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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 001-13003
SILVERLEAF RESORTS, INC.
(Exact Name of Registrant as Specified in its Charter)
TEXAS 75-2259890
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1221 RIVER BEND DRIVE, SUITE 120 75247
DALLAS, TEXAS (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: 214-631-1166
Securities Registered Pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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COMMON STOCK, $.01 PAR NYSE
VALUE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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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 [ ]
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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 March
13, 2000 as reported on the New York Stock Exchange, was approximately
$24,177,081. At March 13, 2000, there were 12,889,417 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 1999 fiscal year, are incorporated by reference in Part III of
this Form 10-K.
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FORM 10-K INDEX
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PAGE
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PART I
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Items 1 and 2. Business and Properties.................................................... 4
Item 3. Legal Proceedings.......................................................... 37
Item 4. Submission of Matters to a Vote of Security Holders........................ 37
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...... 37
Item 6. Selected Financial Data.................................................... 38
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 40
Item 7a. Quantitative and Qualitative Disclosures about Market Risk................. 47
Item 8. Financial Statements and Supplementary Data................................ 47
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure................................................ 47
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 47
Item 11. Executive Compensation..................................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 49
Item 13. Certain Relationships and Related Transactions............................. 49
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........... 49
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PART I
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/or operates fourteen "drive-to resorts" in Texas, Missouri,
Illinois, Alabama, Georgia, South Carolina, Pennsylvania, and Tennessee (the
"Drive-to Resorts"). Silverleaf also owns and/or operates four "destination
resorts" in Missouri, Mississippi, and Massachusetts (the "Destination
Resorts"). The Company also owns four properties that are currently under
development, including two properties being developed as Drive-to Resorts near
Kansas City, Missouri, and Philadelphia, Pennsylvania, and two properties being
developed as Destination Resorts in Las Vegas, Nevada, and Galveston, Texas
(collectively, the "New Resorts"). The Drive-to Resorts are designed to appeal
to vacationers seeking comfortable and affordable accommodations in locations
convenient to their residences and are located proximate to major metropolitan
areas. 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 or near
areas with national tourist appeal, offer Silverleaf customers the opportunity
to upgrade into a more upscale resort area as their lifestyles and travel
budgets permit. Both the Drive-to Resorts and the Destination Resorts
(collectively, the "Existing Resorts") provide a quiet, relaxing vacation
environment. The New Resorts extend Silverleaf's core strategy of drive-to
getaways with opportunity to upgrade to Destination Resorts. Silverleaf believes
its resorts offer its customers an economical alternative to commercial vacation
lodging. The average price for an annual one-week vacation ownership ("Vacation
Interval") for a two-bedroom unit at the Existing Resorts was $8,896 for 1999
and $8,166 for 1998, which compares favorably to an industry average price of
$13,017 for 1998.
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 on a daily basis for little or no additional charge; and (iii)
the right to exchange a Vacation Interval for a different time period or
different Existing Resort through Silverleaf's internal exchange program. These
benefits are subject to availability and other limitations. Most Silverleaf
Owners may also enroll in the Vacation Interval exchange network operated by
Resort Condominiums International ("RCI").
OPERATIONS
Silverleaf is in the business of marketing and selling Vacation Intervals.
Silverleaf's principal activities in this regard include (i) acquiring and
developing timeshare resorts; (ii) marketing and selling one week annual and
biennial Vacation Intervals to prospective first-time owners as well as leasing
unsold Vacation Intervals (i.e., sampler sales); (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 potential development of any future 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 of its resorts which are
located in close proximity to major metropolitan areas. This practice allows the
Company an alternative to the more expensive marketing costs of subsidized
airfare and lodging which are typically associated with 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 to
ten-year period. The Company has historically financed its operations by
borrowing from third-party lending institutions at an advance rate of up to 85%
of eligible customer receivables. At December 31, 1999, the Company had a
portfolio of approximately 51,886 customer promissory notes totaling
approximately $317.5 million with an average yield of 13.7% per annum, which
compares favorably to the Company's weighted average cost of borrowings of 9.2%
per annum. At December 31, 1999, approximately $14.3 million in principal, or
4.5% of the Company's loans to Silverleaf Owners, were 61 to 120 days past due,
and approximately $27.4 million in principal, or 8.6% 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.
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Each Existing Resort has a timeshare owners' association (a "Club"). Each
Club operates through a centralized organization, either Silverleaf Club or
Crown Club (collectively "Management Clubs"), to manage the Existing Resorts on
a 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 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 to be covered by monthly dues paid
by Silverleaf Owners to their respective Clubs as well as income generated by
the operation of certain amenities at the Existing Resorts.
RECENT DEVELOPMENTS
o INVESTMENTS IN MARKETING PROGRAMS AND TECHNOLOGY. During 1999, the
Company was able to increase its tour flow and sales through significant
investments in marketing programs, such as implementation of an automated
scanning system to improve efficiency in leads processing, addition of a
fourth telemarketing call center, and investments in state-of-the-art
predictive dialing equipment for its call centers. Due to recent growth
rates and implementation of new leads generation programs, the Company is
experiencing higher than anticipated marketing costs in the first quarter
of 2000. The Company has increased its headcount at the call centers
significantly since the fourth quarter of 1999, which created
inefficiencies due to lack of available training resources. In addition,
the Company is moving towards reliance on national retail chains for its
leads generation efforts, in addition to the traditional local programs.
The transition to national programs has been slower in generating leads
than originally planned.
o INCREASED SALES OF VACATION INTERVALS AT EXISTING RESORTS. The Company
has been successful in improving internal sales growth at the Existing
Resorts. During 1999, Silverleaf sold 15,829 Vacation Intervals
(excluding upgrades) compared to 12,934 and 6,592 during 1998 and 1997,
respectively. Total sales increased to $195.5 million in 1999 from $138.4
million and $70.1 million in 1998 and 1997, respectively.
o INCREASED CREDIT FACILITIES. The Company increased its revolving credit
facilities to $310.0 million during 1999, from $130.0 million at December
31, 1998.
o IMPROVEMENTS IN COLLECTION EFFORTS. The Company has improved its
provision for uncollectible notes from 12.1% of Vacation Interval sales
in 1998 to 10.0% of Vacation Interval sales in 1999. This is primarily
the result of improvements in the collection efforts, including increased
staffing, improved collections administrative software, and the
implementation of a program through which certain delinquent loans are
assumed by existing owners with a consistent payment history. Collection
efforts have also been enhanced with the implementation of auto-payment
mechanisms. In late 1998, the Company initiated an auto-debit program
whereby new Vacation Interval buyers can elect to have their monthly dues
and installment payments charged directly to their bank accounts. In
December 1999, Vacation Interval buyers were given the option to have
their monthly dues and installment payments charged directly to their
credit cards.
o CONTINUED DEVELOPMENT OF TIMBER CREEK RESORT. Timber Creek Resort,
located 50 miles south of St. Louis, Missouri, has 72 existing units.
Silverleaf intends to develop approximately 528 additional units (27,456
Vacation Intervals) at the Timber Creek Resort. During 1999, the Company
completed construction of a state-of-the-art miniature golf course at the
resort.
o CONTINUED DEVELOPMENT OF FOX RIVER RESORT. Fox River Resort, located
approximately 70 miles southwest of Chicago, Illinois, has 126 existing
units. Silverleaf intends to develop approximately 674 additional units
(35,048 Vacation Intervals) on this property. During 1999, the Company
added 66 units at the resort and purchased undeveloped land near the
resort for $805,000.
o CONTINUED DEVELOPMENT OF OAK N' SPRUCE RESORT. Oak N' Spruce Resort,
located 134 miles west of Boston, has 180 existing units. Silverleaf
intends to develop approximately 520 additional units (27,040 Vacation
Intervals) at this resort. During 1999, the Company added 48 units,
lighted tennis facilities, and an outdoor pool at the resort.
o CONTINUED DEVELOPMENT OF THE VILLAGES. The Villages Resort, located on
the shores of Lake Palestine, approximately 100 miles east miles east of
Dallas, Texas, has 294 existing units. Silverleaf intends to develop
approximately 406 additional units (20,908 Vacation Intervals) at this
resort. During 1999, the Company added 18 units at the resort and
purchased undeveloped land near the resort for $1.5 million.
o CONTINUED DEVELOPMENT OF HOLIDAY HILLS RESORT. Holiday Hills Resort,
located two miles east of Branson, Missouri, in Taney County, has 176
existing units. Silverleaf intends to develop approximately 624
additional units (32,396 Vacation Intervals) at
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this resort. During 1999, the Company added 98 units at the resort,
completed construction of several amenities, including an outdoor pool,
clubhouse, restaurant, and a conference room and pro shop overlooking the
golf course, and purchased undeveloped land near the resort for $500,000.
o CONTINUED DEVELOPMENT OF HILL COUNTRY RESORT. Hill Country Resort,
located near Canyon Lake in the hill country of central Texas between
Austin and San Antonio, has 226 existing units. Silverleaf intends to
develop approximately 374 additional units (19,418 Vacation Intervals) at
this resort. During 1999, the Company added 37 units, a state-of-the-art
miniature golf course, and an activity center at the resort.
o CONTINUED DEVELOPMENT OF APPLE MOUNTAIN RESORT. Apple Mountain Resort,
located 72 miles north of Atlanta, Georgia, has 48 existing units.
Silverleaf intends to develop approximately 560 additional units (29,120
Vacation Intervals) at this resort. During 1999, the Company completed
construction of several amenities at the resort, including a 9,445 square
foot administration building and activity center, tennis court, swimming
pool, stable and corral, miniature golf course, and volleyball and
basketball courts.
o DEVELOPMENT OF GALVESTON, TEXAS, 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 (i.e., Silverleaf's Seaside
Resort). Silverleaf intends to develop approximately 282 units (14,664
Vacation Intervals) at this resort. During 1999, the Company began
construction on the first 24 units at this resort. Completion of these
units will occur in the second quarter of 2000.
o DEVELOPMENT OF NEW RESORTS. 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). In
December 1998, the Company purchased 1,940 acres of undeveloped land near
Philadelphia, Pennsylvania, for approximately $1.9 million. The property
will be developed as a Drive-to Resort (i.e., Beech Mountain Resort).
Silverleaf intends to develop 408 units (21,216 Vacation Intervals) at
this resort. In September 1998, the Company purchased 260 acres of
undeveloped land near Kansas City, Missouri, for approximately $1.5
million. The property will be developed as a Drive-to Resort (i.e.,
Lakeview Lodge). Silverleaf intends to develop approximately 608 units
(31,616 Vacation Intervals) at this resort.
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, 1999, Silverleaf owned approximately 1,641 acres of land that were
available for further development of timeshare units and amenities under
Silverleaf's master plan. Silverleaf's master plan projects development of 6,099
additional units (including 204 units presently under construction), which would
result in 316,682 additional Vacation Intervals. During 1999, Silverleaf has
enhanced its marketing efforts, including increased telemarketing capacity
through 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, enhanced its collection efforts, and
commenced the development of new lodging facilities. Furthermore, Silverleaf
continues to emphasize its Endless Escape program designed to accommodate
shorter, "getaway" vacations and market secondary products such as biennial
(alternate year) intervals and short-term leasing packages ("Samplers") which
are designed to broaden Silverleaf's potential market with a wider price range
of product.
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 a
Vacation Interval (i) in a newly designed and constructed standard unit; (ii) in
a larger or higher quality unit; (iii) during a more desirable time period; (iv)
at a different Drive-to Resort; or (v) at a Destination Resort. Silverleaf has
designed specific marketing and sales programs to sell upgraded Vacation
Intervals to Silverleaf Owners. Silverleaf continues to construct higher
quality, larger units for sale as upgraded Vacation Intervals, as well as
developing sites at Las Vegas and Galveston as new upgrade locations. For
example, at Ozark Mountain Resort in Branson, Missouri, luxury "Presidents View"
units are offered for sale at prices ranging from $12,500 to $21,000 per
Vacation Interval. Vacation Intervals exchanged for upgraded Vacation Intervals
are added back to inventory, at historical cost, for resale at the current sales
price. Sales of upgrades increased to $50.4 million in 1999 from $30.0 million
in 1998 (upgrade sales represented 26.4% of Silverleaf's Vacation Interval sales
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in 1999 as compared to 22.1% for 1998). Silverleaf incurs additional sales
commissions upon the resale of Vacation Intervals reconveyed to Silverleaf by
purchasers of upgraded Vacation Intervals. Such sales absorb their proportionate
share of marketing costs to the extent they displace the sale of another
Vacation Interval, although they do not directly result in incremental marketing
costs.
DEVELOPMENT OF ADDITIONAL RESORTS AND ACQUISITIONS. In 1999, Silverleaf
acquired undeveloped land for future development near three of its 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 with
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 analyzing expansion through acquiring
and/or developing additional resorts.
COMPETITIVE ADVANTAGES
Silverleaf believes the following characteristics afford it certain
competitive advantages:
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, allowing Silverleaf Owners to use vacant units for no additional
charge, subject to availability and certain limitations. Silverleaf believes it
is the only timeshare operator in the industry which offers its customers these
benefits. Silverleaf Owners can also conveniently enjoy non-lodging resort
amenities year-round on a "country-club" basis.
SUBSTANTIAL INTERNAL GROWTH CAPACITY. At December 31, 1999, Silverleaf had
an inventory of 17,073 Vacation Intervals, and a master plan to construct new
units which will result in up to 241,022 additional Vacation Intervals at the
Existing Resorts and 75,660 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 response to demand. Weather permitting, new units at Existing
Resorts can normally be constructed on an "as needed" basis within 180 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, and the Endless Escape Program.
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
20 years of experience in the timeshare industry and since 1995 has served as a
trustee member of American Resort Developers Association ("ARDA"), the primary
trade association for the timeshare industry. The Company's senior officers have
an average of eighteen years of experience in the timeshare industry.
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RESORTS SUMMARY
The following tables set forth certain information regarding each of the
Existing Resorts and New Resorts at December 31, 1999, unless otherwise
indicated.
EXISTING RESORTS
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VACATION INTERVALS
UNITS AT RESORTS AT RESORTS
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PRIMARY INVENTORY INVENTORY DATE
MARKET AT PLANNED AT PLANNED SALES
RESORT/LOCATION SERVED 12/31/99 EXPANSION(B) 12/31/99 EXPANSION COMMENCED
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DRIVE-TO RESORTS
Holly Lake Dallas- 130 108 427 5,508(d) 1982
Hawkins, TX Ft. Worth, TX
The Villages Dallas- 294 406 1,796 20,908(f)(i) 1980
Flint, TX Ft. Worth, TX
Lake O' The Woods Dallas- 64 16 189 800(d) 1987
Flint, TX Ft. Worth, TX
Piney Shores Houston, TX 154 446(i) 1,532 23,176(e)(i) 1988
Conroe, TX
Hill Country Austin-San 226(h) 374(i) 2,755 19,418(e)(i) 1984
Canyon Lake, TX Antonio, TX
Timber Creek St. Louis, 72 528(i) 1,901 27,456(e)(i) 1997
DeSoto, MO MO
Fox River Chicago, IL 126 674(i) 1,911 35,048(e)(i) 1997
Sheridan, IL
Apple Mountain Atlanta, GA 48 560(i) 1,770 29,120(e)(i) 1999
Clarkesville, GA
Treasure Lake Central PA 145 --(f) 959 --(f) 1998
Dubois, PA
Alpine Bay Central AL 54 --(f) 4 --(f) 1998
Alpine, AL
Beech Mountain Lakes Eastern PA, 54 --(f) 124 --(f) 1998
Drums, PA NY
Foxwood Hills Eastern SC, 114 --(f) 322 --(f) 1998
Westminster, SC Western GA
Tansi Resort Nashville- 124 --(f) 367 --(f) 1998
Crossville, TN Knoxville, TN
Westwind Manor Dallas- 37 --(f) 342 --(f) 1998
Bridgeport, TX Ft. Worth, TX
DESTINATION RESORTS LOCATIONS
Ozark Mountain Branson, 136 388(i) 444 20,152(e)(i) 1982
Kimberling City, MO MO
Holiday Hills Branson, 176 624(i) 898 32,396(e)(i) 1984
Branson, MO MO
Oak N' Spruce Boston, MA 180 520(i) 1,164 27,040(e)(i) 1998
South Lee, MA New York, NY
Hickory Hills Gulf Coast, 80 --(e) 168 --(e) 1998
Gautier, MS MS
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Total 2,214 4,644 17,073 241,022
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VACATION INTERVALS
SOLD
--------------------- AVERAGE
PRIMARY IN SALES
MARKET THROUGH 1999 PRICE AMENITIES/
RESORT/LOCATION SERVED 12/31/99 ONLY (A) IN 1999 ACTIVITIES(C)
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DRIVE-TO RESORTS
Holly Lake Dallas- 6,073 1,179 $ 7,390 B,F,G,H,M,S,T
Hawkins, TX Ft. Worth, TX
The Villages Dallas- 13,084 2,552 7,996 B,F,H,M,S,T
Flint, TX Ft. Worth, TX
Lake O' The Woods Dallas- 3,011 450 7,596 F,M,S,T(g)
Flint, TX Ft. Worth, TX
Piney Shores Houston, TX 6,284 1,623 9,403 B,F,H,M,S,T
Conroe, TX
Hill Country Austin-San 8,625 1,681 9,279 H,M,S,T(g)
Canyon Lake, TX Antonio, TX
Timber Creek St. Louis, 1,843 1,049 8,617 B,F,G,H,M,S,T
DeSoto, MO MO
Fox River Chicago, IL 4,641 2,967 9,923 B,F,G,H,M,S,T
Sheridan, IL
Apple Mountain Atlanta, GA 726 671 9,877 G,H,M,S,T
Clarkesville, GA
Treasure Lake Central PA 6,372 57 4,975 G,B,F,S,T,M
Dubois, PA
Alpine Bay Central AL 2,750 1 5,344 G,B,F,S,T,M
Alpine, AL
Beech Mountain Lakes Eastern PA, 2,630 57 4,530 B,F,S,T
Drums, PA NY
Foxwood Hills Eastern SC, 5,396 253 7,690 G,T,F,S,M(g)
Westminster, SC Western GA
Tansi Resort Nashville- 5,905 27 6,676 T,G,F,B,M
Crossville, TN Knoxville, TN
Westwind Manor Dallas- 1,545 -- -- G,F,M,S,T
Bridgeport, TX Ft. Worth, TX
DESTINATION RESORTS LOCATIONS
Ozark Mountain Branson, 6,404 296 9,699 B,F,H,M,S,T
Kimberling City, MO MO
Holiday Hills Branson, 8,118 903 10,465 G,S,T(g)
Branson, MO MO
Oak N' Spruce Boston, MA 8,196 2,052 8,421 F,G,S,T
South Lee, MA New York, NY
Hickory Hills Gulf Coast, 3,912 11 3,573 B,F,G,M,S,T
Gautier, MS MS
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Total 95,515 15,829 $ 8,896
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NEW RESORTS
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PRIMARY DATE PLANNED PLANNED EXISTING AND PLANNED
RESORT/LOCATION MARKET SERVED ACQUIRED UNITS(i) INTERVALS(i) AMENITIES/ACTIVITIES
---------------- ------------- --------- ---------- ------------ --------------------
<S> <C> <C> <C> <C> <C>
Galveston, TX........ Houston, TX 1997(j) 282 14,664(e) B,F,M,S,T
Las Vegas, NV........ Las Vegas, NV 1997 157 8,164(e) S
Smithville, MO....... Kansas City, MO 1998 608(k) 31,616(e)(k) F,M,S,T(g)
Drums, PA............ Philadelphia, PA 1998 408(k) 21,216(e)(k) B,F,M,S,T
----- ------
Total........ 1,455 75,660
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(a) These totals do not reflect sales of upgraded Vacation Intervals to
Silverleaf Owners. For the year ended December 31, 1999, upgrade sales at
the Existing Resorts were as follows:
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AVERAGE SALES PRICE
FOR THE YEAR
ENDED 12/31/99
UPGRADED VACATION -- NET OF
RESORT INTERVALS SOLD EXCHANGED INTERVAL
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Holly Lake....................... 302 $ 3,664
The Villages..................... 1,208 4,686
Lake O' The Woods................ 175 3,661
Piney Shores..................... 895 4,390
Hill Country..................... 1,535 4,845
Timber Creek..................... 475 3,793
Fox River........................ 741 3,756
Ozark Mountain................... 940 5,180
Holiday Hills.................... 3,712 4,388
Oak N' Spruce.................... 1,218 4,032
Beech Mountain................... 16 5,462
Treasure Lake.................... 154 5,230
Foxwood Hills.................... 4 3,917
Apple Mountain................... 25 1,913
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11,400 $ 4,420
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</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, 1999:
<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................................. 162 180 40 24 -- 406
Lake O' The Woods............................ -- -- 16 -- -- 16
Piney Shores................................. 266 -- 180 -- -- 446
Hill Country................................. 175 -- 172 24 3 374
Timber Creek................................. 156 276 96 -- -- 528
Fox River.................................... 248 240 138 48 -- 674
Ozark Mountain............................... 364 -- 12 -- 12 388
Holiday Hills................................ 268 132 150 60 14 624
Oak N' Spruce................................ 304 96 72 48 -- 520
Apple Mountain............................... 482 -- 78 -- -- 560
----- --- ----- --- --- -----
2,479 924 1,004 204 33 4,644
===== === ===== === === =====
</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.
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<PAGE> 10
"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 2000.
(c) Principal amenities available to Silverleaf Owners at each resort are
indicated by the following symbols: B -- boating; F -- fishing; G -- golf;
H -- horseback riding; M -- miniature golf; S -- swimming pool; and
T -- tennis.
(d) These figures are based on either 50 or 51 one-week intervals per unit.
(e) These figures are based primarily on 52 one-week intervals per unit.
(f) The Company has management rights with respect to these resorts and
presently has no ability to expand the resorts.
(g) Boating is available near the resort.
(h) Includes three units which have not been finished-out for accommodations and
which are currently used for other purposes.
(i) 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.
(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.
FEATURES COMMON TO EXISTING RESORTS
Drive-to Resorts are primarily 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. Destination Resorts are located in or
near areas with national tourist appeal. Features common to the Existing Resorts
include the following:
ENDLESS ESCAPE PROGRAM. The Company's Endless Escape Program offers
Silverleaf Club members a benefit not typically enjoyed by many other timeshare
owners. In addition to the right to use a unit one week per year, the Endless
Escape Program allows Silverleaf Club members to also use vacant units at any of
the Company's owned resorts for no additional charge. The Endless Escape Program
is limited based on the availability of units. 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 the owned Vacation
Interval. The Company believes this program is important as many vacationers
prefer shorter two to three day vacations.
The Company amended the Endless Escape Program for customers purchasing a
Vacation Interval after July 1, 1998. Customers purchasing a Vacation Interval
at a Drive-to Resort after July 1, 1998 are unable to use the Endless Escape
Program at the Company's Destination Resorts. However, customers who became
Silverleaf Owners before such date are able to use the Endless Escape Program at
all Destination Resorts, except the Galveston and Las Vegas resorts. Silverleaf
Owners who purchase a Vacation Interval at any Destination Resort after such
date are able to use the Endless Escape Program at any of the Company's owned
resorts.
YEAR-ROUND USE OF AMENITIES. Even when not using the lodging facilities,
Silverleaf Owners have unlimited year-round day usage 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 may be used on an annual basis to (i) exchange an interval for a different
interval (week) at the same resort so long as the different interval is of an
equal or lower rating; or (ii) exchange an interval for the same interval (week)
at any other of the Existing Resorts. These intra-company exchange rights are a
convenience Silverleaf provides its members as an accommodation to them, and are
conditioned upon availability of the desired interval or resort. The Company
executed approximately 2,044 intra-company exchanges in 1999. In addition, for
an annual fee of approximately $86, most Silverleaf Owners may join the exchange
program administered by RCI.
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<PAGE> 11
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.
MANAGEMENT CLUBS. Each of the Existing Resorts has a Club for the benefit of
the Silverleaf Owners. The Clubs operate under one of the Management Clubs to
manage the Existing Resorts on a centralized and collective basis. The
Management Clubs have contracted with the Company to perform the supervisory,
management, and maintenance functions granted by the Clubs to the Management
Clubs. 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. Due to Nevada timeshare laws, the
proposed resort in Las Vegas will be managed by the Company as a separate club.
ON-SITE SECURITY. The Existing Resorts are patrolled by security personnel
who are either employees of the Management Clubs or personnel of independent
security service companies which have contracted with the Clubs.
DESCRIPTION OF EXISTING RESORTS OWNED AND OPERATED BY THE COMPANY
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 acres may not be developed due to deed restrictions. At December 31, 1999,
approximately 27 acres were developed and approximately 46 remaining acres are
currently planned by the Company to be used for future development.
At December 31, 1999, 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 (two 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, five 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, 1999, the resort contained 6,500 Vacation Intervals, of
which 427 intervals remained available for sale. The Company plans to build an
additional 108 units, which would yield an additional 5,508 Vacation Intervals
available for sale. Vacation Intervals at the resort are currently priced from
$6,900 to $10,800 for one-week stays. During 1999, 1,179 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 sports resort popular for
water-skiing and boating. Lake O' The Woods is a quiet wooded resort where
Silverleaf Owners can enjoy the seclusion of dense pine forests less than two
hours from the Dallas-Fort Worth metroplex. The Villages is a mixed-use
development of single-family lots and timeshare units, while Lake O' The Woods
has been developed solely as a timeshare resort. The two resorts contain
approximately 650 acres, of which approximately 379 may not be developed due to
deed restrictions. At December 31, 1999, approximately 103 acres were developed,
such that approximately 168 remaining acres are currently planned by the Company
to be used for future development.
At December 31, 1999, 294 units were completed at The Villages and 64 units
were completed at Lake O' The Woods. An additional 406 units and 16 units are
planned for development at The Villages and Lake O' The Woods, respectively.
There are five 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 and one-half bath, wood siding exterior duplexes and
fourplexes; (iii) two bedroom, two bath, brick and
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<PAGE> 12
siding exterior fourplexes; (iv) two bedroom, two bath, siding exterior
fourplexes, sixplexes, and three-story twelveplexes; and (v) 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.
"Presidents Harbor" units feature a larger, more spacious floor plan (1,255
square feet), front and back verandas, washer and dryer, and a more elegant
decor.
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; a new 9,445 square foot activity center with
movie theater, wide-screen television, reading room, tanning beds, pool table,
and small indoor gym; 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,
shuffleboard, volleyball, and basketball courts. Guests can also ride horses or
rent bicycles.
At December 31, 1999, The Villages contained 14,880 total Vacation
Intervals, of which 1,796 remained available for sale. The Company plans to
build 406 additional units at The Villages, which would yield an additional
20,908 Vacation Intervals available for sale. At December 31, 1999, Lake O' The
Woods contained 3,200 total Vacation Intervals, of which 189 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 $6,900
to $11,800 for one-week stays (and start at $4,500 for biennial intervals),
while one-week "Presidents Harbor" intervals are priced at $8,400 to $19,000
depending on the value rating of the interval. During 1999, 2,552 and 450
Vacation Intervals were sold at The Villages and Lake O' The Woods,
respectively.
PINEY SHORES RESORT. Piney Shores Resort is a quiet, wooded resort ideally
located for day-trips from metropolitan areas in the southeastern Gulf Coast
area of Texas. Piney Shores Resort is located on the shores of Lake Conroe,
approximately 40 miles north of Houston, Texas. At December 31, 1999, the resort
contained approximately 116 acres, of which approximately 34 acres are planned
by the Company for future development.
At December 31, 1999, 154 units were completed and an additional 446 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. Certain "lodge-style" units 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, 4,626-square foot activity center with big-screen television, 32-seat
movie theatre, covered wagon rides, and facilities for horseshoes, archery,
shuffleboard, and basketball.
At December 31, 1999, the resort contained 7,816 Vacation Intervals, of
which 1,532 remained available for sale. The Company intends to build 446
additional units, which would yield an additional 23,176 Vacation Intervals
available for sale. Vacation Intervals at the resort are currently priced from
$6,900 to $19,000 for one-week stays (and start at $4,500 for biennial
intervals). During 1999, 1,623 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,
1999, Hill Country Resort contained approximately 122 acres, of which
approximately 25 acres are currently planned by the Company to be used for
future development.
At December 31, 1999, 226 units were completed and an additional 374 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
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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, or fireplace. 64
units feature the Company's new "lodge style". "Presidents Villas" units feature
a larger, more spacious floor plan (1,228 square feet), front and back verandas,
washer and dryer, and a more elegant decor.
Amenities at the resort include a 7,943-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. Area sights and activities include water-tubing on the nearby
Guadalupe River and visiting the many tourist attractions in San Antonio, such
as Sea World, The Alamo, The River Walk, and the San Antonio Zoo.
At December 31, 1999, the resort contained 11,380 Vacation Intervals, of
which 2,755 remained available for sale. The Company plans to build 374
additional units, which collectively would yield 19,418 additional Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $6,900 to $11,800 for one-week stays (and start at $4,500 for
biennial intervals), while one-week "Presidents Villas" intervals are priced at
$8,400 to $21,000 depending on the value rating of the interval. During 1999,
1,681 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 family music
and 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, 1999, 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, 1999, 136 units were completed and an additional 388 units
are planned for development. There are two types of units at the resort: (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. "Presidents View"
units feature a panoramic view of Table Rock Lake, a larger, more spacious floor
plan (1,255 square feet), front and back verandas, washer and dryer, and a more
elegant decor.
The primary recreational amenity available at the resort is Table Rock Lake,
a 43,100-acre public lake. Other recreational facilities and improvements at the
resort include a swimming beach with dock, an activities center with pool table,
covered boat dock and launch ramp, olympic-sized swimming pool, concession area
with dressing facilities, lighted tennis court, nature trails, horseback riding
trails, two picnic areas, two playgrounds, miniature golf course, and a
competitive sports area accommodating volleyball, basketball, tetherball,
horseshoes, shuffleboard, and archery. Guests can also rent or use canoes,
paddle boats, or rowboats. Owners of neighboring condominium units developed by
the Company in the past are also entitled to use these amenities pursuant to use
agreements with the Company. Similarly, owners of Vacation Intervals are
entitled to use certain amenities of these condominium developments, including a
wellness center featuring a jacuzzi and exercise equipment.
At December 31, 1999, the resort contained 6,848 Vacation Intervals, of
which 444 remained available for sale. The Company plans to build 388 additional
units which would yield an additional 20,152 Vacation Intervals available for
sale. Vacation Intervals at the resort are currently priced from $8,900 to
$13,000 for one-week stays, while one-week "Presidents View" intervals are
priced at $12,500 to $21,000 depending on the value rating of the interval.
During 1999, 296 Vacation Intervals were sold.
HOLIDAY HILLS RESORT. Holiday Hills Resort 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
Resort is a mixed-use development of single-family lots, condominiums, and
timeshare units. At December 31, 1999, the resort contained approximately 395
acres, including a 91-acre golf course, of which approximately 119 acres are
currently planned by the Company to be used for future development.
At December 31, 1999, 176 units were completed and an additional 624 units
are planned for future development. There are four types of timeshare units at
this resort: (i) two bedroom, two bath, one-story fourplexes, (ii) one bedroom,
one bath, with upstairs loft, log construction duplexes, (iii) two bedroom, two
bath, two-story fourplexes, and (iv) two bedroom, two bath, three-story
sixplexes. Each unit includes a living room with sleeper sofa, full kitchen,
whirlpool tub, and color television. Certain units will include a fireplace,
ceiling fans, imported tile, oversized sliding glass doors, vaulted ceilings,
and rattan or pine furniture. "Presidents Fairways"
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units feature a larger, more spacious floor plan (1,255 square feet), front and
back verandas, washer and dryer, and a more elegant decor.
Taneycomo Lake, a popular lake for trout fishing, is approximately three
miles from the resort, and Table Rock Lake is approximately ten miles from the
resort. Amenities at the resort include a newly renovated 18-hole golf course,
miniature golf course, tennis court, picnic area, camp sites, archery range,
basketball court, activity area which includes shuffleboard, horseshoes, and a
children's playground, a new 5,356 square foot clubhouse that includes a pro
shop, restaurant, and meeting space, and a new 2,800 square foot outdoor
swimming pool with a wellness center. Lot and condominium unit owners are also
entitled to use these amenities pursuant to use agreements between the Company
and certain homeowners' associations.
At December 31, 1999, the resort contained 9,016 Vacation Intervals, of
which 898 remained available for sale. The Company plans to build 624 additional
units, which would yield an additional 32,396 Vacation Intervals available for
sale. Vacation Intervals at the resort are currently priced from $8,900 to
$14,000 for one-week stays (and start at $6,000 for biennial intervals), while
one-week "Presidents Fairways" intervals are priced at $12,500 to $21,000
depending on the value rating of the interval. During 1999, 903 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, Timber Creek Resort was
operated as a campground by a nationwide campground operator. At December 31,
1999, the resort contained approximately 331 acres, of which approximately 142
acres are currently planned by the Company to be used for development.
At December 31, 1999, 72 units were completed and an additional 528 units
are planned for future development. All units are two bedroom, two bath units.
Amenities within each new unit 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 35-acre
fishing lake. Other amenities, either existing or currently under construction,
include a clubhouse, a par three executive golf course, swimming pool, two
lighted tennis courts, themed miniature golf course, volleyball court,
shuffleboard/multi-use sports court, archery, horseback riding trail with stable
and corral, a welcome center, and hook-ups for recreational vehicles. The
Company plans to construct a lake pavilion, indoor pool, indoor heated cedar
sauna, and boat docks. Other planned improvements by the Company include
conversion of the existing sales and registration buildings and renovation of
the clubhouse and clubhouse pool. The Company is obligated to maintain and
provide campground facilities for members of the previous owner's campground
system.
At December 31, 1999, the resort contained 3,744 Vacation Intervals and
1,901 Vacation Intervals remained available for sale. The Company plans to build
528 additional units, which would collectively yield 27,456 additional Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $7,400 to $11,800 for one-week stays (and start at $4,500 for
biennial intervals). During 1999, 1,049 Vacation Intervals were sold.
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, Fox River Resort was operated
as a campground by a nationwide campground operator. At December 31, 1999, the
resort contained approximately 371 acres, of which approximately 216 acres are
currently planned by the Company to be used for future development.
At December 31, 1999, 126 units are completed and an additional 674 units
are planned for future development. All units are two bedroom, two bath units.
Amenities within each unit 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 currently available or under construction at the resort include a
new par three five-hole executive golf course, outdoor swimming pool, clubhouse,
covered pool, miniature golf course, horseback riding trails, stable and corral,
welcome center, new sales and registration buildings, and hook-ups for
recreational vehicles. The Company plans to construct a tennis court, sports
court, shuffleboard courts, outdoor pavilion, playground, and children's movie
theater. The Company also offers 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.
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At December 31, 1999, the resort contained 6,552 Vacation Intervals and
1,911 Vacation Intervals remained available for sale. The Company plans to build
674 additional units, which would collectively yield 35,048 additional Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $7,400 to $11,800 for one-week stays (and start at $4,500 for
biennial intervals). During 1999, 2,967 Vacation Intervals were sold.
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 Resort is a mixed-use development which includes a hotel and
timeshare units. At December 31, 1999, 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, 1999, the resort had 180 units and an additional 520 units
are planned for development. There are seven types of existing units at the
resort: (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 21-room hotel at the resort
which could be converted to timeshare use. 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 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, 1999, the resort contained 9,360 Vacation Intervals, of
which 1,164 remained available for sale. The Company plans to build 520
additional "lodge-style" units, which would yield an additional 27,040 Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $6,400 to $14,000 for one-week stays (and start at $3,700 for
biennial intervals). During 1999, 2,052 Vacation Intervals were sold.
APPLE MOUNTAIN RESORT. In October 1998, the Company acquired the Apple
Mountain Resort in Clarkesville, Georgia, which is approximately 125 miles north
of Atlanta, Georgia. The resort is situated on 285 acres of beautiful open
pastures and rolling hills, with 162 acres being the resort's golf course. At
December 31, 1999, approximately 91 acres are currently planned by the Company
to be used for future development.
At December 31, 1999, the resort had 48 units and an additional 560 units
are planned for development. The "Lodge Get-A-Way" units were the first units
developed. Each unit is approximately 827 square feet with all units being two
bedrooms, two full baths. Amenities within each unit include a living room with
sleeper sofa, full kitchen, whirlpool tub, and color television. Certain units
include a fireplace, ceiling fans, imported ceramic tile, oversized sliding
glass doors, electronic door locks, and rattan or pine furniture.
Amenities at the resort include a 9,445 square foot administration building
and activity center featuring a wide screen television, pool tables, arcade
games, snack area, and movie theatre. Other amenities at the resort include a
tennis court, swimming pool, horseshoes, stable and corral, shuffleboard,
archery, miniature golf course, and volleyball and basketball courts. This
resort is located in the Blue Ridge Mountains and offers accessibility to many
other outdoor recreational activities, including Class 5 white water rapids. A
member services building is currently under construction.
The primary recreational amenity available to the resort is an established
18-hole golf course situated on approximately 150 acres of open fairways and
rolling hills. Elevation of the course is 1,530 feet at the lowest point and
1,600 feet at the highest point. The course is designed with approximately
104,000 square feet of bent grass greens. The course's tees total approximately
2 acres, fairways total approximately 24 acres, and primary roughs total
approximately 29 acres, all covered with TIF 419 Bermuda. The balance of grass
totals approximately 95 acres and is covered with Fescue. The course has 19 sand
bunkers totaling 19,800 square feet and there are approximately seven miles of
cart paths. Lining the course are apple orchards totaling approximately four
acres, with white pine roughs along twelve of the fairways. The course has a
five-acre irrigation lake and two ponds, one approximately 3,000 square feet and
located on the fourth hole and the second approximately 1,500 square feet and
located on the fifteenth hole. The driving range covers approximately nine acres
and has 20,000 square feet of tee area covered in TIF 419 Bermuda. The pro shop
offers a full line of golfing accessories and equipment. There is also a golf
professional on site to offer lessons and to plan events for the club.
At December 31, 1999, the resort contained 2,496 Vacation Intervals, of
which 1,770 remained available for sale. The Company
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plans to build 560 additional "lodge-style" units, which would yield an
additional 29,120 Vacation Intervals available for sale. Vacation Intervals at
the resort are currently priced from $7,400 to $11,800 for one-week stays (and
start at $4,500 for biennial intervals). During 1999, 671 Vacation Intervals
were sold.
DESCRIPTION OF EXISTING RESORTS MANAGED BY THE COMPANY
The management rights to the following resorts were acquired via the
acquisition of Crown Resort Co., LLC in May 1998.
ALPINE BAY RESORT. 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. At December 31, 1999, there are four
unsold Vacation Intervals at this resort. During 1999, one Silverleaf Club
Endless Escape Program membership was sold. No further development is planned at
this resort.
HICKORY HILLS RESORT. Hickory Hills 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. At December 31, 1999, there are approximately 168 unsold
Vacation Intervals at this resort. During 1999, 11 Vacation Intervals and
Silverleaf Club Endless Escape Program memberships were sold. No further
development is planned at this resort.
BEECH MOUNTAIN LAKES RESORT. Beech Mountain Lakes 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.
At December 31, 1999, there are approximately 124 unsold Vacation Intervals at
this resort. During 1999, 57 Vacation Intervals and Silverleaf Club Endless
Escape Program memberships were sold. No further development is planned at this
resort.
TREASURE LAKE RESORT. Treasure Lake 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. At
December 31, 1999, there are approximately 959 unsold Vacation Intervals at this
resort. During 1999, 57 Vacation Intervals and Silverleaf Club Endless Escape
Program memberships were sold. No further development is planned at this resort.
FOXWOOD HILLS RESORT. Foxwood Hills is located in Oconee County, South
Carolina, near Lake Hartwell and is approximately 100 miles northeast of
Atlanta. The resort contains 114 units and has a golf course, restaurant/lounge,
indoor pool/sauna, outdoor pool, clubhouse, miniature golf course, tennis
courts, pontoon boat, and playground. At December 31, 1999, there are
approximately 322 unsold Vacation Intervals at this resort. During 1999, 253
Vacation Intervals and Silverleaf Club Endless Escape Program memberships were
sold. No further development is planned at this resort.
TANSI RESORT. Tansi Resort is located in Cumberland County, Tennessee, 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.
At December 31, 1999, there are approximately 367 unsold Vacation Intervals at
this resort. During 1999, 27 Vacation Intervals and Silverleaf Club Endless
Escape Program memberships were sold. No further development is planned at this
resort.
WESTWIND MANOR RESORT. Westwind Manor is located in Wise County, Texas, on
Lake Bridgeport and is approximately 65 miles northwest of the Dallas-Fort Worth
metroplex. The resort contains 37 units and has a golf course,
restaurant/lounge, outdoor pool, clubhouse, miniature golf course, tennis
courts, and playground. At December 31, 1999, there are approximately 342 unsold
Vacation Intervals at this resort. During 1999, no Vacation Intervals or
Silverleaf Club Endless Escape Program memberships were sold. No further
development is planned at this resort.
DESCRIPTION OF NEW RESORTS
Silverleaf has four locations that are presently in various stages of
development or pre-development as New Resorts. Except as specifically set forth
below, the Company has not scheduled target dates for construction, completion
of initial units, or commencement of sales and marketing efforts for these
locations. Until such target dates have been definitively designated, the
Company will continue to evaluate the development potential of each of these New
Resorts.
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SILVERLEAF'S SEASIDE RESORT. In December 1997 and February 1998, the Company
acquired over 83 acres of land, including beachfront, in Galveston, Texas. These
adjacent 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 282 new units situated in three-story 12-plex
buildings, with construction of 24 units in process as of December 31, 1999.
Completion of these 24 units will occur in the second quarter of 2000. Sales
efforts began in January 2000. 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 "Presidents Dunes" units which will overlook the Gulf of Mexico and
offer 1,255 square feet of floor space, front and back 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 282 units which would yield 14,664 Vacation
Intervals for sale. Sales efforts began in January 2000. Vacation Intervals at
the resort will be priced from $7,400 to $17,500 for one-week stays (and start
at $5,500 for biennial intervals).
SILVERLEAF'S 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 two-bedroom and 74 one-bedroom units. This resort will feature
balconies, washer and dryer, whirlpool tubs, living room with sleeper sofa, full
kitchen, and color television.
Amenities at the resort will 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 Vacation Intervals at the resort
will be priced from $9,500 to $13,500 for one-week stays.
LAKEVIEW LODGE. In September 1998, the Company completed its purchase of 260
acres of undeveloped land near Kansas City, Missouri, to be developed as a
Drive-to Resort. At December 31, 1999, 608 units are planned for development,
with all units being two bedroom, two bath. 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.
The primary recreational amenity available at the resort is an adjoining
fishing lake. Other planned amenities include a clubhouse, outdoor pavilion,
swimming pool, lighted tennis courts, themed miniature golf course, volleyball
court, shuffleboard/multi-use sports court, archery, horseback riding trail,
stable and corral, lake pavilion, indoor pool, indoor heated cedar sauna,
welcome center, and hook-ups for recreational vehicles.
The Company plans to build 608 units which would yield 31,616 Vacation
Intervals for sale. The resort is in the preliminary development phase. Vacation
Intervals at the resort will be priced from $6,500 to $12,500 for one-week stays
(and start at $3,800 for biennial intervals).
BEECH MOUNTAIN RESORT. In December 1998, the Company acquired 1,998 acres of
undeveloped land near Philadelphia, Pennsylvania, to be developed as a Drive-to
Resort. At December 31, 1999, all units planned for development will be two
bedroom, two bath. 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.
The primary recreational amenity available at the resort is a fishing lake.
Other planned amenities include a clubhouse, outdoor pavilion, swimming pool,
lighted tennis courts, themed miniature golf course, volleyball court,
shuffleboard/multi-use sports court, archery, horseback riding trail, stable and
corral, lake pavilion, indoor pool, indoor heated cedar sauna, welcome station,
and hook-ups for recreational vehicles.
The Company has received regulatory approval to develop 408 units, which
would yield 21,216 Vacation Intervals for sale. The
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resort is in the preliminary development phase. Vacation Intervals at the resort
will be priced from $6,500 to $12,500 for one-week stays (and start at $3,800
for biennial intervals).
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. In 1999, the Company was able to increase its tour flow and
sales through significant investments in marketing programs, such as
implementation of an automated scanning system to improve efficiency in leads
processing, addition of a fourth telemarketing call center, and investments in
state-of-the-art predictive dialing equipment for its call centers. Due to
recent growth rates and implementation of new leads generation programs, the
Company is experiencing higher than anticipated marketing costs in the first
quarter of 2000. The Company has increased its headcount at the call centers
significantly since the fourth quarter of 1999, which created inefficiencies due
to lack of available training resources. In addition, the Company is moving
towards reliance on national retail chains for its leads generation efforts, in
addition to the traditional local programs. The transition to national programs
has been slower in generating leads than originally planned.
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 90 minute 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 three to fifteen calendar days has passed.
Sales representatives receive commissions ranging from 5% to 14% of the
sales price depending on established guidelines. Sales managers also receive
commissions of 1% to 3% and are subject to commission chargebacks in the event
the purchaser fails to make the first required payment. Sales directors also
receive commissions of 1% to 3%, 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
26.4% and 22.1% of the Company's gross revenues from Vacation Interval sales for
1999 and 1998, respectively. 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, assists 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, 1999, the Company employed
approximately 856 sales representatives at its Existing Resorts.
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CUSTOMER FINANCING
The Company offers financing to the buyers of Vacation Intervals at the
Company's resorts. These buyers typically 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 generally
payable over a seven-year to ten-year period, and are secured by a first
mortgage on the Vacation Interval. The Company bears the risk of defaults on
these promissory notes, and this risk is heightened inasmuch as the Company
generally does not verify the credit history of its customers and will provide
financing if the customer is presently employed and meets certain household
income criteria.
The Company's credit experience is such that in 1999 it allocated 10.0% of
the purchase price of Vacation Intervals to its provision for uncollectible
notes. In addition, in 1999 the Company decreased sales by $3.7 million for
customer returns (cancellations of sales transactions in which the customer
fails to make the first installment payment) and increased operating, general
and administrative expenses by $1.2 million for customer releases (voluntary
cancellations of properly recorded sales transactions which in the opinion of
management is consistent with the maintenance of overall customer goodwill). 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
sales and marketing costs must be incurred again to resell the Vacation
Interval. Although the Company, in many cases, may have recourse against a
Vacation Interval buyer for the unpaid price, certain states have laws 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. In 1998, the Company implemented a
program through which a significant number of delinquent loans have been assumed
by existing owners with a consistent payment history.
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, 1999, the Company had notes receivable (including notes
unrelated to Vacation Intervals) in the approximate principal amount of $318.9
million, was contingently liable with respect to approximately $2.2 million
principal amount of customer notes sold with recourse, and had an allowance for
uncollectible notes of approximately $32.3 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 $310.0 million collateralized by
customer promissory notes and mortgages. At December 31, 1999, the Company had
borrowings under such revolving credit facilities in the approximate principal
amount of $178.3 million. These facilities permit borrowings up to 85% 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, 1999, the Company had a portfolio of approximately
51,886 Vacation Interval customer promissory notes in the approximate principal
amount of $317.5 million, of which approximately $41.7 million in principal
amount was 61 days or more past due and therefore ineligible as collateral.
At December 31, 1999, the Company's portfolio of customer notes receivable
had an average yield of 13.7%. At such date, the Company's borrowings, which
bear interest at variable rates, had a weighted average cost of 9.2%. 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 experienced 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.
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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 Vacation 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 to
ten-year period, and customer notes had an average maturity of 5.7 years at
December 31, 1999. The Company's revolving credit facilities mature between
December 2000 and October 2005. Accordingly, there could be a mismatch between
the Company's cash receipts and the Company's cash disbursements obligations in
December 2000 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 Drive-to 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, for example, was 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.
All construction activities are managed internally by the Company. The
Company typically completes the development of a new resort's basic
infrastructure and models within one year, with additional units to be added
within 180 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.
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CLUBS / MANAGEMENT CLUBS
Upon purchasing a Vacation Interval at a resort, the purchaser automatically
becomes a member of a homeowner's association ("Club") for that particular
resort. At the resorts owned by the Company, the Company has the right to
appoint the directors of the Clubs (collectively, the "Silverleaf Club").
However, the Company does not have this right related to the Clubs of the
exclusively managed resorts (collectively, the "Crown Club"). 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 1999 and 1998,
approximately 268 and 201 foreclosures, respectively, resulted from Silverleaf
Owners' failure to pay monthly dues.
Each Existing Resort has a Club which has entered into a Management Club
Agreement with the Management Clubs. The Management Club Agreements authorize
the Management Clubs to manage the Existing Resorts on a centralized and
collective basis. The consolidation of resort operations through the Management
Clubs 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 Management Clubs, rather than the Company.
At December 31, 1999, the Management Clubs had 568 full-time employees and
is solely responsible for their salaries. The Management Clubs are 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 Management Clubs provide
payroll, administrative, and other services that directly benefit the Company,
the Company reimburses the Management Clubs for such services.
The Management Clubs collect dues 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. Silverleaf Club dues are currently $49.98 per month ($24.99 for
biennial owners), except for certain members of Oak N' Spruce Resort which
prepay dues at an annual rate of approximately $350. Crown Club dues range from
$275 to $355 annually. Such amounts are used by the Management Clubs to pay the
costs of operating the Existing Resorts and the management fees due to the
Company pursuant to Management Agreements between the Company and the Management
Clubs. These Management Agreements authorize the Company to manage and operate
the resorts and provide for a maximum management fee equal to 15% of gross
revenues for Silverleaf Club or 10% to 15% of dues collected for Clubs within
Crown Club, but the Company's right to receive such fee on an annual basis is
limited to the amount of each Management Club's net income. However, if the
Company does not receive the maximum fee, 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 2000 management fee
will be subject to the net income limitation. For financial reporting purposes,
management fees from the Management Clubs are recognized based on the lower of
(i) the aforementioned maximum fees or (ii) each Management Club's net income.
The Silverleaf Club Management Agreement is effective through March 2010, and
will continue year-to-year thereafter unless cancelled by either party. Crown
Club consists of several individual Club agreements which have terms of two to
five years with a minimum of two renewal options remaining. At December 31,
1999, there were approximately 77,000 and 24,000 Silverleaf Owners who pay dues
to Silverleaf Club and Crown Club, respectively.
As the Company develops new resorts, their respective Clubs are expected to
be added to the Silverleaf Club Management Agreement. However, the timeshare
laws of some states, including Nevada, prohibit the collective dues/expense
arrangement used by Silverleaf Club. Accordingly, the Club for the New Resort in
Las Vegas will not be managed by Silverleaf Club but will be managed directly by
Silverleaf.
OTHER OPERATIONS
OPERATION OF AMENITIES. The Company owns, operates, and receives the
revenues from the marina at The Villages, the golf course and pro shop at
Holiday Hills, and the golf course and pro shop at Apple Mountain. Although the
Company owns the golf course at Holly Lake, a homeowners association in the
development operates the golf course. In general, the Management Clubs receive
revenues from the various amenities which require a usage fee, such as
watercraft rentals, horseback rides, and restaurants.
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UNIT LEASING. The Company also recognizes 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, 1999 and 1998, the Company recognized
$4.3 million and $2.8 million, respectively, in revenues from Sampler sales.
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 The Villages, Piney Shores, Ozark Mountain,
Holly Lake, Timber Creek, and Fox River resorts. 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, Piney Shores, and
Timber Creek resorts, and the waste-water facilities at the Ozark Mountain,
Holly Lake, Piney Shores, Hill Country, and The Villages resorts.
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 survey, Silverleaf Owners expressed a strong interest in a Texas resort on
the Gulf of Mexico. In response, the Company acquired land in Galveston, Texas,
which is currently being developed as the Company's Seaside Resort. This resort
was developed in lieu of the Pass Christian property. Additionally, the Company
owns approximately 44 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.
