December 31, 1997 to approximately
$161 million for the year ended December 31, 1998, an increase of approximately
89%. During the same period, net income increased from approximately $5 million
(or $0.64 per share) to $18.4 million
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<PAGE> 19
(or $1.41 per share), an increase of 53.7%. Additionally, the Company completed
a secondary stock offering whereby it sold two million shares of stock at a
purchase price of $24.375 per share and issued $75 million in 10 1/2% SeniOR
Subordinated Notes due 2008 resulting in a significant increase in working
capital for the Company. Under the terms of Mr. Mead's employment agreement, he
is entitled to certain other fringe benefits which may be determined by the
Board of Directors. While the Company's operating results for the period ending
December 31, 1998 improved over those for the period ending December 31, 1997,
Mr. Mead was not awarded any options nor granted a bonus for his 1998
performance as CEO of the Company.
Section 162(m) of the Internal Revenue Code generally limits the corporate
income tax deduction for compensation paid to the Named Executive Officers that
is in excess of $1 million unless such compensation is "performance based
compensation" or qualifies under other exceptions. The compensation earned by
the Named Executive Officers was not exempt from the Section 162(m) limitation,
and as a result, approximately $683,000 of the compensation earned by Mr.
O'Connor during 1998 will be nondeductible. The Committee may from time to time
authorize other awards that will give rise to a loss of deduction under Section
162(m) should it determine that the payment of such compensation is in the best
interests of the Company.
By the Compensation Committee
James B. Francis, Jr.
Michael A. Jenkins
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<PAGE> 20
STOCK PERFORMANCE GRAPH
The Stock Performance Graph below shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or under the Exchange Act,
except to the extent the Company specifically incorporates this information by
reference, and it shall not otherwise be deemed filed under such Acts.
Set forth below is a line graph comparing the total cumulative return of the
Company's Common Stock since initiation of trading of the Company's Common Stock
on June 6, 1997 to (a) the S&P 500 Index, a broad equity market index and (b)
the Russell 2000 Index, an index that measures the performance of stocks with
small to medium-small market capitalizations. The comparisons in this table are
required by the Securities and Exchange Commission and are not intended to
forecast or be indicative of possible future performance of the Common Stock.
The Company has chosen the Russell 2000 Index as an index of issuers with
similar market capitalizations because the Company does not believe it can
reasonably identify a peer group or applicable published industry or
line-of-business index. Only a few other publicly held companies engage in the
Company's line of business -- the sale of vacation ownership intervals.
Prominent among this limited group are The Walt Disney Company, Hilton Hotels
Corporation and Marriott International Inc. which are (i) diversified, with far
less than 50% of their respective revenues attributable to vacation ownership
interval sales, and (ii) substantially larger than the Company in terms of
revenue, assets and market capitalization. There are a few other public
companies engaged principally in the Company's line of business, including
Sunterra Corporation, Fairfield Communities, Inc. and other companies that
became public during 1996 or 1997. Because all of these companies (except
Fairfield) have a very recent status as public companies, the Company concluded
that there was not a sufficient body of reliable market data for the Company to
use as a comparison peer group. Because of the foregoing factors, the Company
elected to compare the performance of its stock to the S&P Index and the Russell
2000 Index.
The graph assumes $100 was invested at the Initial Public Offering price of
$16.00 per share on June 6, 1997 (the date of initiation of trading of the
Company's Common Stock) in stock of the Company, the S&P 500 and the Russell
2000 and assumes dividends are reinvested.
COMPARISON OF QUARTERLY CUMULATIVE TOTAL RETURN OF COMPANY COMMON STOCK WITH THE
S&P 500 INDEX AND THE RUSSELL 2000 INDEX.
<TABLE>
<CAPTION>
SILVERLEAF
MEASUREMENT PERIOD RESORTS INC.