PARTICIPATION IN VACATION INTERVAL EXCHANGE NETWORKS
INTERNAL EXCHANGES. As a convenience to Silverleaf Owners, each purchaser of
a Vacation Interval from the Company has certain exchange privileges which may
be used to: (i) exchange an 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 an interval for the same interval of equal or lower rating at any
other Existing Resort. These intra-company exchange rights are conditioned upon
availability of the desired interval or resort. Owners of Vacation Intervals at
the Drive-to Resorts generally do not have exchange rights to Destination
Resorts.
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 Resort, are
registered with RCI, and approximately one-third of Silverleaf Owners
participate in RCI's exchange network. 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 a Vacation Interval for an occupancy right
in another participating resort by listing the 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.
For example, 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 more than 3,300 participating resort facilities and over 2.4 million
members worldwide as of December 31, 1999. During 1999, 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 $86 per year. Exchange rights require an additional fee of
approximately $118 for domestic exchanges and $155 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 entered the industry. Other companies in
the timeshare industry, including Sunterra
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<PAGE> 23
Corporation ("Sunterra"), Fairfield Communities, Inc. ("Fairfield"), Starwood
Hotels & Resorts Worldwide Inc. ("Starwood"), Ramada Vacation Suites ("Ramada"),
TrendWest Resorts, Inc. ("TrendWest"), and Bluegreen Corporation ("Bluegreen")
are, or are subsidiaries of, public companies, with the enhanced access to
capital and other resources that public ownership implies.
Fairfield, Sunterra, and Bluegreen 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. Sunterra also owns a resort which is located near and competes with the
Company's Piney Shores Resort. Additionally, the Company believes there are a
number of public or 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.
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 acquisition and development of 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. Certain states in which the Company operates have adopted specific laws
and regulations regarding the marketing and sale of Vacation Intervals. The laws
of most states 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 certain states require
the Company to deliver an offering statement (or disclosure statement), 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 fifteen calendar days following
the date the contract was signed by the purchaser.
The Company markets and sells its Vacation Intervals to residents of certain
states adjacent or proximate to 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. 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 does not register all of its resorts in each of
the states where it registers certain resorts.
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<PAGE> 24
The Company believes it is in material compliance with applicable federal
and state laws and regulations relating to the sales 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 to households which may include individuals who may not be
financially sophisticated. 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 and state 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 to, among other things, 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 partnerships and corporations
that were merged into the Company prior to 1996 (the "Merged Companies", or
individually "Merged Company"). Some of the settlements, injunctions, and
decrees resulting from litigation and enforcement actions (the "Orders") to
which certain of the Merged Companies consented purport to bind all successors
and assigns, and accordingly binds 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 Merged 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 Merged 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 particular case in 1988, a
Merged Company pled guilty to deceptive uses of the mails in connection with
promotional sales literature mailed to prospective timeshare purchasers and
agreed to pay a judicially imposed fine of $1.5 million and restitution of
$100,000. The requirements of the Orders are substantially what applicable state
and federal laws and regulations mandate, but the consequence of violating the
Orders may be that sanctions (including possible financial penalties and
suspension or loss of licensure) may be imposed more summarily and may be
harsher than would be the case if the Orders did not bind the Company. In
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
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<PAGE> 25
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, to comply with such requests.
ENVIRONMENTAL MATTERS. Under various federal, state, and local environmental
laws, ordinances, and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up hazardous or toxic
substances or petroleum product releases at such property, and may be held
liable to a governmental entity or to third parties for property damage and tort
liability and for investigation and clean-up costs incurred by such parties in
connection with the contamination. Such laws typically impose clean-up
responsibility and liability without regard to whether the owner or operator
knew of or caused the presence of the contaminants, and the liability under such
laws has been interpreted to be joint and several unless the harm is divisible
and there is a reasonable basis for allocation of responsibility. The cost of
investigation, remediation, or removal of such substances may be substantial,
and the presence of such substances, or the failure to properly remediate the
contamination on such property, may adversely affect the owner's ability to sell
such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances at a
disposal or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in 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 ACMs 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 some 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.
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In 1994, the Company conducted Phase I environmental assessments at several
of its Existing Resorts in order to identify potential environmental concerns.
Also, the Company has obtained more recent Phase I environmental assessments for
each of the remaining Existing Resorts and New Resorts. These Phase I
assessments were carried out in accordance with accepted industry practices and
consisted of non-invasive investigations of environmental conditions at the
properties, including a preliminary investigation of the sites and
identification of publicly known conditions concerning properties in the
vicinity of the sites, physical site inspections, review of aerial photographs
and relevant governmental records where readily available, interviews with
knowledgeable parties, investigation for the presence of above ground and
underground storage tanks presently or formerly at the sites, and the
preparation and issuance of written reports. The Company's Phase I assessments
of the properties have not revealed any environmental liability that the Company
believes would have a material adverse effect on the Company's business, assets,
or results of operations taken as a whole; nor is the Company aware of any such
material environmental liability. Nevertheless, it is possible that the
Company's Phase I assessments do not reveal all environmental liabilities or
that there are material environmental liabilities of which the Company is
unaware. Moreover, there can be no assurance that (i) future laws, ordinances,
or regulations will not impose any material environmental liability or (ii) the
current environmental condition of the 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. The Texas Natural Resource Conservation
Commission 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, 1999, the Company employed 3,561 persons. The Company
believes employee relations are good. None of the employees are represented by a
labor union.
INSURANCE
The Company carries comprehensive liability, fire, hurricane, and storm
insurance with respect to the Company's resorts, with policy specifications,
insured limits, and deductibles customarily carried for similar properties which
the Company believes are adequate. There are, however, certain types of losses
(such as losses arising from floods and acts of war) that are not generally
insured because they are either uninsurable or not economically insurable.
Should an uninsured loss or a loss in excess of insured limits occur, the
Company could lose its capital invested in a resort, as well as the anticipated
future revenues from such resort, and would continue
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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 employee medical and dental claims reduced by certain stop-loss provisions.
The Company also self-insures for property damage to certain vehicles and heavy
equipment.
DESCRIPTION OF CERTAIN INDEBTEDNESS
EXISTING INDEBTEDNESS. The Company has revolving credit agreements with four
lenders providing for loans up to an aggregate of $310.0 million, which the
Company uses to finance the sale of Vacation Intervals, to finance construction,
and for working capital needs. In addition, the Company has a $75.0 million
senior subordinated note due 2008, with interest payable semi-annually on April
1 and October 1, guaranteed by all of the Company's present and future domestic
restricted subsidiaries. The other foregoing loans mature between December 2000
and September 2006, 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. 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 85% of the unpaid balance of certain
eligible customer notes receivable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained elsewhere herein.
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 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.
The debt agreements also contain restrictive covenants which include (i)
restrictions on liens against and dispositions of collateral, (ii) restrictions
on distributions to affiliates and prepayments of loans from affiliates, (iii)
restrictions on changes in control and management of the Company, (iv)
restrictions on sales of substantially all of the assets of the Company, and (v)
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.
Such credit facilities also contain operating covenants requiring the
Company to (i) maintain an aggregate minimum tangible net worth ranging from
$17.5 million to $110 million, minimum liquidity, including a debt to equity
ratio of not greater than 2.5 to 1 and a liquidity ratio of not less than 5%, an
interest coverage ratio of at least 2.0 to 1, a marketing expense ratio of no
more than 0.55 to 1, a consolidated cash flow to consolidated interest expense
ratio of at least 2.0 to 1, and total tangible capital funds greater than $200
million plus 75% of net income beginning October 1999; (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; and (iv) refrain
from modifying or terminating certain timeshare documents. 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.
The following table summarizes the Company's loans, other notes payable,
capital lease obligations, and senior subordinated notes at December 31, 1999:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
$60 million revolving loan agreement, which contains certain financial
covenants, due December 2000, 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%.............................. $ 39,623
$70 million revolving loan agreement, capacity reduced by amounts outstanding
under the $10 million inventory loan agreement, which contains certain
financial covenants, due August 2004, principal and interest payable from
the proceeds obtained on customer notes receivable pledged as collateral
for the note, at an interest rate of LIBOR plus 2.65%.......................... 45,680
$75 million revolving loan agreement, which contains certain financial
covenants, due April 2005, 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 3.00%........................................ 62,215
$75 million revolving loan agreement, which contains certain financial
covenants, due November 2005, principal and interest payable from the
proceeds obtained on customer notes receivable pledged as collateral for
the note, at an interest rate of LIBOR plus
2.67%.......................................................................... 14,150
</TABLE>
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<TABLE>
<S> <C>
$30 million revolving loan agreement, which contains certain financial
covenants, due September 2006, principal and interest payable from the
proceeds obtained on customer notes receivable pledged as collateral for
the note, at an interest rate of Prime......................................... 6,678
$10 million inventory loan agreement, which contains certain financial
covenants, due August 2002, interest payable monthly at an interest rate of
LIBOR plus 3.50%............................................................... 9,937
Various notes, due from April 2000 through November 2009, collateralized by
various assets with interest rates ranging from 4.2% to 14.0%.................. 4,088
---------
Total notes payable...................................................... 182,371
Capital lease obligations........................................................... 11,800
---------
Total notes payable and capital lease obligations........................ 194,171
10 1/2% senior subordinated notes, due 2008, interest payable semi-annually
on April 1 and October 1, guaranteed by all of the Company's present and
future domestic restricted subsidiaries........................................ 75,000
---------
Total.................................................................... $ 269,171
=========
</TABLE>
At December 31, 1999, LIBOR rates were from 5.82% to 6.00%, and the Prime
rate was 8.50%.
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. The Company does not presently have any
commitments from third-parties 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, copies of which are filed as exhibits (or incorporated by reference)
to this report on Form 10-K.
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. 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 below, the worldwide
timeshare industry has expanded significantly since 1980, both in Vacation
Interval sales volume (in millions) and in number of Vacation Interval owners
(in thousands).
<TABLE>
<CAPTION>
DOLLAR VOLUME NUMBER OF
OF VACATION VACATION
YEAR INTERVAL SALES INTERVAL OWNERS
---- -------------- ---------------
<S> <C> <C>
1980 490 155
1981 965 220
1982 1,165 335
1983 1,340 470
1984 1,735 620
1985 1,580 805
1986 1,610 970
1987 1,940 1,125
1988 2,390 1,310
1989 2,970 1,530
1990 3,240 1,800
1991 3,740 2,070
1992 4,250 2,363
1993 4,505 2,760
1994 5,115 3,186
1995 5,123 3,744
1996 5,253 4,099
1997 5,710 4,532
1998 6,125 4,998
</TABLE>
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<PAGE> 29
United States Market. In 1998, approximately 270,000 intervals in U.S.
properties were sold at a weighted average price of $10,537 per interval,
resulting in total sales volume of $3.06 billion. By comparison, total sales
volume in 1992 was $1.3 billion. Between 1985 and 1998, the number of resorts
grew by 187%, the number of weekly intervals owned grew by more than 550%, and
the number of owners grew by just over 500%. Approximately two million
households owned intervals in U.S. timeshare properties at January 1, 1998.
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:
o higher quality accommodations and services;
o involvement of well-recognized hotel companies in the industry;
o improved availability of financing for purchasers of Vacation Intervals;
o increased flexibility of timeshare use;
o increased regulation of the timeshare industry; and
o improved overall image of the timeshare industry.
Despite the growth in the timeshare industry, Vacation Interval ownership
had achieved only an approximate 1.95% market penetration of all U.S. households
at July 1, 1998.
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.
The Consumer. The median age of a Vacation Interval owner in 1999 in the
United States was 49 years. The following table shows the estimated household
incomes of Vacation Interval owners in the United States:
<TABLE>
<CAPTION>
HOUSEHOLD INCOME BEFORE TAXES
<S> <C>
Under $50,000............................. 21.8%
$50,000 to $74,999........................ 32.0%
$75,000 to $99,999........................ 22.7%
$100,000 or more.......................... 23.5%
</TABLE>
The U.S. Census Bureau has estimated that 29.5% of all U.S. households in
1997 had a household income between $25,000 and $50,000, which represents
approximately 45% of the Company's customer base. Based upon a sampling of
approximately 5% of the Company's customers who purchased a Vacation Interval in
1999, approximately 11% of such customers had an annual income less than
$25,000, approximately 45% of such customers had an income of $25,000 to
$50,000, and approximately 44% of such customers had an annual income greater
than $50,000.
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
29
<PAGE> 30
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 who 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 consequently
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 to ten-year period, and are secured by a first
mortgage on the Vacation Interval. The Company bears the risk of defaults on
these promissory notes, and this risk is heightened as the Company generally
does not verify the credit history of its customers.
The Company's credit experience is such that in 1999 it allocated 10.0% of
the purchase price of Vacation Intervals to its provision for uncollectible
notes. In addition, in 1999 the Company decreased sales by $3.7 million for
customer returns and increased operating, general and administrative expenses by
$1.2 million for customer releases. If a buyer of a Vacation Interval defaults,
the Company generally must foreclose on the Vacation Interval and attempt to
resell it; the associated marketing, selling, and administrative costs from the
original sale are not recovered; and such costs must be incurred again to resell
the Vacation Interval. Although the Company, in many cases, may have recourse
against a Vacation Interval buyer for the unpaid price, certain states have laws
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. In 1998, the Company implemented a
program through which delinquent loans are assumed by existing owners with a
solid credit record.
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, 1999, the Company had Vacation Interval customer notes
receivable in the approximate principal amount of $317.5 million, was
contingently liable with respect to approximately $2.2 million principal amount
of customer notes sold with recourse, and had an allowance for uncollectible
notes of approximately $32.3 million. There can be no assurance that such
allowances are 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 $310.0 million collateralized by customer promissory notes and
mortgages. At December 31, 1999, the Company had such borrowings from
lenders in the approximate principal amount of $178.3 million. The Company's
lenders typically lend the Company up to 85% 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, 1999, the Company had a portfolio of approximately
51,886 Vacation Interval customer notes receivable in the approximate
principal amount of $317.5 million, of which approximately $41.7 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.
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<PAGE> 31
INTEREST RATE MISMATCH. At December 31, 1999, the Company's portfolio of
customer loans had a weighted average fixed interest rate of 13.7%. At such
date, the Company's borrowings (which bear interest at variable rates)
against the portfolio had a weighted average cost of funds of 9.2%. 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 to ten-year period, and customer notes had an average
maturity of 5.7 years at December 31, 1999. The Company's related revolving
credit facilities mature between December 2000 and September 2006, with
$60.0 million of these credit facilities maturing in December 2000.
Accordingly, there could be a mismatch between the Company's anticipated
cash receipts and cash disbursements in December 2000 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.
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. Several 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 several states 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 certain states require the Company to deliver an offering statement
(or disclosure statement), 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. 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 fifteen calendar days
following the date the contract was signed by the purchaser.
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. 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
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<PAGE> 32
laws; and other related laws. The Company does not register all of its resorts
in each of the states where it registers certain resorts.
The Company believes it is in material compliance with federal and state
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, state, or other laws and regulations, or
that violations of law will not have adverse implications for the Company,
including negative public relations, potential litigation, and regulatory
sanctions. The expense, negative publicity, and potential sanctions associated
with the failure to comply with applicable laws or regulations could have a
material adverse effect on the Company's results of operations, liquidity, and
financial position. Further, there can be no assurance that either the federal
government or states having jurisdiction over the Company's business will not
adopt 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 to, among other things, 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 binds 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 particular 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.
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<PAGE> 33
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 expanded
into several other states. The recent expansion into new geographic areas 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 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. There is no assurance the Company can comply with all
of these requirements economically or otherwise. 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. Expansion of the Company's sales and marketing activities 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 operations, 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 four resorts and sites for four additional resorts and has acquired
management rights with respect to seven 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
Sunterra, Fairfield, Starwood, Ramada, TrendWest, and Bluegreen are, or are
subsidiaries of, public companies with enhanced access to capital and other
resources.
Fairfield, Sunterra, and Bluegreen 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. Sunterra also owns a resort which is located near and competes with the
Company's Piney Shores Resort. Additionally, the Company believes there are a
number of public or 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.
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 acquisition and
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<PAGE> 34
development of 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.
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. The enactment of "slow growth" or "no-growth"
initiatives or changes in labor or other laws in any area where the Company's
projects are located could also delay, affect the cost or feasibility of, or
preclude entirely the expansion planned at each of the Existing Resorts and New
Resorts or the development of other resorts.
Most of the Company's resorts are located in rustic areas, often requiring
the Company to provide public utility water and sanitation services in order to
proceed with development. Such activities are subject to permission and
regulation by governmental agencies, the denial or conditioning of which could
limit or preclude development. Operation of the utilities also subjects the
Company to risk of liability in connection with both the quality of fresh water
provided and the treatment and discharge of waste-water.
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 retain 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
Management Clubs 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
expanded into several other states. 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
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<PAGE> 35
law, the owner or operator of real property generally is liable for the costs of
removal or remediation of certain hazardous or toxic substances located on, in,
or emanating from, such property, as well as related costs of investigation and
property damage. Such laws often impose liability without regard to whether the
owner knew of, or was responsible for, the presence of the hazardous or toxic
substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell or
lease a property or to borrow money using such real property as collateral.
Other federal and state laws require the removal or encapsulation of
asbestos-containing material when such material is in poor condition or in the
event of construction, demolition, remodeling, or renovation. Other statutes may
require the removal of underground storage tanks. Noncompliance with these and
other environmental, health, or safety requirements may result in the need to
cease or alter operations at a property. Further, the owner or operator of a
site may be subject to common law claims by third parties based on damages and
costs resulting from violations of environmental regulations or from
contamination associated with the site. Phase I environmental reports (which
typically involve inspection without soil sampling or ground water analysis)
were prepared in 1994 by independent environmental consultants for several of
the Existing Resorts, and more recent Phase I environmental reports have been
obtained for each of the remaining resorts. The reports did not reveal, nor is
the Company aware of, any environmental liability that would have a material
adverse effect on the Company's results of operations, liquidity, or financial
position. No assurance, however, can be given that these reports reveal all
environmental liabilities or that no prior owner created any material
environmental condition not known to the Company.
Certain environmental laws impose liability on a previous owner of property
to the extent hazardous or toxic substances were present during the prior
ownership period. A transfer of the property may not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by it or by its predecessors.
The Company believes that it is in compliance in all material respects with
all federal, state, and local ordinances and regulations regarding hazardous or
toxic substances. 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 Resort, are currently qualified for
participation in the RCI exchange network. Oak N' Spruce Resort 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.
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, the Clubs, nor the Management Clubs has insurance coverage.
Should an uninsured loss or a loss in excess of insured limits occur, the
Company could be required to repair damage at its expense or lose its capital
invested in a resort, as well as the anticipated future revenues from such
resort. Moreover, the Company 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
35
<PAGE> 36
reporting purposes, 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
Vacation Intervals when cash is received in the form of a down payment and as
payments on customer loans are received. The Company's December 31, 1999
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 $86.7 million, primarily attributable to this method of reporting Vacation
Interval sales, before utilization of any available deferred tax benefits (up to
$58.5 million at December 31, 1999), including net operating loss carryforwards.
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 1998, the
Company received a ruling from the Internal Revenue Service granting the request
effective January 1, 1997. As a result, the Company's alternative minimum
taxable income for 1997 through 2000 was or will be increased each year by
approximately $9 million, which results in the Company paying substantial
additional federal and state taxes in those years. As a result of this change,
the Company paid $668,000 and $4.8 million of federal alternative minimum tax
for 1997 and 1998, respectively, and estimates total federal alternative minimum
tax of $5.1 million for 1999.
LIMITATIONS ON USE OF CARRYOVERS FROM OWNERSHIP CHANGE. The Company
estimates that it had net operating loss carryforwards of approximately $121.4
million at December 31, 1999, for regular federal income tax purposes related
primarily to the deferral of installment sale gains. In addition to the general
limitations on the carryback and carryforward of net operating losses under
Section 172 of the Code, Section 382 of the Code imposes additional limitations
on the utilization of a net operating loss by a corporation following various
types of ownership changes which result in more than a 50 percentage point
change in ownership of a corporation within a three year period. Mr. Mead owned
100% of the stock of the Company until December 29, 1995, at which time his
ownership decreased to approximately 99% and Ms. Brayfield acquired 1%. As a
result of the Company's initial public offering in June 1997, Mr. Mead's
ownership of the Company further decreased to approximately 67%. After the
closing of the secondary offering in April 1998 and taking into account shares
owned by his family and shares subsequently purchased in the open market by both
Silverleaf and Mr. Mead, Mr. Mead owned 56.3% of the outstanding shares of
Common Stock of the Company as of December 31, 1999. 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 and marketing 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. In 1999, the Company completed its year 2000
compliance review of its information technology ("IT") systems and non-IT
systems and successfully implemented all related upgrades, replacements, or
modifications necessary. The
36
<PAGE> 37
Company experienced virtually no year 2000 business interruptions either
internally or related to its major vendors. The total cost of the year
2000-related enhancements was approximately $430,000, including an estimate of
internal payroll committed to year 2000-related projects.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently subject to litigation arising in the normal course
of its business. From time to time, such litigation includes claims regarding
employment, tort, contract, truth-in-lending, the marketing and sale of Vacation
Intervals, and other consumer protection matters. Litigation has been initiated
from time to time by persons seeking individual recoveries for themselves, as
well as, in some instances, persons seeking recoveries on behalf of an alleged
class. In the judgement of the Company, none of these lawsuits or claims against
the Company, either individually or in the aggregate, is likely to have a
material adverse effect on the Company, its business, results of operations, or
financial condition.
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 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, 1998:
First Quarter.............................. $ 29 1/8 $ 24 3/8
Second Quarter ............................ 25 5/8 15 7/8
Third Quarter.............................. 15 1/8 7 9/16
Fourth Quarter............................. 14 6 13/16
Year Ended December 31, 1999:
First Quarter.............................. $ 10 1/4 $ 6 3/8
Second Quarter ............................ 8 9/16 6 7/16
Third Quarter.............................. 8 7/8 6 1/16
Fourth Quarter............................. 7 1/2 5 11/16
Year Ended December 31, 2000:
First Quarter (through March 13, 2000)..... $ 7 3/16 $ 4 3/8
</TABLE>
On March 13, 2000, there were approximately 53 holders of record of the
Company's Common Stock and the estimated number of beneficial stockholders was
2,325.
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.
37
<PAGE> 38
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED HISTORICAL FINANCIAL AND OPERATING INFORMATION
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>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Vacation Interval sales .............. $ 34,091 $ 45,907 $ 68,682 $ 135,582 $ 191,207
Sampler sales ......................... 1,310 1,717 1,415 2,768 4,250
----------- ----------- ----------- ----------- -----------
Total sales ......................... 35,401 47,624 70,097 138,350 195,457
Interest income ...................... 3,968 6,297 9,149 16,823 28,412
Interest income from affiliates ...... 393 377 247 62 48
Management fee income ................ 2,478 2,187 2,331 2,540 2,811
Other income ......................... 1,832 1,440 3,234 2,980 4,030
----------- ----------- ----------- ----------- -----------
Total revenues ...................... 44,072 57,925 85,058 160,755 230,758
----------- ----------- ----------- ----------- -----------
Costs and Operating Expenses:
Cost of Vacation Interval sales ...... 3,280 2,805 6,600 19,877 30,207
Sales and marketing .................. 17,850 21,839 30,559 67,030 101,104
Provision for uncollectible notes .... 6,632 8,733 10,524 16,372 19,121
Operating, general and administrative 7,287 8,431 9,291 14,144 23,218
Other expense ........................ 1,493 1,685 2,939 3,040 3,416
Depreciation and amortization ........ 863 1,264 1,497 3,332 5,563
Interest expense ..................... 3,609 4,759 4,664 7,150 16,773
----------- ----------- ----------- ----------- -----------
Total costs and operating expenses .. 41,014 49,516 66,074 130,945 199,402
----------- ----------- ----------- ----------- -----------
Income from continuing operations before
provision for income taxes ........... 3,058 8,409 18,984 29,810 31,356
Provision for income taxes ............. 1,512 3,140 7,024 11,432 12,072
----------- ----------- ----------- ----------- -----------
Income from continuing operations ...... 1,546 5,269 11,960 18,378 19,284
Loss from discontinued operations ...... (1,484) (295) -- -- --
----------- ----------- ----------- ----------- -----------
Net income ............................. $ 62 $ 4,974 $ 11,960 $ 18,378 $ 19,284
=========== =========== =========== =========== ===========
Income per share from continuing
operations-- Basic and Diluted (a) ... $ 0.20 $ 0.68 $ 1.22 $ 1.45 $ 1.50
=========== =========== =========== =========== ===========
Net income per share-- Basic
and Diluted (a) ...................... $ 0.01 $ 0.64 $ 1.22 $ 1.45 $ 1.50
=========== =========== =========== =========== ===========
Weighted average number of shares
outstanding-- Basic .................. 7,590,295 7,711,517 9,767,407 12,633,751 12,889,417
=========== =========== =========== =========== ===========
Weighted average number of shares
outstanding-- Diluted ................ 7,590,295 7,711,517 9,816,819 12,682,982 12,890,044
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(b) .................................... $ 7,530 $14,432 $25,145 $40,292 $53,692
OTHER OPERATING DATA:
Number of Existing Resorts at period end ..... 7 7 10 18 18
Number of Vacation Intervals sold (excluding
upgrades)(c) ............................... 4,464 5,634 6,592 12,934 15,829
Number of upgraded Vacation Intervals sold ... 1,921 1,914 3,908 6,817 11,400
Number of Vacation Intervals in inventory .... 6,580 6,746 10,931 14,453 17,073
Average price of Vacation Intervals sold
(excluding upgrades)(c)(d) ................. $ 5,965 $ 6,751 $ 7,854 $ 8,166 $ 8,896
Average price of upgraded Vacation Intervals
sold (net of exchanged interval)............ $ 3,885 $ 4,113 $ 4,326 $ 4,396 $ 4,420
</TABLE>
38
<PAGE> 39
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ................. $ 3,712 $ 973 $ 4,970 $ 11,355 $ 4,814
Amounts due from affiliates ............... 4,342 6,237 1,389 4,115 6,596
Total assets .............................. 62,687 90,852 156,401 313,005 479,957
Amounts due to affiliates ................. 14,263 14,765 -- -- --
Notes payable and capital lease obligations 23,363 41,986 48,871 58,108 194,171
Senior subordinated notes ................. -- -- -- 75,000 75,000
Total liabilities ......................... 46,999 70,190 72,636 171,079 318,747
Shareholders' equity ...................... 15,688 20,662 83,765 141,926 161,210
</TABLE>
- ----------
(a) Earnings per share amounts are based on the weighted average number of
shares outstanding.
(b) EBITDA represents income from continuing operations before depreciation
and amortization, interest expense, and provision for income taxes.
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>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income from continuing operations ... $ 1,546 $ 5,269 $11,960 $18,378 $19,284
Depreciation and amortization ....... 863 1,264 1,497 3,332 5,563
Interest expense .................... 3,609 4,759 4,664 7,150 16,773
Provision for income taxes .......... 1,512 3,140 7,024 11,432 12,072
------- ------- ------- ------- -------
EBITDA from continuing operations ... $ 7,530 $14,432 $25,145 $40,292 $53,692
======= ======= ======= ======= =======
</TABLE>
(c) Vacation Intervals sold during the years ended December 31, 1999, 1998,
and 1997, include 5,936 biennial intervals (counted as 2,968 annual
Vacation Intervals), 3,860 biennial intervals (counted as 1,930 annual
Vacation Intervals), and 1,517 biennial intervals (counted as 759
annual Vacation Intervals), respectively. The Company did not begin
selling biennial intervals until January 1997.
(d) Includes annual and biennial Vacation Interval sales for one-bedroom
and two-bedroom units.
39
<PAGE> 40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the preceding
Item 6 "Selected Financial Data" and the Company's Financial Statements and the
notes thereto and other financial data included elsewhere in this Form 10-K. The
following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth in Items 1 and 2 "Business and Properties"
included elsewhere herein.
OVERVIEW
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 Management Clubs, lease income from
Sampler sales, and utility operations. The Company recognizes a maximum
management fee of 15% of Silverleaf Club's gross revenues and 10% to 15% of
Crown Club's dues collected, subject to a limitation of each Club's net income.
However, if the Company does not receive the maximum management fees, 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 Vacation Interval sales in future periods as the remaining costs
are incurred. At December 31, 1999, approximately $360,000 of Vacation Interval
sales transactions were deferred as the minimum down payment had not been
received. The Company accounts for these transactions utilizing the deposit
method. Under this method, the sale is not recognized, a receivable is not
recorded, and inventory is not relieved. Any cash received is carried as a
liability until the sale can be recognized. When these types of sales are
cancelled without a refund, deposits forfeited are recognized as income. When
deposits are ultimately recognized as sales, the interest portion is recognized
as interest income.
The Company accounts for uncollectible notes by recording a provision to its
allowance for uncollectible notes at the time revenue is recognized. The Company
classifies the components of the provision for uncollectible notes into the
following three categories based on the nature of the item -- credit losses,
customer returns (customers that fail to make their first installment payment),
and customer releases (voluntary cancellations of properly recorded sales
transactions which in the opinion of management are consistent with the
maintenance of overall customer goodwill). The provision for uncollectible notes
pertaining to credit losses, customer returns, and customer releases is
classified in the Consolidated Statements of Income in provision for
uncollectible notes, Vacation Interval sales, and operating, general and
administrative expenses, respectively. 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 (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.
Vacation Intervals may be reacquired as a result of (i) foreclosure (or deed
in lieu of foreclosure) and (ii) trade-in associated with the purchase of an
upgraded Vacation Interval. 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 acquired prior to 1996 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 pre-1996 inventory.
Accordingly, cost of sales has increased and will continue to increase as sales
of new inventory increases relative to overall sales.
40
<PAGE> 41
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.
RESULTS OF OPERATIONS
The following table sets forth certain operating information for the
Company.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
As a percentage of total revenues:
Vacation Interval sales ................. 80.7% 84.3% 82.9%
Sampler sales ........................... 1.7 1.7 1.8
----- ----- -----
Total sales
82.4 86.0 84.7
Interest income ......................... 11.1 10.5 12.3
Management fee income ................... 2.7 1.6 1.2
Other income ............................ 3.8 1.9 1.8
----- ----- -----
Total revenues .................. 100.0% 100.0% 100.0%
As a percentage of Vacation Interval sales:
Cost of Vacation Interval sales ......... 9.6% 14.7% 15.8%
Provision for uncollectible notes ....... 15.3 12.1 10.0
As a percentage of total sales:
Sales and marketing ..................... 43.6% 48.4% 51.7%
As a percentage of total revenues:
Operating, general and administrative ... 10.9% 8.8% 10.1%
Other expense ........................... 3.5 1.9 1.5
Depreciation and amortization ........... 1.8 2.1 2.4
Total costs and operating expenses ...... 77.7 81.5 86.4
As a percentage of interest income:
Interest expense ........................ 49.6% 42.3% 58.9%
</TABLE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31,
1998
Revenues
Revenues in 1999 were $230.8 million, representing a $70.0 million, or
43.5%, increase over revenues of $160.8 million for the year ended December 31,
1998. The increase was primarily due to a $55.6 million increase in sales of
Vacation Intervals and an $11.6 million increase in interest income. The strong
increase in Vacation Interval revenues primarily resulted from increased sales
at core resorts and increased sales at new resorts, primarily relating to Oak N'
Spruce near Boston, Massachusetts, which opened a sales office in the second
quarter of 1998, Foxwood Hills in Westminster, South Carolina, which opened a
sales office in the third quarter of 1998, and Apple Mountain near Atlanta,
Georgia, which opened a sales office in the first quarter of 1999. In 1999 and
1998, sales were reduced by $3.7 million and $1.9 million, respectively, for
cancellations related to customer returns (i.e., customers that failed to make
their first installment payment).
In 1999, the number of Vacation Intervals sold, exclusive of upgraded
Vacation Intervals, increased 22.4% to 15,829 from 12,934 in 1998; the average
price per interval increased 8.9% to $8,896 from $8,166. Total interval sales
for 1999 included 5,936 biennial intervals (counted as 2,968 Vacation Intervals)
compared to 3,860 biennial intervals (counted as 1,930 Vacation Intervals) in
1998. The Company also experienced increased sales of upgraded intervals through
the continued implementation of marketing and sales programs focused on selling
upgraded intervals to the Company's existing Vacation Interval owners. In 1999,
the number of upgraded Vacation Intervals sold was 11,400 at an average price of
$4,420 compared to 6,817 upgraded Vacation Intervals sold in 1998 at an average
price of $4,396. In addition, Vacation Interval sales at existing resorts
increased as a result of enhanced telemarketing capacity, arising from
investments in computer and automated dialing technology.
Sampler sales increased to $4.3 million in 1999 compared to $2.8 million in
1998. Increased sales of overnight samplers were partially offset by an increase
in biennial interval sales, which are an alternative to the sampler program. The
increase also resulted from increased sales of the Company's Endless Escape
Program to owners of Vacation Intervals at seven resorts that have been managed
by the Company since May 1998.
Interest income increased 68.6% to $28.5 million for the year ended December
31, 1999 from $16.9 million for 1998. This increase primarily resulted from a
$112.6 million increase in notes receivable, net of allowance for uncollectible
notes, since December 31, 1998, due to increased sales. The increase in interest
income related to notes receivable was partially offset by interest income on
short-term investments, which decreased from $959,000 in 1998 to $234,000 in
1999 as proceeds from the debt and equity
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offerings completed in April 1998 were invested prior to their utilization.
Management fee income increased 10.7% to $2.8 million in 1999 from $2.5
million in 1998. The increase in management fee income was primarily the result
of greater net income from the Management Clubs due to higher dues income
resulting from an increased membership base, partially offset by an increase in
the Management Clubs' operating expenses.
Other income consists of water and utilities income, condominium rental
income, marina income, golf course and pro shop income, and other miscellaneous
items. Other income increased 35.2% to $4.0 million for the year ended December
31, 1999 from $3.0 million for the year ended December 31, 1998. The increase
primarily relates to the Apple Mountain golf course and pro shop, which opened
in the fourth quarter of 1998, and the Holiday Hills restaurant, which opened in
the second quarter of 1999.
Cost of Sales
Cost of sales as a percentage of gross Vacation Interval sales increased to
15.8% in 1999 from 14.7% in 1998. As the Company continues to deplete its
inventory of low-cost Vacation Intervals acquired primarily in 1995 and 1996,
the Company's sales mix has shifted to more recently constructed units, which
were built at a higher average cost per Vacation Interval. Hence, the cost of
sales as a percentage of Vacation Interval sales has increased compared to 1998.
This increase, however, was partially offset by increased sales prices during
1999.
Sales and Marketing
Sales and marketing costs as a percentage of total sales increased to 51.7%
for the year ended December 31, 1999 from 48.4% for 1998. This increase, in
part, was due to the implementation of new marketing programs, including a
vacation product whereby related revenues received are deferred until the guest
actually stays at the resort. Additionally, the Company is incurring substantial
marketing and start-up costs associated with two new sales offices and one
expanded sales office in recently opened markets where sales have not yet
reached mature levels. Implementation costs associated with new predictive
dialing equipment at the Company's call centers as well as the opening of a
fourth central marketing facility in September 1999 also contributed to the
increase.
Provision for Uncollectible Notes
Provision for uncollectible notes as a percentage of Vacation Interval sales
decreased to 10.0% in 1999 from 12.1% in 1998. This is the result of continued
improvements in the Company's collection efforts, including increased staffing,
improved collections software, the implementation of a program through which
delinquent loans are assumed by existing owners with a consistent payment
history, and an increase in receivables related to upgrade sales, which
typically represent better performing accounts, resulting in fewer
delinquencies.
Operating, General and Administrative
Operating, general and administrative expenses as a percentage of total
revenues increased to 10.1% in 1999 from 8.8% in 1998. The increase is primarily
attributable to higher salaries, increased headcount, increased travel, legal,
and professional fees, primarily related to expansion into new markets, and an
increase in title and recording fees due to increased borrowings against pledged
notes receivable.
Other Expense
Other expense consists of water and utilities expenses, golf course and pro
shop expenses, marina expenses, and other miscellaneous expenses. Other expense
as a percentage of total revenues decreased to 1.5% in 1999 from 1.9% in 1998.
Overall, other expense increased $376,000 from 1998, primarily due to the Apple
Mountain golf course and pro shop, which opened in the fourth quarter of 1998,
and the Holiday Hills restaurant, which opened in the second quarter of 1999.
Depreciation and Amortization
Depreciation and amortization expense as a percentage of total revenues
increased to 2.4% in 1999 from 2.1% in 1998. Overall, depreciation and
amortization expense increased $2.2 million from 1998, primarily due to
investments in new automated dialers, investments in telephone systems, and
investments in two central marketing facilities, which opened in September 1998
and September 1999, respectively.
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Interest Expense
Interest expense as a percentage of interest income increased to 58.9% for
the year ended December 31, 1999 from 42.3% in 1998. This increase is primarily
the result of interest expense related to increased borrowings against pledged
notes receivable.
Income Before Provision for Income Taxes
Income from continuing operations before provision for income taxes
increased 5.2% to $31.4 million for the year ended December 31, 1999, from $29.8
million for the year ended December 31, 1998, as a result of the above mentioned
operating results.
Provision for Income Taxes
Provision for income taxes as a percentage of income from continuing
operations before provision for income taxes remained relatively flat at 38.5%
in 1999 versus 38.4% in 1998.
Net Income
Net income increased $906,000, or 4.9%, to $19.3 million for the year ended
December 31, 1999, from $18.4 million for the year ended December 31, 1998, as a
result of the above mentioned operating results.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31,
1997
Revenues
Revenues in 1998 were $160.8 million, representing a $75.7 million or 89.0%
increase over revenues of $85.1 million in 1997. The increase was primarily due
to a $66.9 million increase in sales of Vacation Intervals and a $7.5 million
increase in interest income. In 1998 and 1997, sales were reduced by $1.9
million and $2.8 million, respectively, for customer returns (i.e., customers
that failed to make their first installment payment).
In 1998, the number of Vacation Intervals sold, exclusive of sales of
upgraded Vacation Intervals, increased 96.2% to 12,934 from 6,592 in 1997; the
average price per unit increased 4.0% to $8,166 from $7,854. Total interval
sales for 1998 included 3,860 biennial intervals (counted as 1,930 Vacation
Intervals) compared to 1,517 biennial intervals (counted as 759 Vacation
Intervals) in 1997. The Company also experienced increased sales of upgraded
intervals at the Existing Resorts through the continued implementation of
marketing and sales programs focused on selling upgraded intervals to the
Company's existing Vacation Interval owners. In 1998, the number of upgraded
Vacation Intervals sold was 6,817 at an average price of $4,396 compared to
3,908 upgraded Vacation Intervals sold in 1997 at an average price of $4,326. In
addition, Vacation Interval sales at existing resorts increased as a result of
enhanced telemarketing capacity, arising from investments in computer and
automated dialing technology.
In 1998, sampler sales increased to $2.8 million compared to $1.4 million in
1997. The increase resulted from increased sales of overnight samplers offered
at new resorts, offset by an increase in biennial interval sales which are an
alternative to the sampler program.
Interest income increased 79.7% to $16.9 million in 1998 from $9.4 million
in 1997. This increase resulted from an $81.9 million increase in notes
receivable, net of allowance for uncollectible notes, due to increased sales, as
well as interest income generated from the proceeds of the debt and equity
offerings completed on April 3, 1998. Interest income from short-term
investments, primarily from the proceeds from public offerings prior to their
utilization, increased to $959,000 in 1998 compared to $354,000 in 1997.
Management fee income increased 9.0% to $2.5 million in 1998 from $2.3
million in 1997. This increase was primarily the result of greater Silverleaf
Club net income due to higher dues income resulting from an increased membership
base, partially offset by an increase in operating expenses.
Other income consists of water and utilities income, condominium rental
income, and miscellaneous items. Other income decreased 7.8% to $3.0 million for
the year ended December 31, 1998 from $3.2 million for the year ended December
31, 1997. This decrease was primarily the result of a $219,000 claims settlement
included in other income in 1997.
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Cost of Sales
Cost of sales as a percentage of gross Vacation Interval sales increased to
14.7% in 1998 from 9.6% in 1997. As the Company continued to deplete its
inventory of low-cost Vacation Intervals acquired primarily in 1995 and 1996,
the Company's sales mix shifted to more recently constructed units, which were
built at a higher average cost per Vacation Interval. Hence, the cost of sales
as a percentage of Vacation Interval sales increased compared to 1997.
Sales and Marketing
Sales and marketing costs as a percentage of total sales increased to 48.4%
for the year ended December 31, 1998 from 43.6% for 1997. This increase is
primarily due to the implementation of new marketing programs, start-up costs in
recently opened markets or markets yet to open where sales have not yet reached
mature levels to offset costs, and the deferred sales recognition associated
with sales at resorts under construction whereby only the direct sales
commissions costs related to such sales have been similarly deferred.
Provision for Uncollectible Notes
Provision for uncollectible notes as a percentage of Vacation Interval
sales decreased to 12.1% in 1998 from 15.3% in 1997. This is the result of
improvements in the Company's collection efforts, including increased staffing,
improved collections software, the implementation of a program through which
delinquent loans are assumed by existing owners with a consistent payment
history, and an increase in receivables relating to upgrade sales, which
typically represent better performing accounts, resulting in fewer
delinquencies.
Operating, General and Administrative
Operating, general and administrative expenses as a percentage of total
revenues declined to 8.8% in 1998 from 10.9% in 1997. The decrease is the result
of the Company's ability to increase sales without proportionate increases in
overhead. Overall, operating, general and administrative expenses increased $4.9
million in 1998 as compared to the prior year, primarily due to an increase in
corporate salaries and additional costs resulting from growth and the Company's
publicly traded status effective June 1997.
Other Expense
Other expense consists of water and utilities expenses, marina expenses, and
other miscellaneous expenses. Other expense as a percentage of total revenues
decreased to 1.9% in 1998 from 3.5% in 1997. Overall, other expense increased
$101,000 for the year ended December 31, 1998 compared to the year ended
December 31, 1997.
Depreciation and Amortization
Depreciation and amortization expense as a percentage of total revenues
increased to 2.1% in 1998 from 1.8% in 1997. Overall, depreciation and
amortization expense increased $1.8 million from 1997, primarily due to
investments in a new automated dialer, telephone system, and central marketing
facility.
Interest Expense
Interest expense as a percentage of interest income decreased to 42.3% in
1998 from 49.6% in 1997. While interest expense increased $2.5 million, or
53.3%, overall compared to 1997, this increase was not proportionate with the
increase in interest income previously discussed. This was due primarily to the
payment of indebtedness with proceeds from the Company's equity and debt
offerings in the second quarter of 1998, which resulted in lower effective
interest rates and lower average balances on outstanding notes payable and
capital lease obligations, offset by the interest expense generated by the 10.5%
senior subordinated notes.
Income Before Provision for Income Taxes
Income from continuing operations before provision for income taxes
increased 57.0% to $29.8 million for the year ended December 31, 1998, from
$19.0 million for the year ended December 31, 1997, as a result of the above
mentioned operating results.
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Provision for Income Taxes
Provision for income taxes as a percentage of income from continuing
operations before provision for income taxes increased to 38.4% in 1998 versus
37.0% in 1997. This increase resulted from an increase in state income taxes,
primarily due to additional operations commencing in Illinois, Missouri, and
Massachusetts.
Net Income
Net income increased $6.4 million, or 53.7%, to $18.4 million for the year
ended December 31, 1998, from $12.0 million for the year ended December 31,
1997, as a result of the above mentioned operating results.
RESULTS OF OPERATIONS - YEAR 2000 SALES AND MARKETING
Due to recent growth rates and implementation of new leads generation
programs, the Company is experiencing higher than anticipated marketing costs in
the first quarter of 2000. The Company has increased its headcount at the call
centers significantly since the fourth quarter of 1999, which created
inefficiencies due to lack of available training resources. In addition, the
Company has moved towards reliance on national retail chains for its leads
generation efforts, in addition to the traditional local programs. The
transition to national programs has been slower in generating leads than
originally planned. A major focus of Company management in 2000 is to improve
the efficiencies of the marketing process, which will bring sales and marketing
expenses more in line with expectations.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF CASH. The Company generates cash primarily from the cash received
on 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, 1997, 1998, and 1999, the
Company's operating activities reflected a use of cash of $3.4 million, $17.6
million, and $7.7 million, respectively. The Company typically receives a 10%
down payment on sales of Vacation Intervals and finances the remainder by
receipt of a seven-year to ten-year customer promissory note. The Company
generates cash from the financing of customer notes receivable by (i) borrowing
at an advance rate of 70% to 85% 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 to ten-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,
1997, 1998, and 1999 was $46.9 million, $118.5 million, and $124.3 million,
respectively. During 1999, the increase in cash provided by financing activities
to $124.3 million from $118.5 million in 1998 was primarily due to increased
borrowings against pledged notes receivable during the year ended December 31,
1999, compared to 1998. The Company's revolving credit facilities provide for
loans of up to $310.0 million. At December 31, 1999, approximately $178.3
million of principal and interest related to advances under the credit
facilities was outstanding. Of this amount, $39.6 million, $9.9 million, $45.7
million, $76.4 million, and $6.7 million matures in 2000, 2002, 2004, 2005, and
2006, respectively. For the year ended December 31, 1999, the weighted average
cost of funds for all borrowings, including the senior subordinated debt, was
9.2%. Customer defaults have a significant impact on cash available to the
Company from financing customer notes receivable in that notes more than 60 days
past due are not eligible as collateral. As a result, the Company must repay
borrowings against such delinquent notes.
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For regular federal income tax purposes, the Company reports substantially
all of the Vacation Interval sales it finances under the installment method.
Under this method, income on sales of Vacation Intervals is not recognized until
cash is received, either in the form of a down payment or as installment
payments on customer notes receivable. The deferral of income tax liability
conserves cash resources on a current basis. Interest is imposed, however, on
the amount of tax attributable to the installment payments for the period
beginning on the date of sale and ending on the date the 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. In 1998, the Internal Revenue Service
approved a change in the method of accounting for installment sales effective as
of January 1, 1997. As a result, the Company's alternative minimum taxable
income for 1997 through 2000 was or will be increased each year by approximately
$9.0 million for the pre-1997 adjustment, which results in the Company paying
substantial additional federal and state taxes in those years. The Company's net
operating loss carryforwards, which also may be used to offset installment sales
income, expire beginning in 2007 through 2019. 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.
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, 1997, 1998, and 1999 was $39.5
million, $94.5 million, and $123.1 million, respectively. Cash used in investing
activities increased significantly in each period primarily due to significant
increases in customer notes receivable. 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. In 1999, the increase in cash used in operating and investing
activities was also attributed to investments in a new central telemarketing
facility and related automated dialers and computer equipment, as well as
investments in undeveloped land, including $1.5 million of undeveloped land near
The Villages Resort in Tyler, Texas, $500,000 of undeveloped land near Holiday
Hills Resort in Branson, Missouri, and $805,000 of undeveloped land near Fox
River Resort in Sheridan, Illinois. The acquisition of the Fox River, Timber
Creek, and Oak N' Spruce resorts and the Las Vegas and Galveston sites in 1997,
and the acquisition of the Crown resorts, the Atlanta, Kansas City, and
Philadelphia sites, and a second parcel of land in Galveston in 1998, also
contributed to the increases in cash used in operating and investing activities
in those years. 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. The Company acquired a second tract of the Galveston property in
February 1998 for $1.2 million, the Crown resorts in May 1998 for $4.8 million,
the Kansas City site in September 1998 for $1.5 million, the Philadelphia site
in December 1998 for $1.9 million, and various tracts of the Atlanta property
throughout the fourth quarter of 1998 for $4.2 million. Also, in the third and
fourth quarter of 1998, the Company reacquired 422,100 shares of its common
stock for approximately $5.0 million. The Company evaluates sites for additional
new resorts or acquisitions on an ongoing basis. As of December 31, 1999, the
Company had construction commitments of approximately $30.8 million. Certain
debt agreements include restrictions on the Company's ability to pay dividends
based on minimum levels of net income and cash flow.
The Company believes that with respect to its current operations and capital
commitments, its borrowing capacity under certain existing or renegotiated
third-party lending agreements, together with cash generated from operations and
future borrowings, will be sufficient to meet the Company's working capital and
capital expenditure needs for the year ended December 31, 2000. However,
depending upon conditions in capital and other financial markets, and other
factors including the Company's growth, development, and expansion plans, the
Company may from time to time consider the issuance of other debt, equity, or
collaterized mortgage-backed securities, the proceeds of which would be used to
finance future acquisitions, refinance debt, finance mortgage receivables, or
for other purposes. Any debt incurred or issued by the Company may be secured or
unsecured, have fixed or variable rate interest, and may be subject to such
terms as management deems prudent.
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.
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NEW ACCOUNTING STANDARD
SFAS No. 133 -- In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133,
as amended, is effective for fiscal years beginning after June 15, 2000 and will
be adopted for the period beginning January 1, 2001. SFAS No. 133 requires that
all derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of the derivatives are recorded each period in current
earnings or other comprehensive income depending on whether a derivative is
designated as part of a hedge transaction, and if it is, the type of hedge
transaction. The impact of SFAS No. 133 on the Company's results of operations,
financial position, or cash flows will be dependent on the level and types of
derivative instruments the Company will have entered into at the time the
standard is implemented.
YEAR 2000 COMPLIANCE
In 1999, the Company completed its year 2000 compliance review of its
information technology ("IT") systems and non-IT systems and successfully
implemented all related upgrades, replacements, or modifications necessary. The
Company experienced virtually no year 2000 business interruptions either
internally or related to its major vendors. The total cost of the year
2000-related enhancements was approximately $430,000, including an estimate of
internal payroll committed to year 2000-related projects.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of and for the year ended December 31, 1999, the Company had no
derivative financial instruments or foreign operations. Interest on the
Company's notes receivable and senior subordinated notes is fixed rate. See
notes 3, 4, 7, and 11 to the Company's consolidated financial statements
contained elsewhere herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the information set forth on Index to Consolidated Financial Statements
appearing on page 54 of this report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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.
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 53, 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 ARDA and has over 20 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 39, 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, age 58, has over 22 years of experience in real estate
and timeshare sales and has worked periodically with
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Mr. Mead over the past 16 years. Mr. O'Connor has served as the Company's
Executive Vice President -- Sales for the past four 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.
THOMAS C. FRANKS, age 46, joined the Company 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, Mr. Franks was named Executive Vice President-- Corporate Affairs. Mr.
Franks has more than 17 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.
HARRY J. WHITE, JR., age 45, joined the Company in June 1998 as Chief
Financial Officer and has responsibility for all accounting, financial
reporting, and taxation issues. Prior to joining the Company, Mr. White was
Chief Financial Officer of Thousand Trails, Inc. from 1992 to 1998 and
previously was a senior manager with Deloitte & Touche LLP.
LARRY H. FRITZ, age 47, has been employed by the Company (or an affiliated
company) periodically over the past eleven 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. (JOHN) GIOLDASIS, age 49, 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, age 53, joined the Company on June 1, 1998 as Vice
President -- Architecture and Engineering. Mr. Hudson was President and Chief
Operating Officer of an architectural firm which provided consultant design and
project management services to Silverleaf from 1995 until joining the Company.
MICHAEL L. JONES, age 33, was appointed Vice President -- Information
Services in May 1999. For more than five years prior to that time, Mr. Jones
served in various positions with the Company, including Network Manager, Payroll
Manager, and Director of Information Services.
EDWARD L. LAHART, age 35, has served as Vice President -- Corporate
Operations since June 1998. Prior to June 1998, Mr. Lahart served in various
capacities in the Company's Credit and Collections department.
ROBERT G. LEVY, age 51, 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.
DAVID D. MCPHERSON, age 37, was appointed Vice President -- Finance in May
1999. Prior to that time, Mr. McPherson served as Director of Audit from July
1998 to May 1999 and as Director of Finance from May 1997 to July 1998. Before
joining the Company, Mr. McPherson served as Chief Financial Officer of Neutral
Posture Ergonomics, Inc. from May 1996 to April 1997 and as a Senior Auditor of
Deloitte & Touche, LLP from September 1992 until May 1996.
JAMES J. OESTREICH, age 59, 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.
SANDRA G. CEARLEY, age 38, 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.
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
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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.
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:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 -- Charter of Silverleaf Resorts, Inc. (incorporated by reference
to Exhibit 3.1 to Amendment No. 1 dated May 16, 1997 to
Registrant's Registration Statement on Form S-1, File No.
333-24273).
3.2 -- Bylaws of Silverleaf Resorts, Inc. (incorporated by reference
to Exhibit 3.2 to Registrant's Form 10-K for year ended December
31, 1997).
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).
4.2 -- Indenture dated April 1, 1998, between the Company and Norwest
Bank Minnesota, National Association, as Trustee (incorporated by
reference to Exhibit 4.1 to Registrant's Form 10-Q for quarter
ended March 31, 1998).
4.3 -- Certificate No. 001 of 101/2% Senior Subordinated Notes due
2008 in the amount of $75,000,000 (incorporated by reference to
Exhibit 4.2 to Registrant's Form 10-Q for quarter ended March 31,
1998).
4.4 -- Subsidiary Guarantee dated April 8, 1998 by Silverleaf
Berkshires, Inc.; Bull's Eye Marketing, Inc.; Silverleaf Resort
Acquisitions, Inc.; Silverleaf Travel, Inc.; Database Research,
Inc.; and Villages Land, Inc. (incorporated by reference to
Exhibit 4.3 to Registrant's Form 10-Q for the quarter ended March
31, 1998).
*9.1 -- Voting Trust Agreement dated November 1, 1999 between Robert
E. Mead and Judith F. Mead.
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 Thomas Franks
(incorporated by reference to Exhibit 10.6 to Registrant's Form
10-Q for quarter ended September 30, 1997).
10.2.2 -- 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).
10.2.3 -- 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).
10.2.4 -- Employment Agreement, dated January 20, 1998, between
Registrant And Jim Oestreich (incorporated by reference to
Exhibit 10.2.7 to
49
<PAGE> 50
Registrant's Annual Report on Form 10-K for year ended December
31, 1997).
10.2.5 -- Employment Agreement with Harry J. White, Jr. (incorporated by
Reference to Exhibit 10.1 to Registrant's Form 10-Q for quarter
ended June 30, 1998).
10.2.6 -- Amendment to Employment Agreement with Sharon K. Brayfield
(incorporated by reference to Exhibit 10.2 to Registrant's Form
10-Q For quarter ended June 30, 1998).
10.2.7 -- First Amendment dated June 12, 1998, to Employment Agreement
with Jim Oestreich (incorporated by reference to Exhibit 10.7 to
Registrant's Form 10-Q for quarter ended September 30, 1998).
10.2.8 -- Second Amendment dated September 29, 1998, to Employment
Agreement with Jim Oestreich (incorporated by reference to
Exhibit 10.8 to Registrant's Form 10-Q for quarter ended
September 30, 1998).
10.2.9 -- First Amendment dated August 31, 1998, to Employment Agreement
with David T. O'Connor (incorporated by reference to Exhibit
10.10 to Registrant's Form 10-Q for quarter ended September 30,
1998).
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).
10.4 -- Silverleaf Club Agreement between the Silverleaf 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 Silverleaf
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 -- 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).
10.12 -- 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).
10.13 -- 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).
10.14 -- 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).
10.15 -- First Amendment to Silverleaf Club Agreement, dated March 28,
1990, among Silverleaf 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).
10.16 -- First Amendment to Management Agreement, dated January 1,
1993, between Master Endless Escape Club and Ascension Resorts,
Ltd.
50
<PAGE> 51
(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).
10.17 -- 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).
10.18 -- 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).
10.19 -- 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).
10.20 -- Silverleaf 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).
10.21 -- Second Amendment to Management Agreement, dated December 31,
1997, between Silverleaf 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).
10.22 -- Silverleaf Club Agreement, dated January 5, 1998, between
Silverleaf 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).
10.23 -- 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).
10.24 -- Letter Agreement dated March 16, 1998, between the Company and
Heller Financial, Inc. (incorporated by reference to Exhibit
10.44 to Amendment No. 1 to Form S-1, File No. 333-47427 filed
March 16, 1998).
10.25 -- Bill of Sale and Blanket Assignment dated May 28, 1998,
between the Company and Crown Resort Co., LLC (incorporated by
reference to Exhibit 10.6 to Registrant's Form 10-Q for quarter
ended June 30, 1998).
10.26 -- Contract of Sale by and between Terry Adair and George R.
Bedell, as Trustee, dated March 27, 1998 (incorporated by
reference to Exhibit 10.1 to Registrant's Form 10-Q for quarter
ended September 30, 1998).
10.27 -- Contract of Sale by and between Great Atlanta's Properties
Corp. and George R. Bedell, as Trustee, dated August 12, 1998
(incorporated by reference to Registrant's Form 10-Q for quarter
ended September 30, 1998).
10.28 -- Contract of Sale, dated February 25, 1998 (as amended in
October 1998), by and between the Company and J. Phillip Ballard,
Jr. and Eagle Greens Ltd., f/k/a Northeast Georgia Recreational
Development Co., Inc. (incorporated by reference to Exhibit 10.3
to Registrant's Form 10-Q for quarter ended September 30, 1998).
10.29 -- Amendment to Contract of Sale, dated October 14, 1998, by and
between the Company and J. Phillip Ballard, Jr. and Eagle Greens,
Ltd., f/k/a Northeast Georgia Recreational Development Co., Inc.
(incorporated by reference to Exhibit 10.4 to Registrant's Form
10-Q for quarter ended September 30, 1998).
10.30 -- Second Amendment to Contract of Sale, dated October 14, 1998,
by and between the Company and J. Phillip Ballard, Jr. and Eagle
Greens Ltd., f/k/a Northeast Georgia Recreational Development
Co., Inc. (incorporated by reference to Exhibit 10.5 to
Registrant's Form 10-Q for quarter ended September 30, 1998).
10.31 -- Management Agreement dated October 13, 1998, by and between
the Company and Eagle Greens, Ltd. (incorporated by reference to
Exhibit 10.6 to Registrant's Form 10-Q for quarter ended
September 30, 1998).
10.32 -- One to Four Family Residential Contract (Resale) between the
Company and Thomas C. Franks, dated July 30, 1998 (incorporated
by reference to Exhibit 10.12 to Registrant's Form 10-Q for
quarter ended September 30, 1998).
10.33 -- Contract of Sale dated April 28, 1998, by and between Beech
Mountain Lakes Corp. and the Company.
10.34 -- Amendment to Contract of Sale dated November 24, 1998, by and
between Beech Mountain Lakes Corp. and the Company.
10.35 -- Contract of Sale dated September 30, 1998, by and between
National American Corp. and the Company.
10.36 -- First Amendment to 1997 Stock Option Plan for Silverleaf
Resorts, Inc., effective as of
51
<PAGE> 52
May 20, 1998 (incorporated by reference to Exhibit 4.1 to the
Company's Form 10-Q for the quarter ended June 30, 1998
10.37 -- Contract of Sale dated August 5, 1998, among David M. Fender
and Jane M. Fender ("Seller") and George R. Bedell ("Purchaser")
(incorporated by reference to Exhibit 10.1 to the Company's Form
10-Q for the quarter ended March 31, 1999).
10.38 -- Third Amendment to Loan and Security Agreement dated as of
March 31, 1999, between the Company and Textron Financial
Corporation (incorporated by reference to Exhibit 10.2 to
Registrant's Form 10-Q for the quarter ended March 31, 1999).
10.39 -- Amended and Restated Receivables Loan and Security Agreement
dated September 1, 1999, between the Company and Heller
Financial, Inc. (incorporated by reference to Exhibit 10.1 to
Registrant's Form 10-Q for the quarter ended September 30, 1999).
10.40 -- Amended and Restated Inventory Loan and Security Agreement
dated September 1, 1999, between the Company and Heller
Financial, Inc. (incorporated by reference to Exhibit 10.2 to
Registrant's Form 10-Q for the quarter ended September 30, 1999).
10.41 -- Loan and Security Agreement dated September 30, 1999, between
the Company and BankBoston, N.A., as Agent, and BankBoston, N.A.
and various financial institutions, as Lenders (incorporated by
reference to Exhibit 10.3 to Registrant's Form 10-Q for the
quarter ended September 30, 1999).
10.42 -- Purchase and Sale Agreement dated July 30, 1999, between the
Company and American National Bank and Trust Company of Chicago,
as Trustee (incorporated by reference to Exhibit 10.4 to
Registrant's Form 10-Q for the quarter ended September 30, 1999).
*10.43 -- Fourth Amendment to Loan and Security Agreement dated as of
December 16, 1999 between the Company and Textron Financial
Corporation.
*10.44 -- Loan and Security Agreement dated as of December 16, 1999
between the Company and Textron Financial Corporation.
*10.45 -- Loan, Security and Agency Agreement dated as of December 16,
1999 between the Company and Textron Financial Corporation.
*10.46 -- Second Amendment to 1997 Stock Option Plan, dated November 19,
1999.
*10.47 -- Eighth Amendment to Management Agreement, dated March 9, 1999,
between the Registrant and the Silverleaf Club.
*12.1 -- Statement concerning computation of ratios of earnings to
fixed charges
*21.1 -- Subsidiaries of Silverleaf Resorts, Inc.
*27.1 -- Financial Data Schedule.
- ------------
* Filed herewith
(b) No reports on Form 8-K were filed by the Company during the three-month
period ended December 31, 1999.
(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 consolidated financial statements or the notes thereto.
52
<PAGE> 53
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 15, 2000.
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.
SIGNATURE TITLE DATE
/s/ ROBERT E. MEAD Chairman of the Board and Chief March 15, 2000
- --------------------------- Executive Officer (Principal
Robert E. Mead Executive Officer)
/s/ SHARON K. BRAYFIELD Director and President March 15, 2000
- ---------------------------
Sharon K. Brayfield
/s/ HARRY J. WHITE, JR. Chief Financial Officer and March 15, 2000
- --------------------------- Treasurer (Principal Financial
Harry J. White, Jr. and Accounting Officer)
/s/ STUART MARSHALL BLOCH Director March 15, 2000
- ---------------------------
Stuart Marshall Bloch
/s/ JAMES B. FRANCIS, JR. Director March 15, 2000
- ---------------------------
James B. Francis, Jr.
/s/ MICHAEL A. JENKINS Director March 15, 2000
- ---------------------------
Michael A. Jenkins
53
<PAGE> 54
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report ..........................................................55
Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and 1999 ........................56
Consolidated Statements of Income for the years ended December 31, 1997,
1998, and 1999 ....................................................................57
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1998, and 1999..................................................58
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998, and 1999...............................................................59
Notes to Consolidated Financial Statements ..........................................60
</TABLE>
54
<PAGE> 55
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, 1998 and 1999
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
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, 1998 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
February 22, 2000
55
<PAGE> 56
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
--------- ---------
ASSETS
<S> <C> <C>
Cash and cash equivalents ..................................... $ 11,355 $ 4,814
Restricted cash ............................................... 873 903
Notes receivable, net of allowance for uncollectible notes of
$23,947 and $32,326, respectively .......................... 173,959 286,581
Amounts due from affiliates ................................... 4,115 6,596
Inventories ................................................... 71,694 112,810
Land, equipment, buildings, and utilities, net ................ 34,025 51,050
Prepaid and other assets ...................................... 16,984 17,203
--------- ---------
TOTAL ASSETS ........................................ $ 313,005 $ 479,957
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses ....................... $ 8,144 $ 15,539
Unearned revenues ........................................... 4,167 5,601
Income taxes payable ........................................ 4,136 185
Deferred income taxes, net .................................. 21,524 28,251
Notes payable and capital lease obligations ................. 58,108 194,171
Senior subordinated notes ................................... 75,000 75,000
--------- ---------
Total Liabilities ................................... 171,079 318,747
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, par value $0.01 per share, 100,000,000 shares
authorized, 13,311,517 shares issued and 12,889,417 shares
outstanding at December 31, 1998 and 1999 ................ 133 133
Additional paid-in capital .................................. 109,339 109,339
Retained earnings ........................................... 37,453 56,737
Treasury stock, at cost (422,100 shares) .................... (4,999) (4,999)
--------- ----------
Total Shareholders' Equity .......................... 141,926 161,210
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .......... $ 313,005 $ 479,957
========= =========
</TABLE>
See notes to consolidated financial statements.
56
<PAGE> 57
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Vacation Interval sales ........................ $ 68,682 $ 135,582 $ 191,207
Sampler sales .................................. 1,415 2,768 4,250
----------- ----------- -----------
Total sales .................................. 70,097 138,350 195,457
Interest income ................................ 9,149 16,823 28,412
Interest income from affiliates ................ 247 62 48
Management fee income .......................... 2,331 2,540 2,811
Other income ................................... 3,234 2,980 4,030
----------- ----------- -----------
Total revenues ......................... 85,058 160,755 230,758
----------- ----------- -----------
COSTS AND OPERATING EXPENSES:
Cost of Vacation Interval sales ................ 6,600 19,877 30,207
Sales and marketing ............................ 30,559 67,030 101,104
Provision for uncollectible notes .............. 10,524 16,372 19,121
Operating, general and administrative .......... 9,291 14,144 23,218
Other expense .................................. 2,939 3,040 3,416
Depreciation and amortization .................. 1,497 3,332 5,563
Interest expense ............................... 4,664 7,150 16,773
----------- ----------- -----------
Total costs and operating expenses ..... 66,074 130,945 199,402
----------- ----------- -----------
Income before provision for income taxes 18,984 29,810 31,356
Provision for income taxes ............. 7,024 11,432 12,072
----------- ----------- -----------
NET INCOME ....................................... $ 11,960 $ 18,378 $ 19,284
=========== =========== ===========
NET INCOME PER SHARE-- Basic and Diluted ......... $ 1.22 $ 1.45 $ 1.50
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING-- Basic ............................ 9,767,407 12,633,751 12,889,417
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING-- Diluted .......................... 9,816,819 12,682,982 12,890,044
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
57
<PAGE> 58
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------
NUMBER OF $0.01 ADDITIONAL TREASURY STOCK
SHARES PAR PAID-IN RETAINED -------------------------
ISSUED VALUE CAPITAL EARNINGS SHARES COST TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1997 ............... 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
Issuance of common stock..... 2,000,000 20 44,762 -- -- -- 44,782
Treasury stock .............. -- -- -- -- (422,100) (4,999) (4,999)
Net income .................. -- -- -- 18,378 -- -- 18,378
---------- ---------- ---------- ---------- ---------- ---------- ----------
DECEMBER 31, 1998 ............. 13,311,517 133 109,339 37,453 (422,100) (4,999) 141,926
Net income .................. -- -- -- 19,284 -- -- 19,284
---------- ---------- ---------- ---------- ---------- ---------- ----------
DECEMBER 31, 1999 ............. 13,311,517 $ 133 $ 109,339 $ 56,737 (422,100) $ (4,999) $ 161,210
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
58
<PAGE> 59
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income .......................................................... $ 11,960 $ 18,378 $ 19,284
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization .................................... 1,497 3,332 5,563
Discontinued operations .......................................... 1,589 -- --
Gain on disposal of land, equipment, buildings, and utilities..... (34) -- --
Deferred income taxes ............................................ 9,194 7,487 6,727
Increase (decrease) in cash from changes in assets
and liabilities:
Restricted cash ................................................ (200) (673) (30)
Amounts due from affiliates .................................... 551 (2,726) (2,481)
Inventories .................................................... (18,010) (44,262) (41,116)
Prepaid and other assets ....................................... (4,541) (5,803) (530)
Accounts payable and accrued expenses .......................... 1,950 3,038 7,395
Amounts due to affiliates ...................................... (286) -- --
Interest payable to affiliates ................................. (6,244) -- --
Unearned revenues .............................................. 1,332 960 1,434
Income taxes payable ........................................... (2,150) 2,636 (3,951)
--------- --------- ---------
Net cash used in operating activities ....................... (3,392) (17,633) (7,705)
--------- --------- ---------
INVESTING ACTIVITIES:
Collections of notes receivable from affiliates ..................... 4,297 -- --
Proceeds from sales of land, equipment, buildings, and utilities..... 1,176 -- 7,158
Purchases of land, equipment, buildings, and utilities .............. (8,692) (12,552) (17,629)
Notes receivable, net ............................................... (36,242) (81,923) (112,622)
--------- --------- ---------
Net cash used in investing activities ....................... (39,461) (94,475) (123,093)
--------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings from unaffiliated entities ................. 54,069 166,658 219,607
Payments on borrowings to unaffiliated entities ..................... (50,127) (84,436) (95,350)
Payments of debt issuance costs ..................................... -- (3,512) --
Proceeds from borrowings from affiliates ............................ 68 -- --
Payments on borrowings to affiliates ................................ (8,303) -- --
Net proceeds from initial public offering ........................... 51,143 -- --
Net proceeds from issuance of common stock .......................... -- 44,782 --
Purchase of treasury stock .......................................... -- (4,999) --
--------- --------- ---------
Net cash provided by financing activities ................... 46,850 118,493 124,257
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ......................................................... 3,997 6,385 (6,541)
CASH AND EQUIVALENTS:
BEGINNING OF PERIOD ................................................ 973 4,970 11,355
--------- --------- ---------
END OF PERIOD ...................................................... $ 4,970 $ 11,355 $ 4,814
========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Interest paid ....................................................... $ 10,007 $ 6,608 $ 18,086
Income taxes paid ................................................... -- 1,308 9,297
Land and equipment acquired under capital leases .................... 2,943 2,015 11,806
Costs incurred in connection with public offerings .................. 6,457 3,968 --
</TABLE>
See notes to consolidated financial statements.
59
<PAGE> 60
SILVERLEAF RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
1. NATURE OF BUSINESS
Silverleaf Resorts, Inc., a Texas Corporation (the "Company" or
"Silverleaf") is in the business of marketing and selling vacation intervals
("Vacation Intervals"). Silverleaf's principal activities, in this regard,
consist of (i) developing and acquiring timeshare resorts; (ii) marketing and
selling one-week annual and biennial Vacation Intervals to new prospective
owners; (iii) marketing and selling upgraded Vacation Intervals to existing
Silverleaf owners ("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 the 18 existing owned or managed
resorts (the "Existing Resorts") and the development of any new timeshare
resort, including site selection, design, and construction. The Company operates
the Existing Resorts through two centralized organizations, Silverleaf Club and
Crown Club (collectively, the "Management Clubs"), which bear the costs of
operating, maintaining, and refurbishing the resorts from monthly dues paid by
the Vacation Interval owners. 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 Company receives a management fee from the Management
Clubs 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 the Management Clubs, the Company generates
additional revenue from leasing of unsold intervals (i.e., sampler sales),
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, 1997, 1998, and 1999, reflect the operations of the Company
and its wholly owned subsidiaries, Condominium Builders, Inc. ("CBI"), Villages
Land, Inc., Silverleaf Travel, Inc., Database Research, Inc., Silverleaf Resort
Acquisitions, Inc., Bull's Eye Marketing, Inc., Silverleaf Berkshires, Inc., and
eStarCommunications, Inc. CBI was liquidated in 1998.
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 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. At December 31,
1999, $360,000 of Vacation Interval sales transactions were deferred as the
minimum down payment had not been received. The Company accounts for these
transactions utilizing the deposit method. Under this method, the sale is not
recognized, a receivable is not recorded, and inventory is not relieved. Any
cash received is carried as a liability until the sale can be recognized. When
these types of sales are cancelled without a refund, deposits forfeited are
recognized as income. When deposits are ultimately recognized as sales, the
interest portion is recognized as interest income.
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
sales transactions in which the customer fails to make the first installment
payment) 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
value of the related 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.
60
<PAGE> 61
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 the Management
Clubs. 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 charged to expense in the period incurred.
Cash and Cash Equivalents -- Cash and cash equivalents consist of all highly
liquid investments with an original maturity at the date of purchase of three
months or less. Cash and cash equivalents consist of cash, certificates of
deposit, and money market funds.
Restricted Cash -- Restricted cash consists of certificates of deposit which
serve as collateral for construction bonds.
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 for uncollectible
notes 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 uncollectible 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 notes
receivable portfolio, historical credit loss experience, and current economic
factors. The allowance for uncollectible notes is reduced by actual
cancellations and losses experienced, including losses related to previously
sold notes receivable which became delinquent and were reacquired pursuant to
the recourse obligations discussed herein. Recourse to the Company on sales of
customer notes receivable is governed by the agreements between the purchasers
and the Company. The Company classifies the components of the provision for
uncollectible notes into the following three categories based on the nature of
the item: credit losses, customer returns (cancellations of sales whereby the
customer fails to make the first installment payment), and customer releases
(voluntary cancellations of properly recorded sales transactions which in the
opinion of management is consistent with the maintenance of overall customer
goodwill). The provision for uncollectible notes pertaining to credit losses,
customer returns, and customer releases are classified in provision for
uncollectible notes, Vacation Interval sales, and operating, general and
administrative expenses, respectively.
Inventories -- Inventories are stated at the lower of cost or market value.
Cost includes amounts for land, construction materials, direct labor and
overhead, taxes, and capitalized interest incurred in the construction or
through the acquisition of resort dwellings held for timeshare sale. 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 their 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 value.
Land, Equipment, Buildings, and Utilities -- Land, equipment (including
equipment under capital lease), buildings, and utilities are stated at cost,
which includes amounts for construction materials, direct labor and overhead,
and capitalized interest. When assets are disposed of, the cost and related
accumulated depreciation are removed, and any resulting gain or loss is
reflected in income for the period. Maintenance and repairs are charged to
expense as incurred; significant betterments and renewals, which extend the
useful life of a particular asset, are capitalized. Depreciation is calculated
for all fixed assets, other than land, using the straight-line method over the
estimated useful life of the assets, ranging from 3 to 20 years. Company
management 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.
Prepaid and Other Assets -- Prepaid and other assets consists primarily of
prepaid booth rental, prepaid insurance, prepaid promotional items, prepaid
postage, intangibles, commitment fees, debt issuance costs, novelty inventories,
deposits, and miscellaneous receivables. Commitment fees and debt issuance costs
are amortized over the life of the related debt. Intangibles are amortized over
their useful lives, which do not exceed ten years.
Income Taxes -- Deferred income taxes are recorded for temporary differences
between the bases of assets and liabilities as recognized by tax laws and their
carrying value as reported in the consolidated financial statements. A provision
is made or benefit recognized for deferred income taxes relating to temporary
differences 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
61
<PAGE> 62
allowance is recorded.
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
the Company with the proceeds from the exercise of the stock options.
The following table illustrates the reconciliation between basic and diluted
weighted average shares outstanding for the years ended December 31, 1997, 1998,
and 1999:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Weighted average shares outstanding - basic ........ 9,767,407 12,633,751 12,889,417
Issuance of shares from stock options exercised .... 321,949 791,392 33,514
Repurchase of shares from stock options proceeds ... (272,537) (742,161) (32,887)
---------- ----------- -----------
Weighted average shares outstanding - diluted ...... 9,816,819 12,682,982 12,890,044
========== =========== ===========
</TABLE>
Use of Estimates -- The preparation of the consolidated financial
statements requires the use of management's estimates and assumptions in
determining the carrying values of certain assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts for certain revenues and expenses during the
reporting period. Actual results could differ from those estimated.
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 flows of the Company.
Reclassifications -- Certain reclassifications have been made to the 1997
and 1998 consolidated financial statements to conform to the 1999 presentation.
These reclassifications had no effect on net income.
SFAS No. 133 -- In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133,
as amended, is effective for fiscal years beginning after June 15, 2000 and will
be adopted for the period beginning January 1, 2001. SFAS No. 133 requires that
all derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of the derivatives are recorded each period in current
earnings or other comprehensive income depending on whether a derivative is
designated as part of a hedge transaction, and if it is, the type of hedge
transaction. The impact of SFAS No. 133 on the Company's results of operations,
financial position, or cash flows will be dependent on the level and types of
derivative instruments the Company will have entered into at the time the
standard is implemented.
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 notes 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 to ten-year period, and are secured by a first mortgage on the
Vacation Interval. The Company bears the risk of defaults on these promissory
notes, 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
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<PAGE> 63
the unpaid price, certain 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.
Interest Rate Risk -- The Company has historically derived net interest
income from its financing activities because the interest rates it charges its
customers who finance the purchase of their Vacation Intervals exceed the
interest rates the Company pays to its lenders. Because the Company's
indebtedness bears interest at variable rates and the Company's customer
receivables bear interest at fixed rates, increases in interest rates will erode
the spread in interest rates that the Company has historically obtained and
could cause the rate on the Company's borrowings to exceed the rate at which the
Company provides financing to its customers. The Company has not engaged in
interest rate hedging transactions. Therefore, any increase in interest rates,
particularly if sustained, could have a material adverse effect on the Company's
results of operations, cash flows, and financial position.
Availability of Funding Sources -- The Company funds substantially all of
the notes receivable, timeshare inventories, and land inventories which it
originates or purchases with borrowings through its financing facilities,
internally generated funds, and proceeds from public debt and equity offerings.
Borrowings are in turn repaid with the proceeds received by the Company from
repayments of such notes receivable. To the extent that the Company is not
successful in maintaining or replacing existing financings, it would have to
curtail its operations or sell assets, thereby having a material adverse effect
on the Company's results of operations, cash flows, and financial condition.
Geographic Concentration -- The Company's notes receivable are primarily
originated in Texas, Missouri, Illinois, Massachusetts, and Georgia. The risk
inherent in such concentrations is dependent upon regional and general economic
stability which affects property values and the financial stability of the
borrowers. The Company's Vacation Interval inventories are concentrated in
Texas, Missouri, Illinois, Massachusetts, and Georgia, with pre-development in
Pennsylvania 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 seven to ten years. The average yield
on outstanding notes receivable at December 31, 1999 was approximately 13.7%. In
connection with the sampler program, the Company routinely enters into notes
receivable with terms of 10 months. Notes receivable from sampler sales were
$2.4 million and $3.1 million at December 31, 1998 and 1999, respectively, and
are typically non-interest bearing.
In connection with promotional sales to certain customers, the Company
entered into $3.5 million and $3.8 million of non-interest bearing notes
receivable for the years ended December 31, 1998 and 1999, respectively. The
Company calculated a discount of $1.2 million and $1.2 million for these notes
receivable in aggregate as of December 31, 1998 and 1999, respectively,
utilizing a 10% discount rate, which represents the lowest rate offered its
existing customers. Additionally, in 1999, the Company also modified the
interest rate on $7.0 million of certain notes receivable downward to 7.5%,
which will be reinstated to the original interest rate after twelve months. The
company calculated a discount of $198,000 on these notes receivable as of
December 31, 1999.
Notes receivable are scheduled to mature as follows at December 31, 1999
(in thousands):
<TABLE>
<S> <C>
2000...................................... $ 39,224
2001...................................... 44,919
2002...................................... 51,441
2003...................................... 58,909
2004...................................... 67,463
Thereafter................................ 56,951
---------
318,907
Less allowance for uncollectible notes.... (32,326)
---------
Notes receivable, net........... $ 286,581
=========
</TABLE>
There were no notes sold with recourse during the years ended December 31,
1997, 1998, and 1999. Outstanding principal maturities of notes receivable sold
with recourse as of December 31, 1998 and 1999 were $3.8 million and $2.2
million, respectively.
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,
1997, 1998, and 1999 (in thousands):
63
<PAGE> 64
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of period................................... $ 9,698 $ 12,621 $ 23,947
Provision for credit losses.................................... 10,524 16,372 19,121
Provision for customer releases charged to operating, general,
and administrative expenses.................................. 1,215 831 1,178
Receivables charged off........................................ (8,816) (5,877) (11,920)
-------- --------- ---------
Balance, end of period......................................... $ 12,621 $ 23,947 $ 32,326
======== ========= =========
</TABLE>
5. LAND, EQUIPMENT, BUILDINGS, AND UTILITIES
The Company's land, equipment, buildings, and utilities consist of the
following at December 31, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
------- -------
<S> <C> <C>
Land................................................. $ 6,689 $ 9,540
Vehicles and equipment............................... 3,703 7,864
Utility plant, buildings, and facilities............. 4,497 8,067
Office equipment and furniture....................... 17,349 27,413
Improvements......................................... 9,827 11,186
------- -------
42,065 64,070
Less accumulated depreciation........................ (8,040) (13,020)
------- -------
Land, equipment, buildings, and utilities, net....... $34,025 $51,050
======= =======
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1997, 1998, and 1999 was $1.5 million, $3.3 million, and $5.6 million,
respectively, which included amortization expense related to intangible assets
included in prepaid and other assets of $0, $179,000, and $311,000 in 1997,
1998, and 1999, respectively.
6. INCOME TAXES
Income tax expense consists of the following components for the years ended
December 31, 1997, 1998, and 1999 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- ------
<S> <C> <C> <C>
Current income tax expense................ $ 1,500 $ 3,945 $ 5,345
Deferred income tax expense............... 5,524 7,487 6,727
------- ------- -------
Total income tax expense........ $ 7,024 $11,432 $12,072
======= ======= =======
</TABLE>
A reconciliation of income tax expense on reported pretax income at
statutory rates to actual income tax expense for the years ended December 31,
1997, 1998, and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------------------ ---------------- ---------------
DOLLARS RATE DOLLARS RATE DOLLARS RATE
------- ------ ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at statutory rates... $ 6,454 34.0% $10,434 35.0% $10,975 35.0%
State income taxes, net of Federal
income tax benefit.................... 570 3.0% 998 3.4% 1,097 3.5%
------- ------ ------- ---- ------- ----
Total income tax expense...... $ 7,024 37.0% $11,432 38.4% $12,072 38.5%
======= ====== ======= ==== ======= =====
</TABLE>
Deferred income tax assets and liabilities as of December 31, 1998 and 1999
are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- -------
<S> <C> <C>
Deferred tax liabilities:
Installment sales income................ $ 58,993 $86,718
Deferred tax assets:
Net operating loss carryforward......... 32,162 46,808
Alternative minimum tax credit.......... 5,417 10,710
Other................................... (110) 949
-------- -------
Total deferred tax assets....... 37,469 58,467
-------- -------
Net deferred tax liability...... $ 21,524 $28,251
======== =======
</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 down payment or installment payment on customer receivables
are received by the Company. Interest is imposed, however, on the amount of tax
attributable to the installment payments for the period beginning on the date of
sale and ending on the date the 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
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<PAGE> 65
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, 1999.
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 purposes. 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. As a result, the Company's alternative minimum taxable
income for 1997 through 2000 was or will be increased each year by approximately
$9 million, which results in the Company paying substantial additional federal
and state taxes in those years. 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 ("NOL") expire between 2007 through 2019.
Realization of the deferred tax assets arising from net operating losses is
dependent on generating sufficient taxable income prior to the expiration of the
loss carryforwards. Management believes that it will be able to utilize its net
operating losses from normal operations. 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, 1999 (in thousands):
<TABLE>
<CAPTION>
EXPIRATION DATES
----------------
<S> <C>
2007...................................... $ 315
2008...................................... --
2009...................................... 1,385
2010...................................... 5,353
2011...................................... 4,230
2012...................................... 19,351
2018...................................... 36,421
2019...................................... 54,352
--------
$121,407
========
</TABLE>
7. DEBT
Loans, notes payable, capital lease obligations, and senior subordinated
notes as of December 31, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
$60 million revolving loan agreement, which contains certain financial covenants,
due December 2000, 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% ....................................................................... $ 11,210 $ 39,623
$70 million revolving loan agreement, capacity reduced by amounts outstanding
under the $10 million inventory loan agreement, which contains certain financial
covenants, due August 2004, principal and interest payable from the proceeds
obtained on customer notes receivable pledged as collateral for the note, at an
interest rate of LIBOR plus 2.65% ...................................................... 29,856 45,680
$75 million revolving loan agreement, which contains certain financial covenants,
due April 2005, 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 3.00% ....................................................................... 13,638 62,215
$75 million revolving loan agreement, which contains certain financial covenants,
due November 2005, principal and interest payable from the proceeds obtained on
customer notes receivable pledged as collateral for the note, at an interest rate of
LIBOR plus 2.67% ....................................................................... -- 14,150
$30 million revolving loan agreement, which contains certain financial covenants,
due September 2006, principal and interest payable from the proceeds obtained on
customer notes receivable pledged as collateral for the note, at an interest rate of
Prime .................................................................................. -- 6,678
$10 million inventory loan agreement, which contains certain financial covenants,
due August 2002, interest payable monthly, at an interest rate of LIBOR plus
3.50% .................................................................................. -- 9,937
Various notes, due from April 2000 through November 2009, collateralized
by various assets with interest rates ranging from 4.2% to 14.0% ....................... 223 4,088
-------- --------
Total notes payable ................................................................. 54,927 182,371
Capital lease obligations .................................................................. 3,181 11,800
-------- --------
Total notes payable and capital lease obligations ................................... 58,108 194,171
10 1/2% senior subordinated notes, due 2008, interest payable semiannually on April
1 and October 1, guaranteed by all of the Company's present and future domestic
restricted subsidiaries ................................................................ 75,000 75,000
-------- --------
Total ............................................................................... $133,108 $269,171
======== ========
</TABLE>
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<PAGE> 66
At December 31, 1999, LIBOR rates were from 5.82% to 6.00%, and the Prime
rate was 8.50%.
Effective March 31, 1999, the Company reached a definitive agreement with a
lender to increase its $15 million revolving loan agreement, expiring in
November 2002, to a $75 million two-year revolving loan agreement, due April
2005. The credit facility is based on an 85% advance rate against receivables
compared to the previous advance rate of 70%. Additionally, the interest rate on
the amended credit facility improved to LIBOR plus 3% from Prime plus 2%.
Effective September 1, 1999, the Company reached a definitive agreement
with a lender to increase its $40 million revolving loan agreement, due October
2005, to a $70 million five-year revolving loan agreement, due August 2004. The
credit facility is based on an 85% advance rate against receivables compared to
the previous advance rate of 70%. The interest rate on the amended credit
facility is LIBOR plus 2.65% compared to the previous interest rate of LIBOR
plus 2.5%.
Effective September 30, 1999, the Company entered into a $30 million
revolving loan agreement with a lender. The $30 million revolving loan agreement
is due September 30, 2006, and bears interest at Prime. The credit facility is
based on an 85% advance rate against receivables. Principal and interest are
paid from the proceeds obtained from customer notes receivable pledged as
collateral for the note.
Effective December 16, 1999, the Company entered into a $75 million
revolving loan agreement with a lender. The $75 million revolving loan agreement
is due November 30, 2005, and bears interest at LIBOR plus 2.67%. The credit
facility is based on an 85% advance rate against receivables. Principal and
interest are paid from the proceeds obtained from customer notes receivable
pledged as collateral for the note.
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 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.
The debt agreements also contain restrictive covenants which include (i)
restrictions on liens against and dispositions of collateral, (ii) restrictions
on distributions to affiliates and prepayments of loans from affiliates, (iii)
restrictions on changes in control and management of the Company, (iv)
restrictions on sales of substantially all of the assets of the Company, and (v)
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.
Such credit facilities also contain operating covenants requiring the
Company to (i) maintain an aggregate minimum tangible net worth ranging from
$17.5 million to $110 million, minimum liquidity, including a debt to equity
ratio of not greater than 2.5 to 1 and a liquidity ratio of not less than 5%, an
interest coverage ratio of at least 2.0 to 1, a marketing expense ratio of no
more than 0.55 to 1, a consolidated cash flow to consolidated interest expense
ratio of at least 2.0 to 1, and total tangible capital funds greater than $200
million plus 75% of net income beginning October 1999; (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; and (iv) refrain
from modifying or terminating certain timeshare documents. 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.
Principal maturities of loans, notes payable, capital lease obligations,
and senior subordinated notes are as follows at December 31, 1999 (in
thousands):
<TABLE>
<S> <C>
2000............................ $ 68,441
2001............................ 30,928
2002............................ 29,729
2003............................ 27,855
2004............................ 25,713
Thereafter...................... 86,505
--------
Total................. $269,171
========
</TABLE>
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<PAGE> 67
Total interest expense for the years ended December 31, 1997, 1998, and
1999 was $4.7 million, $7.1 million, and $16.8 million, respectively. Interest
of $823,000, $2.7 million, and $2.7 million was capitalized during the years
ended 1997, 1998, and 1999, respectively.
As of December 31, 1999, approximately $234.2 million of assets of the
Company were pledged as collateral.
8. COMMITMENTS AND CONTINGENCIES
The Company is currently subject to litigation arising in the normal course
of its business. From time to time, such litigation includes claims regarding
employment, tort, contract, truth-in-lending, the marketing and sale of Vacation
Intervals, and other consumer protection matters. Litigation has been initiated
from time to time by persons seeking individual recoveries for themselves, as
well as, in some instances, persons seeking recoveries on behalf of an alleged
class. In the judgment of the Company, none of these lawsuits or claims against
the Company, either individually or in the aggregate, is likely to have a
material adverse effect on the Company, its business, results of operations, or
financial condition.
Prior to 1996, the Company sold certain of its notes receivable with
recourse to third parties and affiliated parties. The Company has a contingent
liability for the notes receivable sold with recourse. The total amount of the
contingent liability was equal to the uncollected balance of the notes as of
December 31, 1999. The Company's management considers all notes receivable,
including those sold with recourse, in the Company's allowance for uncollectible
notes.
The Company has entered into noncancelable operating leases covering office
and storage facilities and equipment which will expire at various dates through
2004. The total rental expense incurred during the years ended December 31,
1997, 1998, and 1999 was $2.0 million, $4.8 million, and $8.0 million,
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, 1999 (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
2000............................................... $ 5,304 $ 2,638
2001............................................... 4,899 2,193
2002............................................... 2,293 1,729
2003............................................... 844 212
2004............................................... 270 23
------- --------
Total minimum future lease payments................ 13,610 $ 6,795
========
Less amounts representing interest................. (1,810)
-------
Present value of future minimum lease payments..... $11,800
=======
</TABLE>
Equipment acquired under capital leases consists of the following at
December 31, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Amount of equipment under capital leases............... $ 3,627 $13,352
Less accumulated depreciation.......................... (862) (3,263)
------- -------
$ 2,765 $10,089
======= =======
</TABLE>
Periodically, the Company enters into employment agreements with certain
executive officers which provide for minimum annual base salaries and other
fringe benefits as determined by the Board of Directors of the Company. Certain
of these agreements provide for bonuses based on the Company's operating
results. The agreements are for varying terms of up to three years and typically
can be terminated by either party upon 30 days notice.
Certain 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. These 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.
As of December 31, 1999, the Company had construction commitments of
approximately $30.8 million.
9. EQUITY
In June 1997, the Company completed its initial public offering of
3,600,000 shares of common stock at $16.00 per share (the
67
<PAGE> 68
"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.
Effective April 3, 1998, the Company completed the sale of 2,000,000 shares
of Company common stock at a price of $24.375 per share. On the same date, the
majority shareholder of the Company sold 875,000 additional shares of Company
common stock to the public.
Also effective April 3, 1998, the placement of $75 million aggregate
principal amount of 10 1/2% senior subordinated notes due 2008 ("Senior
Subordinated Notes") was completed by the Company. The Senior Subordinated Notes
are 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 Company received proceeds
from these two offerings in an aggregate net amount of $118.9 million. Costs
incurred in connection with the offerings were approximately $4.4 million. The
Company has utilized the proceeds primarily for the repayment of notes payable
and capital lease obligations, and its construction and acquisition programs.
During 1997, the Company established a stock option plan (the "1997 Stock
Option 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
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 1,600,000 shares of common stock for issuance pursuant to the Company's
1997 Stock Option Plan.
Outstanding options have a graded vesting schedule, with equal installments
of shares vesting up through four years from the original grant date. These
options are exercisable at prices ranging from $7.31 to $25.50 per share and
expire 10 years from the date of grant.
Stock option transactions during 1997, 1998, and 1999 are summarized as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------------- --------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE PER SHARE OF SHARES PRICE PER SHARE OF SHARES PRICE PER SHARE
--------- --------------- ---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of year ... -- -- 863,000 $17.93 1,280,000 $17.63
Granted .................................. 877,000 $17.90 685,000 $19.19 295,500 $ 7.58
Exercised ................................ -- -- -- -- -- --
Forfeited ................................ (14,000) $16.00 (268,000) $22.58 (98,500) $17.65
-------- ------ ---------- ------ ---------- ------
Options outstanding, end of year ......... 863,000 $17.93 1,280,000 $17.63 1,477,000 $15.64
======== ====== ========== ====== ========== ======
Exercisable, end of year ................. -- -- 215,750 $17.93 471,125 $17.46
======== ====== ========== ====== ========== ======
</TABLE>
For stock options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER FAIR VALUE EXERCISE REMAINING
RANGE OF EXERCISE PRICES OF SHARES PER OPTION PRICE PER SHARE LIFE IN YEARS
------------------------ --------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
$7.31 - $25.50 ......... 1,477,000 $10.23 $15.64 8.7
</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 costs have been recognized
for the stock options. Had compensation costs for the options been determined
based on the fair value at the grant date for the awards in 1997, 1998, and 1999
consistent with the provisions of SFAS No. 123, the Company's net income and net
income per share would approximate the pro forma amounts indicated below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------- ------------- ------------
<S> <C> <C> <C>
Net income-- as reported............................... $11,960 $18,378 $19,284
Net income-- pro forma................................. 11,404 16,374 17,448
Net income per share-- as reported:
Basic and diluted.................................... 1.22 1.45 1.50
Net income per share-- pro forma:
Basic................................................ 1.17 1.30 1.35
Diluted.............................................. 1.16 1.29 1.35
</TABLE>
68
<PAGE> 69
The weighted average fair value per common stock option granted during
1997, 1998, and 1999 were $11.51, $12.06, and $10.23, respectively. The fair
value of the stock options granted are estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: expected volatility ranging from 56.5% to 69.6% for all grants,
risk-free interest rates which vary for each grant and range from 5.5% to 6.5%,
expected life of 7 years for all grants, and no distribution yield for all
grants.
10. RELATED PARTY TRANSACTIONS
Each timeshare owners association has entered into a management agreement,
which authorizes the Management Clubs to manage the resorts on a centralized and
collective basis. 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 10% to 15% of dues collected for owners associations within Crown Club or
the net income of each Management Club; however, if the Company does not receive
the aforementioned maximum fee, such deficiency is deferred for payment in the
succeeding year(s), subject again to the net income limitation. The Silverleaf
Club Management Agreement is effective through March 2010, and will continue
year-to-year thereafter unless cancelled by either party. Crown Club consists of
several individual Club agreements which have terms of two to five years with a
minimum of two renewal options remaining. During the years ending December 31,
1997, 1998, and 1999, the Company recorded management fees of $2.3 million, $2.5
million, and $2.8 million, respectively, in management fee income.
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 years
ended December 31, 1997, 1998, and 1999, the Company incurred $2.6 million, $5.8
million, and $10.3 million, respectively, of expenses under these agreements. At
December 31, 1998 and 1999, the net receivable from the Management Clubs totaled
$4.1 million and $6.6 million, respectively. The amounts are included in amounts
due from affiliates.
The following schedule represents amounts due from affiliates at December
31, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- --------
<S> <C> <C>
Timeshare owners associations and other, net.......... $ (33) $ 202
Amount due from Silverleaf Club....................... 3,784 5,896
Amount due from Crown Club............................ 364 498
------- -------
Total amounts due from affiliates........... $ 4,115 $ 6,596
======= =======
</TABLE>
During 1997 and 1998, the Company incurred and made payments to
Recreational Consultants, Inc., an entity of which an officer of the Company is
the principal, of $302,000 and $736,000, respectively.
In September 1997, the Company sold to the principal shareholder the
Company's interest in a condominium and a residential dwelling for $508,000,
which exceeded the Company's carrying value of approximately $450,000.
In 1997, the Company 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.
In August 1997, subject to an employment agreement with an officer, the
Company purchased a house for $531,000 and leased the house, with an option to
purchase, to the officer 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, the officer 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 $44,000, which is still owed to the Company by the officer at 8% per
annum.
In February 1998, the Company paid $250,000 for all of the outstanding
stock of a marketing company, the President and sole shareholder of which
simultaneously became an employee of the Company.
In June 1998, the Company entered an employment agreement, whereby the
Company paid $108,000 for an employee's
69
<PAGE> 70
condominium in Branson, Missouri, upon his relocation to Dallas, Texas, and will
pay $500,000 over a three-year period as compensation for and in consideration
of the exclusivity of his services. Prior to becoming an employee in June 1998,
the Company paid this employee's former architectural firm $401,000 and
$246,000, during 1997 and 1998, respectively, for architectural services
rendered to the Company.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
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 value of loans, 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. The estimated fair value of the Company's $75
million Senior Subordinated Notes is approximately $50 million. However, these
notes are not traded on a regular basis and are therefore subject to large
variances in offer prices. Accordingly, the estimated fair value may not be
indicative of the amount at which a transaction could be completed. In general,
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.
12. ACQUISITIONS
In May 1998, the Company consummated an agreement with Crown Resort Co.,
LLC ("Crown") acquiring timeshare management rights and unsold Vacation
Intervals at seven resorts in Alabama, Mississippi, Pennsylvania, South
Carolina, Tennessee, and Texas for approximately $4.8 million. The acquisition
was accounted for under the purchase method of accounting.
In 1998, the Company acquired a golf course and undeveloped land near
Atlanta, Georgia, for approximately $4.2 million, undeveloped land near Kansas
City, Missouri, for approximately $1.5 million, and a tract of land in
Philadelphia, Pennsylvania, for approximately $1.9 million. The Company has
developed or intends to develop all three properties as Drive-to Resorts. These
acquisitions are accounted for under the purchase method of accounting.
In 1999, the Company acquired undeveloped land near The Villages Resort in
Tyler, Texas, for approximately $1.5 million, undeveloped land near Holiday
Hills Resort in Branson, Missouri, for approximately $500,000, and undeveloped
land near Fox River Resort in Sheridan, Illinois, for approximately $805,000.
13. SUBSIDIARY GUARANTEES
All subsidiaries of the Company have guaranteed the $75.0 million of Senior
Subordinated Notes (see Note 9). The separate financial statements and other
disclosures concerning each guaranteeing subsidiary (each, a "Guarantor
Subsidiary") are not presented herein because management had determined that
such information is 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, and together comprise
all direct and indirect subsidiaries of the Company. During the second quarter
of 1998, the Company liquidated several subsidiaries with nominal operations.
Combined summarized operating results of the Guarantor Subsidiaries for the
years ended December 31, 1997, 1998, and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- ----
<S> <C> <C> <C>
Revenues................................................. $ 407 $ 135 $ 56
Expenses................................................. (547) (488) (89)
----- ----- ----
Loss from continuing operations, before income taxes..... $(140) $(353) $(33)
Income taxes............................................. 52 136 13
----- ----- ----
Net loss................................................. $ (88) $(217) $(20)
===== ===== ====
</TABLE>
Combined summarized balance sheet information of the Guarantor Subsidiaries
as of December 31, 1998 and 1999 is as follows (in thousands):
70
<PAGE> 71
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Land, equipment, inventories, and utilities, net ........... $ 8 $ --
Other assets ............................................... 34 10
---- ----
Total assets ..................................... $ 42 $ 10
==== ====
Investment by parent (includes equity and amounts due to
parent) .................................................. $ 40 $ 10
Other liabilities .......................................... 2 --
---- ----
Total liabilities and equity ..................... $ 42 $ 10
==== ====
</TABLE>
14. 401(k) PLAN
Effective January 1, 1999, the Company established the Silverleaf Resorts,
Inc. 401(k) plan (the "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. The Company is not required by the Plan
to match employee contributions, however, may do so on a discretionary basis.
The Company incurred nominal administrative costs related to maintaining the
Plan during the year ended December 31, 1999.
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the unaudited consolidated quarterly results
of operations for 1999 and 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Total revenues
1999 ................................... $ 49,080 $ 56,374 $ 61,534 $63,770
======== ======== ======== =======
1998 ................................... $ 31,029 $ 43,161 $ 45,219 $41,346
======== ======== ======== =======
Total costs and operating expenses
1999 ................................... $ 41,195 $ 47,469 $ 52,710 $58,028
======== ======== ======== =======
1998 ................................... $ 25,257 $ 34,275 $ 36,364 $35,049
======== ======== ======== =======
Income before provision for income taxes
1999 ................................... $ 7,885 $ 8,905 $ 8,824 $ 5,742
======== ======== ======== =======
1998 ................................... $ 5,772 $ 8,887 $ 8,854 $ 6,297
======== ======== ======== =======
Net income
1999 ................................... $ 4,849 $ 5,477 $ 5,427 $ 3,531
======== ======== ======== =======
1998 ................................... $ 3,574 $ 5,500 $ 5,420 $ 3,884
======== ======== ======== =======
Earnings per common share (basic)
1999 ................................... $ 0.38 $ 0.42 $ 0.42 $ 0.27
======== ======== ======== =======
1998 ................................... $ 0.32 $ 0.42 $ 0.42 $ 0.30
======== ======== ======== =======
Earnings per common share (diluted)
1999 ................................... $ 0.38 $ 0.42 $ 0.42 $ 0.27
======== ======== ======== =======
1998 ................................... $ 0.31 $ 0.41 $ 0.42 $ 0.30
======== ======== ======== =======
</TABLE>
71
<PAGE> 72
INDEX TO EXHIBITS
(a) The following documents are filed as part of this report:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 -- Charter of Silverleaf Resorts, Inc. (incorporated by
reference to Exhibit 3.1 to Amendment No. 1 dated May 16,
1997 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
3.2 -- Bylaws of Silverleaf Resorts, Inc. (incorporated by
reference to Exhibit 3.2 to Registrant's Form 10-K for
year ended December 31, 1997).
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).
4.2 -- Indenture dated April 1, 1998, between the Company and
Norwest Bank Minnesota, National Association, as Trustee
(incorporated by reference to Exhibit 4.1 to Registrant's
Form 10-Q for quarter ended March 31, 1998).
4.3 -- Certificate No. 001 of 101/2% Senior Subordinated Notes
due 2008 in the amount of $75,000,000 (incorporated by
reference to Exhibit 4.2 to Registrant's Form 10-Q for
quarter ended March 31, 1998).
4.4 -- Subsidiary Guarantee dated April 8, 1998 by Silverleaf
Berkshires, Inc.; Bull's Eye Marketing, Inc.; Silverleaf
Resort Acquisitions, Inc.; Silverleaf Travel, Inc.;
Database Research, Inc.; and Villages Land, Inc.
(incorporated by reference to Exhibit 4.3 to Registrant's
Form 10-Q for the quarter ended March 31, 1998).
*9.1 -- Voting Trust Agreement dated November 1, 1999 between
Robert E. Mead and Judith F. Mead.
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 Thomas Franks
(incorporated by reference to Exhibit 10.6 to Registrant's
Form 10-Q for quarter ended September 30, 1997).
10.2.2 -- 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).
10.2.3 -- 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).
10.2.4 -- 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).
10.2.5 -- Employment Agreement with Harry J. White, Jr.
(incorporated by Reference to Exhibit 10.1 to Registrant's
Form 10-Q for quarter ended June 30, 1998).
10.2.6 -- Amendment to Employment Agreement with Sharon K. Brayfield
(incorporated by reference to Exhibit 10.2 to Registrant's
Form 10-Q For quarter ended June 30, 1998).
10.2.7 -- First Amendment dated June 12, 1998, to Employment
Agreement with Jim Oestreich (incorporated by reference to
Exhibit 10.7 to Registrant's Form 10-Q for quarter ended
September 30, 1998).
10.2.8 -- Second Amendment dated September 29, 1998, to Employment
Agreement with Jim Oestreich (incorporated by reference to
Exhibit 10.8 to Registrant's Form 10-Q for quarter ended
September 30, 1998).
10.2.9 -- First Amendment dated August 31, 1998, to Employment
Agreement with David T. O'Connor (incorporated by
reference to Exhibit 10.10 to Registrant's Form 10-Q for
quarter ended September 30, 1998).
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).