(FISCAL YEAR COVERED) ("SVR") S&P 500 RUSSELL 2000
<S> <C> <C> <C> <C>
06/06/97 100 100 100
06/30/97 96 104 104
09/30/97 143 112 120
12/31/97 153 116 116
03/31/98 150 132 127
06/30/98 95 136 124
09/30/98 63 136 124
12/31/98 58 149 115
</TABLE>
18
<PAGE> 21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1997, Mr. Mead entered into a lease agreement with the Company
which granted him the exclusive right to use approximately 500 acres adjoining
one of the Company's resort properties for hunting purposes. This land is
subject to deed restrictions which prohibit the construction of new units, and
most of this land is located in a flood plain. The land will remain available to
Silverleaf Owners for hiking and nature trails. In exchange for these lease
rights, Mr. Mead agreed to pay the annual property taxes on this land which are
estimated at approximately $5,000. This lease agreement has a ten-year term and
may be renewed by Mr. Mead for four additional ten-year terms.
In 1997, Mr. Mead agreed to purchase a condominium in Mexico and a
residential property in Texas from the Company. The Company's acquisition cost
of these properties in 1995 was approximately $420,000. Mr. Mead agreed to pay
the Company the higher of (i) its acquisition cost plus an additional 15% per
annum (approximately $464,000), or (ii) the appraised fair market value of these
properties. Based upon receipt of independent appraisals, Mr. Mead has paid the
Company a total of $508,000 for these assets.
In connection with the Initial Public Offering in June 1997, the Company
entered into a Registration Rights Agreement with Mr. Mead with respect to
7,625,000 of his shares of Common Stock. In April 1998, the Company completed a
secondary offering of its common stock. Included within that offering were
875,000 shares owned by Mr. Mead. The Company paid all costs, excluding brokers'
commissions, associated with the sale of shares by Mr.
Mead.
The Company paid Recreational Consultants, Inc., an entity of which Mr.
O'Connor is the principal, approximately $736,000 in sales commissions in 1998.
Mr. Bloch serves as counsel to the law firm of Holland & Knight, LLC. The
Company has retained the services of Holland & Knight for limited purposes.
In February 1998, the Company purchased the stock of Bull's Eye Marketing,
Inc. ("Bull's Eye") for $250,000 from Mr. Oestreich, the sole shareholder of
Bull's Eye.
In August 1997, subject to the employment agreement with Mr. Franks, the
Company purchased a house for $531,000 and leased the house, with an option to
purchase, to Mr. Franks for 13 months at a rental rate equal to the Company's
expense for interest, insurance and taxes which was approximately $3,000 per
month. In September 1998, Mr. Franks exercised his option to purchase the house
at the end of the lease for $531,000. The Company holds a second lien on the
house for $128,000, which is still owed to the Company by Mr. Franks at 8% per
annum.
Pursuant to the terms of Mr. Hudson's employment agreement, the Company
purchased Mr. Hudson's condominium in Branson, Missouri for $108,000 upon his
relocation to Dallas, Texas. The Company also paid Mr. Hudson $200,000 in
consideration of the exclusivity of his services. In 1998, the Company paid
Hudson & Company, Inc., Mr. Hudson's architectural firm, approximately $246,000
for architectural services rendered to the Company.
For information concerning employment agreements with certain officers see
"Employment and Noncompetition Agreements."
TRANSACTIONS WITH AFFILIATED MANAGEMENT CLUBS
The timeshare owners associations for each of the Company's resorts have
entered into a management agreement, which authorizes one of the centralized
organizations, referred to as Silverleaf Club, Oak N' Spruce Club, or Crown Club
(collectively "Management Clubs") to manage the resorts on a centralized and
collective basis. Crown Club consists of several individual Club agreements
which have terms of two to five years with a minimum of two renewal options
remaining. The Management Clubs, in turn, have entered into management
agreements with the Company, whereby the Company manages the operations of the
resorts. Pursuant to the management agreements, the Company receives a
management fee equal to the lesser of 15% of gross revenues for Silverleaf Club
and Oak N' Spruce Club and 10% to 15% of dues collected for owners associations
within Crown Club or the
19
<PAGE> 22
net income of each Management Club; however, if the Company does not receive the
aforementioned maximum fee, such deficiency is deferred for payment in
succeeding year(s), subject again to the net income limitation. The Silverleaf
Club 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. Oak
N' Spruce Club was legally merged into a Club within Silverleaf Club effective
January 1999. During the year ending December 31, 1998, the Company recorded
management fees of $2.5 million from Management Clubs.