10.4 -- Silverleaf Club Agreement between the Silverleaf 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 Silverleaf
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).
72
<PAGE> 73
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 -- 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).
10.12 -- 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).
10.13 -- 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).
10.14 -- 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).
10.15 -- First Amendment to Silverleaf Club Agreement, dated March
28, 1990, among Silverleaf 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).
10.16 -- 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).
10.17 -- 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).
10.18 -- 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).
10.19 -- 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).
10.20 -- Silverleaf 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).
10.21 -- Second Amendment to Management Agreement, dated December
31, 1997, between Silverleaf 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).
10.22 -- Silverleaf Club Agreement, dated January 5, 1998, between
Silverleaf 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).
73
<PAGE> 74
10.23 -- 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).
10.24 -- Letter Agreement dated March 16, 1998, between the Company
and Heller Financial, Inc. (incorporated by reference to
Exhibit 10.44 to Amendment No. 1 to Form S-1, File No.
333-47427 filed March 16, 1998).
10.25 -- Bill of Sale and Blanket Assignment dated May 28, 1998,
between the Company and Crown Resort Co., LLC
(incorporated by reference to Exhibit 10.6 to Registrant's
Form 10-Q for quarter ended June 30, 1998).
10.26 -- Contract of Sale by and between Terry Adair and George R.
Bedell, as Trustee, dated March 27, 1998 (incorporated by
reference to Exhibit 10.1 to Registrant's Form 10-Q for
quarter ended September 30, 1998).
10.27 -- Contract of Sale by and between Great Atlanta's Properties
Corp. and George R. Bedell, as Trustee, dated August 12,
1998 (incorporated by reference to Registrant's Form 10-Q
for quarter ended September 30, 1998).
10.28 -- Contract of Sale, dated February 25, 1998 (as amended in
October 1998), by and between the Company and J. Phillip
Ballard, Jr. and Eagle Greens Ltd., f/k/a Northeast
Georgia Recreational Development Co., Inc. (incorporated
by reference to Exhibit 10.3 to Registrant's Form 10-Q for
quarter ended September 30, 1998).
10.29 -- Amendment to Contract of Sale, dated October 14, 1998, by
and between the Company and J. Phillip Ballard, Jr. and
Eagle Greens, Ltd., f/k/a Northeast Georgia Recreational
Development Co., Inc. (incorporated by reference to
Exhibit 10.4 to Registrant's Form 10-Q for quarter ended
September 30, 1998).
10.30 -- Second Amendment to Contract of Sale, dated October 14,
1998, by and between the Company and J. Phillip Ballard,
Jr. and Eagle Greens Ltd., f/k/a Northeast Georgia
Recreational Development Co., Inc. (incorporated by
reference to Exhibit 10.5 to Registrant's Form 10-Q for
quarter ended September 30, 1998).
10.31 -- Management Agreement dated October 13, 1998, by and
between the Company and Eagle Greens, Ltd. (incorporated
by reference to Exhibit 10.6 to Registrant's Form 10-Q for
quarter ended September 30, 1998).
10.32 -- One to Four Family Residential Contract (Resale) between
the Company and Thomas C. Franks, dated July 30, 1998
(incorporated by reference to Exhibit 10.12 to
Registrant's Form 10-Q for quarter ended September 30,
1998).
10.33 -- Contract of Sale dated April 28, 1998, by and between
Beech Mountain Lakes Corp. and the Company.
10.34 -- Amendment to Contract of Sale dated November 24, 1998, by
and between Beech Mountain Lakes Corp. and the Company.
10.35 -- Contract of Sale dated September 30, 1998, by and between
National American Corp. and the Company.
10.36 -- First Amendment to 1997 Stock Option Plan for Silverleaf
Resorts, Inc., effective as of May 20, 1998 (incorporated
by reference to Exhibit 4.1 to the Company's Form 10-Q for
the quarter ended June 30, 1998).
10.37 -- Contract of Sale dated August 5, 1998, among David M.
Fender and Jane M. Fender ("Seller") and George R. Bedell
("Purchaser") (incorporated by reference to Exhibit 10.1
to the Company's Form 10-Q for the quarter ended March 31,
1999).
10.38 -- Third Amendment to Loan and Security Agreement dated as of
March 31, 1999, between the Company and Textron Financial
Corporation (incorporated by reference to Exhibit 10.2 to
Registrant's Form 10-Q for the quarter ended March 31,
1999).
10.39 -- Amended and Restated Receivables Loan and Security
Agreement dated September 1, 1999, between the Company and
Heller Financial, Inc. (incorporated by reference to
Exhibit 10.1 to Registrant's Form 10-Q for the quarter
ended September 30, 1999).
10.40 -- Amended and Restated Inventory Loan and Security Agreement
dated September 1, 1999, between the Company and Heller
Financial, Inc. (incorporated by reference to Exhibit 10.2
to Registrant's Form 10-Q for the quarter ended September
30, 1999).
10.41 -- Loan and Security Agreement dated September 30, 1999,
between the Company and BankBoston, N.A., as Agent, and
BankBoston, N.A. and various financial institutions, as
Lenders (incorporated by reference to Exhibit 10.3 to
Registrant's Form 10-Q for the quarter ended September 30,
1999).
10.42 -- Purchase and Sale Agreement dated July 30, 1999, between
the Company and American National Bank and Trust Company
of Chicago, as Trustee (incorporated by reference to
Exhibit 10.4 to Registrant's Form 10-Q for the quarter
ended September 30, 1999).
*10.43 -- Fourth Amendment to Loan and Security Agreement dated as
of December 16, 1999 between the Company and Textron
Financial Corporation.
*10.44 -- Loan and Security Agreement dated as of December 16, 1999
between the Company and Textron Financial Corporation.
*10.45 -- Loan, Security and Agency Agreement dated as of December
16, 1999 between the Company and Textron Financial
Corporation.
*10.46 -- Second Amendment to 1997 Stock Option Plan, dated November
19, 1999.
*10.47 -- Eighth Amendment to Management Agreement, dated March 9,
1999, between the Registrant and the Silverleaf Club.
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*12.1 -- Statement concerning computation of ratios of earnings to
fixed charges
*21.1 -- Subsidiaries of Silverleaf Resorts, Inc.
*27.1 -- Financial Data Schedule.
- ------------
* Filed herewith
(b) No reports on Form 8-K were filed by the Company during the
three-month period ended December 31, 1999.
(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 consolidated financial statements or the
notes thereto.
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<PAGE> 1
EXHIBIT 9.1
VOTING TRUST AGREEMENT
This VOTING TRUST AGREEMENT (the "Agreement") is made between ROBERT E.
MEAD ("Husband") and JUDITH F. MEAD ("Wife") to create a Voting Trust of their
shares of SILVERLEAF RESORTS, INC, a Texas corporation (the "Company.")
ARTICLE 1
CONSIDERATION, PURPOSE OF TRUST AND SHARES
Section 1.01. Consideration. Husband and Wife enter into this Voting
Trust Agreement in consideration of their mutual promises.
Section 1.02. Purpose of Trust. Husband and Wife enter into this Voting
Trust Agreement for the purpose of ensuring the concentration of the vote of the
shares represented under this Agreement into a clear and definite policy of
management under the discretion of the Voting Trustee. Husband and Wife agree
that such concentration is in their respective best interests.
Section 1.03. Shares. The initial shares of the Company that shall be
held in this Voting Trust consist of 7,250,100 shares of the Company's common
stock, as represented by those certificates or accounts more particularly
described in Exhibit "A" attached hereto (the "Shares"). Any reference herein to
Shares of the Company shall also be deemed to include any additional shares of
the Company that become subject to this Agreement and to any shares of any
successor company to the Company.
ARTICLE II
TRUSTEE
Section 2.01. Trustee. The initial Trustee of this Voting Trust shall
be Husband. In the event Husband fails, refuses or ceases to serve as Trustee,
Husband and Wife appoint JAMES B. FRANCIS, JR. as the successor Trustee of this
Voting Trust. In the further event that JAMES B. FRANCIS, JR. or any subsequent
successor Trustee fails, refuses or ceases to serve as Trustee, a successor
Trustee(s) shall be elected by a majority vote of the Voting Trust Certificate
Holders.
Section 2.02. Death of Trustee. The rights and duties of any Trustee
shall terminate on the Trustee's death, and no interest in any of the property
owned or held by the Voting Trust nor any of the rights or duties of the Trustee
may be transferred by will, devise, succession, or in any manner except as
provided in this Agreement. The heirs, administrators, and executors of the
Trustee shall, however, have the right and duty to convey any property held by
the Trustee to the successor Trustee(s).
Section 2.03. Resignation. Any Trustee may resign as Trustee of the
Voting Trust by giving written notice of the Trustee's resignation to the
remaining Trustees, if any, or if none, to
<PAGE> 2
the Voting Trust Certificate Holders. When a Trustee resigns, the successor
Trustee(s) may settle any account or transaction with the resigning Trustee.
Section 2.04. Removal. Any Trustee may be removed only by a vote or the
written consent of two-thirds (2/3rds) in interest of the Voting Trust
Certificate Holders. A Voting Trust Certificate Holder shall be entitled to vote
even though the Voting Trust Certificate Holder may also be the Trustee who is
the subject of the vote or consent proposing removal.
ARTICLE III
POSSESSION AND TRANSFER OF SHARES
ISSUANCE AND TRANSFER OF
VOTING TRUST CERTIFICATES
Section 3.01. Possession of Shares. On the execution of this Agreement,
Husband and Wife shall take all steps necessary to transfer record title to the
Shares of the Company owned by Husband and Wife into the name of Husband, as
Trustee. All Shares shall remain in the actual or constructive possession of the
Trustee during the term of this Voting Trust.
Section 3.02. Transfer of Shares to Trustee. All existing certificates
or accounts representing Shares of the Company shall be surrendered to the
Company's transfer agent and cancelled. New certificates shall be issued in the
name of the Trustee. The new share certificates representing Shares shall state
that they are issued pursuant to this Agreement. That fact shall also be noted
by the transfer agent in the Company's stock transfer records in the entry of
the Trustee's ownership of the shares.
Section 3.03. Transfer of Shares to Successor Trustee. Notwithstanding
any changes in the identity of the Trustee, the certificates for Shares standing
in the name of the Trustee may be endorsed and transferred by any successor
Trustee or Trustees with the same effect as if endorsed and transferred by the
Trustee who has ceased to act. The Trustee is authorized and empowered to cause
any further transfer of the Shares that may be necessary because of any change
of persons holding the office of Trustee.
Section 3.04. No Sale of Shares. Despite the provisions of Section
3.01, the Trustee has no authority to sell or otherwise dispose of or encumber
any of the Shares deposited pursuant to the provisions of this Agreement, except
as provided in Section 4.01.
Section 3.05. Voting Trust Certificates. When the Trustee receives
title to the Shares, the Trustee shall hold the Shares subject to the terms of
this Agreement, and the Trustee shall also issue and deliver Voting Trust
Certificates to Husband, in substantially the form of Exhibit B, attached to
this Agreement. Any subsequent Voting Trust Certificates issued by the Trustee
shall also be substantially in the same form.
Section 3.06. Fractional Trust Certificates. If an interest in this
Voting Trust that is owned by any Voting Trust Certificate Holder cannot be
fully represented by Whole Voting Trust Certificates, the Trustee may issue
Fractional Share Voting Trust Certificates, scrip, or
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<PAGE> 3
other evidence of ownership of the fractional part of one Trust Certificate that
in the Trustee's discretion properly indicates ownership of the fractional
interest. When such an issue is made, the fractional interest shall not under
any circumstances have any greater rights or lesser liabilities than any other
Trust Certificate.
Section 3.07. Transfer of Voting Trust Certificates. The Voting Trust
Certificates shall be transferable only as provided in the Certificates and in
this Agreement, and on payment of any charges payable at the time of transfer.
All transfers shall be recorded in the Certificate Record Book maintained by the
Trustee. Any transfer made of any Voting Trust Certificate shall vest in the
transferee all rights of the transferor and shall subject the transferee to the
same limitations as those imposed on the transferor by the terms of the Voting
Trust Certificate and by this Agreement. The Trustee shall deliver Voting Trust
Certificates to the transferee for the number of shares represented by the
Voting Trust Certificate so transferred.
Section 3.08. Proof of Ownership. The Trustee shall not be required to
recognize any transfer of a Voting Trust Certificate not made in accordance with
the provisions of this Agreement unless the persons claiming ownership have
produced indicia of title satisfactory to the Trustee, and shall have deposited
with the Trustee indemnity satisfactory to the Trustee.
Section 3.09. Holder of Certificate as Owner. The Trustee may treat the
Voting Trust Certificate Holders as the absolute owners and holders of the
Voting Trust Certificates and as having all of the rights and interests
represented by them for all purposes, and the Trustee shall not be bound or
affected by any notice to the contrary.
Section 3.10. Replacement of Certificates. If a Voting Trust
Certificate becomes mutilated or is destroyed, stolen, or lost, the Trustee, in
the Trustee's discretion, may issue a new Voting Trust Certificate of like tenor
and denomination in exchange and substitution for and on cancellation of the
mutilated Voting Trust Certificate, or in substitution for the Certificate so
destroyed, stolen, or lost. The applicant for a substituted Voting Trust
Certificate shall furnish to the Trustee evidence of the destruction, theft, or
loss of the Certificate satisfactory to the Trustee in the Trustee's discretion.
The applicant shall also furnish indemnity satisfactory to the Trustee.
ARTICLE IV
VOTING AND ACTION BY TRUSTEE
Section 4.01. Voting of Shares and Distributions. While the Trustee
holds shares pursuant to the provisions of this Agreement, the Trustee shall
possess and in the Trustee's unrestricted discretion shall be entitled to
exercise in person or by the Trustee's nominees, agents, attorneys-in-fact, or
proxies all rights and powers of an absolute owner, and to sell or pledge all or
any part of the Shares upon such terms and conditions as the Trustee shall
determine in the Trustee's discretion and to distribute the sales proceeds or
any proceeds from any loan secured by the Shares to the Voting Trust Certificate
Holders, and to vote, assent, or consent with respect to those rights and powers
and to take part in and consent to any corporate or shareholders' actions,
including but not limited to any vote in favor of the sale, mortgage, or pledge
of all or substantially all of the assets of the Company or for any change in
the capital
3
<PAGE> 4
structure or the powers of the Company or in connection with a merger,
consolidation, reorganization, or dissolution. No person other than the Trustee
shall have any voting rights in respect to the shares so long as this Agreement
is in effect and the shares are registered in the name of the Trustee.
Additionally, the Trustee shall be entitled to receive dividends and other
distributions on the shares, subject to the provisions of Section 5.01 of this
Agreement.
Section 4.02. Voting in Interest of Company. In voting the Shares or in
doing any act regarding the control or management of the Company or its affairs,
as holder of Shares deposited pursuant to this Agreement, the Trustee shall
exercise the Trustee's best judgment in the interest of the Company to the end
that its affairs shall be properly managed, but the Trustee assumes no
responsibility regarding management or any action taken by them or taken by the
Company in pursuance of the Trustee's consent to it as a shareholder or in
pursuance of the Trustee's vote so cast.
Section 4.03. Majority Action of Trustee. If more than one Trustee is
serving under this Agreement, all action to be taken on any question arising
between the Trustees, except as otherwise expressly provided in this Agreement,
shall from time to time be determined by the vote or agreement of the majority
of the Trustees then in office, either at a meeting of the Trustees or, with or
without a meeting, by a writing signed by the majority. The Trustees may provide
for the authentication of evidence of any action taken by them. Any Trustee may
vote in person or by proxy given to any other Trustee.
Section 4.04. Meeting With Certificate Holders. If any question arises
on which the Trustee desires the opinion of the Voting Trust Certificate
Holders, the Trustee may call a meeting for this purpose. At the meeting, the
owners of two-thirds ( 2/3rds ), or more, in interest of the Voting Trust
Certificates may determine by vote or their written consent the manner in which
they desire the Trustee to act, and the Trustee shall be bound to act in the
manner designated. The Trustee shall not be called upon or expected to take any
action as a result of this meeting unless and until the Trustee has been fully
indemnified against all loss, damage, claim, or injury to which the Trustee
might be subjected, either by reason of the Trustee's action or by reason of the
Trustee's position as Trustee under this Agreement.
Section 4.05. Trustee's Relationship With Company. Any Trustee, the
Trustee's employees or agents, and any firm, corporation, trust, or association
of which the Trustee may be a trustee, stockholder, director, officer, member,
agent, or employee may contract with or be or become pecuniary interested,
directly or indirectly, in any matter or transaction to which the Company or any
subsidiary or controlled or affiliated corporation may be a party or in which it
may be concerned, as fully and freely as though the Trustee were not a Trustee
pursuant to this Agreement. The Trustee, the Trustee's employees or agents may
act as directors, officers or employees of the Company or of any subsidiary or
controlled or affiliated corporation.
Section 4.06. Compensation of Trustees. Husband shall serve as Trustee
without compensation. Any successor Trustee(s) shall be entitled to reasonable
compensation, taking into account the nature and extent of their duties.
4
<PAGE> 5
Section 4.07. Expenses. The Trustee is expressly authorized to incur
and pay those reasonable charges and expenses that the Trustee may deem
necessary and proper for administering this Agreement. The Voting Trust
Certificate Holders agree to reimburse and indemnify the Trustee for all claims,
expenses, and liabilities incurred by the Trustee in connection with the
discharge of the Trustee's duties under this Agreement. Any such claims,
expenses, or liabilities shall be charged to the Voting Trust Certificate
Holders in proportion to the number of shares represented by the Voting Trust
Certificates held by each and may be deducted from dividends or other
distributions to them, or may be made a charge payable as a condition to the
delivery of shares in exchange for Voting Trust Certificates, and the Trustee
shall be entitled to a lien for this charge on the shares, funds, or other
property in the Trustee's possession.
Section 4.08. Trustee's Liability. No Trustee shall be liable for acts
or defaults of any other Trustee or for acts or defaults of an agent of any
other Trustee. The Trustee shall be free from liability in acting upon any
paper, document, or signature believed by Trustee to be genuine and to have been
signed by the proper party. The Trustee shall not be liable for any error of
judgment nor for any act done or omitted, nor for any mistake of fact or law,
nor for anything that the Trustee may do or refrain from doing in good faith,
nor generally shall the Trustee have any accountability pursuant to this
Agreement, except that the Trustee shall be liable for the Trustee's own willful
default or gross negligence. The Trustee may be advised by legal counsel, and
any action under this Agreement taken or suffered in good faith by Trustee in
accordance with the opinion of counsel shall be conclusive on the parties to
this Agreement, and the Trustee shall be fully protected and be subject to no
liability in respect to any action taken or suffered under this Agreement.
ARTICLE V
DIVIDEND, DISTRIBUTION, SUBSCRIPTION RIGHTS
OF CERTIFICATE HOLDERS
Section 5.01. Cash Dividends. Each Voting Trust Certificate Holder
shall be entitled to receive from time to time payments equal to the amount of
cash dividends, if any, collected or received by the Trustee on the shares in
regard to which Voting Trust Certificates were issued, less the deductions
provided for in Section 5.05. These payments shall be made as soon as
practicable after the receipt of the dividends to the Voting Trust Certificate
Holders at the close of business on the record date determined pursuant to the
provisions of Section 5.06. Instead of receiving cash dividends and paying them
to the Voting Trust Certificate Holders, the Trustee may instruct the Company in
writing to pay the dividends directly to the Voting Trust Certificate Holders.
When these instructions are given to the Company, all liability of the Trustee
with regard to the dividends shall cease, until the instructions are revoked.
The Trustee may at any time revoke the instructions and by written notice to the
Company direct it to make dividend payments to the Trustee.
Section 5.02. Share Dividends. If the Trustee receives as a dividend or
other distribution on any Shares held by the Trustee under this Agreement any
additional shares of the Company, the Trustee shall hold them subject to this
Agreement for the benefit of the Voting
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<PAGE> 6
Trust Certificate Holders in proportion to their respective interests, and the
shares shall become subject to all of the terms and conditions of this Agreement
to the same extent as if they were originally deposited under it. The Trustee
shall issue Voting Trust Certificates in respect of these shares to the Voting
Trust Certificate Holders of record at the close of business on the record date
determined pursuant to the provisions of Section 5.06.
Section 5.03. Distributions on Liquidation. In the event of the
dissolution or total or partial liquidation of the Company, the Trustee shall
receive the moneys, securities, rights, or property to which the Trustee as a
Shareholder of the Company is entitled, and shall distribute it among the Voting
Trust Certificate Holders in proportion to their interests, as shown by the
books of the Trustee.
Section 5.04. Other Distributions to Shareholders. If at any time
during the continuation of this Agreement the Trustee shall receive or collect
any moneys (other than in payment of cash dividends) through a distribution by
the Company to its shareholders or shall receive any property (other than shares
of stock of the Company) through a distribution by the Company to its
shareholders, the Trustee shall distribute the moneys or property to the Voting
Trust Certificate Holders registered as such at the close of business on the
record date determined pursuant to the provisions of Section 5.06. The Trustee
may withhold from the distribution the deductions provided for in Section 5.05.
Section 5.05. Deductions for Distributions. There shall be deducted and
withheld from every distribution of every kind under this Agreement any taxes,
assessments, or other charges that may be required by law to be deducted or
withheld, as well as expenses and charges incurred pursuant to Section 4.07, to
the extent that the expenses and charges remain unpaid or unreimbursed.
Section 5.06. Record Date for Distributions. The Trustee may, if the
Trustee deems it advisable, fix a date not exceeding twenty (20) days preceding
any date for the payment or distribution of dividends or for the distribution of
assets or rights as a record date for the determination of the Voting Trust
Certificate Holders entitled to receive the payment or distribution, and the
Voting Trust Certificate Holders of record on that date shall be exclusively
entitled to participate in the payments or distributions. If the Trustee fails
to fix a record date, the date three (3) days prior to the date of payment or
distribution of dividends or the distribution of assets or rights shall
constitute the record date for the determination of the Voting Trust Certificate
Holders entitled to receive the payment or distribution.
Section 5.07. Subscription Rights. If the Trustee shall receive notice
of an offer by the Company of additional securities for subscription, the
Trustee shall promptly mail a copy of the notice to the Voting Trust Certificate
Holders of record. On receipt by the Trustee, at least ten (10) days prior to
the last date fixed by the Company for subscription, of a request from a Voting
Trust Certificate Holder to be subscribed in his or her behalf, accompanied by
the sum of money required to be paid for the securities, the Trustee shall make
the subscription and payment on behalf of the Voting Trust Certificate Holder.
On receiving from the Company the certificate for the securities subscribed for,
the Trustee shall issue to the Voting Trust Certificate Holder a
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<PAGE> 7
Voting Trust Certificate in respect of those securities if the securities are
shares; if they are securities other than shares, the Trustee shall deliver them
to the Voting Trust Certificate Holder.
ARTICLE VI
BOOKS AND RECORDS
Section 6.01. Record of Shares. The Trustee shall maintain a record of
all share certificates of the Company that are transferred to the Trustee,
indicating the name in which the stock was held, the date of issuance of the
stock, the class and series of the stock, the number of shares, and the number
of the certificates representing those shares. The Trustee shall also maintain a
record of the date on which he or she received any shares or share certificates
and the date on which they were delivered to the Company for transfer to the
Trustee, and shall obtain a receipt for any certificates so delivered. The
Trustee shall receive and hold the new share certificates issued by the Company
in the name of the Trustee and shall maintain a record indicating the date of
issuance of the certificates, the date of receipt of the certificates, and the
place in which the Trustee is holding the certificates.
Section 6.02. Record of Trust Certificates. The Trustee shall maintain
a record showing the names and addresses of the Voting Trust Certificate
Holders. The record shall show the number of Certificates held by each person.
The record shall show the dates on which the Voting Trust Certificates were
issued, canceled, transferred, or replaced. The record shall be known as the
Certificate Record Book and shall be open to inspection by any of the parties to
this Agreement or their successors at any reasonable time. The first Voting
Trust Certificate Holders to appear in the Certificate Record Book shall be the
parties to this Agreement to whom Voting Trust Certificates are to be issued.
The record shall show any subsequent transfer, assignment, pledge, attachment,
execution, and any other matter affecting the title to the Voting Trust
Certificates that comes to the attention of the Trustee. Any documents
purporting to affect the title of the Voting Trust Certificates shall also be
kept in the Certificate Record Book, together with a sample copy of the Voting
Trust Certificate. The Certificate Record Book may be closed from time to time
by the Trustee for a period not to exceed twenty (20) days. Notice of the
closing shall be given to all parties to this Agreement at least five (5) days
prior to the closing. The closing of the Certificate Record Book shall not
affect the right to inspection.
Section 6.03. Books of Accounts. The Trustee shall maintain a Book of
Accounts. In addition to other matters that the Trustee may insert in the
record, the record shall show all sums of money received by the Trustee, all
disbursements made by the Trustee, and all obligations incurred by the Trustee
that are unpaid. Information concerning these accounts shall be posted at least
quarterly.
Section 6.04. Inspection of Records. The parties to this Agreement
shall deposit a counterpart of this Agreement with the Company at its registered
office, and the Agreement shall be subject to the same right of examination by a
Shareholder of the Company, in person or by agent or attorney, as are the books
and records of the Company.
7
<PAGE> 8
ARTICLE VII
TERM OF TRUST
Section 7.01. Irrevocability of Trust. The trust created by this
Agreement is expressly declared to be irrevocable, except as otherwise provided
in Section 7.02 of this Agreement.
Section 7.02. Termination. This Agreement shall terminate only upon the
first to occur of the following: (i) the death of the survivor of Husband and
Wife; (ii) when the Voting Trust ceases to hold at least five percent (5%) of
the issued and outstanding shares of the Company or any successor company; and
(iii) the vote or written consent of two-thirds (2/3rds) in interest of the
Voting Trust Certificate Holders, without any other action by the Trustee or any
other parties.
Section 7.03. Return of Share Certificates After Termination. Within
thirty (30) days after the termination of this Agreement, the Trustee shall
deliver to the Voting Trust Certificate Holders, share certificates representing
the number of shares in respect of which the Voting Trust Certificates were
issued on the surrender of the Voting Trust Certificates properly endorsed and
on payment by the persons entitled to receive the share certificates of a sum
sufficient to cover any governmental charge on the transfer or delivery of the
share certificates.
Section 7.04. Final Accounting. Within ninety (90) days after
termination of this Trust, the Trustee shall render a final accounting to the
Voting Trust Certificate Holders and to the Company and shall distribute any
funds or other assets held by them to the parties entitled to them.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Place of Performance. This Agreement is made, executed,
and entered into in Dallas, Dallas County, Texas, and it is mutually agreed that
the performance of all parts of this Agreement shall be made in Dallas, Dallas
County, Texas.
Section 8.02. Governing Law. This Agreement is intended by the parties
to be governed and construed in accordance with the laws of the State of Texas.
Section 8.03. Severability of Provisions. This Agreement shall not be
severable or divisible in any way, but it is specifically agreed that, if any
provision should be invalid, the invalidity shall not affect the validity of the
remainder of the Agreement.
Section 8.04. Construction by Trustee. The Trustee is authorized and
empowered to construe this Agreement. The Trustee's reasonable construction made
in good faith shall be conclusive and binding on the Voting Trust Certificate
Holders and on all parties to this Agreement.
Section 8.05. Notice to Trustee. Any notice to be given to the Trustee
under this Agreement shall be sufficiently given if mailed to the Trustee at
1221 Riverbend, Suite 120,
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Dallas, Texas 75247 or at such other address as the Trustee may from time to
time designate by written notice given to the Voting Trust Certificate Holders.
Section 8.06. Notice to Voting Trust Certificate Holders. Any notice to
be given to a Voting Trust Certificate Holder shall be sufficiently given if
mailed, postage prepaid, to him or her at the address of the Voting Trust
Certificate Holder appearing in the Certificate Book to be maintained by the
Trustee. Every notice so given shall be effective whether or not received, and
notice shall for all purposes be deemed to have been given on the date of its
mailing.
Section 8.07. Notice and Reports From Company. This Agreement does not
affect the Voting Trust Certificate Holder's right to:
(a) Receive from the Company, the Company's annual report.
(b) Receive from the Company notice of each annual and
special meeting of shareholders in the same manner and
at the same time as if the Voting Trust Certificate
Holder were a shareholder.
(c) Inspect the books and records of the Company at all
reasonable times.
Section 8.08. Meetings of Voting Trust Certificate Holders. A meeting
of the Voting Trust Certificate Holders may be called by the Trustee at any time
on seven (7) days' notice. The notice shall contain a statement of the matters
to be discussed at the meeting. At any meeting, a quorum, consisting of at least
fifty percent (50%) in interest of the Voting Trust Certificate Holders in this
Voting Trust, must be present before a vote shall be taken on any matter before
the meeting, unless otherwise expressly provided in this Agreement. Each Voting
Trust Certificate Holder may vote at any meeting in person or by proxy. Each
Voting Trust Certificate Holder shall have one vote for each share represented
by his or her Voting Trust Certificate. Action may be taken on any of the
matters covered in this Agreement by the written consent of all of the parties
who could have taken any action at a meeting.
Section 8.09. Execution of 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
Section 8.10. Amendment of Agreement. If the Trustee deems it advisable
at any time to amend this Agreement, the Trustee shall call a special meeting of
Voting Trust Certificate Holders for that purpose. At the meeting, the Trustee
must submit the amendment to the Voting Trust Certificate Holders of the then
outstanding Voting Trust Certificates for their approval. Notice of the time and
place of the meeting shall be given in the manner provided in Section 8.08 and
shall contain a copy of the proposed amendment. If, at the meeting, the proposed
amendment is approved by the affirmative vote or written consent of Voting Trust
Certificate Holders representing two-thirds (2/3rds) of the shares held by the
Trust, the proposed amendment so approved shall become a part of this Agreement
as if originally incorporated in it.
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Section 8.11. Advice of Counsel. Each of the parties agrees and
represents that he or she has been represented by his or her own counsel with
regard to the execution of this Agreement.
Section 8.12. Share Certificates. Each share certificate representing
shares held by the Trustee under this Agreement shall contain a statement that
the shares represented by the certificate are subject to the provisions of a
Voting Trust Agreement and shall contain a statement that a counterpart of the
Voting Trust Agreement has been deposited with the Company at its registered
office.
Section 8.13. Effective Date. This Agreement is executed on the dates
set opposite the signatures below, but shall be effective as of the
__1st________day of __November______, 1999.
November 1 ,1999 /s/ Robert E. Mead
- ----------------------------------- ----------------------------------
Robert E. Mead
November 1 ,1999 /s/ Judith F. Mead
- ----------------------------------- ----------------------------------
Judith F. Mead
Description of Exhibits:
Exhibit A--Description of Share Certificates or Accounts Representing Shares
Exhibit B--Form of Voting Trust Certificate
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<PAGE> 1
EXHIBIT 10.43
FOURTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT dated as of
December 16, 1999 (the "FOURTH AMENDMENT"), is by and between TEXTRON FINANCIAL
CORPORATION, a Delaware corporation (the "LENDER"), and SILVERLEAF RESORTS, INC.
(formerly known as SILVERLEAF VACATION CLUB, INC.), a Texas corporation (the
"BORROWER")
W I T N E S S E T H:
WHEREAS, Borrower was formerly known as ASCENSION CAPITAL CORPORATION
(the "GUARANTOR"), the successor to ASCENSION RESORTS, LTD., a Texas limited
partnership (the "ORIGINAL BORROWER"), by merger of EQUAL INVESTMENT COMPANY, a
Texas corporation, ASCENSION RESORTS, LTD. and ASCENSION CAPITAL CORPORATION;
WHEREAS, Lender, Original Borrower and Guarantor were parties to that
certain Loan and Security Agreement dated as of August 15, 1995, pursuant to
which the Original Borrower executed its Secured Promissory Note in favor of the
Lender in the amount of $5,000,000.00, as amended to date (the "NOTE");
WHEREAS, on December 28, 1995 Ascension Resorts, Ltd. was merged into
the Guarantor and Guarantor was thereafter renamed Silverleaf Vacation Club,
Inc.;
WHEREAS, on December 28, 1995, Lender, Borrower and Guarantor amended
the Agreement, as such term is hereafter defined, pursuant to a First Amendment
to Loan and Security Agreement dated as of December 28, 1995 (the "FIRST
AMENDMENT") to, among other things, evidence Lender's approval of the merger of
Ascension Resorts, Ltd. into Ascension Capital Corporation and to reflect the
above-mentioned merger and name change;
WHEREAS, on October 31, 1996, Lender and Borrower further amended the
Agreement pursuant to a Second Amendment to Loan and Security Agreement dated as
of October 31, 1996 (the "SECOND AMENDMENT") to, among other things, increase
the amount of the Loan, decrease the interest rate, and extend the maturity date
of the Loan;
WHEREAS, pursuant to a commitment letter dated January 26, 1999, Lender
and Borrower agreed, among other things, to further modify the terms of the
Agreement to, among other things, increase the amount of the Loan, decrease the
interest rate, extend the maturity date of the Loan and to reflect the change in
Borrower's name to Silverleaf Resorts, Inc.;
WHEREAS, Lender and Borrower further amended the Agreement pursuant to
a Third Amendment to Loan and Security Agreement dated as of March 31, 1999 (the
"THIRD AMENDMENT") to amend the Agreement as provided in the January 26, 1999
commitment letter; and
<PAGE> 2
WHEREAS, Lender and Borrower have agreed to enter into this Fourth
Amendment to Loan and Security Agreement dated as of December 16, 1999 (the
"FOURTH AMENDMENT") to, among other things, modify the definitions of Borrowing
Base and Eligible Notes Receivable.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. ADDITIONAL CREDIT FACILITY. Section 1.1 (Definitions) is hereby amended
in part to add the following new paragraph:
"(a) ADDITIONAL CREDIT FACILITY. The term "Additional Credit
Facility shall mean that certain $75,000,000 credit facility
provided by Lender to Borrower pursuant to that certain Loan,
Security and Agency Agreement dated of even date herewith (the
"Additional Credit Loan Agreement") by and between Borrower
and Lender."
2. AGREEMENT. Section 1.1(d) (Agreement) is hereby amended to read as
follows:
"(e) AGREEMENT. This Loan and Security Agreement by and among
the Borrower and the Lender (including the Exhibits and
Schedules attached hereto), as amended by the First Amendment,
the Second Amendment, the Third Amendment and the Fourth
Amendment, as it may be further amended from time to time."
3. BORROWING BASE. Section 1.1(f) (Borrowing Base) is hereby amended to
read as follows:
"(g) BORROWING BASE. With respect to each Eligible Notes
Receivable pledged to the Lender in connection with each
Advance, including any Advance made prior to the date of the
Fourth Amendment, an amount equal to: (i) eighty-five percent
(85%) of the remaining principal balance of each such Eligible
Note Receivable having a maximum term of ninety-six months or
less; (ii) eighty percent (80%) of the remaining principal
balance of each such Eligible Note Receivable having a term
greater than ninety-six months but less than one hundred
twenty months or (iii) seventy-five percent (75%) of the
principal balance of each such Eligible Note Receivable which
is a Zero Payment Eligible Note Receivable, as such term is
hereinafter defined, provided that upon submission to Lender
by Borrower of satisfactory written evidence that the first
monthly payment with respect to a Zero Payment Eligible Note
Receivable has been received by Borrower, the Borrowing Base
shall, with respect to such Zero Payment Eligible Note
Receivable, be increased to: (y) eighty-five percent (85%) of
the remaining principal balance of each such Zero Payment
Eligible Note Receivable having a maximum term of ninety-six
months or less or (z) eighty percent (80%) of the remaining
principal balance of each such Eligible Note Receivable having
a term greater than ninety-six months but less than one
hundred twenty months."
4. COLLATERAL. Section 1.1(j) (Collateral) is hereby amended in part as
follows:
2
<PAGE> 3
"(k) COLLATERAL. Collectively, all now owned or
hereafter acquired right, title and interest of the Borrower,
in all of the following:
(i) Pledged Notes Receivable and all proceeds of or
from them;
(ii) Mortgages and all proceeds of or from them;
(iii) Documents, instruments, accounts, chattel
paper, and general intangibles relating to the Pledged Notes
Receivable and the Mortgages;
(iv) Extensions, additions, improvements,
betterments, renewals, substitutions and replacements of, for
or to any of the Collateral, wherever located, together with
the products, proceeds, issues, rents and profits thereof, and
any replacements, additions or accessions thereto or
substitutions thereof;
(v) All books, records, reports, computer tapes,
disks and software relating to the Collateral; and
(vi) All Collateral under the Additional Credit
Facility and the Inventory Loan, as such term is hereinafter
defined.
5. ELIGIBLE NOTES RECEIVABLE. Sections 1.1(s) (vii) and (xi) and the last
paragraph of Section 1.1(s) (Eligible Notes Receivable) are hereby amended to
read as follows:
"(vii) which shall have an original term of no more
than one hundred twenty (120) months;"
"(xi) the rate of interest payable on the unpaid
balance is at least the rate required so that when
the Advance is made in respect of such Eligible Note
Receivable the average interest rate on all Eligible
Notes Receivable in respect of which Advances are
outstanding shall not be less than twelve and
one-half percent (12.5%) per annum at any time;"
Notwithstanding anything herein to the contrary, the Lenders
shall be under no obligation to make Advances in respect of:
(i) Crown Resorts Notes Receivable (i.e. Notes
Receivables relating to intervals at the Crown Resorts listed
on Schedule 4.5(c)(iii)) if Advances have already been made
under this Loan and the Existing Credit Facility, in total, in
respect of 681 Crown Resorts Notes Receivable, exclusive of
[x] Notes Receivable relating to intervals at the Quail Hollow
Resort and [z]any other Crown Resort Notes Receivable for
which Borrower shall have delivered to Agent an acceptable
Mortgagee Title Insurance Policy insuring the Mortgage
securing such Crown Resort Note Receivable; and
3
<PAGE> 4
(ii) Notes Receivable from Oak N' Spruce Resort if
any such Advance, together with any prior Advances made under
this Loan Agreement, the Additional Credit Facility and/or the
Inventory Loan would exceed, in the aggregate, $32,000,000.00.
6. INVENTORY LOAN. Section 1.1 (Definitions). is hereby amended in part to
add the following new paragraph:
"(jj) INVENTORY LOAN. The term Inventory Loan shall mean
that certain $10,000,000 time share interval inventory loan
made or to be made by Lender to Borrower, and all documents
executed and/or delivered by Borrower in connection
therewith.
7. LOAN DOCUMENTS. Section 1.1 (ll) (Loan Documents) is hereby amended to
read as follows:
"(oo) LOAN DOCUMENTS. Collectively, this Agreement, as
amended by the First Amendment, the Second Amendment, the
Third Amendment and the Fourth Amendment, the Note, the
Environmental Indemnification Agreement, the Negative
Pledge Agreement, the Assignment of Notes Receivable and
Mortgages, the Lock Box Agreement, the UCC Financing
Statements and such other agreements, documents,
instruments, certificates and materials as Lender may
request to evidence the Obligations, to evidence and
perfect the rights and Liens and security interests of
Lender contemplated by the Loan Documents and to effectuate
the transactions contemplated herein, as such agreements,
documents, instruments or certificates may be hereafter
amended, renewed, extended, restated or supplemented from
time to time."
8. NOTE. Section 1.1(ss) (Note) is hereby amended to read as follows:
"(vv) NOTE. The Secured Promissory Note evidencing the Loan
dated the Closing Date executed and delivered by Borrower
to Lender concurrently with the Agreement, as amended and
restated by an Amended and Restated Secured Promissory Note
dated as of October 31, 1996, as further amended and
restated by an Amended and Restated Secured Promissory Note
dated March 31, 1999 and as further amended and restated by
an Amended and Restated Secured Promissory Note dated
December 16, 1999 executed and delivered by Borrower to
Lender concurrently with the Fourth Amendment, a copy of
which is attached hereto as Exhibit C."
9. ZERO PAYMENT ELIGIBLE NOTE RECEIVABLE. Section 1.1 (Definitions). is
hereby amended in part to add the following new paragraph:
"(sss) ZERO PAYMENT ELIGIBLE NOTE RECEIVABLE. The term Zero
Payment Eligible Note Receivable shall mean a Pledged Note
Receivable which satisfies all of the criteria set forth in
the definition contained herein of Eligible Note
Receivable,
4
<PAGE> 5
except that the first monthly payment under the Pledged
Note Receivable is not due and payable as of the date of
the Advance in question."
10. SUSPENSION OF ADVANCES. Section 2 of the Loan is hereby amended in part
to add the following new Section 2.9:
"2.9 SUSPENSION OF ADVANCES.
(a) Suspension of Sales. If any stay, order, cease and desist
order, injunction, temporary restraining order or similar judicial or
nonjudicial sanction shall be issued limiting or otherwise materially
adversely affecting any Interval sales activities, other business
operations in respect of the Resorts, or the enforcement of the
remedies of the Lender hereunder, then, in such event, the Lender shall
have no obligation to make any Advances hereunder: (i) in respect of
Pledged Notes Receivable from the sale of Intervals which are the
subject of any stay, order, cease and desist order, injunction,
temporary restraining order or similar judicial or nonjudicial sanction
has been issued until the stay, order, cease and desist order,
injunction, temporary restraining order or similar judicial or
nonjudicial sanction has been lifted or released to the satisfaction of
the Lender and (ii) in respect of Pledged Notes Receivable from the
sale of Intervals at any Resort if: (x) the stay, order, cease and
desist order, injunction, temporary restraining order or similar
judicial or nonjudicial sanction in question has not been lifted or
released to the satisfaction of the Lender within sixty (60) days of
its issuance and (y) there is a reduction in the total number of sales
of Intervals by the Borrower in any Loan Year of more than twenty
percent (20%) from the total number of sales of Intervals in the
immediately preceding Loan Year.
(b) Change in Control. If there shall occur a change, singly or in
the aggregate, of more than fifty percent (50%) of the executive
management of the Borrower as described in Schedule E hereto, the
Lender shall have no obligation to make any Advances hereunder, unless
within thirty (30) days prior thereto Borrower provides Lender with
written information setting forth the replacement executive management
personnel of Borrower together with a description of those Persons'
experience, ability and reputation, and Lender, acting in good faith,
determines that the replacement management personnel's experience,
ability and reputation is equal to or greater than that of the Borrower
as set forth on Schedule E."
11. GENERAL REPRESENTATIONS AND WARRANTIES. Section 6.20 (Operating
Contracts) is hereby deleted in its entirety and in its place instead is
substituted the following:
"6.20 OPERATING CONTRACTS. The contracts, agreements and
arrangements necessary, in Lender's reasonable judgement, for
the operation of the Resorts, including, but not limited to,
those with respect to utilities, maintenance, management,
services, marketing and sales (the "Operating Contracts") are
unmodified and in full force and effect and shall remain free
and clear of any Lien."
12. COVENANTS. Section 7.1(c) (Consolidation and Merger) is hereby amended
as follows:
5
<PAGE> 6
"Borrower will not consolidate with or merge into any other
Person or permit any other Person to consolidate with or
merge into it, unless: (i) Borrower is the continuing or
surviving corporation in any such consolidation or merger,
and (ii) prior to and immediately after such consolidation
or merger, Borrower shall not be in default hereunder."
13. COVENANTS. Section 7.1(h)(iv) (Officer's Certificate) is hereby amended
in part to add the following new sentence:
"The aforementioned Officer's Certificate shall be in the
form attached here as Exhibit C."
14. COVENANTS. Section 7.1(l) (Operating Contracts) is hereby deleted in
its entirety and in its place instead is substituted the following:
"(l) OPERATING CONTRACTS. Subject to the rights of the
Timeshare Owners' Association as set forth in the Timeshare
documents, no Operating Contract shall be modified, extended,
terminated or entered into, without the prior written approval
of the Lender, if any such modification, extension,
termination or new agreement would have a material adverse
effect on the operation of the Resort or the Collateral.
15. COVENANTS. Section 7.2((b) (D) is hereby deleted in its entirety.
16. EVENTS OF DEFAULT. Section 8.1(n) (Death or Disability of Robert Mead
or Default of Guarantor) is hereby deleted in its entirety.
17. EVENTS OF DEFAULT. Section 8.1(p) (Suspension of Sales) is hereby
deleted in its entirety and Section 8.1(q) (Violation of Negative Covenants) is
hereby redesignated as Section 8.1(o).
18. MODIFICATION OF ELIGIBLE NOTES RECEIVABLE. Section 44 (Modification of
Eligible Notes Receivable) of the Third Amendment is hereby amended to read as
follows:
"Notwithstanding anything herein to the contrary, Borrower
shall have the right to modify the interest rate and term
only of the Eligible Notes Receivable without the Lender's
prior consent, provided that: (i) any such change in the
rate of interest on any one or more Eligible Notes
Receivable shall not reduce the average interest rate on
all Eligible Notes Receivable to less than twelve and one
half percent (12 1/2 %) per annum at any time; (ii) the
term of no Eligible Notes Receivable shall be increased to
a term longer than one hundred twenty (120) months from its
original date; (iii) at no time may the Borrower so modify
the terms of more than fifteen percent (15%) of the
outstanding principal balance of all Eligible Notes
Receivable at any time; (iv) Borrower immediately provide
Lender with notice of any such modification together with
any original documentation evidencing such modification and
(v) no Eligible Note Receivable is modified more than once
in any twelve (12) month period or more than twice during
the term of such Eligible Note Receivable."
6
<PAGE> 7
19. ASSUMPTION OF OBLIGATIONS UNDER ELIGIBLE NOTES RECEIVABLE.
Notwithstanding anything herein to the contrary, upon the sale by a Purchaser of
an Interval, the new Purchaser of the Interval may be substituted as obligor
under the Eligible Note Receivable in question, provided that: (i) said new
Purchaser assumes in writing all of the obligations of the original obligor
under the Eligible Note Receivable in question; (ii) the Eligible Note
Receivable continues to meet all of the criteria for an Eligible Note Receivable
as set forth herein and (iii) the new Purchaser has made a cash down payment
equal to at least 10% of the original sales price of the Interval in question,
which down payment shall be in addition to the cash down payment made by the
original obligor.
20. EXHIBITS AND SCHEDULE. Exhibits A and B are hereby deleted in
their entirety and in their place and stead is substituted Exhibits A and B as
attached to the Fourth Amendment.
21. DEFINITIONS. Sections 1.1 (a), (b), (c), (e), (g), (h), (i), (l), (m),
(n), (o), (p), (q) (r), (s), (t), (u), (v), (w), (x), (y), (z), (aa), (bb),
(cc), (dd), (ee), (ff), (gg), (hh), (ii), (jj), (kk), (mm), (nn), (oo), (pp),
(qq), (rr), (ss), (tt), (uu), (vv), (ww), (xx), (yy), (zz), (aaa), (bbb), (ccc),
(ddd), (eee), (fff), (ggg), (hhh), (iii), (jjj), (kkk), (lll), (mmm), (nnn) and
(ooo) are hereby redesignated as Sections 1.1 (b), (c), (d), (f), (h), (i), (j),
(m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y), (aa), (bb),
(cc), (dd), (ee), (ff), (gg), (hh), (ii), (kk), (ll), (mm), (nn), (pp), (qq),
(rr), (ss), (tt), (uu), (vv), (ww), (xx), (yy), (zz), (aaa), (bbb), (ccc),
(ddd), (eee), (fff), (ggg), (hhh), (iii), (jjj), (kkk), (lll), (mmm), (nnn),
(ooo), (ppp), (qqq) and (rrr) respectively. All capitalized terms used herein
but not otherwise defined herein shall have the meanings ascribed to such terms
in the Agreement.
22. FURTHER DOCUMENTATION. Borrower agrees to execute and deliver to Lender
any and all additional documentation as Lender may now or hereafter require in
order to effectuate the terms and conditions of this Fourth Amendment.
23. EFFECT OF AMENDMENT. Except as herein expressly amended, the Agreement
shall remain in full force and effect.
24. RATIFICATION AND CONFIRMATION. Except as herein expressly amended,
Borrower hereby ratifies, confirms, assumes and agrees to be bound by all of
representations, warranties, statements, covenants and agreements set forth in
the Agreement and the other Loan Documents, as previously amended by the First
Amendment, the Second Amendment and the Third Amendment. The Borrower reaffirms,
restates and incorporates by reference all of the representations, warranties,
covenants and agreements made in the Loan Documents as if the same were made as
of this date. The Borrower agrees to pay the Loan and all related expenses, as
and when due and payable in accordance with the Loan Agreement and the other
Loan Documents, and to observe and perform the Obligations, and do all things
necessary which are not prohibited by law to prevent the occurrence of any Event
of Default. In addition, to further secure, and to evidence and confirm the
securing of, the prompt and complete payment and performance by the Borrower of
the Loan and all of the Obligations, for value received, Borrower
unconditionally and irrevocably assigns, pledges and grants to Lender, and
hereby confirms or reaffirm the prior granting to Lender of, a continuing first
priority Lien, mortgage and security interest in and to all of the Collateral,
whether now existing or hereafter acquired. Also, as provided in the Loan
Documents, the Loan is and shall be further secured by the Liens and security
interests in favor of Lender in the properties and interests relating to
Additional Eligible Resorts, which now or hereafter serve as collateral security
for any Obligations. On the date of the
7
<PAGE> 8
Fourth Amendment and thereafter upon satisfaction of the requirements for
approval by Lender of Additional Resorts, Borrower shall record, or cause to be
recorded, such mortgages, deeds of trust, deeds to secure debt, assignments,
pledges, security agreements and UCC Financing Statements in the appropriate
public records of the state in which each Resort is located to further evidence
and perfect the Lender's Lien on the Collateral. Borrower agrees to deliver or
cause to be delivered by its Affiliates, such mortgages, deeds of trust, deeds
to secure debt, assignments, pledges, security agreements and UCC Financing
Statements as Lender may deem necessary to further evidence and perfect the
Lender's Lien on the Collateral.
25. ESTOPPEL. Borrower acknowledges, agrees and confirms that: (a) Advances
under the Loan Agreement have been made prior to the date of the Fourth
Amendment; (b) all such Advances made prior to the Closing Date were made in
favor of the Original Borrower and the Borrower in respect of the Existing
Eligible Resorts; (c) Advances made prior to the date of the First Amendment
under the Loan Agreement are deemed as having been made for the benefit of the
Borrower and Borrower acknowledges and agrees that Borrower received a direct
and substantial financial benefit from such Advances and (d) immediately prior
to the date of the Fourth Amendment, and without giving effect to any Advances
that may be made pursuant to the Fourth Amendment, the status of the Loan,
including the outstanding principal balance thereof is as reflected in the Loan
Funding Report delivered to and approved by Lender in connection with the
closing of the Fourth Amendment, a copy of which is attached as Exhibit B.
The Loan constitutes valuable consideration to the Borrower, which
consideration is uninterrupted and continuous since the dates on which the Loan
was first made. This Fourth Amendment and the other Loan Documents and the Loan
modifications and transactions provided for or contemplated hereunder or
thereunder, shall in no way adversely affect the Lien or perfection or priority
of any Lien of Lender as of the date hereof in and to any Collateral, and are
not intended to constitute, and do not constitute or give rise to, any novation,
cancellation or extinguishment of any of Borrower's Obligations existing as of
the Closing Date to Lender, or of any interests owned or held by Lender (and not
previously released) in and to any of the Collateral; it being the intention of
the parties that the transactions provided for or contemplated herein shall be
effectuated without any interruption in the continuity of the value and
consideration received by Borrower, and of the attachment, perfection, priority
and continuation in favor of Lender in and to all Collateral and proceeds.
26. EFFECTIVE DATE. This Fourth Amendment shall be effective commencing as
of the later of: (1) December 7, 1999, or (2) the satisfaction of the terms of
the Fourth Amendment Commitment (which satisfaction shall be evidenced by notice
from Lender or Lender's counsel to the Borrower or the Borrower's counsel,
respectively).
27. MAXIMUM OBLIGATION OF LENDER UNDER THE LOAN, THE ADDITIONAL CREDIT
FACILITY AND THE INVENTORY LOAN. Borrower acknowledges, agrees and confirms that
notwithstanding anything to the contrary herein, in any other Loan Document or
in any document evidencing or securing the Additional Credit Facility or the
Inventory Loan, Lender shall not be obligated to fund any Advance hereunder,
which when taken together with the loans or advances made by the Lender to the
Borrower under this Agreement, the Additional Credit Facility or the Inventory
Loan, would cause the aggregate amount of
8
<PAGE> 9
such loans and advances by the Lender to Borrower to exceed a maximum aggregate
amount of $50,000,000.
28. CROSS DEFAULT TO INVENTORY LOAN AND ADDITIONAL CREDIT FACILITY.
Notwithstanding anything to the contrary in the Agreement, any default by the
Borrower under the Additional Credit Facility and/or the Inventory Loan shall
also be a default under this Agreement.
29 ADDITIONAL FUNDING REQUIREMENT FOR OAK N' SPRUCE. Section 5 (b) (ii) of
the Agreement ("Loan Documentation/Collateral") is here by amended as follows:
(i) In the seventh line of Subsection 5(b) (ii), delete the word
"and" after the word "Mortgages".
(ii) Add the following at the end of Subsection 5(b) (ii):
"and (E) with respect to each Eligible Note Receivables from
the sale of Intervals at Oak N' Spruce: (i) the original
UCC-1 Financing Statement, naming the Purchaser of the
Interval giving rise to the Eligible Note Receivable as
debtor and the Borrower as secured party (the "PURCHASER
FINANCING STATEMENT"), perfecting Borrower's security
interest in the applicable Interval to secure the
Purchaser's obligations under the Eligible Note Receivable
and (ii) a UCC-3 Assignment, naming the Borrower as assignor
and the Agent as assignee on behalf of the Lenders,
assigning to the Agent, on behalf of the Lenders, all of the
Borrower's right, title and interest under each Purchaser
Financing Statement."
30. FORM OF COLLATERAL ASSIGNMENT OF NOTES RECEIVABLE AND INTERVAL
MORTGAGES. From and after the date hereof, for purposes of Section 5(b)(iii) of
the Agreement, the Assignment of Notes Receivable and Mortgages shall be in the
form attached here as Exhibit F1 and any amendment to any such previously
recorded assignment shall be in the form attached here as Exhibit F2
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be executed on their behalf as of the day and year first written
above.
Witnessed By:
<TABLE>
<S> <C>
/s/ MELISSA [ILLEGIBLE] TEXTRON FINANCIAL CORPORATION
- -----------------------------------
By: /s/ JOHN T. D'ANNEBALE
/s/ MARY PELLENGER ----------------------------
- ----------------------------------- Name: John T. D'Annebale
Its: Asst. Vice President
SILVERLEAF RESORTS, INC.
/s/ GEORGE R. BEDELL
- -----------------------------------
By: /s/ ROBERT E. MEAD
/s/ SANDRA CEARLEY ----------------------------
- ----------------------------------- Name: Robert E. Mead
Its: Chief Executive Officer
</TABLE>
9
<PAGE> 10
STATE OF CONNECTICUT )
) ss: East Hartford
COUNTY OF HARTFORD )
At East Hartford in said County and State on this 16th day of December,
1999, personally appeared John T. D'Annebale, duly authorized Vice President of
Textron Financial Corporation, and he acknowledged the foregoing instrument by
him signed and sealed to be his free act and deed and the free act and deed of
Textron Financial Corporation.
Before me: /s/ CHRISTINE M. CORDEIRA
--------------------------------------
Notary Public in and for said State
My Commission Expires: April 30, 2002
Commissioner of the Superior Court
STATE OF TEXAS )
) ss:
COUNTY OF DALLAS )
At Dallas in said County and State on this 8th day of December, 1999,
personally appeared Robert E. Mead, Chief Executive Officer, duly authorized
officer of SILVERLEAF RESORTS, INC., and he/she acknowledged the foregoing
instrument by him/her signed and sealed to be his/her free act and deed and the
free act and deed of Silverleaf Resorts, Inc., a Texas corporation, on behalf of
the corporation.
Before me: /s/ SANDRA G. CEARLEY
-----------------------------------
Notary Public in and for said State
My Commission Expires: 12-28-2002
[SEAL]
<PAGE> 1
EXHIBIT 10.44
LOAN AND SECURITY AGREEMENT
between
SILVERLEAF RESORTS, INC.
(as Borrower)
and
TEXTRON FINANCIAL CORPORATION
(as Lender)
As of December 16, 1999
<PAGE> 2
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT, dated as of December 16, 1999, entered into by
SILVERLEAF RESORTS, INC., a Texas corporation, (as "Borrower"), and TEXTRON
FINANCIAL CORPORATION, a Delaware corporation as ("Lender").
WITNESSETH:
WHEREAS, Borrower is engaged in the business of acquiring, constructing,
developing, owning, managing, selling and otherwise dealing with Intervals at
the Resorts (as each such term is hereafter defined);
WHEREAS, Borrower, in order to provide liquidity in connection with its
ownership, purchase and warehousing of Intervals, has entered into this
Agreement whereby Lender, will, subject to the terms and conditions set forth
herein, agree to make a loan to Borrower in the maximum amount of $10,000,000;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, and for other good and valuable consideration, the
receipt and adequacy of which are acknowledged, the parties to this Agreement,
intending to be legally bound, agree as follows:
SECTION 1 -- DEFINITION OF TERMS
1.1 Capitalized terms used in this Agreement are defined in this Section
1.1. The definitions include the singular and plural forms of the terms defined.
(a) ADDITIONAL CREDIT FACILITY. The term "Additional Credit Facility"
shall mean that certain $75,000,000 credit facility provided by the Lender
and certain other parties to Borrower pursuant to that certain Loan,
Security and Agency Agreement dated as of December 3, 1999.
(b) ADDITIONAL ELIGIBLE RESORTS or ADDITIONAL ELIGIBLE RESORT. The
terms "Additional Eligible Resorts" and "Additional Eligible Resort" shall
have the meanings ascribed to such terms in Section 3.4 hereof.
(c) ADVANCE. A portion of the proceeds of the Loan advanced by the
Lender to the Borrower in accordance with the terms of this Agreement.
(d) AFFILIATE. Any party controlled by, controlling, or under common
control with, the Borrower.
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<PAGE> 3
(e) AGREEMENT. This Loan and Security Agreement (including the
Exhibits and Schedules to it), as it may be amended from time to time, by
and between Borrower and the Lender.
(f) BUSINESS DAY. Each day which is not a Saturday, a Sunday or a
legal holiday under the laws of the State of Rhode Island, the State of
Connecticut or the State of Texas.
(g) CLOSING DATE. The date of this Agreement.
(h) CODE. The Uniform Commercial Code in force in the State of Rhode
Island as amended from time to time.
(i) COLLATERAL. Collectively, all now owned or hereafter acquired
right, title and interest of the Borrower, in all of the following:
(i) The Inventory;
(ii) All documents, instruments, accounts, and general
intangibles relating to the Inventory;
(iii) Any extensions, additions, improvements, betterments,
renewals, substitutions and replacements of, for or to any of the
Collateral, wherever located, now or hereafter owned by Borrower,
together with the products, proceeds, issues, rents and profits
thereof, and any replacements, additions or accessions thereto or
substitutions thereof;
(iv) All books, records, reports, computer tapes, disks and
software relating to the Collateral; and
(v) All collateral securing the Existing Credit Facility, as
hereafter defined, and the Additional Credit Facility.
(j) COMMITMENT FEE. The commitment fee in the amount of $100,000,
which is to be paid in accordance with the terms of Section 2.6(a) hereof.
(k) COMMON ELEMENTS. All common elements, including but not limited to
any limited common elements, as each such common element is defined or
provided for in the Declaration or other Timeshare Documents.
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(l) DEBTOR RELIEF LAWS. Any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization or
similar law, proceeding or device providing for the relief of debtors from
time to time in effect and generally affecting the rights of creditors.
(m) DECLARATION OR DECLARATIONS. With respect to each Resort, the
applicable Declaration or Declarations described on Schedule 1.1(o)
attached hereto.
(n) DEFAULT. An event or condition the occurrence of which immediately
is or, with a lapse of time or the giving or notice or both, becomes an
Event of Default.
(o) DEFAULT RATE. The term "Default Rate" shall have the meaning
ascribed to such term in the Note.
(p) DIVISION OR COMMISSION. The governmental authority of each state
in which a Resort is located, having jurisdiction over the establishment
and operation of the Resort in question and the sale of Intervals at such
Resort.
(q) ENVIRONMENTAL LAWS. Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time
("CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended
from time to time ("RCRA"), the Superfund Amendments and Reauthorization
Act of 1986, as amended, the federal Clean Air Act, the federal Clean Water
Act, the federal Safe Drinking Water Act, the federal Toxic Substances
Control Act, the federal Hazardous Materials Transportation Act, the
federal Emergency Planning and Community Right to Know Act of 1986, the
federal Endangered Species Act, the federal Occupational Safety and Health
Act of 1970, the federal Water Pollution Control Act, all state and local
environmental laws, rules and regulations of each state in which a Resort
is located, as all of the foregoing legislation may be amended from time to
time, and any regulations promulgated pursuant to the foregoing; together
with any similar local, state or federal laws, rules, ordinances or
regulations either in existence as of the date hereof, or enacted or
promulgated after the date of this Agreement, that concern the management,
control, storage, discharge, treatment, containment, removal and/or
transport of Hazardous Materials or other substances that are or may become
a threat to public health or the environment; together with any common law
theory involving Hazardous Materials or substances which are (or alleged to
be) hazardous to human health or the environment, based on nuisance,
trespass, negligence, strict liability or other tortious conduct, or any
other federal, state or local statute, regulation, rule, policy, or
determination pertaining to health, hygiene, the environment or
environmental conditions.
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(r) ENVIRONMENTAL INDEMNIFICATION AGREEMENT. The term "Environmental
Indemnification Agreement" shall mean the Environmental Indemnification
Agreement, in the form attached as Exhibit A, to be made by the Borrower to
the Lender pursuant to this Agreement, as the same may be amended from time
to time.
(s) EURODOLLAR BUSINESS DAY. Eurodollar Business Day shall mean any
day on which commercial banks are open for international business
(including dealings in dollar deposits) in London, England.
(t) EVENT OF DEFAULT. Defined in Section 8.1 of this Agreement.
(u) EXISTING CREDIT FACILITY. The term "Existing Credit Facility"
shall mean that certain $75,000,000 credit facility provided by Lender to
Borrower pursuant to that certain Loan and Security Agreement dated of as
of August 15, 1995, as amended by a First Amendment to Loan and Security
Agreement dated as of December 28, 1995, as further amended by a Second
Amendment to Loan and Security Agreement dated as of October 31, 1996, as
further amended by a Third Amendment to Loan and Security Agreement dated
as of March 31, 1999 and as further amended by a Fourth Amendment to Loan
and Security Agreement dated as of December 16, 1999.
(v) EXTENSION COMMITMENT FEE. The additional commitment fee payable in
accordance with Section 2.6(b) hereof.
(w) EXTENSION TERM. The term "Extension Term" shall have the meaning
inscribed to such term in Section 2.7(b) hereof.
(x) FINAL MATURITY DATE. November 30, 2001, subject to extension in
accordance with Section 2.7(b) hereof.
(y) FINANCIAL STATEMENTS. The tax returns and balance sheets and
statements of income and expense of the Borrower, and the related notes and
schedules delivered by Borrower to Lender prior to the Closing Date and
provided for in Section 4.5(c) of this Agreement; and the monthly,
quarterly and annual financial statements and reports required to be
provided to Lender pursuant to Section 7.1(h).
(z) GAAP. Generally accepted accounting principles, applied on a
consistent basis, as described in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board which are applicable
in the circumstances as of the date in question.
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(aa) HAZARDOUS MATERIALS. "Hazardous substances," "hazardous waste" or
"hazardous constituents," "toxic substances", or "solid waste", as defined
in the Environmental Laws, and any other contaminant or any material, waste
or substance which is petroleum or petroleum based, asbestos,
polychlorinated biphenyls, flammable explosives, or radioactive materials.
(bb) INTEREST RATE. The variable rate, adjusted as of each LIBOR
Determination Date, equal to the sum of LIBOR, determined as of each LIBOR
Determination Date, plus three and one-quarter percent (3.25%) per annum.
(cc) INTERVAL. With respect to each Resort the undivided fractional
fee interval ownership interest as a tenant-in-common ((sometime referred
to in the Timeshare Documents as a condoshare interest or condoshare week)
in a Unit to be sold to a Purchaser by delivery of a deed for a time-share
period per calendar year (or, in the case of a biennial use period, per
alternate calendar year) of one week (as defined in the Declaration),
together with all appurtenant rights and interests, including, without
limitation, appurtenant rights in and to Common Elements, and easement,
license, access and use rights in and to all Resort facilities and
amenities (as described in the Declaration), all as more particularly
described in the Declaration or other Timeshare Documents. Notwithstanding
the foregoing, the term "Interval" shall also include, with respect to the
Oak `N Spruce Resort only, the beneficial interest in the entity which owns
each of the Units at the Oak `N Spruce Resort, as evidenced by the delivery
to the Purchaser of any such beneficial interest of a certificate of
beneficial interest for a timeshare period per calendar year (or, in the
case of biennial use period, per alternate calendar year) of one week (as
defined in the Oak N' Spruce Resort Declaration), together with all
pertinent rights and interests, including, without limitation, a pertinent
right in and to Common Elements, and easements, license, access and use
rights in and to all Oak `N Spruce Resort facilities and amenities, all as
more particularly described in the Declaration or other Timeshare Documents
for the Oak `N Spruce Resort.
(dd) INVENTORY. The term "Inventory" shall mean the Intervals from
Eligible Resorts, fee title to which is held by the Borrower and on which
Lender is granted a first mortgage lien to secure the Loan.
(ee) LIEN. Any interest in property securing an obligation owed to, or
claim by, a Person other than the owner of such property, whether such
interest arises in equity or is based on the common law, statute, or
contract.
(ff) LIBOR shall mean, with respect to any LIBOR Rate Period, the rate
per annum (rounded upwards, if necessary, to the nearest one-sixteenth
(1/16th) of one percent (1%)) reported at 11:00 a.m. London time on the
first day of each LIBOR Rate Period (or if such date is not a Eurodollar
Business Day, the immediately preceding Eurodollar Business
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Day) (such date, the "LIBOR DETERMINATION DATE"), on Dow Jones Telerate
Service Page 3750 (British Bankers Association Settlement Rate) as the
non-reserve adjusted London Interbank Offered Rate for U.S. dollar deposits
having a ninety (90) day term (or on such other page as may replace said
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 LIBOR Rate Period shall be adjusted from time to time by
increasing the rate thereof to compensate Lender 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 LIBOR Rate Period) which are required to be maintained by Lender
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 of similar effect.
(gg) LIBOR RATE PERIOD shall mean each successive ninety (90) day
period during the Term. The initial LIBOR Rate Period shall commence on the
date of this Agreement (or if such day is not a Eurodollar Business Day,
the immediately preceding Eurodollar Business Day) and shall terminate on a
date which is thirty days thereafter (or if such day is not a Eurodollar
Business Day, the immediately preceding Eurodollar Business Day). Each
LIBOR Rate Period after the initial LIBOR Rate Period shall commence on the
first Eurodollar Business Day immediately following the expiration of the
immediately preceding LIBOR Rate Period and shall terminate ninety days
thereafter (or if such day is not a Eurodollar Business Day, the
immediately preceding Eurodollar Business Day).
(hh) LOAN The term "Loan" shall mean the $10,000,000.00 revolving term
inventory loan described in this Agreement, subject to the limitations set
forth in Section 2.1 hereof.
(ii) LOAN DOCUMENTS. Collectively, this Agreement and the following
documents and instruments listed below as such agreements, documents,
instruments or certificates may be amended, renewed, extended, restated or
supplemented from time to time.
(i) THIS AGREEMENT;
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(ii) THE NOTE;
(iii) THE ENVIRONMENTAL INDEMNIFICATION AGREEMENT;
(iv) THE MORTGAGES;
(v) FINANCING STATEMENTS; UCC financing statements covering the
Collateral, to be filed with the Texas Secretary of State and the
Secretary of State and/or such other office where UCC financing
statements are filed in each state in which the Collateral is located.
(vi) OTHER ITEMS; Such other agreements, documents, instruments,
certificates and materials as Lender may request to evidence the
Obligations; to evidence and perfect the rights and Liens and security
interests of the Lender contemplated by the Loan Documents, and to
effectuate the transactions contemplated herein, as such agreements,
documents, instruments or certificates may be hereafter amended,
renewed, extended, restated or supplemented from time to time.
(jj) LOAN YEAR. The period from the Closing Date through the last day
of the next full twelve (12) calendar month period and each twelve (12)
calendar month period thereafter.
(kk) LOAN TO RETAIL VALUE RATIO. The term "Loan to Retail Value Ratio"
shall mean the ratio of the outstanding principal balance of the Loan, from
time to time, to the Retail Value of the Inventory. The "Loan to Retail
Value Ratio" shall be 15%.
(ll) MANDATORY PREPAYMENT. Any prepayment required by Section 2.4(b)
of this Agreement.
(mm) MORTGAGE OR MORTGAGES. A properly recorded, first priority
mortgage, deed of trust, deed to secure debt, assignment of beneficial
interest or other security instrument, as applicable, in the form attached
hereto as Exhibit A (with such changes as may be necessary to comply with
the law of the state in which the Inventory in question is located)
executed and delivered by Borrower to Lender encumbering all of the right,
title and interest of the Borrower in the Inventory and Common Elements,
and related or appurtenant easement, access and use rights and benefits.
(nn) NEGATIVE PLEDGE AGREEMENT The Negative Pledge Agreement, in the
form attached as Exhibit A, made by the Borrower and each applicable
Affiliate to the Lender pursuant to this Agreement, as the same may be
amended from time to time.
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(oo) NOTE. The Secured Promissory Note, in the form attached as
Exhibit A, dated the Closing Date and executed and delivered by Borrower to
Lender evidencing the Loan made or to be made by Lender to Borrower.
(pp) OBLIGATIONS. All amounts due or becoming due to Lender in respect
of the Loan under any of the Loan Documents, including principal, interest,
prepayment premiums, contributions, taxes, insurance, loan charges,
custodial fees, attorneys' and paralegals' fees and expenses and other fees
or expenses incurred by Lender or advanced to or on behalf of Borrower by
Lender pursuant to any of the Loan Documents, and the prompt and complete
payment and performance by the Borrower of all obligations, indebtedness
and liabilities pursuant to this Agreement or any of the Loan Documents or
otherwise
(qq) OPERATING CONTRACT OR OPERATING CONTRACTS. As defined in Section
6.20.
(rr) PERSON. An individual, partnership, corporation, limited
liability company, trust, unincorporated organization, other entity, or a
government or agency or political subdivision thereof.
(ss) PROPERTY OR PROPERTIES. Any interest in any kind of property or
asset, whether real, personal or mixed, tangible or intangible.
(tt) PRIME RATE. The highest prime rate of interest from time to time
announced or published by Chase Manhattan Bank, N.A. ("Bank"). In the event
that the prime rate established by Bank shall no longer be available, due
to either the non-existence of the Bank or the Bank's failure to publish a
prime rate, then the Prime Rate shall be the highest prime rate published
by a comparable major money center bank selected by Lender.
(uu) PURCHASE PRICE. The total purchase price of an Interval, as
approved by Lender from time to time, relating to the sale by the Borrower
to a Purchaser of an Interval comprising a part of the Inventory.
(vv) PURCHASER. Any Person who purchases one or more Intervals.
(ww) RELEASE PAYMENT. The term "Release Payment" shall have the
meaning ascribed to such term in Section 2.3(b) hereof.
(xx) INTERVAL RELEASE THRESHOLD. The term "Interval Release Threshold"
shall mean 110% of the Required Retail Value of the Inventory. By way of
example, if the
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Required Retail Value of the Inventory is $66,666,666.66, the Inventory
Release Threshold will be $73,333,333.33.
(yy) RETAIL VALUE. The term "Retail Value" shall mean the fair market
value of the Inventory and each Interval constituting part of the
Inventory, as determined by Lender in its sole discretion.
(zz) REQUIRED RETAIL VALUE. The term "Required Retail Value" shall
mean the aggregate Retail Value of the Inventory, such that the ratio of
the outstanding balance of the Loan, from time to time, to the aggregate
Retail Value of the Inventory does not exceed the Loan to Retail Value
Ratio. By way of example, if the outstanding principal balance of the Loan
is $10,000,000, the Required Retail Value of the Inventory will be
$66,666,666.66.
(aaa) RESORT OR RESORTS (ALSO "ELIGIBLE RESORT" OR "ELIGIBLE
RESORTS"). Individually and collectively, as applicable, each or all of the
interval ownership and time-share projects consisting of: (i) (A) Holly
Lake Ranch, Hawkins, Texas; (B) Piney Shores Resort, Conroe, Texas; (C)
Lake O' The Woods, Flint, Texas; (D) Hill Country Resort, Canyon Lake,
Texas; (E) Ozark Mountain Resort, Kimberling City, Missouri; (F) Holiday
Hills Resort, Branson, Missouri; (G) Fox River Resort, LaSalle County,
Illinois; (H) Timber Creek Resort, Jefferson County, Missouri, (I) Oak N'
Spruce Resort, South Lee, Massachusetts and (J) Apple Mountain Resort,
Habersham County, Georgia (also sometime individually and collectively
referred to herein as the "EXISTING RESORTS") and (ii) subject to Lender's
prior written approval and satisfaction by the Borrower of the conditions
precedent set forth in Sections 3.4 and 4.5 hereof, the Additional Eligible
Resorts. The term "Resort" or "Resorts" includes, among other things, the
undivided annual or (biennial) timeshare ownership interests (Intervals) in
the respective Resorts, and the appurtenant exclusive rights to use Units
in one or more buildings or phases and all appurtenant or related
properties, amenities, facilities, equipment, appliances, fixtures,
easements, licenses, rights and interests, including without limitation,
the Common Elements, as established by and more fully defined and described
in the respective Declarations, and the other Timeshare Documents.
(bbb) SURVEY. A plat or survey of the Resort prepared by a licensed
surveyor acceptable to Lender and in a form acceptable to Lender.
(ccc) TERM. A period of two (2) calendar years from the Closing Date,
plus the number of days from the Closing Date to the end of the month in
which the Closing Date occurs, subject to extension as provided in Section
2.7(b) hereof.
(ddd) TIMESHARE ACT. Any statute, act, regulation, ordinance, rule or
law applicable to the establishment and operation of the Resorts and the
sales of the Intervals.
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(eee) TIMESHARE DOCUMENTS. Any registration statement required under
any Timeshare Act approving the establishment and operation of the Resorts
and the sales of Intervals.
(fff) TIMESHARE OWNERS' ASSOCIATION. With respect to each Resort, the
Silverleaf Club, a Texas non-profit corporation, and the applicable
not-for-profit corporations described on Schedule 1.1(mmm).
(ggg) UCC FINANCING STATEMENTS. The UCC-1 Financing Statements, naming
the Borrower as debtor and the Lender as secured party, heretofore or
hereafter filed in connection with the Loan and all amendments thereto.
(hhh) UNIT. With respect to each Resort, 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
in services, easements and other rights or benefits, as described and
provided for in the Declaration, including but not limited to the right to
use the Resort amenities and facilities in accordance with the Timeshare
Documents.
SECTION 2 -- THE LOAN
2.1 REVOLVING LOAN AND LENDING LIMITS. Upon the terms and subject to the
conditions set forth in this Agreement, including but not limited to Section 2.8
hereof, the Lender shall make Advances to the Borrower, and the Borrower may
borrow, repay and reborrow during the Revolving Loan Period, as such term is
hereafter defined, principal under the Loan in an amount not to exceed at any
time the lesser of: (i) the Loan to Retail Value Ratio of the Required Retail
Value of the Inventory or (ii) $10,000,000.00.
2.2 INTEREST RATE. The aggregate principal amount of all Advances, which
are outstanding from time to time, will bear interest at a rate equal to the
Interest Rate. Each Advance shall bear interest at the Interest Rate as of
Lender's wiring of funds through Lender's receipt of repayment of the Loan (if
received by Lender later than 12 noon, Eastern Standard Time, then interest
accrual shall be through the next Business Day following such receipt).
Immediately upon the occurrence of an Event of Default and after the Final
Maturity Date (if the Loan is not paid in full on the Final Maturity Date), at
Lender's election in its sole discretion, the Loan will bear interest at the
Default Rate.
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2.3 PAYMENTS. The Borrower agrees punctually to pay or cause to be paid to
the Lender, all principal and interest due under the Note in respect of the Loan
made by the Lender hereunder. The Borrower shall make the following payments on
the Loan:
(a) MONTHLY PAYMENTS. The Borrower shall pay to the Lender, on the
first day of each month during the Term, commencing on February 1, 2000,
interest on the outstanding principal balance of the Loan, from time to time, at
the Interest Rate. Lender shall apply each such payment in the following order:
(i) to the payment of all costs or expenses incurred by the Lender pursuant to
this Agreement in creating, maintaining, protecting or enforcing the Liens in
and to the Collateral and in collecting any amount due to Lender in connection
with the Loan; (ii) to any interest accrued at the Default Rate; (iii) to the
payment of accrued and unpaid interest at the Interest Rate; and (iv) to the
reduction of the principal balance of such Lender's outstanding Loans. If the
amount of the funds received by Lender with respect to any month is insufficient
to pay in all amounts due from Borrower to Lender under this Agreement, Borrower
shall pay the difference to Lender on or before the fifth (5th) day after notice
from Lender to Borrower advising Borrower of such insufficiency.
(b) INTERVAL RELEASE PRICE PAYMENTS. Prior to the release by Lender of
any Interval from the Collateral in accordance with Section 2.10 hereof, the
Borrower shall pay to the Lender an amount equal to the greater of: (i)
$1,600.00 for each such Interval, or (ii) an amount necessary to fully repay the
Loan upon sale of 75% of the Inventory (the "RELEASE PRICE"), which payment
shall be applied by Lender in accordance with Section 2.3(a); provided, however,
that during the Initial Term, as such term is defined in Section 2.7(a), if the
Retail Value of the Inventory, as determined by the Lender, is equal to or
greater than the Interval Release Threshold, the Borrower shall not be required
to pay a Release Payment with respect to the release of any Interval for so long
as the Retail Value of the Inventory equals or exceeds the Interval Release
Threshold.
(c) FINAL PAYMENT. The entire outstanding principal amount of the Loan
together with all other Obligations shall be paid in full by not later than the
Final Maturity Date.
2.4 PREPAYMENTS.
(a) VOLUNTARY PREPAYMENTS. Borrower may not voluntarily prepay the
Loan, in whole or in part, except that: (i) provided that no Event of Default
shall have occurred and be continuing and (ii) Borrower pays the Release Price
in accordance with Section 2.3(b) hereof, then at any time during the Term of
the Loan, the Loan may be prepaid in part in connection with any prepayment
which arises from release of any Interval from the Collateral, subject to
Section 2.10 hereof.
(b) MANDATORY PREPAYMENTS. If at any time and for any reason, the
outstanding unpaid principal balance of the Loan shall exceed the amount which
satisfies
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the Loan to Retail Value Ratio, then, within five (5) Business Days following
Borrower's receipt of telecopied notice from Lender of the occurrence of such
excess or, absent such telecopied notice, within fifteen (15) days after the end
of the calendar month in which such excess occurred, Borrower shall either: (i)
prepay the principal balance of the Loan in an amount equal to the difference
between the aggregate principal amount of the Loan and the amount necessary to
comply with the Loan to Retail Value Ratio of the Inventory or (ii) Borrower
shall grant to Lender a first mortgage Lien on additional Intervals from
Eligible Resorts so that the Retail Value of the Inventory, including such
additional Intervals, equals or exceeds the Required Retail Value of the
Inventory and the Loan to Retail Value Ratio is satisfied. In granting to Lender
a first mortgage lien on such additional Intervals, Borrower shall comply with
the document delivery and recordation requirements set forth in Section 4.2(b)
of this Agreement and Borrower shall deliver to Lender its written certification
that the Retail Value of the Inventory, including such additional Intervals, is
equal to or greater than the Required Retail Value and satisfies the Loan to
Retail Value Ratio. If Borrower elects to prepay the excess principal balance of
the Loan pursuant to this Section 2.4(b)(i) above, no prepayment premium shall
be payable in connection with such prepayment.
(c) PREMIUMS. Notwithstanding anything herein contained to the
contrary, any prepayment under this Section 2.4 must include all accrued but
unpaid interest, and accrued but unpaid contributions, taxes, insurance, loan
charges custodial fees, attorneys' and paralegals' fees and expenses, amounts
due pursuant to Section 2.5 hereof as a result of a Funding Loss and other fees
or expenses incurred by Lender or advanced to or on behalf of Borrower by Lender
pursuant to any of the Loan Documents accrued but unpaid.
2.5 PAYMENT OF FUNDING LOSSES AND OTHER AMOUNTS RELATING TO LIBOR CONTRACT,
ETC.
(a) Funding Losses: Breaking of LIBOR contract, Change in Law, Etc.
Borrower hereby agrees to pay to Lender any amount necessary to compensate
Lender 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 reinvestment rate and the interest rate thereon)
(collectively, "FUNDING LOSSES") sustained by Lender: (i) if the Loan, or
any portion hereof, is prepaid for any reason whatsoever on any date other
than the Final Maturity Date (including, without limitation, from
condemnation or insurance proceeds); (ii) upon the conversion of the
interest rate on the Loan to an interest rate based on the Prime Rate in
accordance with Section 2.5(b) hereof; (iii) as a consequence of 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 with any directive, whether or not having the force of law, or
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request from any central bank or domestic or foreign governmental
authority, agency or instrumentality having jurisdiction; (iv) as a
consequence of the breaking of any LIBOR contract and/or (v) any other set
of circumstances not attributable to Lender's acts. Payment of Funding
Losses hereunder shall be in addition to any obligation to pay any other
amounts due and owing under this Agreement or any other Loan Documents.
(b) Conversion to Interest Rate Based on Prime Rate. 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 of the Loan
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 of
maintaining the Interest Rate based on LIBOR, 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, (iv) that the Interest Rate
based on LIBOR would be in excess of the maximum interest rate which
Borrower may by law pay, then, in any such event, or (v) any LIBOR contract
is broken as a result of the sale in bulk of Inventory relating to the
Resorts by Borrower, Lender shall so notify Borrower and, as of the date of
such notification with respect to an event described in clauses (ii), (iv)
or (v) above, or as of the expiration of the applicable LIBOR Rate Period
with respect to an event described in clause (i) or (iii) above, interest
shall accrue at a rate equal to the Prime Rate plus a sufficient spread so
that the resulting per annum interest rate is approximately equal to what
the rate would have been based on LIBOR plus three and one-quarter percent
(3.25%) per annum, which new rate shall apply 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 to Lender (in the manner reasonably
required by Lender) for such increased cost of maintaining the Interest
Rate based on LIBOR, and (y) if the same only affects a portion of the
Loan, then only such portion shall have interest accrue at a rate equal to
the Prime Rate plus a sufficient spread so that the resulting per annum
interest rate is approximately equal to what the rate would have been based
on LIBOR plus three and one-quarter percent (3.25%) per annum, and interest
shall continue to accrue on the remaining portion at the Interest Rate
based on LIBOR.
(c) Back-Up Interest Rate Based on Prime Rate. 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 to maintain the
Interest Rate based on LIBOR 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 Loan (or such portion of the Loan)
shall, with respect to
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Lender, thereafter bear interest shall accrue at a rate equal to the Prime
Rate plus a sufficient spread so that the resulting per annum interest rate
is approximately equal to what the rate would have been based on LIBOR plus
three and one-quarter percent (3.25%) per annum (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 shall accrue at a rate equal to the Prime Rate plus a
sufficient spread so that the resulting per annum interest rate is
approximately equal to what the rate would have been based on LIBOR plus
three and one-quarter percent (3.25%) per annum, which new rate shall
continue until such date, if any, as the situation described in this
Section 2.5(c) is no longer in effect.
(d) Capital Adequacy Events, Etc. If Lender 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, 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 or
Lender's holding company, as the case may be, to a level below that which
Lender 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, 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 on behalf of any such Lender, from time to time, such
additional amount or amounts as will compensate Lender for any such
reduction suffered.
(e) Payment of Amounts Due under Section 2.5. Any amount payable by
Borrower under Section 2.5(a) or 2.5(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
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prompt notice of any event described in Sections 2.5(a) or 2.5(d) hereof
and of the amount to be paid under this Section 2.5(e) 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 2.5(e) as a result thereof. All amounts which may become due and
payable by Borrower in accordance with the provisions of this Section
2.5(e) shall constitute additional interest hereunder and shall be secured
by this Agreement and the other Loan Documents."
2.6 COMMITMENT FEE.
(a) Borrower acknowledges and agrees that the Commitment Fee of
$100,000 shall be due and payable exclusively to Lender for its services
hereunder and shall be paid to Lender upon execution of this Agreement.
Borrower agrees that Lender has earned the entire Commitment Fee,
notwithstanding whether a closing occurs under this Agreement or whether
the Loan or any portion thereof is funded.
(b) In the event that the Borrower shall exercise its option to extend
the Term of the Loan as provided in Section 2.7 (b) below, Borrower shall
pay to Lender, on or before October 31, 2001, an additional commitment fee
in an amount equal to one percent (1.0%) of the outstanding balance of the
Loan, computed as of October 31, 2001 (the "Extension Commitment Fee").
LOAN TERM.
(a) Initial Term: The Initial Term of the Loan shall commence on the
date hereof and shall terminate on November 30, 2001, subject to extension
in accordance with Section 2.7 (b) hereof.
(b) Extension Term: Borrower shall have the right to extend the Term
of the Loan for an additional period of twenty-four (24) months commencing
on December 1, 2001 and terminating on November 30, 2003; provided that:
(i) no Event of Default, or Default which would notice, the
passage of time or both would constitute an Event of Default, shall have
occurred;
(ii) the Borrower notifies the Lender in writing at least six
months prior to the expiration of the Initial Term of its election to
exercise its option to extend the Term of the Loan;
(iii) Borrower pays to the Lender the Extension Commitment Fee in
accordance with Section 2.6(b).
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2.8 MAXIMUM OBLIGATION OF LENDER UNDER THE LOAN, THE EXISTING CREDIT
FACILITY AND THE ADDITIONAL CREDIT FACILITY. Borrower acknowledges, agrees and
confirms that notwithstanding anything to the contrary herein, in any other Loan
Document or in any document evidencing or securing the Existing Credit Facility
or the Additional Credit Facility, Lender shall not be obligated to fund the
Advance hereunder, which when taken together with the loans or advances made by
Lender to the Borrower under this Agreement, the Existing Credit Facility and
the Additional Credit Facility, would cause the aggregate amount of such loans
and advances by Lender to Borrower to exceed a maximum aggregate amount of
$50,000,000.
2.9 SUSPENSION OF ADVANCES.
(a) Suspension of Sales. If any stay, order, cease and desist order,
injunction, temporary restraining order or similar judicial or nonjudicial
sanction shall be issued limiting or otherwise materially adversely affecting
any Interval sales activities, other business operations in respect of the
Resorts, or the enforcement of the remedies of the Lender hereunder, then, in
such event, the Lender shall have no obligation to make any Advances hereunder:
(i) in respect of Intervals which are the subject of any stay, order, cease and
desist order, injunction, temporary restraining order or similar judicial or
nonjudicial sanction has been issued until the stay, order, cease and desist
order, injunction, temporary restraining order or similar judicial or
nonjudicial sanction has been lifted or released to the satisfaction of the
Lender and (ii) in respect of Intervals at any Resort if: (x) the stay, order,
cease and desist order, injunction, temporary restraining order or similar
judicial or nonjudicial sanction in question has not been lifted or released to
the satisfaction of the Lender within sixty (60) days of its issuance and (y)
there is a reduction in the total number of sales of Intervals by the Borrower
in any Loan Year of more than twenty percent (20%) from the total number of
sales of Intervals in the immediately preceding Loan Year.
(b) Change in Control. If there shall occur a change, singly or in the
aggregate, of more than fifty percent (50%) of the executive management of the
Borrower as described in Schedule E hereto, then, in such event, the Lender
shall have no obligation to make any Advances hereunder, unless within thirty
(30) days prior thereto Borrower provides Lender with written information
setting forth the replacement executive management personnel of Borrower
together with a description of those Persons' experience, ability and
reputation, and Lender, acting in good faith, determines that the replacement
management personnel's experience, ability and reputation is equal to or greater
than that of the Borrower as set forth on Schedule E.
2.10 RELEASE OF INTERVALS FROM INVENTORY. Upon written request of the
Borrower, and provided that no Event of Default shall have occurred and be
continuing hereunder, Lender shall release from the Collateral, one or more
Intervals subject to the following conditions: (i) payment by Borrower to Lender
at the time of such release of the Release Price for each such Interval, (ii)
the
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remaining Collateral satisfies the Required Retail Value and (iii) if the
outstanding principal balance of the Loan shall, as a result of any such
release, be less than $3,000,000, then Borrower shall also pay to Lender, with
respect to the six (6) month period commencing on the date hereof and ending on
June 1, 2000, and with respect to each six (6) month period thereafter during
the Revolving Loan Period, on the fifth day of every such six (6) month period,
in arrears, a fee equal to the product of: (a) the excess, if any, of (i)
$3,000,000.00 over (ii) the average daily outstanding principal balance of the
Loan for such six (6) month period; times (b) 2% per annum.
2.11 LIMITATIONS ON ADVANCES WITH RESPECT TO OAK N' SPRUCE RESORT.
Notwithstanding anything herein to the contrary, the Lender shall be under no
obligation to make Advances in respect of Intervals from Oak N' Spruce Resort if
any such Advance, together with any prior Advances made under this Loan
Agreement, the Additional Credit Facility and/or the Existing Credit Facility,
would exceed, in the aggregate, $32,000,000.00.
SECTION 3 -- COLLATERAL GRANT OF SECURITY INTEREST
3.1 GRANT OF SECURITY INTEREST. To secure the payment and performance of
the Obligations, for value received, Borrower unconditionally and irrevocably
assigns, mortgages, pledges and grants to Lender a continuing first priority
security interest in and to the Collateral. To further secure the Obligations
hereunder, at the time of each Advance, Borrower shall execute and deliver to
the Lender, such deeds of trust, mortgages, deeds to secure debt or assignments
of beneficial interest, as the case may be, in the applicable form attached here
as Exhibit A, as Lender deems necessary in its sole discretion, in order to
grant to the Lender a first priority mortgage lien on the Inventory.
3.2 FINANCING STATEMENTS. Borrower agrees, at its own expense, to execute
the financing statements provided for by the Code together with any and all
other instruments or documents and take such other action as may be required to
perfect and to continue the perfection of Lender's security interests in the
Collateral and, unless prohibited by law, Borrower hereby authorizes Lender to
execute and file any such financing statements on the Borrower's behalf.
3.3 INSURANCE. Insurance coverage with respect to the Resort is provided by
the Timeshare Owners' Association. Borrower shall furnish Lender, upon request,
with satisfactory evidence that the Units, Buildings and Resorts are adequately
insured.
3.4 SUBSTITUTION OF INVENTORY. Lender agrees that Borrower may, from time
to time during the Term hereof, replace any Interval or Intervals by granting to
Lender a first mortgage Lien on a new Interval or Intervals owned by the
Borrower at an Eligible Resort. In granting to Lender a first mortgage Lien on
any such new Interval or Intervals, Borrower shall comply with the document
delivery and recordation requirements set forth in Section 4.2(b) of this
Agreement
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and Borrower shall deliver to Lender its written certification that the Retail
Value of the Inventory after any such substitution, is equal to or greater than
the Required Retail Value and satisfies the Loan to Value Ratio. In connection
with any such replacement of Inventory under this Section 3.4 or Section 2.4(b)
hereof, Borrower may propose to Lender that one or more additional time-share
plans and projects owned and operated by Borrower be included among the Eligible
Resorts . Any such proposal will be in writing, and will be accompanied or
supported by the due diligence and supporting Borrower, Affiliate, project,
financial and related information identified in Section 4.5 hereto, and such
other information as Lender may require. Borrower will reasonably cooperate with
Lender's underwriting and due diligence, and Borrower will be responsible for
payment upon billing for Lender's out-of-pocket expenses in connection
therewith. Subject to Lender's satisfactory underwriting and due diligence
review, including satisfaction of the conditions in Sections 4 and 5 hereof as
they relate to such additional time-share resorts, Lender may, but shall not be
required to, approve one or more such additional time-share resorts, including
future phases or condominiums in an Existing Eligible Resort, as an Eligible
Resort. Subject in each instance to Lender's acceptable underwriting and due
diligence review, and Lender's prior written approval, any project as may be
approved by Lender after the Closing Date, if any, is hereinafter referred to
singly as an "ADDITIONAL ELIGIBLE RESORT" and collectively as the "ADDITIONAL
ELIGIBLE RESORTS."
SECTION 4 -- CONDITIONS PRECEDENT TO THE CLOSING
4.1 CONDITIONS PRECEDENT. The obligation of Lender to enter into this
Agreement and to fund the initial Advance shall be subject to the satisfaction
of each of the following conditions precedent, in addition to all of the
conditions precedent set forth elsewhere in the Loan Documents:
(a) REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. The
representations and warranties contained in the Loan Documents are and
shall be true and correct in all respects, and all covenants and agreements
have been complied with and correct in all respects, and all covenants and
agreements to have been complied with and performed by Borrower shall have
been fully complied with and performed to the satisfaction of Lender.
(b) NO PROHIBITED ACTS. Borrower shall not have taken any action or
permitted any condition to exist which would have been prohibited by any
provision of this Agreement or the Loan Documents.
(c) NO CHANGES. That all information and documents heretofore
delivered by Borrower to Lender with respect to the Existing Resorts,
including information and documents delivered in connection with the
Existing Credit Facility and/or the Additional Resort Facility, remain true
and correct in all respects.
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(d) APPROVAL OF DOCUMENTS PRIOR TO CLOSING DATE. Borrower has
delivered to Lender (with copies to Lender's counsel), at least fifteen
(15) Business Days prior to the Closing Date, and Lender has reviewed and
approved, at least five (5) Business Days prior to the Closing Date, the
form and content of all of the items specified in Subsection 4.1(d)(i)
through (vi) below (the "Submissions"). Lender shall have the right to
review and approve any changes to the form of any of the Submissions. If
Lender disapproves of any changes to any of the Submissions, Lender shall
have the right to require Borrower either to cure or correct the defect
objected to by Lender or to elect not to fund the Loan or any Advance.
Under no circumstances shall Lender's failure to approve or disapprove a
change to any of the Submissions be deemed to be an approval of such
Submissions. All of the Submissions were and shall be prepared at
Borrower's sole cost and expense, unless expressly stated to be an
obligation and expense of Lender. Lender shall have the right of prior
approval of any Person responsible for preparing a Submission ("Preparer")
and may disapprove any Preparer in its sole discretion, for any reason,
including without limitation, that Lender believes that the experience,
skill, reputation or other aspect of the Preparer is unsatisfactory in any
respect. All Submissions required pursuant to this Agreement shall be
addressed to Lender and include the following language: "THE UNDERSIGNED
ACKNOWLEDGES THAT TEXTRON FINANCIAL CORPORATION IS RELYING ON THE WITHIN
INFORMATION IN CONNECTION WITH ITS DETERMINATION TO MAKE A LOAN TO
SILVERLEAF RESORTS, INC. IN CONNECTION WITH THE SUBJECT COLLATERAL."
(i) A certificate in the form attached as Exhibit A, to be dated
as of the Closing Date and signed by the president, vice president, or
secretary of the Borrower, certifying that the conditions specified in
Sections 4.1(a), (b) and (c) above are true;
(ii) Copies of any amendments to the articles of incorporation of
Borrower not previously delivered to the Lender, certified to be true
and complete by Borrower and the Secretary of State of the State of
Texas and a current certificate of good standing for Borrower, and
copies of any amendments to the by-laws of Borrower not previously
delivered to the Lender, certified to be true, correct and complete by
the secretary or assistant secretary of Borrower;
(iii) a certificate of the Secretary of the Borrower certifying
the adoption by the Board of Directors of the Borrower of a resolution
authorizing Borrower to enter into and execute this Agreement, the
Note, and the other Loan Documents, to borrow the Loan from Lender,
and to grant to Lender a first priority security interest in and to
the Collateral;
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(iv) a certificate of the secretary or assistant secretary of
Borrower certifying the incumbency, and verifying the authenticity of
the signatures, of the specified officers of Borrower authorized to
sign the Agreement, the Note and the other Loan Document; and
(v) Copies or other evidence of all loans to Borrower from any
officers, shareholders, or Affiliates of Borrower not previously
delivered to the Lender.
(vi) Commitment to issue Mortgagee Title Policies (as defined
below) from the Title Company.
(e) EXECUTION AND DELIVERY OF LOAN DOCUMENTS. Borrower shall have
delivered to Lender, on or before the Closing Date, the following Loan
Documents, each of which shall be in the form of the respective Loan
Documents attached hereto as Exhibit "A", and each of which when required,
shall be in recordable form:
(i) CLOSING OPINIONS FOR BORROWER.
(ii) NOTE.
(iii) ENVIRONMENTAL INDEMNITY. An Environmental Indemnity
Agreement, executed by Borrower in favor of Lender.
(iv) OTHER ITEMS. Such other agreements, documents, instruments,
certificates and materials as Lender may request to evidence the
Obligations; to evidence and perfect the rights and Liens and security
interests of Lender contemplated by the Loan Documents, and to
effectuate the transactions contemplated herein.
(f) PHYSICAL INSPECTION. Lender shall be satisfied with its physical
inspection of the Resorts.
(g) UCC SEARCH. Lender shall have obtained, at Borrower's cost, such
searches of the applicable public records as it deems necessary under
Texas, and other applicable law to verify that it has a first and prior
perfected Lien and security interest covering all of the Collateral. Lender
shall not be obligated to fund any Loan if Lender determines that it does
not have a first and prior perfected lien and security interest covering
any portion of the Collateral.
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(h) LITIGATION SEARCH. Lender shall have obtained, at Borrower's cost,
an independent search to verify that there are no bankruptcy, foreclosure
actions or other material litigation or judgments pending or outstanding
against the Resorts, any portion of the Collateral, Borrower, or any
Affiliates of Borrower (each a "Material Party"). The term "other material
litigation" as used herein shall not include matters in which (i) a
Material Party is plaintiff and no counterclaim is pending or (ii) which
Lender determines, in its sole discretion exercised in good faith, are
immaterial due to settlement, insurance coverage, frivolity, or amount or
nature of claim. Lender shall not be obligated to fund any Advance if it
determines that any such litigation is pending.
4.2 CLOSING DATE ADVANCE. In the event that Borrower desires Lender to make
an Advance on the Closing Date, then, in addition to all of the conditions
precedent set forth in this Section 4, Borrower shall have complied with all of
the requirements of Section 5 below at least five (5) Business Days prior to the
Closing Date.
4.3 EXPENSES. Borrower shall have paid all fees and expenses required to be
paid pursuant to this Agreement. Lender shall have no obligation to fund the
Loan or make the initial Advance or any subsequent Advance unless (a) the amount
of the Loan together with any moneys paid by Borrower is sufficient to satisfy
all fees and expenses required to be paid pursuant to this Agreement, and (b)
the proceeds of the Advance will not be used for any of the uses set forth in
Section 6.11.
4.4 PROCEEDINGS SATISFACTORY. Borrower shall execute all of the Loan
Documents approved by Lender on the Closing Date, and all actions taken in
connection with the execution or delivery of the Loan Documents, and all
documents and papers relating thereto, shall be satisfactory to Lender and its
counsel. Lender and its counsel shall have received copies of such documents and
papers as Lender or such counsel may reasonably request in connection therewith,
all in form and substance satisfactory to Lender and its counsel.
4.5 CONDITIONS PRECEDENT TO FUNDING OF ADVANCES WITH RESPECT TO ADDITIONAL
ELIGIBLE RESORTS. As provided in the Section 3.4 hereof, Borrower may propose to
Lender that Lender approve one or more additional timeshare plans for inclusion
hereunder as an Additional Eligible Resort in respect of which Intervals may be
accepted as part of the Inventory and Advances may be made. The obligation of
Lender to fund any Advance with respect to any Interval from an Additional
Resort shall be subject to the satisfaction of each of the following conditions
precedent, in addition to all of the conditions precedent set forth elsewhere in
the Loan Documents:
(a) Representations, Warranties, Covenants and Agreements. The
representations and warranties contained in the Loan Documents are and shall be
true and correct in all respects, and all
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covenants and agreements have been complied with and correct in all respects,
and all covenants and agreements to have been complied with and performed by
Borrower shall have been fully complied with and performed to the satisfaction
of Lender.
(b) No Prohibited Acts. Borrower shall not have taken any action or
permitted any condition to exist which would have been prohibited by any
provision of the Loan Documents.
(c) Approval of Documents Prior to Advance. Borrower has delivered or
caused to be delivered to Lender (with copies to Lender's counsel, at least
fifteen (15) Business Days prior to the date of each such Advance), and Lender
has reviewed and approved, at least five (5) Business Days prior to such date,
the form and content of all of the items specified in each of the Submissions
required pursuant to this Section 4.5. Lender shall have the right to review and
approve any changes to the form of any of the Submissions. If Lender disapproves
of any changes to any of the Submissions, Lender shall have the right to require
Borrower either to cure or correct the defect objected to by Lender or to elect
not to fund the Loan or any Advance with respect to any such Interval. Under no
circumstances shall Lender's failure to approve or disapprove a change to any of
the Submissions be deemed to be an approval of such Submissions. All of the
Submissions were and shall be prepared at Borrower's sole cost and expense,
unless expressly stated to be an obligation and expense of Lender. Lender shall
have the right of prior approval of any Preparer and may disapprove any Preparer
in its sole discretion, for any reason, including without limitation, that
Lender believes that the experience, skill, reputation or other aspect of the
Preparer is unsatisfactory in any respect. All Submissions required pursuant to
this Agreement shall be addressed to Lender and include the following language:
"THE UNDERSIGNED ACKNOWLEDGES THAT TEXTRON FINANCIAL CORPORATION IS RELYING ON
THE WITHIN INFORMATION IN CONNECTION WITH ITS DETERMINATION TO MAKE A LOAN TO
SILVERLEAF RESORTS, INC. IN CONNECTION WITH THE SUBJECT COLLATERAL."