The direct expenses of operating the resorts are paid by the Management
Clubs. To the extent the Management Clubs provide payroll, administrative, and
other services that directly benefit the Company, a separate allocation charge
is generated and paid by the Company to the Management Clubs. During the year
ending December 31, 1998, the Company incurred $5.8 million of expenses under
these agreements. At December 31, 1998, the net receivable from the Management
Clubs totaled $4.1 million.
OTHER MATTERS AT MEETING
The Board of Directors does not know of any matters to be presented at the
1999 Annual Meeting other than those mentioned in this Proxy Statement. If any
other matters are properly brought before the 1999 Annual Meeting, it is
intended that the proxies will be voted in accordance with the best judgment of
the person or persons voting such proxies.
UNDERTAKING TO PROVIDE COPY OF FORM 10-K
THE ANNUAL REPORT FOR THE COMPANY FOR 1998 AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS, BUT EXCLUDING
EXHIBITS, MAY BE OBTAINED WITHOUT CHARGE BY WRITTEN REQUEST TO THE CORPORATE
SECRETARY OF THE COMPANY. ALL SUCH REQUESTS SHOULD BE DIRECTED TO SANDRA G.
CEARLEY, SECRETARY, SILVERLEAF RESORTS, INC., 1221 RIVER BEND DRIVE, SUITE 120,
DALLAS, TEXAS 75247.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any shareholder who meets the requirements of the proxy rules under the
Exchange Act may submit to the Board of Directors proposals to be considered for
submission to the shareholders at the 2000 Annual Meeting of Shareholders. Any
such proposal must comply with the requirements of Rule 14a-8 under the Exchange
Act and be submitted in writing by notice delivered or mailed by first-class
United States mail, postage prepaid, to the Corporate Secretary, Silverleaf
Resorts, Inc., 1221 River Bend Drive, Suite 120, Dallas, Texas 75247 and must be
received no later than December 31, 1999. The chairman of the meeting may refuse
to acknowledge the introduction of any shareholder proposal not made in
compliance with the foregoing procedures.
By Order of the Board of Directors,
SANDRA G. CEARLEY
Secretary
Dallas, Texas
April 14, 1999
20
<PAGE> 23
SILVERLEAF RESORTS, INC.
PROXY FOR 1999 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Silverleaf Resorts, Inc., a Texas
corporation, hereby acknowledges receipt of the Notice of 1999 Annual Meeting of
Shareholders and Proxy Statement and hereby appoints James B. Francis, Jr. and
Stuart Marshall Bloch as proxies, each with the power to appoint his substitute,
and hereby authorizes them to represent and to vote, as designated on the
reverse side, all the shares of the Common Stock of Silverleaf Resorts, Inc.
held of record by the undersigned on March 19, 1999 at the 1999 Annual Meeting
of Shareholders to be held on May 18, 1999 or at any adjournment or postponement
thereof.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction is made, this
proxy will be voted FOR Proposals 1 and 2 and in accordance with the
recommendations of the Board of Directors on any other matters that may properly
come before the meeting.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
Please mark your
votes as indicated [ X ]
in this sample
1. ELECTION OF CLASS II DIRECTORS
For the nominees NOMINEES: SHARON K. BRAYFIELD
listed to the right
MICHAEL A. JENKINS
WITHHOLD AUTHORITY
to vote for the nominees __________________________
listed to the right For all nominees except as
noted above
2. RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT
ACCOUNTANTS OF THE CORPORATION.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Signature
---------------------------------------
Signature
---------------------------------------
Date
------------------------
<PAGE> 24
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor, administrator,
trustee or guardian, please give title as such. If a corporation, please sigh in
full corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized name by authorized person.