(i) a certificate in the form attached as Exhibit A, to be dated as
of the date of each such Advance and signed by the president,
vice president, or secretary of the Borrower, certifying that
the conditions specified in Sections 4.5(a) and (b) above are
true;
(ii) copies of the articles of incorporation of Borrower, together
with any amendments thereto certified to be true and complete by
Borrower and the Secretary of State of the State of Texas, a
current certificate of good standing for Borrower issued by the
Secretary of State of the State of Texas, a current certificate
of authority to conduct business issued by the secretary of
state in each state in which the Borrower conducts business, and
copies of the by-laws of Borrower certified to be true, correct
and complete by the secretary or assistant secretary of
Borrower;
(iii) except for the Resorts listed on Schedule 4.5(c)(iii) (the
"CROWN RESORTS"), a Survey for each Additional Eligible Resort
for which a mortgage lien is being granted to the Lender on
Intervals in connection with the Advance in question; and
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with respect to each Crown Resort, a legible, full size copy of the
recorded plat for each such Resort;
(iv) a certificate of the secretary or assistant secretary of Borrower
certifying the adoption by the board of directors thereof,
respectively, of a resolution authorizing the addition of the
Resort in question as an Additional Eligible Resort and to
authorize Borrower to enter into, execute and deliver any Documents
in connection therewith;
(v) a certificate of the secretary or assistant secretary of Borrower
certifying the incumbency, and verifying the authenticity of the
signatures, of the specified officers of Borrower authorized to
sign all documents required in connection with such Additional
Eligible Resort as required pursuant to this Section 4.5;
(vi) an inspection report or reports covering each Additional Eligible
Resort for which a mortgage lien is being granted to the Lender on
Intervals in connection with the Advance in question, including
without limitation all real property and personal property subject
to the Declaration and all adjacent property, confirming:
(1) the absence of Hazardous Materials on the personal property
and real property comprising each such Additional Eligible
Resort;
(2) that the inspection firm has obtained, reviewed and
included within its report a CERCLIS printout from the
Environmental Protection Agency (the "EPA"), statements
from the EPA and other applicable state and local
authorities and a Phase I Environmental Audit, all of which
information shall confirm that there are no known or
suspected Hazardous Materials located at, used or stored
on, or transported to or from each such Additional Eligible
Resort or in such proximity thereto as to create a material
risk of contamination of each such Additional Eligible
Resort;
(vii) evidence that Borrower is maintaining all policies of insurance
required by and in accordance with Section 7.1(d) hereof, including
copies of the most current paid insurance premium invoices;
(viii) evidence that Borrower and the Timeshare Documents for each
Additional Eligible Resort for which a mortgage lien is being
granted to the Lender on Intervals in connection with the Advance
in question are in compliance with all applicable laws in
connection with its sales of Intervals, including without
limitation, the Timeshare Acts;
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(ix) a current preliminary title report or certificate of title for each
Additional Eligible Resort for which a mortgage lien is being
granted to the Lender on Intervals in connection with the Advance in
question, with copies of all title exceptions;
(x) copies of all applicable governmental permits, approvals, consents,
licenses, and certificates for the establishment of each Additional
Eligible Resort for which a mortgage lien is being granted to the
Lender on Intervals in connection with the Advance in question as
timeshare projects in accordance with the applicable Timeshare Act,
and for the occupancy and intended use and operation of each such
Additional Eligible Resort, including the Units, including a letter
certification from Borrower regarding zoning classification and
compliance, letters or other satisfactory evidence from utility
companies, governmental entities or other persons confirming that
water, sewer (sanitary and storm), electricity, solid waste
disposal, telephone, police, fire and rescue services are being
provided to each Resort, and any business licenses necessary for
operation of each such Additional Eligible Resort;
(xi) certified true, correct and complete copies of all of the Timeshare
Documents for each Additional Eligible Resort for which a mortgage
lien is being granted to Lender on Intervals in connection with the
Advance in question;
(xii) evidence satisfactory to Lender that all taxes and assessments owed
by or for which Borrower is responsible for collection have been
paid, including but not limited to sales taxes, room occupancy
taxes, payroll taxes, personal property taxes, excise taxes,
intangibles taxes, real property taxes, and income taxes, and any
assessments related to each Additional Eligible Resort for which a
mortgage lien is being granted to Lender on Intervals in connection
with the Advance in question and copies of the most current paid tax
bills for each such Additional Eligible Resort evidencing that each
such Additional Eligible Resort have been segregated from all other
property on the applicable municipal taxrolls;
(xiii) written confirmation from an architect covering each Additional
Eligible Resort, other than a Crown Resort, for which a mortgage
lien is being granted to Lender on Intervals in connection with the
Advance in question as to the physical condition of the improvements
at each such Additional Eligible Resort, including that soil
conditions are sufficient to support all existing and any
contemplated improvements to the real property; which written
confirmation shall be in form and substance reasonably acceptable to
the Lender. Each architect rendering such written confirmation shall
be licensed as an architect in the state of Texas;
(xiv) such credit references on Borrower as Lender deems necessary in its
sole discretion;
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(xv) copies or other evidence of all loans to Borrower from any
officers, shareholders, or Affiliates of Borrower, if any.
(xvi) a commitment to issue Mortgagee Title Policies from the Title
Company for each Interval constituting part of the Inventory.
Notwithstanding anything heretofore to the contrary, Lender agrees
that Borrower shall not be required to provide such a commitment or
a Mortgagee Title Insurance Policy with respect to any Crown Resort
(other than the Quail Hollow Resort), or, until such time as deeded
Intervals are permitted under local law governing the Oak N' Spruce
Resort, the Oak `N Spruce Resort in order to qualify any such
Resort as an Additional Eligible Resort, provided, however, that
under no circumstance shall the portion of Loan secured by
Intervals from the Crown Resorts (other than Quail Hollow Resort)
or Oak N' Spruce Resort exceed $1,000,000.00 in the aggregate.
Notwithstanding anything heretofore to the contrary, if any claim,
lien, encumbrance, charge or other matter arises with respect to
any Interval or Intervals which constitutes part of the Collateral
pursuant to this Agreement and for which Borrower has not provided
a Mortgagee Title Policy, then, in such event:
(a) The Interval in question shall cease to constitute Inventory
and the Borrower immediately shall either replace the Mortgage
with respect to the Interval in question with a Mortgage on an
Interval acceptable to Lender in its sole discretion or make a
Mandatory Prepayment as provided in Section 2.4(b) hereof; and
(b) The Resort at which the Interval in question is located shall
cease to be an Additional Eligible Resort, unless and until the
Borrower shall cure any such claim, lien, encumbrance, charge
or other matter to the satisfaction of the Lender. Furthermore,
any and all further requests for Advances in respect of
Intervals from the Resort in question must thereafter be
accompanied by satisfactory Mortgagee Title Policies.
(xvii) the Financial Statements.
(xviii) to the extent not previously delivered pursuant to the Additional
Credit Facility, the Existing Credit Facility or hereunder,
Borrower will execute, or cause to be executed with respect to each
Additional Eligible Resort, a Negative Pledge, Borrower's Affidavit
with Respect to the Additional Eligible Resorts and an
Environmental Indemnification Agreement, each in the form attached
hereto as Exhibit A;
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(xix) with respect to any improvements, including any Units, constructed at
a Resort within the twenty-four month period prior to the approval of
any Additional Eligible Resort, Borrower shall also deliver to
Lender, for its approval, such documents and instruments as Lender
may reasonably request in connection with such newly constructed
improvements, including, without limitation, copies of building
permits, plans and specifications construction and architectural
contracts, title insurance insuring over, among other things,
mechanics liens, certificates of occupancy and satisfactory evidence
of the completion of such improvements;
(xx) such other documents, instruments, agreements, tests, reports and
inspections as the Lender may require with respect to the Borrower or
any applicable Affiliate, the Loan or any Resort, including any
Additional Eligible Resort.
(xxi) Upon request of the Lender, Borrower shall deliver to the Lender
evidence, satisfactory to the Lender, that there is no material
litigation, written complaint, suit, action, written claim or written
charge pending against the Borrower or any Affiliate with any court
or with any governmental authority with respect to the Resort, the
Timeshare Documents, any Interval, or any marketing, offer or sale of
any Interval.
(d) Physical Inspection. Lender shall be satisfied with its physical
inspection of the Additional Eligible Resorts.
(e) UCC Search. Lender shall have obtained, at Borrower's cost, such
searches of the applicable public records as it deems necessary under all
applicable law to verify that it has a first and prior perfected Lien and
security interest covering all of the Collateral. Lender shall not be obligated
to fund any Advance if Lender determines that it does not have a first and prior
perfected lien and security interest covering any portion of the Collateral.
(f) Litigation Search. Lender shall have obtained, at Borrower's cost, an
independent search to verify that there are no bankruptcy, foreclosure actions
or other material litigation or judgments pending or outstanding against the
Additional Eligible Resorts, any portion of the Collateral, Borrower, or any
Affiliate, (each a "MATERIAL PARTY"). The term "other material litigation" as
used herein shall not include matters in which (i) a Material Party is plaintiff
and no counterclaim is pending or (ii) which Lender determines, in its sole
discretion exercised in good faith, are immaterial due to settlement, insurance
coverage, frivolity, or amount or nature of claim. Lender shall not be obligated
to fund any Advance if it determines that any such litigation is pending.
(g) Opinions of Borrower's Counsel. Borrower shall deliver to Lender, for
the benefit of Lender, at Borrower's sole cost and expense, such opinions of
counsel, including counsel admitted in each state in which each Additional
Eligible Resort is located, as to such matters with
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respect to the Borrower and each Additional Eligible Resort as Lender may
request, and in form and substance acceptable to Lender in its sole discretion.
(h) Funding Procedure. Borrower shall have complied to Lender's
satisfaction with each of the conditions precedent to funding of any Advance set
forth in Section 5 hereof.
(i) Management of Resort. Borrower shall provide evidence satisfactory to
Lender that Borrower, or an Affiliate, is the manager or operator of each
Resort, pursuant to a written management or operating agreement, in form and
substance satisfactory to Lender, which with respect to all Resorts (other than
the Crown Resorts) shall have a term which shall expire no earlier April 1,
2009. With respect to each Crown Resort only, each such Resort may qualify as an
Additional Eligible Resort (subject to satisfaction by Borrower of the
conditions set forth in this Section 4.5), so long the Borrower, or an
Affiliate, is the manager or operator of each such Resort, pursuant to a written
management or operating agreement, in form and substance satisfactory to Lender.
Borrower agrees to provide an estoppel letter, in form and substance acceptable
to Lender, from the applicable Timeshare Owner's Association.
(j) Other Items. Such other agreements, documents, instruments,
certificates and materials as Lender may request to determine the acceptability
of any such Additional Eligible Resort, to evidence the Obligations; to evidence
and perfect the rights and Liens and security interests of Lender contemplated
by the Loan Documents, and to effectuate the transactions contemplated herein,
including, without limitation, true copies of all Resort Documents for each such
Additional Eligible Resort, all Timeshare Documents and operating and management
contracts and agreements, evidence of with the applicable Timeshare Act and
other applicable laws, evidence of all required governmental licenses and
permits; title searches; title commitments or policies, including. Complete and
legible copies of each title exception, engineering, environmental and soil
reports, evidence of compliance with all applicable zoning and building codes;
each of which shall be satisfactory to Lender in its sole and absolute
discretion.
SECTION 5 -- FUNDING PROCEDURE
The obligation of Lender to make any Advance, shall be subject to the
satisfaction of all of the following conditions precedent:
(a) REQUESTS FOR ADVANCES. Each request for an Advance shall:
(i) be in writing is form attached hereto as Exhibit B and shall
certify the amount of the then-current Loan to Retail Value Ratio,
specify the principal amount of the Advance requested and designate
the account to which the proceeds of such Advance are to be
transferred;
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(ii) state that the representations and warranties of the
Borrower contained in the Agreement and any closing or funding related
certifications are true and correct as of the date of the request and,
after giving effect to the making of such requested Advance, will be
true and correct as of the date on which the requested Advance is to
be made;
(iii) state that no Default or Event of Default exists as of the
date of the request and, after giving effect to the making of the
requested Advance, no Default or Event of Default would exist as of
the date on which the requested Advance is to be made;
(iv) be delivered to the office of Lender at least ten (10)
Business Days prior to the date of the requested Advance; and
(v) be signed by a principal financial officer of the Borrower.
(b) LOAN DOCUMENTS/COLLATERAL. Not less than ten (10) Business Days
prior to the date of any Advance, the Borrower shall have:
(i) delivered to Lender a list of all Intervals which are to be
the subject of such requested Advance, together with such additional
information as Lender may require;
(ii) delivered to Lender (or, if Lender shall so instruct, a
designee appointed by Lender in writing), to the extent available, (a)
the original or certified copies of any deed or beneficial interest
certificate, or other documents evidencing conveyance of the Interval
in question to the Borrower, (b) a copy of any title policy received
by the Borrower in connection with its acquisition of the Interval in
question, and (c) original or true copies of any purchase contract
(including addenda) or other agreements entered into by the Borrower
with any person with respect to the sale by the Borrower to any
Purchaser of the Interval in question;
(iii) delivered to Lender a duly executed Mortgage or Mortgages
granting to Lender a first mortgage lien on the Inventory; and
(iv) original UCC financing statements covering the Collateral,
filed with the Secretary of State of Texas and the Secretary of State
of each state in which the Collateral is located.
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(v) subject to Section 4.5(c) (xvi) hereof, delivered to Lender,
with respect to each Interval constituting a part of the Inventory, a
commitment for a mortgagee's title insurance policy showing that the
Mortgage in respect of such Interval insuring in favor of Lender the
first priority Lien of such Mortgage in the amount of the Advance to
be made in respect of such Interval, with a satisfactory title
insurance policy to be issued on the date of the requested Advance.
The Mortgages to Lender shall each have been duly recorded in the
applicable land records which are described in Schedule A hereof. The
mortgagee's title insurance policies shall be in form and substance
satisfactory to Lender and shall be issued by a title insurance company
satisfactory to Lender (the "Title Company"), and name Lender as the
insured party therein. The funding of the Advance, delivery of the
Collateral and issuance of the title insurance policy, and recording of the
mortgages or any releases may, in Lender's discretion, be effected by way
of an escrow arrangement with the Title Company or other fiduciary, the
form and substance of which shall be satisfactory to Lender.
(c) OTHER CONDITIONS. In addition to the other conditions set forth in
this Agreement, the making of the initial or any subsequent Advance shall
be subject to the satisfaction of the following conditions:
(i) no Default or Event of Default shall exist immediately prior
to the making of such requested Advance or, after giving effect
thereto, immediately after the making of such requested Advance;
(ii) each agreement required to have been executed and delivered
in connection with any prior Advance shall be consistent with the
terms of this Agreement and shall be in full force and effect;
(iii) the date on which such requested Advance is to be made
shall be a Business Day;
(iv) Borrower shall have delivered to Lender a certification
showing the Retail Value of each Interval and Lender shall be
satisfied with the Retail Value of each Interval in its sole
discretion, the dollar amount of the requested Advance based on the
Retail Value of the Intervals on which the Lender is being granted a
Mortgage;
(v) Not more than one Advance shall have previously been made in
the same calendar month in which such requested Advance is to be made,
unless Lender, in its sole discretion, agrees to make an additional
Advance during such calendar month;
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(vi) Such requested Advance shall be in a principal amount of not
less than $50,000.00, unless Lender, in its sole discretion, agrees to
make an Advance in an amount less than $50,000.00;
(vii) Lender shall have determined that the requested Advance
does not exceed the total amount of the Loan to Retail Value Ratio,
based on the Retail Value of the Inventory on which Lender has been
granted a first mortgage lien;
(viii) If Lender shall so require, Lender shall have received an
executed Closing Protection Letter issued by the Title Company, which
shall be reasonably acceptable to Lender.
(d) EXPENSES. The Borrower shall have paid all fees and expenses
required to be paid by pursuant to this Agreement in connection with such
requested Advance or any conditions related thereto.
(e) PROCEEDINGS SATISFACTORY. All actions taken in connection with
such requested Advance and all documents and papers relating thereto shall
be satisfactory to Lender and its counsel. Lender and its counsel shall
have received copies of such documents and papers as the Lender or such
counsel may reasonably request in connection with such requested Advance,
all in form and substance reasonably satisfactory to the Lender and its
counsel.
SECTION 6 -- GENERAL REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender as follows:
6.1 ORGANIZATION, STANDING, QUALIFICATION. Borrower (a) is a duly organized
and validly existing Texas corporation duly organized, validly existing and in
good standing under the laws of the State of Texas, and (b) as all requisite
power, corporate or otherwise, to conduct its business and to execute and
deliver, and to perform its obligations under, the Loan Documents.
6.2 AUTHORIZATION, ENFORCEABILITY, ETC.
(a) The execution, delivery and performance by Borrower of the Loan
Documents has been duly authorized by all necessary corporate action by
Borrower and does not and will not (i) violate any provision of the
certificate or articles of incorporation of Borrower, bylaws of Borrower,
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
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or with respect to any asset of Borrower other than Liens in favor of
Lender; or (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.
(b) No approval, authorization, order, license, permit, franchise or
consent of, or registration, declaration, qualification or filing with, any
governmental authority or other Person, including without limitation, the
Division or the Timeshare Owners' Association is required in connection
with the execution, delivery and performance by Borrower of any of the Loan
Documents.
(c) The Loan Documents constitute legal, valid and binding obligations
of Borrower, enforceable against Borrower in accordance with their
respective terms.
(d) Borrower has good and marketable title to the Collateral, free and
clear of any lien, security interest, charge or encumbrance except for the
security interests created by this Agreement or any Loan Document or
otherwise created in favor of Lender or those specifically consented to in
writing by the Lender. No financing statement or other instrument similar
in effect covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of Lender
hereunder.
(e) The execution and delivery of the Loan Documents, the filing of
the UCC-1's with the office of the secretary of state of the state in which
the applicable Resort is located and the Mortgages in the official records
of the county in which the applicable Resort is located, create in favor of
Lender a valid and perfected continuing first priority security interest in
the Collateral. The Collateral shall secure the full payment and
performance of the Obligations.
(f) The Mortgages constitute and will constitute valid and enforceable
first and prior liens and security interests on the Inventory.
(g) The Loan documents are in full force and effect, are and will be
valid and binding obligations of the respective makers in favor of Lender,
and the Borrower further warrants and guarantees the value, quantity, sound
condition, grade and quality of the Inventory and rights, properties,
easements and interests appurtenant or related thereto.
(h) Lender shall not be required to take, and the Borrower has taken
any and all required steps to protect Lender's security interest in the
Collateral (other than maintaining possession of the portion of the
Collateral constituting instruments); and Lender is not or shall not be
required to collect or realize upon the Collateral or any distribution of
interest or principal, nor shall loss of, or damage to, the Collateral
release the Borrower from any of the Obligations.
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6.3 FINANCIAL STATEMENTS AND BUSINESS CONDITION. The Financial Statements
fairly present the respective financial conditions and results of operations of
Borrower as of the date or dates thereof and for the periods covered thereby.
There were no material liabilities, direct or indirect, fixed or contingent, of
Borrower as of the dates of such Financial Statements which were not reflected
therein or in the notes thereto, which have not otherwise been disclosed to
Lender in writing. Except for any such changes heretofore expressly disclosed in
writing to Lender, there has been no material adverse change in the respective
financial conditions of Borrower from the financial conditions shown in their
respective Financial Statements, nor has Borrower incurred any material
liabilities, direct or indirect, fixed or contingent, which are not shown in its
Financial Statements. Borrower is able to pay all of its debts as they become
due and Borrower shall maintain such solvent financial condition, giving effect
to the Obligations, as long as the Borrower is obligated to Lender under the
Agreement or in any other manner whatsoever. Borrower's Obligations under this
Agreement and under the Loan Documents will not render Borrower unable to pay
its debts as they become due. The present fair market value of Borrower's assets
is greater than the amount required to pay its total liabilities.
6.4 TAXES. In accordance with the requirements set forth in the
Declaration, the Borrower represents and warrants that the Borrower or Timeshare
Owners' 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 the Collateral; and the Borrower knows of no basis for any additional
taxes or assessments against the Resort or the Collateral. The Borrower or the
Timeshare Owners' Association, as the case may be, has filed all tax returns
required to have been filed by it and has paid or will pay 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
have become due and payable.
6.5 TITLE TO PROPERTIES: PRIOR LIENS. Borrower has good and marketable
title to all of the Collateral, and to all unsold Units and Intervals at each
Resort, and all rights, properties and benefits appurtenant to or benefiting
them. Borrower is not in default under any of the documents evidencing or
securing any indebtedness which is secured, wholly or in part, by any portion of
any Resort or any portion or all the Collateral and no event has occurred which
with the giving of notice, the passage of time or both, would constitute a
default under any of the documents evidencing or securing any such indebtedness.
Other than the Liens granted in favor of Lender, the Liens granted to secure the
Additional Credit Facility and the Existing Credit Facility and the Liens
described in Schedule 6.5 hereto, there are no liens or encumbrances against the
Collateral, or against any Resort.
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6.6 SUBSIDIARIES, AFFILIATES AND CAPITAL STRUCTURE. Borrower has no
subsidiaries or Affiliates which have any involvement or interest in any Resort
in any way. None of the Affiliates of Borrower are parties to any proxies,
voting trusts, shareholders agreements or similar arrangements pursuant to which
voting authority, rights or discretion with respect to the Borrower is vested in
any other Person.
6.7 LITIGATION, PROCEEDINGS, ETC. There are no actions, suits, proceedings,
orders or injunctions pending or threatened against or affecting Borrower, the
Resort or the Timeshare Owners' Association at law or in equity, or before or by
any governmental authority or other tribunal, which (a) could have a material
adverse effect on Borrower or (b) relate to the Loan or which could have a
material effect on the Collateral or the Resort. Borrower has received no notice
from any court, governmental authority or other tribunal alleging that Borrower
or the Resort have violated the Timeshare Act, any of the rules or regulations
thereunder, the Declaration or any other applicable laws, agreements or
arrangements that could have any material effect on the Loan, the Collateral or
the Resorts.
6.8 LICENSES, PERMITS, ETC. The Borrower, the Resorts, the Timeshare
Owners' Associations or Borrower's Affiliates involved in the operations of the
Resorts, and, to the best of Borrower's knowledge after diligent inquiry, other
Persons involved in the operations of the Resorts, possess all requisite
franchises, certificates of convenience and necessity, operating rights,
approvals, licenses, permits, consents, authorizations, exemptions and orders as
are necessary to carry on its or their business as now being conducted, without
any known conflict with the rights of others and, with respect to the Borrower,
the Resorts and the Timeshare Owners' Associations, in each case subject to no
mortgage, pledge, Lien, lease, encumbrance, charge, security interest, title
retention agreement or option other than as provided for by this Agreement.
6.9 ENVIRONMENTAL MATTERS. Except as otherwise noted on Schedule 6.9, (a)
no Resort contains any Hazardous Materials, (b) no Hazardous Materials are used
or stored at or transported to or from the Resorts, (c) neither Borrower nor the
Resorts nor any manager thereof or to Borrower's knowledge, the Timeshare
Owners' Associations, have received notice from any governmental agency, entity
or other Person with regard to Hazardous Materials on, under or affecting any
Resort, and (d) neither Borrower nor the Resorts, nor any portion thereof, nor
to Borrower's knowledge after diligent inquiry, the Timeshare Owners'
Associations, are in violation of any Environmental Laws.
6.10 FULL DISCLOSURE. No information, exhibit or written report or the
content of any schedule furnished by or on behalf of Borrower to Lender in
connection with the Loan or the Resorts contains any material misstatement of
fact or omits the statement of a material fact necessary to make the statement
contained herein or therein not misleading. Borrower knows of no fact or
condition which will prevent the sale of Intervals to Purchasers or prevent the
operation of
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the Resorts in accordance with the Declarations and related public offering
statements, and in accordance with applicable law, or prevent Borrower's
performing its Obligations pursuant to the Loan Documents.
6.11 USE OF PROCEEDS/MARGIN STOCK. None of the proceeds of the Loan will be
used to purchase or carry any "margin stock" (as defined under Regulation U of
the Board of Governors of the Federal Reserve System, as in effect from time to
time), and no portion of the proceeds of the Loan will be extended to others for
the purpose of purchasing or carrying margin stock. None of the transactions
contemplated in the Agreement (including, without limitation, the use of the
proceeds from the Loan) will violate or result in the violation of Section 7 of
the Securities Exchange Act of 1934, as amended, or any regulations issued
pursuant thereto, including, without limitation, Regulations G, T, U and X of
the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter 11.
6.12 NO DEFAULTS. No Default or Event of Default exists, and there is no
violation in any material respect of any term of any agreement, charter
instrument, bylaw or other instrument to which the Borrower is a party or by
which it may be bound.
6.13 COMPLIANCE WITH LAW. The Borrower
(a) is not in violation, nor are any of its Resorts, or the business
operations in respect of any of the Resorts, or to the Borrower's knowledge
after diligent inquiry, the Timeshare Owners' Association, in violation, of
the Timeshare Act, or any laws, ordinances, governmental rules or
regulations of any state in which a Resort is located, any political
subdivision of said states or any other jurisdiction to which the Borrower
or the Resorts, or the business operations conducted in respect of the
Resorts, or the Timeshare Owners' Association, are subject; and
(b) has not failed, nor have the Resorts or, to Borrower's knowledge,
the Timeshare Owners' Associations failed, to obtain any consents or
joinders, or any approvals, licenses, permits, franchises 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 Resorts or any of Borrower's Properties, or to the conduct of
Borrower's business, including, without limitation, the operation of the
Resorts and the sale, or offering for sale, of Intervals therein; which
violation or failure to obtain or register materially adversely affects the
Borrower, the Resorts or the business, prospects, profits, properties or
condition (financial or otherwise) of the Borrower or the Resorts. The
Borrower has, to the extent required by its activities and businesses, and
the operations of the Resorts, fully complied with (1) all of the
applicable provisions of (a) the Consumer Credit Protection Act; (b)
Regulation Z of the Federal
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Reserve Board; (c) the Equal Credit Opportunity Act; (d) Regulation B of
the Federal Reserve Board; (e) the Federal Trade Commission's 3-day
cooling-off Rule for Door-to-Door Sales; (f) Section 5 of the Federal Trade
Commission Act; (g) the Interstate Land Sales Full Disclosure Act ("ILSA");
(h) federal postal laws; (i) applicable state and federal securities laws;
(j) applicable usury laws; (k) applicable trade practices, home and
telephone solicitation, sweepstakes, anti-lottery and consumer credit and
protection laws; (l) applicable real estate sales licensing, disclosure,
reporting and escrow laws; (m) the Americans With Disabilities Act and
related accessibility guidelines ("ADA"); (n) the Real Estate Settlement
Procedures Act ("RESPA"); (o) all amendments to and rules and regulations
promulgated under the foregoing acts or laws; and (p) other applicable
federal statutes and the rules and regulations promulgated thereunder; and
(2) all of the applicable provisions of the Timeshare Acts, any law or laws
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.
6.14 RESTRICTIONS OF BORROWER. Neither the Borrower nor any Resort, nor to
the Borrower's knowledge, any Timeshare Owners' Association, is a party to any
contract or agreement, or subject to any Lien, charge or corporate restriction,
which materially and adversely affects its or their business. The Borrower will
not be, on or after the Closing Date, a party to any contract or agreement which
restricts its right or ability to incur indebtedness, or prohibits the
Borrower's execution of, or compliance with the terms of this Agreement or the
other Loan Documents. The Borrower has not agreed or consented to cause or
permit in the future (upon the happening of a contingency or otherwise) any of
the Collateral, whether now owned or hereafter acquired, to be subject to a Lien
except in favor of Lender as provided hereunder.
6.15 BROKER'S FEES. Borrower and Lender represent to each other that
neither of them has made any commitment or taken any action which will result in
a claim for any brokers', finders' or other similar fees or commitments with
respect to the transactions described in the Agreement. The Borrower agrees to
indemnify Lender and save and hold Lender harmless from all claims of any Person
for any broker's or finder's fee or commission, and this indemnity shall include
reasonable attorneys' fees and legal expenses.
6.16 DEFERRED COMPENSATION PLANS. The Borrower has no pension, profit
sharing or other compensatory or similar plan (herein called a "Plan") providing
for a program of deferred compensation for any employee or officer. No fact or
situation, including but not limited to, any "Reportable Event," as that term is
defined in Section 4043 of the Employee Retirement Income Security Act of 1974
as the same may be amended from time to time ("Pension Reform Act"), exists or
will exist in connection with any Plan of the Borrower which might constitute
grounds for termination of any Plan by the Pension Benefit Guaranty Corporation
or cause the appointment by the appropriate United States District Court of a
Trustee to administer any such Plan. No
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"Prohibited Transaction" within the meaning of Section 406 of the Pension Reform
Act exists or will exist upon the execution and delivery of the Agreement or the
performance by the parties hereto of their respective duties and obligations
hereunder. The Borrower will (1) at all times make prompt payment of
contributions required to meet the minimum funding standards set forth in
Sections 302 through 305 of the Pension Reform Act with respect to each of its
Plans; (2) promptly, after the filing thereof, furnish to the Lender copies of
each annual report required to be filed pursuant to Section 103 of the Pension
Reform Act in connection with each Plan for each Plan Year, including any
certified financial statements or actuarial statements required pursuant to said
Section 103; (3) notify the Lender immediately of any fact, including, but not
limited to, any Reportable Event arising in connection with any Plan which might
constitute grounds for termination thereof by the Pension Benefit Guaranty
Corporation or for the appointment by the appropriate United States District
Court of a Trustee to administer the Plan; and (4) notify the Lender of any
"Prohibited Transaction" as that term is defined in Section 406 of the Pension
Reform Act. The Borrower will not (a) engage in any Prohibited Transaction or
(b) terminate any such Plan in a manner which could result in the imposition of
a Lien on the Property of the Borrower pursuant to Section 4068 of the Pension
Reform Act.
6.17 LABOR RELATIONS. The employees of the Borrower are not a party to any
collective bargaining agreement with the Borrower, and, to the best knowledge of
the Borrower and its officers, there are no material grievances, disputes or
controversies with any union or any other organization of the Borrower's
employees, or threats of strikes, work stoppages or any asserted pending demands
for collective bargaining by any union or organization.
6.18 RESORT.
(a) TIMESHARE PLAN. Each Resort has been established and dedicated,
and is and will remain, a time-share plan and project in full compliance
with all applicable laws and regulations, including without limitation, the
Timeshare Act.
(b) ACCESS. Each Resort has direct access to a publicly dedicated road
and all roadways inside each Resort are subject to an access and use
easement or other dedication or provision that benefits and will continue
to benefit all Purchasers.
(c) UTILITIES. Electric, sanitary and stormwater sewer, telephone,
water facilities and other necessary utilities are available in sufficient
capacity to service each Resort and any easements necessary to the
furnishing of such utility services have been obtained and duly recorded,
and inure to the benefit of each Resort and each Timeshare Owners'
Association.
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(d) AMENITIES. Each Purchaser of an Interval has and will have access
to and the full use and enjoyment of all of the Common Elements and public
utilities of the Resort in which such interval is located, all in
accordance with the Declaration and Timeshare Documents.
(e) CONSTRUCTION. 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 Resorts have been paid or will be paid when due.
(f) SALE OF INTERVALS. The marketing, sale, offering of sale, rental,
solicitation of Purchasers or, if applicable, lessees, and financing of
Intervals in the Resort (1) do not constitute the sale, or the offering of
sale, of Securities subject to the registration requirements of the
Securities Act of 1933, as amended, or any state securities law; (2) do not
violate the Timeshare Act or any land sales or consumer protection law,
statute or regulation of state 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 state 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 of Borrower, all of whom are and shall be properly
licensed in accordance with applicable laws.
(g) TANGIBLE PROPERTY. Except for specific items which may be owned by
independent contractors, the machinery, equipment, fixtures, tools and
supplies used in connection with the Resort, including without limitation,
with respect to the operations and maintenance of the Common Elements, are
owned either by the Borrower or the applicable Timeshare Owners'
Association.
(h) OPERATING CONTRACTS. The Borrower has entered into the contracts,
agreements, and arrangements necessary, in Lender's reasonable judgement,
for the operation of the Resorts, including but not limited to those with
respect to utilities, maintenance, management, services, marketing and
sales (hereinbelow defined as "Operating Contracts").
6.19 TIMESHARE REGIMEN REPORTS. The Borrower has furnished to the Lender
true and correct copies of the Timeshare Documents listed on SCHEDULE 6.19,
which consist of all those placed on file by the Borrower with the Divisions or
any 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 Resorts, including
without limitation, the Units, Intervals, and all appurtenant Common Elements,
and all related use and access rights, have been done or obtained and all laws,
regulations and statutes, and all agreements or arrangements, in connection
therewith have been complied with.
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6.20 OPERATING CONTRACTS. The contracts, agreements and arrangements
necessary, in Lender's reasonable judgement, to the operation of the Resorts,
including without limitation, with respect to utilities, maintenance,
management, services, marketing and sales under which the fees to be paid equal
or exceed $50,000.00 (collectively, all such agreements and arrangements
referred to herein as the "Operating Contracts") are unmodified and in full
force and effect and shall remain free and clear of any Lien.
6.21 ARCHITECTURAL AND ENVIRONMENTAL CONTROL. All Units, Common Elements
and other improvements at, upon or appurtenant to the Resort are and will be in
compliance with the design, use, architectural and environmental control
provisions, if any, set forth in the Declaration.
6.22 TAX IDENTIFICATION/SOCIAL SECURITY NUMBERS. The Borrower's federal
taxpayer's identification number is: 75-2259890.
6.23 INVENTORY CONTROL PROCEDURES. Borrower has provided to Lender a true
and complete copy of the Borrower's Inventory, Sales and Assignments procedures
(the "Inventory Control Procedures"), a copy of which is attached hereto as
Schedule 6.23.
SECTION 7 -- COVENANTS
7.1 AFFIRMATIVE COVENANTS. So long as any portion of the Obligations
remains unsatisfied, Borrower hereby covenants and agrees with Lender as
follows:
(a) PAYMENT AND PERFORMANCE OF OBLIGATIONS. Borrower shall pay all of
the Loan and related expenses when and as the same become due and payable,
and Borrower shall strictly observe and perform all of the Obligations,
including without limitation, all covenants, agreements, terms, conditions
and limitations contained in the Loan Documents, and will do all things
necessary which are not prohibited by law to prevent the occurrence of any
Event of Default hereunder; and the Borrower will maintain an office or
agency in the State of Texas where notices, presentations and demands in
respect of the Loan Documents may be made upon the Borrower. Such office or
agency and the books and records of the Borrower shall be maintained at
1221 Riverbend Drive, Suite 120, Dallas, Texas 75221 until such time as the
Borrower shall so notify the Lender, in writing, of any change of location
of such office or agency.
(b) MAINTENANCE OF EXISTENCE, QUALIFICATION AND ASSETS. Borrower shall
at all times (i) maintain its legal existence, (ii) maintain its
qualification to transact business and good standing in any state and in
any jurisdiction where it conducts business in
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connection with the Resort, and (iii) comply or cause compliance with all
governmental laws, rules, regulations and ordinances applicable to the
Resort, the Borrower or its business, including, without limitation, the
Timeshare Act.
(c) CONSOLIDATION AND MERGER. Borrower will not consolidate with or
merge into any other Person or permit any other Person to consolidate with
or merge into it, unless: (i) Borrower is the continuing or surviving
corporation in any such consolidation or merger and (ii) prior to and
immediately after such consolidation or merger, Borrower shall not be in
default hereunder.
(d) MAINTENANCE OF INSURANCE. The Borrower, or if required pursuant to
the Declaration, the Timeshare Owners' Association, shall maintain (or the
Borrower shall cause to be maintained) at all times during the term of this
Agreement, policies of insurance with premiums being paid when due, and
shall deliver to Lender originals of insurance policies issued by insurance
companies, in amounts, in form and in substance, and with expiration dates,
all acceptable to Lender and containing a waiver of subrogation rights by
the insuring company, a non-contributory standard mortgage benefit clause,
or their equivalents, and a mortgagee loss payable endorsement in favor of
and satisfactory to Lender on behalf of Lender, and breach of warranty
coverage, providing the following types of insurance on and with respect to
the Borrower (or, as appropriate, the respective Associations) and the
Resort:
(i) Fire and extended coverage insurance (including lightning,
hurricane, tornado, wind and water damage, vandalism and malicious
mischief coverage) covering the improvements at the Resort and any
personal property located in or on the Resort, in an amount not less
than the full replacement value of such improvements and personal
property, and said policy of insurance shall provide for a deductible
acceptable to Lender, breach of warranty coverage, replacement cost
endorsements satisfactory to Lender, and shall not permit
co-insurance;
(ii) Public liability and property damage insurance covering the
Resort in amounts and on terms satisfactory to Lender; and
(iii) Such other insurance on the Resort or any replacements or
substitutions therefor including, without limitation, flood insurance
(if the Property is or becomes located in an area which is considered
a flood risk by the U.S. Emergency Management Agency or pursuant to
the National Flood Insurance program), in such amounts and upon terms
as may from time to time be reasonably required by Lender.
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To the extent any other lender has any rights to approve the form of
insurance policies with respect to the Resort, the amounts of coverage
thereunder, the insurers under such policies, or the designation of an
attorney-in-fact for purposes of dealing with damage to any part of the
Resort or insurance claims or matters related thereto, or any successor to
such attorney-in-fact, or any changes with respect to any of the foregoing,
Borrower shall take all steps as may be necessary (and, after turnover, if
any, of control of the Resort to the Timeshare Owners' Association,
Borrower shall use its best efforts) to ensure that Lender, shall at all
times have a co-equal right, with such other lender (including, without
limitation, Borrower or any third-party lender), to approve all such
matters and any proposed changes in respect thereof; and Borrower shall not
cause or permit any changes with respect to any insurance policies,
insurers, coverage, attorney-in-fact, or insurance trustee, if any, without
Lender's prior written approval.
In the event of any insured loss or claim in respect of the Resort,
Borrower shall apply (or cause to be applied), and Borrower covenants that
the Timeshare Owners' Association shall apply (or cause to be applied), all
proceeds of such insurance policies in a manner consistent with the
Timeshare Documents and the Timeshare Act.
All insurance policies required pursuant to this Agreement (or the
Timeshare Documents or Timeshare Act) shall provide that the coverage
afforded thereby shall not expire or be amended, canceled, modified or
terminated without at least thirty (30) days prior written notice to
Lender. At least thirty (30) days prior to the expiration date of each
policy maintained pursuant to this Section 7.1(d), a renewal or replacement
thereof satisfactory to Lender shall be delivered to Lender. Borrower shall
deliver or cause to be delivered to Lender receipts evidencing the payment
for all such insurance policies and renewals or replacements.
In the event of any fire or other casualty to or with respect to the
improvements on or at the Resort, Borrower covenants that Borrower or the
Timeshare Owners' Association, as the case may be, will promptly restore or
repair (or cause to be restored, repaired or replaced) the damaged
improvements and repair or replace any other personal property to the same
condition as immediately prior to such fire or other casualty and, with
respect to the improvements and personal property on the Resort, in
accordance with the terms of the Timeshare Documents or Timeshare Act. The
insufficiency of any net insurance proceeds shall in no way relieve the
Borrower or, as applicable, Borrower and Timeshare Owners' Association, of
its obligation to restore, repair or replace such improvements and other
personal property in accordance with the terms hereof, of the Declaration
or other Timeshare Documents or of the Timeshare Act, and Borrower
covenants that Borrower or, as the case may be, the Timeshare Owners'
Association, shall promptly comply and cause compliance with the provisions
of the Declaration and other
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Timeshare Documents, or of the Timeshare Act relating to such restoration,
repair or replacement. In Lender's sole discretion, all insurance proceeds
payable to or received by Lender pursuant to the Declaration or the
applicable policies may be applied to the payment of the Obligations,
whether or not due and in whatever order Lender elects.
(e) MAINTENANCE OF SECURITY. Borrower shall execute and deliver (or
cause to be executed and delivered) to Lender all security agreements,
financing statements, assignments and such other agreements, documents,
instruments and certificates, and supplements and amendments thereto, and
take such other actions, as Lender deems necessary or appropriate in order
to maintain as valid, enforceable and perfected first priority liens and
security interests, all Liens and security interests in the Collateral
granted to Lender to secure the Obligations. The Borrower shall not grant
extensions of time for the payment of, compromise for less than the full
face value or release in whole or in part, any Purchaser or other Person
liable for the payment of, or allow any credit whatsoever except for the
amount of cash to be paid upon, any Collateral or any instrument, chattel
paper or document representing the Collateral.
(f) PAYMENT OF TAXES AND CLAIMS. Borrower will pay, and, as applicable
pursuant to the Declaration, Borrower covenants that the Timeshare Owners'
Association will pay, when due, all taxes imposed upon the Resort, the
Collateral, the Borrower, the Timeshare Owners' Association, or any of its
or their property, or with respect to any of its or their franchises,
businesses, income or profits, or with respect to the Loan or any of the
Loan Documents; and Borrower and the Timeshare Owners' Association, as the
case may be, shall pay all other charges and assessments against Borrower,
the Collateral and the Resort before any claim (including, without
limitation, claims for labor, services, materials and supplies) arises for
sums which have become due and payable. Except for the Liens in connection
with the Existing Credit Facility and the Additional Credit Facility and
the Liens in favor of Lender granted pursuant to the Loan Documents, and
except as otherwise specifically provided for herein, Borrower covenants
that no statutory or other Liens whatsoever (including, without limitation,
mechanics', materialmens', judgment or tax liens) shall attach to any of
the Collateral or the Resort except for such Liens as are expressly
provided for pursuant to the Declaration, which shall, in any event, be
subordinate to the Lien of Lender. In the event any such Lien attaches to
any of the Collateral or the Resort Borrower shall, within thirty (30) days
after any such Lien attaches, either (i) cause such Lien to be released of
record or (ii) provide Lender with a bond in accordance with the applicable
laws of the State, issued by a corporate surety acceptable to Lender, in an
amount and form acceptable to Lender.
(g) INSPECTIONS. Borrower shall, at any time and from time to time and
at the expense of Borrower, permit Lender or its agents or representatives
to inspect the Resort, the Collateral and if necessary, in Lender's
opinion, to ascertain or assure Borrower's
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compliance with the terms of this Agreement, any of the Borrower's other
assets or Property, and to examine and make copies of and abstracts from
its and, to the extent it has access thereto or possession thereof, the
Timeshare Owners' Association's, books, accounts, records, original
correspondence, computer tapes, disks, software, and other papers as it may
desire; and to discuss its affairs, finances and accounts with any of its
officers, employees, Affiliates, contractors or independent public
accountants (and by this provision Borrower authorizes said accountants to
discuss with Lender, its agents or representatives, the affairs, finances
and accounts of Borrower). Lender agrees to use reasonable efforts not to
unreasonably interfere with Borrower's business operations in connection
with any such inspections.
(h) REPORTING REQUIREMENTS. So long as any portion of the Obligations
remain unsatisfied, Borrower shall furnish (or cause to be furnished, as
the case may be) to Lender the following:
(i) SALES REPORTS. Borrower shall deliver to Lender monthly,
quarterly and annually, a sales report, detailing the sales of all
Intervals at the Resorts for the period covered thereby, certified by
Borrower to be true, correct and complete and otherwise in a form
approved by Lender;
(ii) FINANCIAL REPORTS. Borrower shall deliver to Lender each of
the monthly, quarterly and annual financial reports, together with
audit reports and officer's certificates, as required under Section
7.1(h) of the loan agreements evidencing and securing the Additional
Credit Facility and the Existing Credit Facility. This requirement
shall survive the payment in full by the Borrower of any obligations
due or owing under either the Additional Credit Facility or the
Existing Credit Facility or the assignment by Lender of its rights
under the Additional Credit Facility or the Existing Credit Facility.
(iii) NOTICE OF DEFAULT OR EVENT OF DEFAULT. Immediately upon
becoming aware of the existence of any condition or event which
constitutes a Default or an Event of Default, a written notice
specifying the nature and period of existence thereof and what action
the Borrower is taking or proposes to take with respect thereto;
(iv) NOTICE OF CLAIMED DEFAULT. Immediately upon becoming aware
that the holder of any material obligation or of any evidence of
material indebtedness of the Borrower has given notice or taken any
other action with respect to a claimed default or event of default
thereunder, a written notice specifying the notice given or action
taken by such holder and the nature of the claimed default or event of
default and what action the Borrower is taking or proposes to take
with respect thereto;
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(v) MAINTENANCE OF INVENTORY CONTROL. Borrower shall maintain and
at all times fully comply with the Inventory Control Procedures from
the date hereof until the Loan is repaid in full. Borrower shall
permit Lender, its officers, employees, auditors, and other agents or
designees to review the books and records of Borrower and make such
other examinations and inspections as Lender in its sole discretion
deems necessary to determine that Borrower is in full compliance with
such Inventory Control Procedures.
(vi) MATERIAL ADVERSE DEVELOPMENTS. Immediately upon becoming
aware of any claim, action, proceeding, development or other
information which may materially and adversely affect the Borrower,
the Collateral, the Resort, or the business, prospects, profits or
condition (financial or otherwise) of the Borrower or the ability of
the Borrower to perform its Obligations under the Agreement, Borrower
shall provide Lender with telephonic or telegraphic notice, followed
by telefaxed and mailed written confirmation, specifying the nature of
such development or information and such anticipated effect.
(i) RECORDS. Borrower shall keep adequate records and books of account
reflecting all financial transactions of Borrower and with respect to the
Resort in which complete entries will be made in accordance with GAAP. In
addition, Borrower shall keep, and shall promptly deliver to Lender upon
Lender's request therefore, complete, timely and accurate records of all
sales of Intervals.
(j) MANAGEMENT. Borrower shall: (i) remain engaged in the active
management of the Resorts, (ii) unless Borrower notifies Lender in writing
at least thirty (30) days in advance of its new location, it will retain
its executive offices at 1221 Riverbend Drive, Suite 120, Dallas, Texas
75221, and (iii) will continue to perform duties substantially similar to
those presently performed as provided in the Management Agreement relating
to each Resort.
(k) FICA. Borrower shall furnish to Lender within thirty (30) days
after the expiration of each calendar quarter proof reasonably satisfactory
to Lender that Borrower's obligations to make deposits for F.I.C.A., social
security and withholding taxes have been satisfied.
(l) OPERATING CONTRACTS. Subject to the rights of the Timeshare
Owners' Association as set forth in the Timeshare Documents, no Operating
Contract shall be modified, extended, terminated or entered into, without
the prior written approval of
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Lender, if any such modification, extension, termination or new agreement
could have an adverse impact on the operation of the Resort or the
Collateral.
(m) NOTICES. Borrower shall notify Lender within five (5) Business
Days of the occurrence of any event (i) as a result of which any
representation or warranty of Borrower contained in any Loan Documents
would be incorrect or materially misleading if made at that time, or (ii)
as a result of which Borrower is not in full compliance with all of its
covenants and agreements contained in this Agreement or any Loan Document,
or (iii) which constitutes or, with the passage of time, notice or a
determination by Lender would constitute, an Event of Default.
(n) MAINTENANCE. Borrower shall maintain, or shall cause to be
maintained, or to the extent provided for pursuant to the Declaration,
shall use its best efforts to cause the Timeshare Owners' Association to
maintain, the Resort in good repair, working order and condition and shall
make all necessary replacements and improvements to the Resort so that the
value and operating efficiency of the Resort will be maintained at all
times and so that the Resort remains in compliance in all respects with the
Timeshare Act, the Timeshare Documents and other applicable law.
(o) CLAIMS. Borrower shall promptly notify Lender of any claim, action
or proceeding affecting the Resort or Collateral, or any part thereof, or
Lender, or any of the security interests or rights granted in favor of
Lender hereunder or under any of the Loan Documents. At the request of
Lender, Borrower shall appear in and defend in favor of Lender, at
Borrower's sole expense, with regard to any such claim, action or
proceeding.
(p) REGISTRATION AND REGULATIONS.
(i) LOCAL LEGAL COMPLIANCE. The Borrower will comply, and will
cause the Resort to comply, with all applicable servitudes,
restrictive covenants, applicable planning, zoning or land use
ordinances and building codes, all applicable health and Environmental
Laws and regulations, and all other applicable laws, rules,
regulations, agreements or arrangements.
(ii) REGISTRATION COMPLIANCE. The Borrower will maintain, or
cause to be maintained, all necessary registrations, current filings,
consents, franchises, approvals, and exemption certificates, and the
Borrower will make or pay, or cause to be made or paid, all
registrations, declarations or fees with the Division and any other
government or any agency or department thereof, whether in the state
or another jurisdiction, required in connection with the Resort and
the occupancy, use and operation thereof, the incorporation of Units
into the time-share plan established
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pursuant to the Declaration and the other Timeshare Documents, and the
sale, advertising, marketing, and offering for sale of Intervals. All
such registrations, filings and reports will be truthfully completed;
and true and complete copies of such registrations, applications,
consents, licenses, permits, franchises, approvals, exemption
certificates, filings and reports will be delivered to the Lender.
Borrower shall advise Lender of any changes with respect to its
marketing or sales programs in any jurisdiction, including
jurisdictions other than the state, and at Lender's request from time
to time, Borrower shall deliver to Lender: (A) written statements by
the applicable state authorities, in form acceptable to Lender,
stating that no registration is necessary for the sale of Intervals in
the particular state, (B) an opinion of counsel in form acceptable to
Lender and rendered by counsel acceptable to Lender, stating that no
such registration is necessary, or (C) such other evidence of
compliance with applicable laws as Lender may require; and
(iii) OTHER COMPLIANCE. The Borrower has, in all material
respects, complied with and will comply with all laws and regulations
of the United States, the State of Texas, the each state in which an
applicable Resort is located, any political subdivision of either such
state and any other governmental, quasi-governmental or administrative
jurisdiction in which Intervals have been 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: (1) the Timeshare Act; (2) the
Consumer Credit Protection Act; (3) Regulation Z of the Federal
Reserve Board; (4) the Equal Credit Opportunity Act; (5) Regulation B
of the Federal Reserve Board; (6) the Federal Trade Commission's 3-day
cooling-off Rule for Door-to-Door Sales; (7) Section 5 of the Federal
Trade Commission Act; (8) ILSA; (9) federal postal laws; (10)
applicable state and federal securities laws; (11) applicable usury
laws; (12) applicable trade practices, home and telephone
solicitation, sweepstakes, anti-lottery and consumer credit and
protection laws; (13) applicable real estate sales licensing,
disclosure, reporting and escrow laws; (14) the ADA; (15) RESPA; (16)
all amendments to and rules and regulations promulgated under the
foregoing acts or laws; and (17) other applicable federal statutes and
the rules and regulations promulgated thereunder; and (18) 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.
(r) OTHER DOCUMENTS. The Borrower will maintain to the satisfaction of
the Lender, and make available to Lender, accurate and complete files
relating to the Resort, the Pledged Notes Receivable and other Collateral,
and such files will contain true copies of each Pledged Note Receivable, as
amended from time to time, copies of all relevant credit
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memoranda relating to such Notes Receivable and all collection information
and correspondence relating thereto.
(s) FURTHER ASSURANCES. Borrower will execute and deliver, or cause to
be executed and delivered, such other and further agreements, documents,
instruments, certificates and assurances as, in the judgment of Lender
exercised in good faith may be necessary or appropriate to more effectively
evidence or secure, and to ensure the performance of, the Obligations. In
addition, Borrower shall deliver to Lender from time to time upon each
request by Lender such documents, instruments or other matters or items as
Lender may require to evidence Borrower's compliance with the covenants set
forth in this Section 7.1.
(t) UTILITIES. The Borrower will cause, or to the extent provided for
pursuant to the Declaration, covenants to use its best efforts to ensure
that the Timeshare Owners' Association, or the manager of the Resort, as
applicable, 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
service the Resort.
(u) AMENITIES. The Borrower will cause, or to the extent provided for
pursuant to the Declarations, will use its best efforts to ensure that the
Timeshare Owners' Association, or the manager of the Resort, as applicable,
will cause, the Resort to be maintained in good condition and repair, and
in accordance with the provisions of the applicable Timeshare Documents,
and the Borrower will cause each Purchaser of an Interval at the Resort to
have continuing access to, and the use of, to the extent of such
Purchaser's time-share periods, all of the Common Elements and related or
appurtenant services, rights and benefits, all as provided in the
Declaration and the Timeshare Documents.
(v) EXPENSES AND CLOSING FEES. Whether or not the transactions
contemplated hereunder are completed, the Borrower shall pay all expenses
of the Lender relating to negotiating, preparing, documenting, closing and
enforcing this Agreement, including, but not limited to:
(i) the cost of preparing, reproducing and binding this
Agreement, the other Loan Documents and all Exhibits and Schedules
thereto;
(ii) the fees and disbursements of Lender's counsel;
(iii) Lender's out-of-pocket expenses;
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(iv) all fees and expenses (including fees and expenses of the
Lender's counsel) relating to any amendments, waivers, consents or
subsequent closings pursuant to the provisions hereof;
(v) all costs, outlays, legal fees and expenses of every kind and
character had or incurred in (1) the interpretation or enforcement of
any of the provisions of, or the creation, preservation or exercise of
rights and remedies under, any of the Loan Documents including the
costs of appeal (2) the preparation for, negotiations regarding,
consultations concerning, or the defense or prosecution of legal
proceedings involving any claim or claims made or threatened against
the Lender arising out of this transaction or the protection of the
Collateral securing the Loan or Advances made hereunder, expressly
including, without limitation, the defense by Lender of any legal
proceedings instituted or threatened by any Person to seek to recover
or set aside any payment or setoff theretofore received or applied by
the Lender with respect to the Obligations, and any and all appeals
thereof; and (3) the advancement of any expenses provided for under
any of the Loan Documents;
(vi) all expenses relating to the maintenance and administration
of any other escrow agent;
(vii) all costs and expenses incurred by Lender under the Note,
and all late charges under the Note; and
(viii) all real and personal property taxes and assessments,
documentary stamp and intangible taxes, sales taxes, recording fees,
title insurance premiums and other title charges, document copying,
transmittal and binding costs, appraisal fees, lien and judgment
search costs, fees of architects, engineers, environmental
consultants, surveyors and any special consultants, construction
inspection fees, brokers fees, escrow fees, wire transfer fees, and
all travel and out-of-pocket expenses of Lender to conduct inspections
or audits; Without limitation of the foregoing, Borrower shall pay the
costs of UCC and other searches, UCC and other Loan Document recording
fees and applicable taxes, and premiums on each Mortgagee Policy of
Title Insurance delivered to Lender pursuant to this Agreement.
(w) INDEMNIFICATION OF LENDER. In addition to (and not in lieu of) any
other provisions of any Loan Document providing for indemnification in
favor of the Lender, the Borrower shall defend, indemnify and hold harmless
Lender, its subsidiaries, affiliates, officers, directors, agents,
employees, representatives, consultants, contractors, servants, and
attorneys, as well as the respective heirs, personal representatives,
successors or assigns of any or all of them (hereafter collectively the
"Indemnified Lender Parties"), from and
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against, and promptly pay on demand or reimburse each of them with respect
to, any and all liabilities, claims, demands, losses, damages, costs and
expenses (including without limitation, reasonable attorneys' and
paralegals' fees and costs), actions or causes of action of any and every
kind or nature whatsoever asserted against or incurred by any of them by
reason of or arising out of or in any way related or attributable to (i)
this Agreement, the Loan Documents, the Loan or the Collateral; (ii) the
transactions contemplated under any of the Loan Documents or any of the
Timeshare Documents, including without limitation, those in any way
relating to or arising out of the violation of any federal or state laws,
including the Timeshare Act; (iii) any breach of any covenant or agreement
or the incorrectness or inaccuracy of any representation and warranty of
the Borrower contained in this Agreement or any of the Loan Documents
(including without limitation any certification of the Borrower delivered
to a Lender; (iv) any and all taxes, including real estate, personal
property, sales, mortgage, excise, intangible or transfer taxes, and any
and all fees or charges, including, without limitation under the Timeshare
Act, which may at any time arise or become due prior to the payment,
performance and discharge in full of the Obligations; (v) the breach of any
representation or warranty as set forth herein regarding any Environmental
Laws; (vi) the failure of Borrower to perform any obligation or covenant
herein required to be performed pursuant to any Environmental Laws; (vii)
the use, generation, storage, release, threatened release, discharge,
disposal or presence on, under or about the Resort of any Hazardous
Materials; (viii) the removal or remediation of any Hazardous Materials
from the Resort required to be performed pursuant to any Environmental Laws
or as a result of recommendations of any environmental consultant or as
required by Lender; (ix) claims asserted by any Person (including without
limitation any governmental or quasi-governmental agency, commission,
department, instrumentality or body, court, arbitrator or administrative
board (collectively, a "Governmental Agency"), in connection with or any in
any way arising out of the presence, use, storage, disposal, generation,
transportation, release, or treatment of any Hazardous Materials on, in,
under or affecting the Resort; (x) the violation or claimed violation of
any Environmental Laws in regard to the Resort; or (xi) the preparation of
an environmental audit or report on the Resort, whether conducted by
Lender, Borrower or a third-party, or the implementation of environmental
audit recommendations. Such indemnification shall not give Borrower any
right to participate in the selection of counsel for Lender or the conduct
or settlement of any dispute or proceeding for which indemnification may be
claimed. Lender agrees to give Borrower written notice of the assertion of
any claim or the commencement of any action or lawsuit described in this
Section. It is the express intention of the parties hereto that the
indemnity provided for in this Section, as well as the disclaimers of
liability referred to in this Agreement, are intended to and shall protect
and indemnify Lender from the consequences of Lender's own negligence,
whether or not that negligence is the sole or concurring cause of any
liability, obligation. loss, damage, penalty, action, judgment, suit,
claim, cost, expense or disbursement provided, however, that Borrower shall
not be
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required to protect and indemnify Lender from the consequences of Lender's
gross negligence, where that gross negligence is the sole cause of the
liability, obligation, loss, damage, penalty, action, judgment, suit,
claim, cost, expense or disbursement for which indemnification or
protection would otherwise be required. The provisions of this Section
shall survive the full payment, performance and discharge of the
Obligations and the termination of this Agreement, and shall continue
thereafter in full force and effect.
7.2 NEGATIVE COVENANTS. So long as any portion of the Obligations remain
unsatisfied, Borrower hereby covenants and agrees with Lender as follows:
(a) LIMITATION ON OTHER DEBT/FURTHER ENCUMBRANCES. Without the prior
written consent of Lender which may be granted, withheld or conditioned in
Lender's sole discretion, Borrower will not obtain financing or grant liens
with respect to the Collateral. Provided that such financing is in the
ordinary course of Borrower's business, Borrower may, however, obtain arms
length financing in a manner consistent with Lender's rights under this
Agreement with respect to any Units or Intervals, the Resorts or any
Properties used in connection with the Resorts (whether now existing or
created hereafter) other than those included among the Collateral.
(b) RESTRICTIONS ON TRANSFERS. Except as hereinafter specifically
provided, Borrower shall not, whether voluntarily or involuntarily, by
operation of law or otherwise, (i) without obtaining the prior written
consent of Lender (which consent may be given, withheld or conditioned by
Lender in Lender's sole discretion), transfer, sell, pledge, convey,
hypothecate, factor or assign all or any portion of the Collateral, the
Encumbered Intervals, the Common Elements relating to the Inventory or any
Resort facilities or amenities, or contract to do any of the foregoing,
including, without limitation, pursuant to options to purchase, and
so-called "installment sales contracts", "land contracts", or "contracts
for deed", (ii) without obtaining the prior written consent of Lender
(which consent may be given, withheld or conditioned by Lender in Lender's
sole discretion), lease or license all or any portion of the Collateral,
the Inventory, the Common Elements relating to the Inventory or any Resort
facilities or amenities, or change the legal or actual possession or use
thereof, (iii) permit the assignment, transfer, delegation, change,
modification or diminution of the duties or responsibilities of Borrower,
of any manager of the Resort approved by Lender as manager of the Resort
(except for an assignment of such duties to a professional management
company or companies reasonably acceptable to Lender in advance) without
obtaining the prior written consent of Lender (which consent shall not be
unreasonably withheld), or (iv) without obtaining the prior written consent
of Lender (which consent may be given, withheld or conditioned by Lender in
Lender's sole discretion), cause or permit the assignment, pledge or other
encumbrance of any of the Operating Contracts or all or any portion of
Borrower's right, title or interest in the
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Declaration. Without limiting the generality of the preceding sentence, and
subject to the terms of this Agreement, the prior written consent of Lender
(as specified above) shall be required for (A) any transfer of the
Inventory, the Common Elements relating to the Inventory or any Resort
facilities or amenities or any part thereof made to a subsidiary or
Affiliate or otherwise, (B) any transfer of all or any part of the
Inventory, the Common Elements relating to the Inventory or any Resort
facilities or amenities by Borrower to its stockholders or Affiliates or
vice versa, and (C) any corporate merger or consolidation, disposition or
other reorganization, except as permitted in Section 7.1(c) hereof. In the
event that Lender is willing to consent to a transfer which would otherwise
be prohibited by this Section 7.2(b) Lender may condition its consent on
such terms as it desires, including, without limitation, an increase in the
Interest Rate and the requirement that Borrower pay a transfer fee,
together with any expenses incurred by Lender in connection with the
granting of such consent (including, without limitation, attorneys' fees
and expenses). If Borrower violates the terms of this Section 7.2(b), in
addition to any other rights or remedies which Lender may have herein, in
any other Loan Document, or at law or in equity, Lender may by written
notice to Borrower increase, effective immediately as of the date of such
violation, the Interest Rate to the Default Rate.
(c) USE OF A LENDER'S NAME. Borrower will not, and will not permit any
Affiliate to, without the prior written consent of Lender, use the name of
Lender or the name of any affiliate of Lender in connection with any of
their respective businesses or activities, except in connection with
internal business matters and as required in dealings with governmental
agencies.
(d) TRANSACTIONS WITH AFFILIATES. Without the prior written consent of
Lender, which shall not unreasonably be withheld, Borrower will not enter
into any transaction with any Affiliate in connection with the Resorts,
including, without limitation, relating to the purchase, sale or exchange
any assets or properties or the rendering of any service, except in the
ordinary course of, and pursuant to the reasonable requirements of, the
operations of the Resorts and upon fair and reasonable terms.
(e) RESTRICTIVE COVENANTS. Borrower will not without Lender's prior
written consent seek, consent to, or otherwise acquiesce in, any change in
any private restrictive covenant, planning or zoning law or other public or
private restriction, which would limit or alter the use of the Resort.
(f) SUBORDINATED OBLIGATIONS. Borrower will not, directly or
indirectly, (i) permit any payment to be made in respect of any
indebtedness, liabilities or obligations, direct or contingent, (the
"Subordinated Debt") to any of its shareholders or their affiliates or
which are subordinated by the terms thereof or by separate instrument to
the payment of
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principal of, and interest on, the Note, except that the Borrower may make
and the Subordinated Lender may receive, accept and retain such payments so
long as no Default or Event of Default under, and as defined, in the Loan
Agreement shall have occurred and be continuing and such payments are in
respect of regularly scheduled payments of principal and/or interest under
the Subordinated Debt (the terms of which regularly scheduled payments
shall have previously been approved, in writing by the Lender in its sole
discretion) provided that in no case may the Borrower make, or the
Subordinated Lender accept, a prepayment of any principal and/or interest
in respect of the Subordinated Debt, (ii) permit the amendment, rescission
or other modification of any such subordination provisions of any of the
Borrower's subordinated obligations in such a manner as to affect adversely
the Lien in and to the Collateral or Lender's senior priority position and
entitlement as to payment and rights with respect to the Note and the
Obligations, or (iii) permit the prepayment or redemption, except for
mandatory prepayments, of all or any part of Borrower's obligations to its
shareholders, or of any subordinated obligations of the Borrower except in
accordance with the terms of such subordination.
(g) TIMESHARE REGIME. Without Lender's prior written consent, Borrower
shall not amend, modify or terminate the Declarations or other Timeshare
Documents, or any other restrictive covenants, agreements or easements
regarding the Resorts (except for routine non-substantive modifications
which have no impact on the Collateral); nor shall Borrower assign its
rights as "developer" under the Declarations without Lender's prior written
consent, or file or permit to be filed any additional covenants,
conditions, easements or restrictions against or affecting the Resorts (or
any portion thereof) without Lender's prior written consent, which consent
shall not be unreasonably withheld.
(h) NAME CHANGE. Borrower will not change its name.
(i) COLLATERAL. Borrower shall not take any action (nor permit or
consent to the taking of any action) which might impair the value of the
Collateral or any of the rights of the Lenders in the Collateral, nor shall
Borrower cause or permit any amendment to or modification of the Timeshare
Documents.
(j) MARKETING/SALES. 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 Timeshare Act and applicable laws in state
and other jurisdictions where marketing, sales or solicitation activities
occur.
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SECTION 8 -- EVENTS OF DEFAULT
8.1 NATURE OF EVENTS. An "Event of Default" shall exist if any of the
following shall occur:
(a) PAYMENTS. If Borrower shall fail to make, as and when due, any
payment or mandatory prepayment of principal, interest, fees or other
amounts with respect to the Loan and such failure shall continue for five
(5) days after notice of such failure is provided by Lender.
(b) COVENANT DEFAULTS. If Borrower shall fail to perform or observe
any covenant, agreement or warranty contained in this Agreement or in any
of the Loan Documents, (other than with respect to the failure to make
timely payments in respect of the Loan as provided in Section 8.1(a) or
violation of any negative covenants in Section 7.2) and, such failure shall
continue for fifteen (15) days after notice of such failure is provided by
Lender, provided however, that if Borrower commences to cure such failure
within such 15 day period, but, because of the nature of such failure, cure
cannot be completed within 15 days notwithstanding diligent effort to do
so, then, provided Borrower diligently seeks to complete such cure, an
Event of Default shall not result unless such failure continues for a total
of thirty (30) days.
(c) WARRANTIES OR REPRESENTATIONS. If any representation or other
statement made by or on behalf of Borrower in this Agreement, in any of the
Loan Documents or in any instrument furnished in compliance with or in
reference to the Loan Documents, is false, misleading or incorrect in any
material respect as of the date made or reaffirmed.
(d) ENFORCEABILITY OF LIENS. If any lien or security interest granted
by Borrower to the Lenders in connection with the Loan is or becomes
invalid or unenforceable or is not, or ceases to be, a perfected first
priority lien or security interest in favor of the Lender encumbering the
asset to which it is intended to encumber, and Borrower fails to cause such
lien or security interest to become a valid, enforceable, first and prior
lien or security interest in a manner satisfactory to Lender within ten
(10) days after Lender delivers written notice thereof to Borrower.
(e) INVOLUNTARY PROCEEDINGS. If a case is commenced or a petition is
filed against Borrower under any Debtor Relief Law; a receiver, liquidator
or trustee of Borrower or of any material asset of Borrower is appointed by
court order and such order remains in effect for more than forty-five (45)
days; or if any material asset of Borrower is sequestered by court order
and such order remains in effect for more than forty-five (45) days.
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(f) PROCEEDINGS. If Borrower voluntarily seek, consent to or acquiesce
in the benefit of any provision of any Debtor Relief Law, whether now or
hereafter in effect; consent to the filing of any petition against it under
such law; make an assignment for the benefit of its creditors; admit in
writing its inability to pay its debts generally as they become due; or
consents or suffers to the appointment of a receiver, trustee, liquidator
or conservator for it, him or her or any part of its, his or her assets.
(g) ATTACHMENT, JUDGMENT, TAX LIENS. The issuance, filing, levy or
seizure against the Collateral, or, with respect to the Resort or the
Obligations, against the Borrower of one or more attachments, injunctions,
executions, tax liens or judgments for the payment of money cumulatively in
excess of $100,000, which is not discharged in full or stayed within thirty
(30) days after issuance or filing.
(h) TIMESHARE DOCUMENTS. If the Declaration, any of the other
documents creating or governing the Resort, its timeshare regime, or the
Timeshare Owners' Association, or the restrictive covenants with respect to
the Resort, shall be terminated, amended or modified without Lender's prior
written consent (except for routine non-substantive modifications which
have no impact on the Collateral).
(i) REMOVAL OF COLLATERAL. If Borrower conceals, removes, transfers,
conveys, assigns or permits to be concealed, removed, transferred, conveyed
or assigned, any of the Collateral in violation of the terms of the Loan
Documents or with the intent to hinder, delay or defraud its creditors or
any of them including, without limitation, Lender.
(j) OTHER DEFAULTS. If a material default shall occur in any of the
covenants or Obligations set forth in any of the Loan Documents.
(k) MATERIAL ADVERSE CHANGE. Any material adverse change in the
financial condition of the Borrower in the condition of the Collateral. For
purposes of this provision, a decline in the net worth of the Borrower of
$100,000.00 or less shall not be considered a material adverse change.
(l) DEFAULT BY BORROWER IN OTHER AGREEMENTS. Any default by the
Borrower (i) in the payment of any indebtedness to Lender, including any
indebtedness under the Existing Credit Facility or the Additional Credit
Facility, (ii) in the payment or performance of other indebtedness for
borrowed money or obligations secured by any part of the Resort; or (iii)
in the payment or performance of other material indebtedness or obligations
(material indebtedness or obligations being defined for purposes of this
provision as any indebtedness or obligation in excess of $50,000) where
such default accelerates or permits the
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acceleration (after the giving of notice or passage of time or both) of the
maturity of such indebtedness, or permits the holders of such indebtedness
to elect a majority of the board of directors of Borrower (whether or not
such default[s] have been waived by such holder).
(m) LOSS OF LICENSE. 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 the 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 the Borrower's business in the same manner as it
is being conducted at the time of such loss, revocation, failure to renew
or failure to pay.
(n) VIOLATION OF NEGATIVE COVENANTS. Borrower violates any negative
covenants set forth in Section 7.2.
SECTION 9 -- REMEDIES
9.1 REMEDIES UPON DEFAULT. Should an Event of Default occur, Lender may
take any one or more of the actions described in this Section 9, all without
notice to Borrower:
(a) ACCELERATION. Without demand or notice of any nature whatsoever,
declare the unpaid balance of the Loans, or any part thereof, immediately
due and payable, whereupon the same shall be due and payable.
(b) TERMINATION OF OBLIGATION TO MAKE ADVANCE. Terminate any
obligation of the Lender to lend under this Agreement in its entirety, or
any portion of any such commitment, to the extent Lender shall deem
appropriate, all without notice to Borrower.
(c) JUDGMENT. Reduce Lender's claim to judgment, foreclose or
otherwise enforce Lender's security interest in all or any part of the
Collateral by any available judicial or other procedure under law.
(d) SALE OF COLLATERAL. After notification, if any, provided for in
Section 9.2 below, sell or otherwise dispose of, at the office of Lender,
or elsewhere, as chosen by Lender, all or any part of the Collateral, and
any such sale or other disposition may be as a unit or in parcels, by
public or private proceedings, and by way of one or more contracts (it
being agreed that the sale of any part of the Collateral shall not exhaust
Lender's power of sale, but sales may be made from time to time until all
of the Collateral has been sold or until the Obligations have been paid in
full and fully performed), and at any such sale it shall not be necessary
to exhibit the Collateral. Borrower hereby acknowledges and agrees that a
private sale or sales of the Collateral, after notification as provided for
in Section 9.2, shall constitute a commercially reasonable disposition of
the Collateral sold at any such sale or sales, and otherwise, commercially
reasonable action on the part of the Lender.
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(e) RETENTION OF COLLATERAL. At its discretion, retain such portion of
the Collateral as shall aggregate in value to an amount equal to the
aggregate amount of the Loans, in satisfaction of the Obligations, whenever
the circumstances are such that Lender is entitled and elects to do so
under applicable law.
(f) RECEIVER. Apply by appropriate judicial proceedings for
appointment of a receiver for the Collateral, or any part thereof, and
Borrower hereby consents to any such appointment.
(g) PURCHASE OF COLLATERAL. Buy the Collateral at any public or
private sale.
(h) EXERCISE OF OTHER RIGHTS. Lender shall have all the rights and
remedies of a secured party under the Code and other legal and equitable
rights to which it may be entitled. Lender may also exercise any and all
other rights or remedies afforded by any other applicable laws or by the
Loan Documents as Lender shall deem appropriate, at law, in equity or
otherwise, including, but not limited to, the right to bring suit or other
proceeding, either for specific performance of any covenant or condition
contained in the Loan Documents or in aid of the exercise of any right or
remedy granted to Lender in the Loan Documents. Lender shall also have the
right to require the Borrower to assemble any of the Collateral not in
Lender's possession, at Borrower's expense, and make it available to Lender
at a place to be determined by Lender which is reasonably convenient to
both parties, and Lender shall have the right to take immediate possession
of all of the Collateral, and may enter the Resort or any of the premises
of Borrower or wherever the Collateral shall be located, with or without
process of law wherever the Collateral may be, and, to the extent such
premises are not the property of Lender, to keep and store the same on said
premises until sold (and if said premises be the property of Borrower,
Borrower agrees not to charge Lender for use and occupancy, rent, or
storage of the Collateral, for a period of at least ninety (90) days after
sale or disposition of the Collateral).
9.2 NOTICE OF SALE. Reasonable notification of time and place of any public
sale of the Collateral or reasonable notification of the time after which any
private sale or other intended disposition of the Collateral is to be made shall
be sent to Borrower and to any other person entitled under the Code to notice;
provided, however, that if the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender may sell or
otherwise dispose of the Collateral without notification, advertisement or other
notice of any kind. It is agreed that notice sent not less than five (5)
calendar days prior to the taking of the action to which such notice relates is
reasonable notification and notice for the purposes of this Section 9.2. Lender
shall have the right to bid at any public or private sale on its own behalf. Out
of money arising from any such
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sale, Lender shall retain an amount equal to all of its costs and charges,
including attorneys' fees for advice, counsel or other legal services or for
pursuing, reclaiming, seeking to reclaim, taking, keeping, removing, storing and
advertising such Collateral for sale, selling same and any and all other charges
and expenses in connection therewith and in satisfying any prior Liens thereon.
Any balance shall be applied upon the Obligations, and in the event of
deficiency, the Borrower shall remain liable to the Lender. In the event of any
surplus, such surplus shall be paid to the Borrower or to such other Persons as
may be legally entitled to such surplus. If, by reason of any suit or proceeding
of any kind, nature or description against the Borrower, or by the Borrower or
any other party against Lender, which in Lender's sole discretion makes it
advisable for Lender to seek counsel for the protection and preservation of its
security interest, or to defend the interest of the Lender, such expenses and
counsel fees shall be allowed to Lender and the same shall be made a further
charge and Lien upon the Collateral.
In view of the fact that federal and state securities laws may impose
certain restrictions on the methods by which a sale of Collateral comprised of
Securities may be effected after an Event of Default, Borrower agrees that upon
the occurrence or existence of an Event of Default, Lender may, from time to
time, attempt to sell all or any part of such Collateral by means of a private
placement restricting the bidding and prospective purchasers to whose who will
represent and agree that they are purchasing for investment only and not for, or
with a view to, distribution. In so doing, Lender may solicit offers to buy such
Collateral, or any part of it for cash, from a limited number of investors
deemed by Lender, in its reasonable judgment, to be responsible parties who
might be interested in purchasing the Collateral, and if Lender solicits such
offers from not less than two (2) such investors, then the acceptance by Lender
of the highest offer obtained therefrom shall be deemed to be a commercially
reasonable method of disposition of such Collateral.
9.3 APPLICATION OF COLLATERAL; TERMINATION OF AGREEMENTS. Upon the
occurrence of any Event of Default: (i) Lender may, with or without proceeding
with such sale or foreclosure or demanding payment or performance of the
Obligations, without notice, terminate Lender's further performance under this
Agreement or any other agreement or agreements between Lender and the Borrower,
without further liability or obligation by Lender; (ii) Lender, at any time,
appropriate and apply on any Obligations any and all Collateral in its
possession and (iii) Lender may apply any and all balances, credits, deposits,
accounts, reserves, indebtedness or other moneys due or owing to the Borrower
held by Lender hereunder or under any other financing agreement or otherwise,
whether accrued or not. Neither such termination, nor the termination of this
Agreement by lapse of time, the giving of notice or otherwise, shall absolve,
release or otherwise affect the liability of the Borrower in respect of
transactions prior to such termination, or affect any of the Liens, security
interests, rights, powers and remedies of the Lender, but they shall, in all
events, continue until all of the Obligations are satisfied.
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9.4 RIGHTS OF LENDER REGARDING COLLATERAL. In addition to all other rights
possessed by the Lender, Lender, at its option, may on its behalf from time to
time after there shall have occurred an Event of Default, and so long as such
Event of Default remains uncured, at its sole discretion, take the following
actions:
(a) Transfer all or any part of the Collateral into the name of Lender
or its nominee;
(b) Take control of any proceeds of any of the Collateral;
(c) Extend or renew the Loan and grant releases, compromises or
indulgences with respect to the Obligations, any portion thereof, any
extension or renewal thereof, or any security therefor, to any obligor
hereunder or thereunder; and
(d) Exchange certificates or instruments representing or evidencing
the Collateral for certificates or instruments of smaller or larger
denominations for any purpose consistent with the terms of this Agreement.
9.5 DELEGATION OF DUTIES AND RIGHTS. Lender may execute any of its duties
and/or exercise any of its rights or remedies under the Loan Documents by or
through its officers, directors, employees, attorneys, agents or other
representatives.
9.6 LENDER NOT IN CONTROL. None of the covenants or other provisions
contained in this Agreement or in any Loan Document shall give Lender the right
or power to exercise control over the affairs and/or management of Borrower.
9.7 WAIVERS. The acceptance by Lender at any time and from time to time of
partial payments of the Loan or performance of the Obligations shall not be
deemed to be a waiver of any Event of Default then existing. No waiver by Lender
of any Event of Default shall be deemed to be a waiver of any other or
subsequent Event of Default. No delay or omission by Lender in exercising any
right or remedy under the Loan Documents shall impair such right or remedy or be
construed as a waiver thereof or an acquiescence therein, nor shall any single
or partial exercise of any such right or remedy preclude other or further
exercise thereof, or the exercise of any other right or remedy under the Loan
Documents or otherwise. Further, except as otherwise expressly provided in this
Agreement or by applicable law, Borrower and each and every surety, endorser,
guarantor and other party liable for the payment or performance of all or any
portion of the Obligations, severally waive notice of the occurrence of any
Event of Default, presentment and demand for payment, protest, and notice of
protest, notice of intention to accelerate, acceleration and nonpayment, and
agree that their liability shall not be affected by any renewal or extension in
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the time of payment of the Loan, or by any release or change in any security for
the payment or performance of the Loan, regardless of the number of such
renewals, extensions, releases or changes.
9.8 CUMULATIVE RIGHTS. All rights and remedies available to the Lender
under the Loan Documents shall be cumulative of and in addition to all other
rights and remedies granted to Lender under any of the Loan Document, at law or
in equity, whether or not the Loan is due and payable and whether or not Lender
shall have instituted any suit for collection or other action in connection with
the Loan Documents.
9.9 EXPENDITURES BY LENDER. Any sums expended by or on behalf of Lender
pursuant to the exercise of any right or remedy provided herein shall become
part of the Obligations and shall bear interest at the Default Rate, from the
date of such expenditure until the date repaid.
9.10 DIMINUTION IN VALUE OF COLLATERAL. Lender shall not have any liability
or responsibility whatsoever for any diminution or loss in value of any of the
Collateral, specifically including that which may arise from Lender's negligence
or inadvertence, whether such negligence or inadvertence is the sole or
concurring cause of any damage.
9.11 LENDER'S KNOWLEDGE. The Lender shall not be deemed to have knowledge
or notice of the occurrence of any Event of Default unless the Lender has actual
knowledge of the Event of Default or has received a notice the Borrower
referring to this Agreement and describing such Event of Default.
SECTION 10 -- CERTAIN RIGHTS OF LENDER
10.1 PROTECTION OF COLLATERAL. Lender may at any time and from time to time
take such actions as Lender deems necessary or appropriate to protect the
Lender's Liens and security interests in and to preserve the Collateral, and to
establish, maintain and protect the enforceability of Lender's rights with
respect thereto, all at the expense of Borrower. Borrower agrees to cooperate
fully with all of Lender's efforts to preserve the Collateral and Lender's
Liens, security interests and rights and will take such actions to preserve the
Collateral and Lender's Liens, security interests and rights as Lender may
direct, including, without limitation, by promptly paying upon Lender's demand
therefor, all documentary stamp taxes or other taxes that may be or may become
due in respect of any of the Collateral. All of Lender's expenses of preserving
the Collateral and Lender's liens and security interests and rights therein
shall be added to the Loan.
10.2 PERFORMANCE BY LENDER. If Borrower fails to perform any agreement
contained herein, Lender may itself perform, or cause the performance of, such
agreement, and the expenses of Lender incurred in connection therewith shall be
payable by Borrower under Section 10.5 below.
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In no event, however, shall Lender have any obligation or duties whatsoever to
perform any covenant or agreement of Borrower contained herein or in any of the
Loan Documents, Timeshare Documents or Operating Contracts, and any such
performance by Lender shall be wholly discretionary with Lender. The performance
by Lender, of any agreement or covenant of Borrower on any occasion shall not
give rise to any duty on the part of Lender to perform any such agreements or
covenants on any other occasion or at any time. In addition, Borrower
acknowledges that Lender shall not at any time or under any circumstances
whatsoever have any duty to Borrower or to any third party to exercise any of
Lender's rights or remedies hereunder.
10.3 NO LIABILITY OF LENDER. Neither the acceptance of this Agreement by
Lender, nor the exercise of any rights hereunder by Lender, shall be construed
in any way as an assumption by Lender of any obligations, responsibilities or
duties of Borrower arising in connection with any Resort or under the Timeshare
Documents or Timeshare Acts, or under any of the Operating Contracts, or in
connection with any other business of Borrower, or the Collateral, or otherwise
bind Lender to the performance of any obligations with respect to any Resort or
the Collateral; it being expressly understood that Lender shall not be obligated
to perform, observe or discharge any obligation, responsibility, duty, or
liability of Borrower with respect to any Resort or any of the Collateral, or
under any of the Timeshare Documents, the Timeshare Acts or under any of the
Operating Contracts, including, but not limited to, appearing in or defending
any action, expending any money or incurring any expense in connection
therewith. Without limitation of the foregoing, neither this Agreement, any
action or actions on the part of Lender taken hereunder, prior to or following
the occurrence of an Event of Default shall constitute an assumption by Lender
of any obligations of Borrower with respect to any Resort or any documents or
instruments executed in connection therewith, and Borrower shall continue to be
liable for all of its obligations thereunder or with respect thereto. Borrower
agrees to indemnify, protect, defend and hold Lender harmless from and against
any and all claims, demands, causes of action, losses, damages, liabilities,
suits, costs and expenses, including, without limitation, attorneys' fees and
court costs, asserted against or incurred by Lender by reason of, arising out
of, or connected in any way with (i) any failure or alleged failure of Borrower
to perform any of its covenants or obligations with respect to each Resort or to
the Purchasers of any of the Intervals, (ii) a breach of any certification,
representation, warranty or covenant of Borrower set forth in any of the Loan
Documents, (iii) the ownership of the Inventory and the rights, titles and
interests assigned hereby, or intended so to be, (iv) the debtor-creditor
relationships between Borrower on the one hand, and the Lender, on the other, or
(v) the operation of the Resorts or sale of Intervals. The obligations of
Borrower to indemnify, protect, defend and hold Lender harmless as provided in
this Agreement are absolute, unconditional, present and continuing, and shall
not be dependent upon or affected by the genuineness, validity, regularity or
enforceability of any claim, demand or suit from which Lender is indemnified.
The indemnity provisions in this Section 10.3 shall survive the satisfaction of
the Obligations and termination of this Agreement, and remain binding and
enforceable against the Borrower, or its successors or assigns. Borrower hereby
waives all notices with respect to any losses, damages, liabilities, suits,
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costs and expenses, and all other demands whatsoever hereby indemnified, and
agrees that its obligations under this Agreement shall not be affected by any
circumstances, whether or not referred to above, which might otherwise
constitute legal or equitable discharges of its obligations hereunder.
10.4 RIGHT TO DEFEND ACTION AFFECTING SECURITY. Lender may, at Borrower's
expense, appear in and defend any action or proceeding at law or in equity which
Lender in good faith believes may affect the security interests granted under
this Agreement, including without limitation, with respect to the value of the
Collateral or Lender's rights under any of the Loan Documents.
10.5 EXPENSES. All expenses payable by Borrower, under any provision of
this Agreement shall be an Obligation of the Borrower and shall be paid by
Borrower to Lender, upon demand, and shall bear interest at the Default Rate
from the date of expense until repaid by Borrower.
10.6 LENDER'S RIGHT OF SET-OFF. Lender shall have the right to set-off
against any Collateral any Obligations then due and unpaid by Borrower.
10.7 NO WAIVER. No failure or delay on the part of Lender in exercising any
right, remedy or power under this Agreement or in giving or insisting upon
strict performance by Borrower hereunder or in giving notice hereunder shall
operate as a waiver of the same or any other power or right, and no single or
partial exercise of any such power or right shall preclude any other or further
exercise thereof or the exercise of any other such power or right. Lender,
notwithstanding any such failure, shall have the right thereafter to insist upon
the strict performance by Borrower of any and all of the terms and provisions of
this Agreement to be performed by Borrower. The collection and application of
proceeds, the entering and taking possession of the Collateral, and the exercise
by Lender of its rights contained in the Loan Documents and this Agreement shall
not cure or waive any default, or affect any notice of default, or invalidate
any acts done pursuant to such notice. No waiver by Lender of any breach or
default of or by any party hereunder shall be deemed to alter or affect Lender's
rights hereunder with respect to any prior or subsequent default.
10.8 RIGHT OF LENDER TO EXTEND TIME OF PAYMENT, SUBSTITUTE, RELEASE
SECURITY, ETC. Without affecting the liability of any Person or entity including
without limitation, for the payment of any of the Obligations or without
affecting or impairing Lender's Lien on the Collateral, or the remainder
thereof, as security for the full amount of the Loan unpaid and the Obligations,
Lender may from time to time, without notice: (a) release any Person liable for
the payment of the Loan, (b) extend the time or otherwise alter the terms of
payment of the Loan, (c) accept additional security for the Obligations of any
kind, including deeds of trust or mortgages and security agreements, (d) alter,
substitute or release any property securing the Obligations, (e) realize upon
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any collateral for the payment of all or any portion of the Loan in such order
and manner as it may deem fit, or (f) join in any subordination or other
agreement affecting this Agreement or the lien or charge thereof.
10.9 ASSIGNMENT OF LENDER'S INTEREST. Lender shall have the right to assign
the Loan and all or any portion of its rights in or pursuant to this Agreement
or any of the Loan Documents to any subsequent holder or holders of the Note or
the Obligations evidenced thereby.
10.10 POWER OF ATTORNEY. Borrower does hereby irrevocably constitute and
appoint Lender as Borrower's true and lawful agent and attorney-in-fact, with
full power of substitution, for Borrower and in Borrower's name, place and
stead, or otherwise, to (a) endorse any checks or drafts payable to Borrower in
the name of Borrower and in favor of Lender, (b) to demand and receive from time
to time any and all property, rights, titles, interests and liens hereby sold,
assigned and transferred, or intended so to be, and to give receipts for same,
(c) from time to time to institute and prosecute in Lender's own name any and
all proceedings at law, in equity, or otherwise, that Lender may deem proper in
order to collect, assert or enforce any claim, right or title, of any kind, in
and to the property, rights, titles, interests and liens hereby sold, assigned
or transferred, or intended so to be, and to defend and compromise any and all
actions, suits or proceedings in respect of any of the said property, rights,
titles, interests and liens, (d) upon an Event of Default to change the
Borrower's post office mailing address, and (e) generally to do all and any such
acts and things in relation to the Collateral as Lender shall in good faith deem
advisable. Borrower hereby declares that the appointment made and the powers
granted pursuant to this Section 10.10 are coupled with an interest and are and
shall be irrevocable by Borrower in any manner, or for any reason, unless and
until a release of the same is executed by Lender and duly recorded in the
appropriate public records of Dallas County, Texas.
10.11 RELIEF FROM AUTOMATIC STAY, ETC. To the fullest extent permitted by
law, in the event the Borrower shall make application for or seek relief or
protection under the federal bankruptcy code ("Bankruptcy Code") or other Debtor
Relief Laws, or in the event that any involuntary petition is filed against the
Borrower under such Code or other Debtor Relief Laws, and not dismissed with
prejudice within 45 days, the automatic stay provisions of Section 362 of the
Bankruptcy Code are hereby modified as to Lender to the extent necessary to
implement the provisions hereof permitting set-off and the filing of financing
statements or other instruments or documents; and Lender shall automatically and
without demand or notice (each of which is hereby waived) be entitled to
immediate relief from any automatic stay imposed by Section 362 of the
Bankruptcy Code or otherwise, on or against the exercise of the rights and
remedies otherwise available to the Lender as provided in the Loan Documents.
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SECTION 11 -- TERM OF AGREEMENT
This Agreement shall continue in full force and effect and the security
interests granted hereby and the duties, covenants and liabilities of the
Borrower hereunder and all the terms, conditions and provisions hereof relating
thereto shall continue to be fully operative until all of the Obligations have
been satisfied in full. The Borrower expressly agrees that if the Borrower makes
a payment to Lender, which payment or any part thereof is subsequently
invalidated, declared to be fraudulent or preferential, or otherwise required to
be repaid to a trustee, receiver or any other party under any Debtor Relief
Laws, state or federal law, common law or equitable cause, then to the extent of
such repayment, the Obligations or any part thereof intended to be satisfied and
the Liens provided for hereunder securing the same shall be revived and
continued in full force and effect as if said payment had not been made.
SECTION 12 -- MISCELLANEOUS
12.1 NOTICES. All notices, requests and other communications to either
party hereunder shall be in writing and shall be given to such party at its
address set forth below or at such other address as such party may hereafter
specify for the purpose of notice to Lender or Borrower. Each such notice,
request or other communication shall be effective (a) if given by mail, when
such notice is deposited in the United States Mail with first class postage
prepaid, addressed as aforesaid, provided that such mailing is by registered or
certified mail, return receipt requested, (b) if given by overnight delivery,
when deposited with a nationally recognized overnight delivery service such as
Federal Express or Airborne with all fees and charges prepaid, addressed as
provided below, or (c) if given by any other means, when delivered at the
address specified in this Section 12.1.
IF TO BORROWER: Silverleaf Resorts, Inc.
1221 Riverbend Drive, Suite 120
Dallas, TX 75221
Attn: Mr. Robert Mead, CEO
WITH A COPY TO: Meadows, Owens, Collier, Reed, Cousins and Blau
3700 Nations Bank Plaza
901 Main St.
Dallas, TX 75202
Attn: George R. Bedell, Esq.
IF TO LENDER: Textron Financial Corporation
40 Westminster Street
Providence, Rhode Island 02903
Attention: Collections
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WITH A COPY TO: Textron Financial Corporation
P.O. Box 6687
Providence, Rhode Island 02940-6687
Attention: Division Counsel (RRD)
AND TO: Textron Financial Corporation
333 East River Drive, Suite 305
East Hartford, Connecticut 06108
Attn: Division Manager
Notwithstanding the foregoing, copies of the requests or notices from
Borrower to Lender which are specified in the Sections of this Agreement listed
below shall not be delivered to Providence, Rhode Island as provided above, but
rather shall be delivered in accordance with this Section 12.1 to Textron
Financial Corporation, 333 East River Drive, Suite 305, East Hartford,
Connecticut 06108, Attention: Nicholas L. Mecca, Vice President. The applicable
Sections of this Agreement are Section 2.4(a) Voluntary Prepayments and Section
5(a) Request for Advances. In addition, all documents, instruments and other
items to be delivered to the Lender from time to time pursuant to this Agreement
shall be delivered to Lender's office at 333 East River Drive, Suite 305, East
Hartford, Connecticut 06108.
12.2 SURVIVAL. All representations, warranties, covenants and agreements
made by Borrower herein, in the other Loan Documents or in any other agreement,
document, instrument or certificate delivered by or on behalf of Borrower under
or pursuant to the Loan Documents shall be considered to have been relied upon
by Lender and shall survive the delivery to Lender of such Loan Documents (and
each part thereof), regardless of any investigation made by or on behalf of
Lender.
12.3 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (EXCEPT AS
MAY BE EXPRESSLY PROVIDED THEREIN TO THE CONTRARY) SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF RHODE ISLAND, EXCLUSIVE OF
ITS CHOICE OF LAWS PRINCIPLES.
12.4 LIMITATION ON INTEREST. Lender and Borrower intend to comply at all
times with applicable usury laws. All agreements between the Lender and
Borrower, whether now existing or hereafter arising and whether written or oral,
are hereby limited so that in no contingency, whether by reason of demand or
acceleration of the maturity of the Note or otherwise, shall the interest
contracted for, charged, received, paid or agreed to be paid to Lender exceed
the highest lawful rate permissible under applicable usury laws. If, from any
circumstance whatsoever fulfillment of any provision hereof, of the Note or of
any other Loan Documents shall involve transcending the limit
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of such validity prescribed by any law which a Court of Competent jurisdiction
may deem applicable hereto, then ipso facto, the obligation to be fulfilled
shall be reduced to the limit of such validity; and if from any circumstance
Lender shall ever receive anything of value deemed interest by applicable law
which would exceed the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the principal of the Loan and not
to the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal of the Loan, such excess shall be refunded to Borrower. All
interest paid or agreed to be paid to the Lender shall, to the extent permitted
by applicable law, be amortized, prorated, allocated and spread throughout the
full period until payment in full of the principal so that the interest on the
Loan for such full period shall not exceed the highest lawful rate. Borrower
agrees that in determining whether or not any interest payment under the Loan
Documents exceeds the highest lawful rate, any non-principal payment (except
payments specifically described in the Loan Documents as "interest") including
without limitation, prepayment fees and late charges, shall to the maximum
extent not prohibited by law, be an expense, fee, premium or penalty rather than
interest. Lender hereby expressly disclaims any intent to contract for, charge
or receive interest in an amount which exceeds the highest lawful rate. The
provisions of the Note, this Agreement, and all other Loan Documents are hereby
modified to the extent necessary to conform with the limitations and provisions
of this Section, and this Section shall govern over all other provisions in any
document or agreement now or hereafter existing. This Section shall never be
superseded or waived unless there is a written document executed by Lender and
the Borrower, expressly declaring the usury limitation of this Agreement to be
null and void, and no other method or language shall be effective to supersede
or waive this paragraph.
12.5 INVALID PROVISIONS. If any provision of this Agreement or any of the
other Loan Documents is held to be illegal, invalid or unenforceable under
present or future laws effective during the term thereof, such provision shall
be fully severable, this Agreement and the other Loan Documents shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof or thereof, and the remaining provisions
hereof or thereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision there shall be added automatically as a part of this Agreement and/or
the Loan Documents (as the case may be) a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable.
12.6 SUCCESSORS AND ASSIGNS. This Agreement and the other Loan Documents
shall be binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns; provided that Borrower may not transfer or
assign any of its rights or obligations under this Agreement, or the other Loan
Documents without the prior written consent of Lender. This Agreement and the
transactions provided for or contemplated hereunder or under any of the Loan
Documents are intended solely for the benefit of the parties hereto. No third
party shall have any
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rights or derive any benefits under or with respect to this Agreement, or the
other Loan Documents except as provided in advance in a writing signed on behalf
of Lender.
12.7 AMENDMENT. This Agreement may not be amended or modified, and no term
or provision hereof may be waived, except by written instrument signed by the
Borrower and the Lender.
12.8 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signature thereto and hereto were on the same instrument. This
Agreement shall become effective upon Lender's receipt of one or more
counterparts hereof signed by Borrower.
12.9 LENDER NOT FIDUCIARY. The relationship between Borrower, and Lender is
solely that of debtor and creditor, and Lender has no fiduciary or other special
relationship with Borrower, and no term or provision of any of the Loan
Documents shall be construed so as to deem the relationship between Borrower and
Lender to be other than that of debtor and creditor.
12.10 ACCOUNTING PRINCIPLES. Where the character or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be determined or made in accordance
with GAAP consistently applied at the time in effect, to the extent applicable,
except where such principles are inconsistent with the requirements of this
Agreement.
12.11 TOTAL AGREEMENT. This Agreement and the other Loan Documents,
including the Exhibits and Schedules to them, is the entire agreement between
the parties relating to the subject matter hereof, incorporates or rescinds all
prior agreements and understandings between the parties hereto relating to the
subject matter hereof, cannot be changed or terminated orally or by course of
conduct, and shall be deemed effective as of the date it is accepted by the
Lender at the offices set forth above.
12.12 LITIGATION. TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, THE BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY AND IRREVOCABLY WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND OR CLARIFY ANY RIGHT, POWER, REMEDY OR
DEFENSE ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS,
OR THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, WHETHER SOUNDING IN TORT OR
CONTRACT OR OTHERWISE, OR WITH RESPECT TO ANY COURSE OF CONDUCT,
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COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY
PARTY; AND EACH AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE
A JUDGE AND NOT BEFORE A JURY. EACH OF THE BORROWER AND LENDER FURTHER WAIVES
ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN WHICH A JURY TRIAL HAS
BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT OR HAS NOT
BEEN WAIVED. FURTHER, THE BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR
AGENT OF LENDER, NOR LENDER'S COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT LENDER WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO JURY TRIAL PROVISION. THE BORROWER ACKNOWLEDGES THAT THE
PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT TO LENDER'S ACCEPTANCE OF
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
The waiver and stipulations of the Borrower and Lender in this Section
12.12 shall survive the final payment or performance of all of the Obligations
of the Borrower and the resulting termination of this Agreement.
12.13 INCORPORATION OF EXHIBITS. This Agreement, together with all Exhibits
and Schedules hereto, constitute one document and agreement which is referred to
herein by the use of the defined term "Agreement." Such Exhibits and Schedules
are incorporated herein as to fully set out in this Agreement. The definitions
contained in any part of this Agreement shall apply to all parts of this
Agreement.
12.14 CONSENT TO ADVERTISING AND PUBLICITY OF TIMESHARE DOCUMENTS. The
Borrower hereby consents that Lender may issue and disseminate to the public
information describing the credit accommodation entered into pursuant to this
Agreement, including the names and addresses of Borrower and any subsidiaries
and Affiliates, the amount and a general description of the Borrower's business.
12.15 DIRECTLY OR INDIRECTLY. Where any provision in the Agreement refers
to action to be taken by any Person, or which such Person is prohibited from
taking, such provisions shall be applicable whether such action is taken
directly or indirectly by such Person.
12.16 HEADINGS. Section headings have been inserted in the Agreement as a
matter of convenience of reference only; such section headings are not a part of
the Agreement and shall not be used in the interpretation of this Agreement.
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12.17 GENDER AND NUMBER. Words of any gender in this Agreement shall
include each other gender and the singular shall mean the plural and vice versa
where appropriate.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be
duly executed and delivered effective as of the date first above written.
BORROWER:
SILVERLEAF RESORTS, INC., a Texas
corporation
/s/ GEORGE R. BEDELL By: /s/ ROBERT E. MEAD
- --------------------------------- --------------------------------
Name: Robert E. Mead
Title: Chief Executive Officer
LENDER:
TEXTRON FINANCIAL CORPORATION,
a Delaware corporation
/s/ [ILLEGIBLE] By: /s/ JOHN T. D'ANNEBALE
- --------------------------------- --------------------------------
Name: John T. D'Annebale
Title: AVP
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STATE OF TEXAS )
) ss:
COUNTY OF DALLAS )
The foregoing instrument was acknowledged before me this 8th day of
December, 1999 by Robert E. Mead, Chief Executive Officer of Silverleaf Resorts,
Inc., a Texas corporation, on behalf of the Corporation.
/s/ SANDRA CEARLEY
------------------------------------
Notary Public
My Commission Expires: 12-28-2002
[SEAL]
STATE OF CONNECTICUT )
) ss:
COUNTY OF HARTFORD )
The foregoing instrument was acknowledged before me this 16th day of
December, 1999 by John T. D'Annebale, AVP of TEXTRON FINANCIAL CORPORATION, a
Delaware corporation, on behalf of the corporation.
/s/ CHRISTINE M. CORDEIRA
--------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires: April 30, 2002
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EXHIBIT 10.45
LOAN, SECURITY AND AGENCY AGREEMENT
among
SILVERLEAF RESORTS, INC.
(as Borrower)
THE PARTIES WHICH HEREAFTER EXECUTE THIS AGREEMENT
(as Lenders)
and
TEXTRON FINANCIAL CORPORATION
(as Lender and Facility and Collateral Agent)
As of December 16, 1999
<PAGE> 2
LOAN, SECURITY AND AGENCY AGREEMENT
THIS LOAN, SECURITY AND AGENCY AGREEMENT, dated as of December 16, 1999, entered
into by and among SILVERLEAF RESORTS, INC. (as "Borrower"), the parties,
including TEXTRON FINANCIAL CORPORATION ("TFC"), a Delaware corporation, which
execute and deliver this Agreement, in their respective capacities as lenders
hereunder (collectively, the "Lenders" and each individually, a "Lender") and
TEXTRON FINANCIAL CORPORATION as facility agent and collateral agent ("Agent").
WITNESSETH:
WHEREAS, Borrower is engaged in the business of acquiring, constructing,
developing, owning, managing, selling and otherwise dealing with Intervals at
the Resorts (as each such term is hereafter defined);
WHEREAS, Borrower, in order to provide liquidity in connection with its sale of
Intervals, has entered into this Agreement whereby each Lender, including
Textron Financial Corporation, will, subject to the terms and conditions set
forth herein, agree to make a loan or loans to Borrower in a maximum aggregate
amount as set forth opposite each Lender's name on Schedule A attached hereto
and made a part hereof, as the same may hereafter be amended from time to time;
WHEREAS, in connection with the Loans to be made by the Lenders pursuant to this
Agreement, Textron Financial Corporation has agreed to act as facility agent and
collateral agent for the other Lenders and to perform such duties with respect
to the Loans as are expressly set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, and for other good and valuable consideration, the
receipt and adequacy of which are acknowledged, the parties to this Agreement,
intending to be legally bound, agree as follows:
SECTION 1 -- DEFINITION OF TERMS
1.1 Capitalized terms used in this Agreement are defined in this Section
1.1. The definitions include the singular and plural forms of the terms defined.
(a) ADDITIONAL ELIGIBLE RESORTS or ADDITIONAL ELIGIBLE RESORT. The
terms "Additional Eligible Resorts" and "Additional Eligible Resort" shall
have the meanings ascribed to such terms in Section 3.7 hereof.
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<PAGE> 3
(b) ADVANCE. A portion of the proceeds of the Loans advanced from time
to time by the Lenders to the Borrower in accordance with the terms of this
Agreement.
(c) AFFILIATE. Any party controlled by, controlling, or under common
control with, the Borrower.
(d) AGREEMENT. This Loan, Security and Agency Agreement by and among
Borrower, the Agent and each Lender which executes this Agreement
(including the Exhibits and Schedules to it), as it may be amended from
time to time.
(e) ASSIGNMENT OF NOTES RECEIVABLE AND MORTGAGES. A recordable
assignment, in the form attached hereto as Exhibit A, made by Borrower in
favor of Agent, as collateral agent for each of the Lenders, evidencing the
assignment to the Agent, as collateral agent for each of the Lenders, of
all of the Pledged Notes Receivable and Mortgages.
(f) BORROWING BASE. With respect to each Eligible Notes Receivable
pledged to the Agent, as collateral agent for the Lenders, in connection
with each Advance, an amount equal to: (i) eighty-five percent (85%) of the
remaining principal balance of each such Eligible Note Receivable having a
maximum term of ninety-six months or less; (ii) eighty percent (80%) of the
remaining principal balance of each such Eligible Note Receivable having a
term greater than ninety-six months but less than one hundred twenty months
or (iii) seventy-five percent (75%) of the principal balance of each such
Eligible Note Receivable which is a Zero Payment Eligible Note Receivable,
as such term is hereinafter defined, provided that upon submission to Agent
by Borrower of satisfactory written evidence that the first monthly payment
with respect to a Zero Payment Eligible Note Receivable has been received
by Borrower, the Borrowing Base shall, with respect to such Zero Payment
Eligible Note Receivable, be increased to: (y) eighty-five percent (85%) of
the remaining principal balance of each such Zero Payment Eligible Note
Receivable having a maximum term of ninety-six months or less or (z) eighty
percent (80%) of the remaining principal balance of each such Eligible Note
Receivable having a term greater than ninety-six months but less than one
hundred twenty months."
(g) BUSINESS DAY. Each day which is not a Saturday, a Sunday or a legal
holiday under the laws of the State of Rhode Island, the State of
Connecticut or the State of Texas.
(h) CLOSING DATE. The date of this Agreement.
(i) CODE. The Uniform Commercial Code in force in the State of Rhode
Island as amended from time to time.
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(j) COLLATERAL. Collectively, all now owned or hereafter acquired
right, title and interest of the Borrower, in all of the following:
(i) Pledged Notes Receivable and all proceeds of or from them;
(ii) Mortgages and all proceeds of or from them;
(iii) Documents, instruments, accounts, chattel paper, and
general intangibles relating to the Pledged Notes Receivable and the
Mortgages;
(iv) Extensions, additions, improvements, betterments, renewals,
substitutions and replacements of, for or to any of the Collateral,
wherever located, together with the products, proceeds, issues, rents
and profits thereof, and any replacements, additions or accessions
thereto or substitutions thereof;
(v) All books, records, reports, computer tapes, disks and
software relating to the Collateral; and
(vi) All Collateral under the Existing Credit Facility and the
Inventory Loan, as each such term is hereinafter defined.
(k) COMMITMENT. The term "Commitment" shall refer singly to the
obligation of each Lender to make a Loan or Loans to the Borrower in an
aggregate amount not to exceed the amount set forth on Schedule A hereto,
as the same may hereafter be amended from time to time, for each Lender and
collectively the aggregate amount of all Loans to be made by all Lenders
hereunder.
(l) COMMITMENT FEE. The commitment fee in the amount of $750,000, which
is to be paid in accordance with the terms of Section 2.7 hereof.
(m) COMMON ELEMENTS. All common elements, including but not limited to
any limited common elements, as each such common element is defined or
provided for in the Declaration or other Timeshare Documents.
(n) DEBTOR RELIEF LAWS. Any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization or
similar law, proceeding or device providing for the relief of debtors from
time to time in effect and generally affecting the rights of creditors.
(o) DECLARATION OR DECLARATIONS. With respect to each Resort, the
applicable Declaration or Declarations described on Schedule 1.1(o)
attached hereto.
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(p) DEFAULT. An event or condition the occurrence of which immediately
is or, with a lapse of time or the giving or notice or both, becomes an
Event of Default.
(q) DEFAULT RATE. The term "Default Rate" shall have the meaning given
to such term in the Note.
(r) DIVISION OR COMMISSION. The governmental authority of each state in
which a Resort is located, having jurisdiction over the establishment and
operation of the Resort in question and the sale of Intervals at such
Resort.
(s) ELIGIBLE NOTES RECEIVABLE. Those Pledged Notes Receivable which
satisfy each of the following criteria:
(i) the Borrower shall be the sole payee;
(ii) it arises from a bona fide sale by Borrower of one or more
Intervals;
(iii) the Interval sale from which it arises shall not have been
cancelled by the Purchaser, and any statutory or other applicable
cancellation or rescission period shall have expired and otherwise in
compliance with this Agreement;
(iv) it is secured by a Mortgage on the purchased Interval;
(v) principal and interest payments on it are payable to the
Borrower in legal tender of the United States;
(vi) payments of principal and interest on it are payable in
equal monthly installments;
(vii) it shall have an original term of no more than one hundred
twenty (120) months;
(viii) a cash down payment has been received from the Purchaser or
the maker in an amount equal to at least ten percent (10%) of the
actual purchase price of each Interval, and Purchaser shall have
received no cash or other rebates of any kind;
(ix) The Purchaser or other obligor shall have made at least one
(1) monthly payment pursuant to the Note;
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(x) no monthly installment is more than thirty (30) days
contractually past due at the time of an Advance in respect of such
Eligible Note Receivable, or more than sixty (60) days contractually
past due at any time;
(xi) The rate of interest payable on the unpaid balance is at
least the rate required so that when the Advance is made in respect of
such Eligible Note Receivable the average interest rate on all Eligible
Notes Receivable in respect of which Advances are outstanding shall not
be less than twelve and one-half percent (12.5%) per annum at any time;
(xii) the Purchaser of the related Interval has immediate access,
for the timeshare "unit week" related to such purchase, to the Interval
described in the Mortgage securing such Eligible Note Receivable, which
Interval has been completed, developed, and furnished in accordance
with the specifications provided in the Purchaser's purchase contract,
public offering statement and other Timeshare Documents; and the
Purchaser has, subject to the terms of the Declaration, purchase
contract, public offering statement and other Timeshare Documents,
complete and unrestricted access to the related Interval and the
Resort;
(xiii) neither the Purchaser of the related Interval or any other
maker of the Note is an Affiliate of, or related to, or employed by the
Borrower;
(xiv) the Purchaser or other maker has no claim against Borrower
and no defense, set-off or counterclaim with respect to the Note
Receivable;
(xv) the maximum remaining principal balance of any such Note
Receivable shall not exceed $25,000 and the total maximum remaining
principal balance of the Notes Receivable executed by any one Purchaser
or other maker shall not exceed $25,000 in the aggregate (or such
greater amount as may be approved in writing in advance by Agent);
(xvi) it is executed by a U.S. or Canadian resident; provided,
however, that no more than ten percent (10%) of the outstanding
principal balance of all Eligible Notes Receivable shall at any time be
comprised of Notes Receivable executed by Canadian residents, and, to
the extent such outstanding principal balance of such Notes exceeds ten
percent (10%), they shall not be considered Eligible Notes Receivable;
(xvii) the original of such Note Receivable has been endorsed to
Agent and delivered to Agent as provided in this Agreement, and the
terms thereof and all
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instruments related thereto shall comply in all respects with all
applicable federal and state laws and the regulations promulgated
thereunder; and
(xviii) the Unit in which the timeshare Interval being financed or
evidenced by such Note Receivable is located, shall not be subject to
any Lien which is not previously consented to in writing by Agent.
Notwithstanding anything herein to the contrary, the Lenders shall be under
no obligation to make Advances in respect of:
(i) Crown Resorts Notes Receivable (i.e. Notes Receivables
relating to intervals at the Crown Resorts listed on Schedule
4.5(c)(iii)) if Advances have already been made under this Loan and the
Existing Credit Facility, in total, in respect of 681 Crown Resorts
Notes Receivable, exclusive of [x] Notes Receivable relating to
intervals at the Quail Hollow Resort and [z]any other Crown Resort
Notes Receivable for which Borrower shall have delivered to Agent an
acceptable Mortgagee Title Insurance Policy insuring the Mortgage
securing such Crown Resort Note Receivable; and
(ii) Notes Receivable from Oak N' Spruce Resort if any such
Advance, together with any prior Advances made under this Loan
Agreement, the Existing Credit Facility and/or the Inventory Loan would
exceed, in the aggregate, $32,000,000.00.
(t) ENCUMBERED INTERVALS. The Intervals subject to the Mortgages.
(u) ENVIRONMENTAL LAWS. Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time
("CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended
from time to time ("RCRA"), the Superfund Amendments and Reauthorization
Act of 1986, as amended, the federal Clean Air Act, the federal Clean Water
Act, the federal Safe Drinking Water Act, the federal Toxic Substances
Control Act, the federal Hazardous Materials Transportation Act, the
federal Emergency Planning and Community Right to Know Act of 1986, the
federal Endangered Species Act, the federal Occupational Safety and Health
Act of 1970, the federal Water Pollution Control Act, all state and local
environmental laws, rules and regulations of each state in which a Resort
is located, as all of the foregoing legislation may be amended from time to
time, and any regulations promulgated pursuant to the foregoing; together
with any similar local, state or federal laws, rules, ordinances or
regulations either in existence as of the date hereof, or enacted or
promulgated after the date of this Agreement, that concern the management,
control, storage, discharge, treatment, containment, removal and/or
transport of Hazardous Materials or other substances that are
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or may become a threat to public health or the environment; together with
any common law theory involving Hazardous Materials or substances which are
(or alleged to be) hazardous to human health or the environment, based on
nuisance, trespass, negligence, strict liability or other tortious conduct,
or any other federal, state or local statute, regulation, rule, policy, or
determination pertaining to health, hygiene, the environment or
environmental conditions.
(v) ENVIRONMENTAL INDEMNIFICATION AGREEMENT. The term "Environmental
Indemnification Agreement" shall mean the Environmental Indemnification
Agreement, in the form attached as Exhibit A, to be made by the Borrower to
the Lenders pursuant to this Agreement, as the same may be amended from
time to time.
(W) EURODOLLAR BUSINESS DAY. Eurodollar Business Day shall mean any day
on which commercial banks are open for international business (including
dealings in dollar deposits) in London, England.
(X) EXCHANGE COMPANY. Resort Condominiums International, Inc. ("RCI").
(Y) EVENT OF DEFAULT. Defined in Section 8.1 of this Agreement.
(Z) EXISTING CREDIT FACILITY. The term "Existing Credit Facility" shall
mean that certain $75,000,000 credit facility provided by Agent to Borrower
pursuant to that certain Loan and Security Agreement dated of as of August
15, 1995, as amended by a First Amendment to Loan and Security Agreement
dated as of December 28, 1995, as further amended by a Second Amendment to
Loan and Security Agreement dated as of October 31, 1996, as further
amended by a Third Amendment to Loan and Security Agreement dated as of
March 31, 1999 and as further amended by a Fourth Amendment to Loan and
Security Agreement dated as of December 16, 1999.
(aa) FINAL MATURITY DATE. November 30, 2005.
(bb) FINANCIAL STATEMENTS. The tax returns and balance sheets and
statements of income and expense of the Borrower, and the related notes and
schedules delivered by Borrower to Lenders prior to the Closing Date and
provided for in Section 4.5(c) of this Agreement; and the monthly,
quarterly and annual financial statements and reports required to be
provided to Lenders pursuant to Section 7.1(h) (i), (ii) and (iii).
(cc) GAAP. Generally accepted accounting principles, applied on a
consistent basis, as described in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board which are applicable
in the circumstances as of the date in question.
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(dd) HAZARDOUS MATERIALS. "Hazardous substances," "hazardous waste" or
"hazardous constituents," "toxic substances", or "solid waste", as defined
in the Environmental Laws, and any other contaminant or any material, waste
or substance which is petroleum or petroleum based, asbestos,
polychlorinated biphenyls, flammable explosives, or radioactive materials.
(ee) INTEREST RATE. The variable rate, adjusted as of each LIBOR
Determination Date, equal to the sum of LIBOR, determined as of each LIBOR
Determination Date, plus two and sixty-seven one-hundredths percent (2.67%)
per annum.
(ff) INTERVAL. With respect to each Resort the undivided fractional fee
interval ownership interest as a tenant-in-common (sometime referred to in
the Timeshare Documents as a condoshare interest or condoshare week) in a
Unit sold to a Purchaser by delivery of a deed for a time-share period per
calendar year (or, in the case of a biennial use period, per alternate
calendar year) of one week (as defined in the Declaration), together with
all appurtenant rights and interests, including, without limitation,
appurtenant rights in and to Common Elements, and easement, license, access
and use rights in and to all Resort facilities and amenities (as described
in the Declaration), all as more particularly described in the Declaration
or other Timeshare Documents. Notwithstanding the foregoing, the term
"Interval" shall also include, with respect to the Oak `N Spruce Resort
only, the beneficial interest in the entity which owns each of the Units at
the Oak `N Spruce Resort, as evidenced by the delivery to the Purchaser of
any such beneficial interest of a certificate of beneficial interest for a
timeshare period per calendar year (or, in the case of biennial use period,
per alternate calendar year) of one week (as defined in the Oak N' Spruce
Resort Declaration), together with all pertinent rights and interests,
including, without limitation, a pertinent right in and to Common Elements,
and easements, license, access and use rights in and to all Oak `N Spruce
Resort facilities and amenities, all as more particularly described in the
Declaration or other Timeshare Documents for the Oak `N Spruce Resort.
(gg) INVENTORY LOAN. The term Inventory Loan shall mean that certain
$10,000,000 time share interval inventory loan made or to be made by Agent
to Borrower, and all documents executed and/or delivered by Borrower in
connection therewith.
(hh) LIEN. Any interest in property securing an obligation owed to, or
claim by, a Person other than the owner of such property, whether such
interest arises in equity or is based on the common law, statute, or
contract.
(ii) LIBOR shall mean, with respect to any LIBOR Rate Period, the rate
per annum (rounded upwards, if necessary, to the nearest one-sixteenth
(1/16th) of one percent (1%)) reported at 11:00 a.m. London time on the
first day of each LIBOR Rate Period (or if such date is not a Eurodollar
Business Day, the immediately preceding Eurodollar Business
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Day) (such date, the "LIBOR DETERMINATION DATE"), on Dow Jones Telerate
Service Page 3750 (British Bankers Association Settlement Rate) as the
non-reserve adjusted London Interbank Offered Rate for U.S. dollar deposits
having a ninety (90) day term (or on such other page as may replace said
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 Agent 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 Agent in its sole but good faith discretion shall determine.
LIBOR for any LIBOR Rate Period shall be adjusted from time to time by
increasing the rate thereof to compensate Agent and any Lender 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 LIBOR Rate Period) which are required to be
maintained by Agent or any Lender 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 Agent or any Lender of similar effect.
(jj) LIBOR RATE PERIOD shall mean each successive ninety (90) day
period during the Term. The initial LIBOR Rate Period shall commence on the
date of this Agreement (or if such day is not a Eurodollar Business Day,
the immediately preceding Eurodollar Business Day) and shall terminate on a
date which is thirty days thereafter (or if such day is not a Eurodollar
Business Day, the immediately preceding Eurodollar Business Day). Each
LIBOR Rate Period after the initial LIBOR Rate Period shall commence on the
first Eurodollar Business Day immediately following the expiration of the
immediately preceding LIBOR Rate Period and shall terminate ninety days
thereafter (or if such day is not a Eurodollar Business Day, the
immediately preceding Eurodollar Business Day).
(kk) LOAN OR LOANS. The terms "Loan and Loans" mean singly each loan
and collectively all loans to be made by each Lender to the Borrower
pursuant to this Agreement in an aggregate amount up to each Lender's
Commitment as set forth on Schedule A hereto. The term "Loan" shall also
mean, as the context requires, collectively all Loans made by all Lenders
to the Borrower hereunder, which in the aggregate shall not exceed
$75,000,000; provided that the Borrower acknowledges and agrees that until
Lenders, other than Textron Financial Corporation, execute and deliver this
Agreement, the maximum amount available hereunder shall not exceed
$25,000,000, subject to Section 2.9 hereof. Notwithstanding the foregoing,
in the event that TFC shall elect, pursuant to Section 2.11 hereof, to fund
any portion of the Loan without additional Lenders, the terms "Loan and
Loans" means singly each loan and collectively all loans made and to be
made by TFC to Borrower pursuant to this Agreement, subject to the
limitations set forth in Section 2.9 hereof and Section 2.11 hereof.
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(ll) LOAN DOCUMENTS. Collectively, this Agreement and the following
documents and instruments listed below as such agreements, documents,
instruments or certificates may be amended, renewed, extended, restated or
supplemented from time to time.
(i) THIS AGREEMENT;
(ii) THE NOTE;
(iii) THE ENVIRONMENTAL INDEMNIFICATION AGREEMENT;
(iv) THE ASSIGNMENT OF NOTES RECEIVABLE AND MORTGAGES;
(v) THE LOCKBOX AGREEMENT;
(vi) FINANCING STATEMENTS; UCC financing statements covering the
Collateral, to be filed with the Texas Secretary of State and the
Secretary of State and/or such other office where UCC financing
statements are filed in each state in which the Collateral is located.
(vii) OTHER ITEMS; Such other agreements, documents, instruments,
certificates and materials as Agent may request to evidence the
Obligations; to evidence and perfect the rights and Liens and security
interests of the Agent, as agent for the Lenders, contemplated by the
Loan Documents, and to effectuate the transactions contemplated herein,
as such agreements, documents, instruments or certificates may be
hereafter amended, renewed, extended, restated or supplemented from
time to time.
(mm) LOAN YEAR. The period from the Closing Date through the last day
of the next full twelve (12) calendar month period and each twelve (12)
calendar month period thereafter.
(nn) LOCKBOX AGENT. Texas Commerce Bank, National Association, a
national banking association having a place of business at 2200 Ross
Avenue, Dallas, Texas 75201, or such other financial institution as may be
approved by Agent in writing from time to time.
(oo) LOCKBOX AGREEMENT. A Lockbox and Servicing Agreement, in the form
attached hereto as Exhibit A, between Borrower, Lenders, Agent, Servicing
Agent and Lockbox Agent pursuant to which Lockbox Agent is to provide
lockbox, reporting and
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related services and is to provide for the receipt of payments on the Notes
Receivable and disbursement of such payments to Agent.
(pp) MANDATORY PREPAYMENT. Any prepayment required by Section 2.4(b) of
this Agreement.
(qq) MORTGAGE. A properly recorded, first priority mortgage, deed of
trust, deed to secure debt, assignment of beneficial interest or other
security instrument, as applicable, executed and delivered by each
Purchaser to Borrower, securing a Pledged Note Receivable and encumbering
all of the right, title and interest of such Purchaser in the related
Encumbered Interval and Common Elements, and related or appurtenant
easement, access and use rights and benefits.
(rr) NEGATIVE PLEDGE AGREEMENT. The Negative Pledge Agreement, in the
form attached as Exhibit A, made by the Borrower and each applicable
Affiliate to the Lenders pursuant to this Agreement, as the same may be
amended from time to time.
(ss) NOTE. Singly and collectively, the Secured Promissory Notes, in
the form attached as Exhibit A, dated the Closing Date and executed and
delivered by Borrower to each Lender evidencing the Loan or Loans made or
to be made by such Lender to Borrower.
(tt) NOTE RECEIVABLE. A promissory note executed in favor of Borrower
in connection with a Purchaser's acquisition of an Interval.
(uu) OBLIGATIONS. All amounts due or becoming due to each Lender in
respect of the Loan or Loans under any of the Loan Documents, including
principal, interest, prepayment premiums, contributions, taxes, insurance,
loan charges, custodial fees, attorneys' and paralegals' fees and expenses
and other fees or expenses incurred by a Lender or advanced to or on behalf
of Borrower by a Lender pursuant to any of the Loan Documents, and the
prompt and complete payment and performance by the Borrower of all
obligations, indebtedness and liabilities pursuant to this Agreement or any
of the Loan Documents or otherwise
(vv) OPERATING CONTRACT OR OPERATING CONTRACTS. As defined in Section
6.20.
(ww) PARTICIPANT. Participant shall mean, singly and collectively, any
bank or other entity, which is indirectly or directly funding Lender with
respect to the Loan, in whole or in part, in accordance with Section 2.11
hereof, including, without limitation, any direct or indirect assignee of,
or participant in, the Loan.
(xx) PAYMENT AUTHORIZATION AGREEMENT. Pre-authorized electronic debit
agreement by Purchaser for payment of a Note Receivable.
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(yy) PERSON. An individual, partnership, corporation, limited liability
company, trust, unincorporated organization, other entity, or a government
or agency or political subdivision thereof.
(zz) PLEDGED NOTES RECEIVABLE. Any Note Receivable which at any time
has been pledged to Agent on behalf of the Lenders by Borrower pursuant to
this Agreement or any of the Loan Documents.
(aaa) PROPERTY OR PROPERTIES. Any interest in any kind of property or
asset, whether real, personal or mixed, tangible or intangible.
(bbb) PRIME RATE. The highest prime rate of interest from time to time
announced or published by Chase Manhattan Bank, N.A. ("Bank"). In the event
that the prime rate established by Bank shall no longer be available, due
to either the non-existence of the Bank or the Bank's failure to publish a
prime rate, then the Prime Rate shall be the highest prime rate published
by a comparable major money center bank selected by Agent.
(ccc) PRO RATA PERCENTAGE. The applicable percentage of the Loan, as
set forth opposite each Lender's name on Schedule A, that each Lender has
agreed to make to Borrower.
(ddd) PURCHASE PRICE. The total purchase price of a timeshare Interval,
as set forth in the Timeshare Documents and Note Receivable relating to the
purchase of such Interval.
(eee) PURCHASER. Any Person who purchases one or more Intervals.
(fff) RESORT OR RESORTS (ALSO "ELIGIBLE RESORT" OR "ELIGIBLE RESORTS").
Individually and collectively, as applicable, each or all of the interval
ownership and time-share projects consisting of: (i) (A) Holly Lake Ranch,
Hawkins, Texas; (B) Piney Shores Resort, Conroe, Texas; (C) Lake O' The
Woods, Flint, Texas; (D) Hill Country Resort, Canyon Lake, Texas; (E) Ozark
Mountain Resort, Kimberling City, Missouri; (F) Holiday Hills Resort,
Branson, Missouri; (G) Fox River Resort, LaSalle County, Illinois; (H)
Timber Creek Resort, Jefferson County, Missouri (I) Oak N' Spruce Resort,
South Lee, Massachusetts and (J) Apple Mountain Resort, Habersham County,
Georgia (also sometime individually and collectively referred to herein as
the "EXISTING RESORTS") and (ii) subject to Agent's prior written approval
and satisfaction by the Borrower of the conditions precedent set forth in
Sections 3.7 and 4.5 hereof, the Additional Eligible Resorts. The term
"Resort" or "Resorts" includes, among other things, the undivided annual or
(biennial) timeshare ownership interests (Intervals) in the respective
Resorts, and the
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appurtenant exclusive rights to use Units in one or more buildings or
phases and all appurtenant or related properties, amenities, facilities,
equipment, appliances, fixtures, easements, licenses, rights and interests,
including without limitation, the Common Elements, as established by and
more fully defined and described in the respective Declarations, and the
other Timeshare Documents.
(ggg) REVOLVING LOAN TERM. Shall mean the period commencing on the
Closing Date and ending on the second anniversary of the Closing Date.
(hhh) SECURITY. Shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
(iii) SERVICING AGENT. Agent's exclusive agent, which shall be such
Person or Persons designated by Agent in Agent's sole discretion, for the
purposes of billing and collecting amounts due on account of the Pledged
Notes Receivable, providing reports pursuant to the Lockbox Agreement and
performing other servicing functions not performed by the Lockbox Agent.
Borrower shall be the Servicing Agent for so long as no Event of Default
shall have occurred, provided, however, that upon the occurrence of an
Event of Default, Borrower shall continue to serve as Servicing Agent until
a new Servicing Agent is designated by Agent.
(jjj) SURVEY. A plat or survey of the Resort prepared by a licensed
surveyor acceptable to Agent and in a form acceptable to Agent.
(kkk) TERM. A period of six (6) calendar years from the Closing Date,
plus the number of days from the Closing Date to the end of the month in
which the Closing Date occurs.
(lll) TERM SHEET. The term sheet dated July 26, 1999 issued by the
Lender with respect to the Loan.
(mmm) TIMESHARE ACT. Any statute, act, regulation, ordinance, rule or
law applicable to the establishment and operation of the Resorts and the
sales of the Intervals.
(nnn) TIMESHARE DOCUMENTS. Any registration statement required under
any Timeshare Act approving the establishment and operation of the Resorts
and the sales of Intervals.
(ooo) TIMESHARE OWNERS' ASSOCIATION. With respect to each Resort, the
Silverleaf Club, a Texas non-profit corporation, and the applicable
not-for-profit corporations described on Schedule 1.1(ooo).
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(ppp) TRANSFER ACCOUNT. The account established by the Agent, as
described in Schedule B hereto, to which all Loans by the Lenders will be
made.
(qqq) UCC FINANCING STATEMENTS. The UCC-1 Financing Statements, naming
the Borrower as debtor and the Agent as secured party on behalf of the
Lenders, heretofore or hereafter filed in connection with the Loans and all
amendments thereto.
(rrr) UNIT. With respect to each Resort, 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
in services, easements and other rights or benefits, as described and
provided for in the Declaration, including but not limited to the right to
use the Resort amenities and facilities in accordance with the Timeshare
Documents.
(sss) VOLUNTARY PREPAYMENT. Any voluntary prepayment of the Loan
permitted to be made by the Borrower under the terms of this Agreement.
(ttt) ZERO PAYMENT ELIGIBLE NOTE RECEIVABLE. The term Zero Payment
Eligible Note Receivable shall mean a Pledged Note Receivable which
satisfies all of the criteria set forth in the definition contained herein
of Eligible Note Receivable, except that the first monthly payment under
the Pledged Note Receivable is not due and payable as of the date of the
Advance in question.
SECTION 2 -- THE LOAN
2.1 REVOLVING LOAN AND LENDING LIMITS.
(a) REVOLVING LOAN. Upon the terms and subject to the conditions set
forth in this Agreement, each Lender agrees severally, at any time and from
time to time during the Revolving Loan Period, to make a loan or loans to
Borrower, and Borrower may borrow, repay and reborrow during the Revolving
Loan Period, in an aggregate amount not to exceed at any time the lesser
of: (i) each Lender's Pro Rata Percentage of the amount of the Borrowing
Base or (ii) the lending limits set forth in section 2.1(b) hereof;
provided, however, that Textron Financial Corporation's obligations
hereunder shall be limited as set forth in Section 2.9 hereof.
(b) LENDING LIMITS. Borrower acknowledges, agrees and confirms that the
obligation of all Lenders, including Textron Financial Corporation, to make
Loans under this Agreement to the Borrower is limited to a maximum
aggregate principal amount of $75,000,000. Borrower further acknowledges,
agrees and confirms that the obligation of each Lender, including Textron
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Financial Corporation, to make loans hereunder to the Borrower is limited
to: (i) with respect to each Advance hereunder, each Lender's Pro Rata
Percentage of any such Advance hereunder and (ii) with respect to all
Advances made hereunder, such Lender's obligation hereunder shall be
limited to its Commitment as set forth on Schedule A hereto, as hereafter
amended from time to time; provided that the Borrower acknowledges and
agrees that until Lenders, other than Textron Financial Corporation,
execute and deliver this Agreement, the maximum amount available hereunder
shall be subject to Section 2.9 hereof.
(c) MAKING OF LOANS. Each Loan by a Lender shall be made ratably in
accordance with each Lender's respective Pro Rata Percentage, provided,
however, that the failure of any Lender to make any required Loan shall not
in itself relieve any other Lender of its obligation to make any required
Loan hereunder. Likewise, no Lender, including Textron Financial
Corporation, shall be responsible or liable for the failure of any other
Lender to make any Loan required to be made by such other Lender, nor shall
any Lender, including Textron Financial Corporation, be obligated to make
any Loan or Loans in excess of its respective Pro Rata Percentage, but not
in excess of its Commitment, in the event that any other Lender fails or
refuses to make a Loan or Loans as provided hereunder. As and when
additional Lenders, other than Textron Financial Corporation, execute and
deliver this Agreement, then (a) such additional Lenders shall be deemed to
have simultaneously purchased from each of the other Lenders which has
previously executed and delivered this Agreement, a share in such other
Lender's Loans so that the amount of the Loans of all Lenders shall be pro
rata as otherwise set forth above and (b) such other adjustments shall be
made from time to time as shall be equitable to insure that the Advances to
the Borrower are made ratably by each Lender in accordance with its
respective Pro Rata Percentage.
(d) NOTE EVIDENCING BORROWER'S OBLIGATIONS. Borrower's obligations to
pay the principal of and interest on the Loan or Loans made by each Lender
hereunder shall be evidenced by a Note to each Lender, which Note shall be
dated as of the date hereof and be in a stated principal amount equal to
each Lender's Commitment as set forth on Schedule A. Each such Note will
mature on the Final Maturity Date, bear interest as provided in Section 2.2
hereof and be otherwise entitled to the benefits of this Agreement.
Notwithstanding the stated principal amount of any Note, the aggregate
outstanding principal amount of the Loan at any time shall be the aggregate
principal amount owing on each Note at such time. Each Lender shall and is
hereby authorized to record on the grid attached to its respective Note
(or, alternatively, in its internal books and records) the date and amount
of each Loan made by such Lender, the interest rate and interest period
applicable thereto and each repayment thereof; and such grid or other books
and records shall, as between Borrower and such Lender, absent manifest
error, constitute prima facie evidence of the accuracy of the information
contained therein. Failure by a Lender to so record any Advance made by it
(or any error in such recordation) or any payment thereon shall not affect
the Obligations of Borrower under this Agreement or under any Note and
shall not adversely affect the Lender's rights under this Agreement with
respect to the repayment thereof.
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(e) NOTICE OF ADVANCES. Upon receipt by the Agent from the Borrower of
a written request for Advance in accordance with Section 5 hereof and
Borrower's satisfaction of the requirements set forth in Section 5 hereof,
Agent shall give a written notice (a "Notice of Borrowing") to each Lender,
(which Notice of Borrowing shall be given to each Lender not less than two
(2) business days prior to the date of the proposed Advance) in the form
attached hereto as Exhibit B, setting forth: (i) the total amount of the
Advance requested by Borrower; (ii) the aggregate amount of all Loans
previously made by each respective Lender; (iii) the current Interest Rate
as determined in accordance with Section 2.2 hereof; (iv) each such
Lender's Pro Rata Percentage of the requested Advance and (v) the date on
which such Advance is to be made.
(f) DISBURSEMENT OF FUNDS. After receiving a Notice of Borrowing from
the Agent, each Lender shall, not later than 11:00 a.m., Eastern Standard
Time, on the date specified in such Notice of Borrowing on which the
proposed Advance is to be made, wire transfer to the Agent at the Transfer
Account, in immediately available funds, an amount equal to each such
Lender's Pro Rata Percentage of the proposed Advance as set forth in the
Notice of Borrowing. Upon Agent's receipt of funds from each Lender equal
to the amount of the requested Advance, and subject to Borrower's
compliance with the terms and conditions of this Agreement, Agent shall
disburse the Advance to the Borrower by wire transfer of funds as directed
in writing by the Borrower. If Agent shall not receive funds from any
Lender as set forth above, then the amount of the Advance in question shall
be automatically reduced by an amount equal to the missing Lender's Pro
Rata Percentage of the Advance in question, and Agent shall, subject to
Borrower's compliance with the terms and conditions of this Agreement,
disburse the Advance in the reduced amount to the Borrower by wire transfer
of funds as directed in writing by the Borrower. Agent, in its sole and
absolute discretion, may (but shall not be obligated to) make the full
amount of the requested Advance available to the Borrower prior to the
receipt by the Agent from one or more Lenders of funds representing such
Lender's or Lenders' Pro Rata Percentage of the Advance in question. If the
funds representing such Lender's or Lenders' Pro Rata Percentage of the
Advance in question are not received by the Agent within two business days
of the date of such Advance, Borrower shall immediately, upon demand of
Agent, repay such amount to Agent. Nothing herein shall be deemed to
relieve any Lender from its obligations hereunder or to prejudice any
rights the Agent may have against any Lender as a result of any Lender's
failure to make any Loan or Loans as provided herein.
2.2 INTEREST RATE. The aggregate principal amount of all Loans, which are
outstanding from time to time, will bear interest at a rate equal to the
Interest Rate. The Loans made by each Lender, which together comprise in the
aggregate outstanding principal balance of the Loan, shall bear interest as of
the date funds are received by Agent as provided in Section 2.1 (f) through each
Lender's receipt of repayment of the Loan in accordance with Section 2.3 (if
received by a Lender later than 1:00 p.m., Eastern Standard Time, then interest
accrual shall be through the next Business Day following such receipt).
Immediately upon the occurrence of an Event of Default and after the Final
Maturity Date (if the Loan is not paid in full on the Final Maturity Date), at
Agent's election in its sole discretion, the Loan will bear interest at the
Default Rate.
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2.3 PAYMENTS. The Borrower agrees punctually to pay or cause to be paid to
the Agent, as agent for each Lender, all principal and interest due under each
Note in respect of the Loans made by the Lenders hereunder. The Borrower shall
make the following payments on the Loan:
(a) MONTHLY PAYMENTS. The Borrower shall direct or otherwise cause all
makers of all Pledged Notes Receivable to pay all monies due thereunder to
the lockbox established pursuant to the Lockbox Agreement, or as otherwise
required by Agent. One hundred percent (100%) of the cleared funds
collected from the Pledged Notes Receivable each week will be paid to Agent
by the Lockbox Agent pursuant to the Lockbox Agreement, and will be applied
by Agent first to the payment of costs or expenses incurred by Agent
pursuant to this Agreement in creating, maintaining, protecting or
enforcing the Liens in and to the Collateral and in collecting any amounts
due to any Lender in connection with the Loan ("COLLECTION COSTS") and the
balance to each Lender in accordance with each Lender's Pro Rata Percentage
as provided in Section 2.3(c) hereof. Each Lender shall apply each such
payment in the following order: (i) to any interest accrued at the Default
Rate; (ii) to the payment of accrued and unpaid interest at the Interest
Rate; and (iii) to the reduction of the principal balance of such Lender's
outstanding Loans. If the amount of the funds received by Agent from the
Lockbox Agent with respect to any month is insufficient to pay in full all
amounts due from Borrower to Lender under this Agreement and the other Loan
Documents, without notice or demand, Borrower shall pay the difference to
Agent on or before the fifth (5th) day of the following month. In the event
Borrower receives any payments on any of the Pledged Notes Receivable
directly from or on behalf of the maker or makers thereof, Borrower shall
receive all such payments in trust for the sole and exclusive benefit of
Lenders; and Borrower shall deliver to the Lockbox Agent all such payments
(in the form so received by Borrower) as and when received by Borrower,
unless Agent shall have notified Borrower to deliver directly to Agent all
payments in respect of the Pledged Notes Receivable which may be received
by Borrower, in which event all such payments (in the form received) shall
be endorsed by Borrower to Agent as agent for the Lenders and delivered to
Agent promptly upon Borrower's receipt thereof.
(b) FINAL PAYMENT. The entire outstanding principal amount of the Loan
together with all other Obligations shall be paid in full by not later than
the Final Maturity Date.
(c) PAYMENTS TO LENDER. Promptly upon receipt by the Agent of any
payment from the Borrower in accordance with this Section 2.3, and after
payment of any Collection Costs, Agent shall promptly wire transfer to each
Lender as described in Schedule C hereto, in immediately available funds,
each such Lender's Pro Rata Percentage of the payment in question.
2.4 PREPAYMENTS.
(a) VOLUNTARY PREPAYMENTS. Borrower may not voluntarily prepay the
Loan, in whole or in part, except that: (i) provided that no Event of
Default shall have occurred and be continuing and subject to Section 2.4(c)
and Section 2.5 hereof, Borrower may,
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during the period from the date of this Agreement to October 30, 2001 (the
"REVOLVING LOAN PERIOD"), upon thirty (30) days' prior written notice to
the Agent, prepay the Loan in whole or in part solely in connection with
the bulk sale, refinancing or securitization in bulk, in minimum increments
of $5,000,000.00, of Eligible Notes Receivable relating to the Resorts,
provided that any such bulk sale, refinancing or securitization is not made
to or with a Warehouse Lender (For purposes hereof, a "Warehouse Lender"
means a Lender who agrees to refinance notes receivable for a period of two
(2) years or less); (ii) provided that no Event of Default shall have
occurred and be continuing and subject to the payment of the prepayment
premium provided for in Section 2.4(c)(i) hereof, Borrower may, on and
after the expiration of the Revolving Loan Period, upon thirty (30) days'
prior written notice to the Agent prepay the Loan in whole or in part and
(iii) at any time during the Term of the Loan, the Loan may be prepaid in
part in connection with any prepayment which arises from the prepayment of
one or more Eligible Notes Receivable by its maker or makers.
(b) MANDATORY PREPAYMENTS. If at any time and for any reason, the
outstanding unpaid principal balance of the Loan shall exceed the aggregate
amount of the Borrowing Base, then, within five (5) Business Days following
Borrower's receipt of telecopied notice from Agent of the occurrence of
such excess over Borrowing Base or, absent such telecopied notice, within
fifteen (15) days after the end of the calendar month in which such excess
occurred, (i) Borrower shall prepay the principal balance of the Loan in an
amount equal to the difference between the aggregate principal amount of
the Loan and the amount of the Borrowing Base, or (ii) if the Agent has
determined that notes receivable have been delivered to Agent and were
included in the Borrowing Base, which notes receivable did not or no longer
satisfy the requirements for inclusion in the Borrowing Base as Eligible
Notes Receivable ("Ineligible Notes Receivable"), Borrower shall substitute
Eligible Notes Receivable for the Ineligible Notes Receivable and thereby
increase the aggregate principal amount of Eligible Note Receivables
pledged to Agent as agent for the Lenders so that the amount of Borrowing
Base equals or exceeds the aggregate outstanding principal amount of the
Loan. The pledge and delivery to Agent as agent for the Lenders of
additional Eligible Notes Receivable shall comply with the document
delivery and recordation requirements set forth in Section 4.2(b) of this
Agreement and shall be accompanied by a written certification of the
Borrower to the effect that such additional Pledged Notes Receivable are
Eligible Notes Receivable, and that, giving effect to the pledge to Agent
as agent for the Lenders of such Eligible Note Receivable, the outstanding
unpaid principal balance of the Loan is equal to or less than the aggregate
amount of the Borrowing Base. If Borrower elects to prepay the excess
principal balance of the Loan pursuant to this Section 2.4(b)(i) above, no
prepayment premium shall be payable in connection with such prepayment.
(c) PREMIUMS. Subject to Sections 2.4(c)(ii), 2.5 and 2.6 hereof, no
prepayment premium shall be required in connection with: (x) any voluntary
prepayment made in accordance with Section 2.4(a)(i), (y) in connection
with any prepayment of the principal
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<PAGE> 20
balance of the Loan which arises from the prepayment of one or more
Eligible Notes Receivable by its maker or makers or (z) in connection with
any prepayment made in accordance with Section 2.4(b)(i). Except as
heretofore set forth, Borrower shall, in connection with a prepayment, pay
to the Agent on behalf of the Lenders a prepayment premium as follows:
(i) Any prepayment of the Loan pursuant to Section 2.4(a)(ii)
above must be accompanied by a prepayment premium, calculated as of the
date immediately prior to such prepayment, equal to one half percent (0.5%)
of the then outstanding principal balance of the Loan.
(ii) Notwithstanding anything herein contained to the contrary,
any prepayment under this Section 2.4 must include all accrued but unpaid
interest, and accrued but unpaid contributions, taxes, insurance, loan
charges (including Minimum Loan Usage Fees, if any), custodial fees,
attorneys' and paralegals' fees and expenses, amounts due pursuant to
Section 2.6 hereof as a result of a Funding Loss and other fees or expenses
incurred by Agent or advanced to or on behalf of Borrower by any Lender
pursuant to any of the Loan Documents accrued but unpaid.
2.5 MINIMUM LOAN USAGE FEE. In addition to the interest payable pursuant to
this Agreement, during the Revolving Loan period Borrower shall pay to Agent as
agent for the Lenders with respect to the six month period commencing on the
date that the Agent receives an executed copy of this Agreement from Lenders
representing aggregate Commitments of $50,000,000, and with respect to each six
month period thereafter during the Revolving Loan Period, on the fifth day after
every such six month period, in arrears, a fee (the "MINIMUM LOAN USAGE FEE")
equal to the product of: (a) the excess, if any of (i) $20,000,000.00 over (ii)
the average daily outstanding principal balance of the Note for such six month
period; times (b) two percent (2.00%).
2.6 PAYMENT OF FUNDING LOSSES AND OTHER AMOUNTS RELATING TO LIBOR CONTRACT,
ETC.
(a) Funding Losses: Breaking of LIBOR contract, Change in Law, Etc.
Borrower hereby agrees to pay to Agent on behalf of each Lender any amount
necessary to compensate any Lender 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
reinvestment rate and the interest rate thereon) (collectively, "FUNDING
LOSSES") sustained by any Lender: (i) if the Loan, or any portion hereof,
is prepaid for any reason whatsoever on any date other than the Final
Maturity Date (including, without limitation, from condemnation or
insurance proceeds); (ii) upon the conversion of the interest rate on the
Loan to an interest rate based on the Prime Rate in accordance with Section
2.6(b) hereof; (iii) as a consequence of the reduction of any amounts
received or receivable from
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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 any Lender 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; (iv)
as a consequence of the breaking of any LIBOR contract and/or (v) any other
set of circumstances not attributable to any Lender's acts. Payment of
Funding Losses hereunder shall be in addition to any obligation to pay any
other amounts due and owing under this Agreement or any other Loan
Documents.
(b) Conversion to Interest Rate Based on Prime Rate. If Agent
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 of the Loan
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 Lenders of
maintaining the Interest Rate based on LIBOR, 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, (iv) that the Interest Rate
based on LIBOR would be in excess of the maximum interest rate which
Borrower may by law pay, then, in any such event, or (v) any LIBOR contract
is broken as a result of the sale, pledge, refinancing or securitization in
bulk of Eligible Notes Receivable relating to the Resorts by Borrower,
Agent shall so notify Borrower and, as of the date of such notification
with respect to an event described in clauses (ii), (iv) or (v) above, or
as of the expiration of the applicable LIBOR Rate Period with respect to an
event described in clause (i) or (iii) above, interest shall accrue at a
rate equal to the Prime Rate plus a sufficient spread so that the resulting
per annum interest rate is approximately equal to what the rate would have
been based on LIBOR plus two and sixty-seven one-hundredths percent (2.67%)
per annum, which new rate shall apply 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
Agent, to pay to Agent on behalf of the Lenders (in the manner reasonably
required by Agent) for such increased cost of maintaining the Interest Rate
based on LIBOR, and (y) if the same only affects a portion of the Loan,
then only such portion shall have interest accrue at a rate equal to the
Prime Rate plus a sufficient spread so that the resulting per annum
interest rate is approximately equal to what the rate would have been based
on LIBOR plus two and sixty-seven one-hundredths percent (2.67%) per annum,
and interest shall continue to accrue on the remaining portion at the
Interest Rate based on LIBOR.
(c) Back-Up Interest Rate Based on Prime Rate. If the introduction of,
or any change in, any law, regulation or treaty, or in the interpretation
thereof by any governmental
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authority charged with the administration or interpretation thereof, shall
make it unlawful for any Lender to maintain the Interest Rate based on
LIBOR 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 Loan (or such portion of the Loan) shall, with
respect to such Lender, thereafter bear interest shall accrue at a rate
equal to the Prime Rate plus a sufficient spread so that the resulting per
annum interest rate is approximately equal to what the rate would have been
based on LIBOR plus two and sixty-seven one-hundredths percent (2.67%) per
annum (unless the Default Rate shall be applicable), and (ii) Borrower
shall pay to Agent on behalf of any such Lender the amount of Funding
Losses (if any) incurred in connection with such conversion. The accrual of
interest shall accrue at a rate equal to the Prime Rate plus a sufficient
spread so that the resulting per annum interest rate is approximately equal
to what the rate would have been based on LIBOR plus two and sixth-seven
one-hundredths percent (2.67%) per annum, which new rate shall continue
until such date, if any, as the situation described in this Section 2.6(c)
is no longer in effect.
(d) Capital Adequacy Events, Etc. If Agent 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 any Lender, 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 any Lender
or any Lender's holding company, as the case may be, to a level below that
which any Lender or its holding company, as the case may be, could have
achieved but for such applicability, adoption, change or compliance (taking
into consideration each Lender's or its holding company, 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
Agent, Borrower shall pay to Agent on behalf of any such Lender, from time
to time, such additional amount or amounts as will compensate any such
Lender for any such reduction suffered.
(e) Payment of Amounts Due under Section 2.6. Any amount payable by
Borrower under Section 2.6(a) or 2.6(d) hereof shall be paid to Agent on
behalf of the Lenders within five (5) days of receipt by Borrower of a
certificate signed by an officer of Agent 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 Agent to demand payment from Borrower for any such amount
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<PAGE> 23
attributable to any particular period shall not constitute a waiver of
Agent's or any Lender's right to demand payment of such amount for any
subsequent or prior period. Agent shall use reasonable efforts to deliver
to Borrower prompt notice of any event described in Sections 2.6(a) or
2.6(d) hereof and of the amount to be paid under this Section 2.6(e) as a
result thereof; provided, however, any failure by Agent to so notify
Borrower shall not affect Borrower's obligation to make the payments to be
made under this Section 2.6(e) as a result thereof. All amounts which may
become due and payable by Borrower in accordance with the provisions of
this Section 2.6(e) shall constitute additional interest hereunder and
shall be secured by this Agreement and the other Loan Documents."
2.7 COMMITMENT FEE. Borrower and each Lender, other than Textron Financial
Corporation, acknowledge and agree that the Commitment Fee of $750,000 shall be
due and payable exclusively to Agent for its services hereunder as follows: (i)
Borrower shall pay Agent $250,000 on the date hereof and (ii) the remaining
balance of the Commitment Fee in the amount of $500,000, shall be paid by
Borrower to Agent ratably upon execution and delivery by each other Lender in
amount to one percent (1.0%) of each such Lender's Commitment. Subject only to
the foregoing condition, Borrower and each Lender, other than Textron Financial
Corporation, agree that Agent has earned the entire Commitment Fee,
notwithstanding whether a closing occurs under this Agreement or whether the
Loan or any portion thereof is funded."
2.8 PRO RATA TREATMENT. Each repayment of principal and interest on the
Loan and payment of the Commitment Fee shall be allocated pro rata among the
Lenders in accordance with their respective Pro Rata Percentage. Each Lender
agrees that in computing such Lender's portion of any Advance to be made
hereunder, the Agent may, in its discretion, round each Lender's such Advance to
the next higher or lower whole dollar amount. If any Lender shall, through the
exercise of a right of banker's lien, set-off, counterclaim or otherwise, obtain
payment with respect to its Loans which results in its receiving more than its
Pro Rata Percentage of any payments described above, then (a) such Lender shall
be deemed to have simultaneously purchased from each of the other Lenders a
share in such other Lender's Loans so that the amount of the Loans of all
Lenders shall be pro rata as otherwise set forth above, (b) such Lender shall
immediately pay to the other Lenders their Pro Rata Percentage of the payments
otherwise received as consideration for such purchase and (c) such other
adjustments shall be made from time to time as shall be equitable to insure that
all Lenders share such payments ratably. If all or any portion of any such
excess payment is thereafter recovered from the Lender which received the same,
the purchase provided in this Section 2.8 shall be deemed to have been rescinded
to the extent of such recovery, without interest. Borrower expressly consents to
the foregoing arrangements and agrees that each Lender so purchasing a portion
of another Lender's loans may exercise all rights of payment (including all
rights of set-off, banker's lien or counterclaim) with respect to such portion
as fully as if such Lender were the direct holder of such portion.
2.9 MAXIMUM OBLIGATION OF TEXTRON FINANCIAL CORPORATION UNDER THE LOAN, THE
EXISTING CREDIT FACILITY AND THE INVENTORY LOAN. Borrower acknowledges, agrees
and confirms
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that notwithstanding anything to the contrary herein, in any other Loan Document
or in any document evidencing or securing the Existing Credit Facility or the
Inventory Loan, Textron Financial Corporation, as a Lender, shall not be
obligated to fund any Advance hereunder, which when taken together with the
loans or advances made by Textron Financial Corporation to the Borrower under
this Agreement, the Existing Credit Facility and the Inventory Loan, would cause
the aggregate amount of such loans and advances by Textron Financial Corporation
to Borrower to exceed a maximum aggregate amount of $50,000,000.
2.10 SUSPENSION OF ADVANCES.
(a) Suspension of Sales. If any stay, order, cease and desist order,
injunction, temporary restraining order or similar judicial or nonjudicial
sanction shall be issued limiting or otherwise materially adversely
affecting any Interval sales activities, other business operations in
respect of the Resorts, or the enforcement of the remedies of the Agent and
the Lenders hereunder, then, in such event, Agent and the Lenders shall
have no obligation to make any Advances hereunder: (i) in respect of
Pledged Notes Receivable from the sale of Intervals which are the subject
of any stay, order, cease and desist order, injunction, temporary
restraining order or similar judicial or nonjudicial sanction has been
issued until the stay, order, cease and desist order, injunction, temporary
restraining order or similar judicial or nonjudicial sanction has been
lifted or released to the satisfaction of the Agent and (ii) in respect of
Pledged Notes Receivable from the sale of Intervals at any Resort if: (x)
the stay, order, cease and desist order, injunction, temporary restraining
order or similar judicial or nonjudicial sanction in question has not been
lifted or released to the satisfaction of the Agent within sixty (60) days
of its issuance and (y) there is a reduction in the total number of sales
of Intervals by the Borrower in any Loan Year of more than twenty percent
(20%) from the total number of sales of Intervals in the immediately
preceding Loan Year.
(b) Change in Control. If there shall occur a change, singly or in the
aggregate, of more than fifty percent (50%) of the executive management of
the Borrower as described in Schedule E hereto, the Lender shall have no
obligation to make any Advances hereunder, unless within thirty (30) days
prior thereto Borrower provides Lender with written information setting
forth the replacement executive management personnel of Borrower together
with a description of those Persons' experience, ability and reputation,
and Lender, acting in good faith, determines that the replacement
management personnel's experience, ability and reputation is equal to or
greater than that of the Borrower as set forth on Schedule E.
2.11 LOAN PARTICIPATION.
(a) Notwithstanding anything herein to the contrary, at the sole
discretion of the TFC, TFC may elect, upon the terms and subject to the
conditions set forth in this Section 2.11, to fund the full amount or any
portion of the Loan without additional Lenders, provided that TFC has
entered into written participation agreements acceptable to TFC in its sole
and absolute
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discretion with Participants. Such additional increases over $25,000,000
("INITIAL FUNDING COMMITMENT") shall be evidenced by a replacement
promissory note in the form attached here as Exhibit A, payable to TFC.
Advances in excess of the Initial Funding Commitment are hereinafter
referred to as the "ADDITIONAL FUNDING COMMITMENT". The maximum amount of
the Additional Funding Commitment, together with the Initial Funding
Commitment, shall not exceed the lesser of: (i) $50,000,000 or (ii) an
amount equal to the Borrowing Base.
(b) In the event that TFC elects to fund the entire Loan, Lender agrees
to use reasonable efforts to procure one or more Participants to provide
funding for the Additional Funding Commitment, and to use reasonable
efforts to enter into and maintain in good standing additional written
participation agreements satisfactory to TFC in its sole and absolute
discretion to the extent necessary to provide for Advances up to the
maximum amount of the Additional Funding Commitment, but in no event shall
the total outstanding principal balance of the Loan exceed the amount
determined in accordance with Section 2.1(b) hereof. If for any reason TFC
does not procure Participants for the Additional Funding Commitment, or
does procure such Participants but does not enter into a written
participation agreement or agreements, acceptable to TFC in its sole and
absolute discretion, with any such Participant for the Additional Funding
Commitment, or if such a participation agreement is terminated, or if such
a Participant fails to fund to TFC its participation share of the Loan as
provided under its respective participation agreement, then,
notwithstanding any provision in this Agreement, in the Term Sheet or in
any Loan Document to the contrary, TFC shall have no obligation to make
advances of principal under the Loans in excess of the lesser of (i) an
amount equal to the Borrowing Base or (ii) $25,000,000, subject at all
times to Section 2.9 hereof.
(c) TFC shall have the right, without prior notice to Borrower or
Borrower's approval, to designate one or more Participants and to sell or
grant to such Participants participation interests in the Loan, and in the
respective Loan Documents, and in the Collateral, on terms and conditions
satisfactory, in its sole and absolute discretion, to TFC. In the event
that TFC so designates a Participant and sells or grants such Participant a
participation interest in the Loan, such Participant shall communicate and
deal only with Lender in respect to such Participant's interest in the
Loan, the Loan Documents and the Collateral, and Borrower shall communicate
and deal only with TFC and not with any Participant. Borrower agrees to,
diligently and in good faith, cooperate with TFC in connection with
Lender's consummation and administration of a written participation
agreement or agreements with one or more Participants or their successors
and assigns, and in complying with the terms of any such participation
agreement, including with respect to periodic deliveries of accountings and
reports with respect to the Loan, the Loan Documents and the Collateral.
(d) In the event that TFC shall elect to make the entire Loan, subject
to the terms and conditions of this Section 2.11, any and all agency
provisions of this Agreement shall be disregarded and TFC shall act solely
on its own behalf and shall hold the Collateral solely in its own name and
for its own benefit, subject to the terms and conditions of this Agreement.
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SECTION 3 -- COLLATERAL
3.1 GRANT OF SECURITY INTEREST. (a) To secure the payment and performance
of the Obligations, for value received, Borrower unconditionally and irrevocably
assigns, pledges and grants to Agent as agent for each Lender a continuing first
priority security interest in and to the Collateral and (b) for convenience of
administration, Agent is acting as agent for the Lenders under the Agreement.
Agent, as such agent, may execute any of its duties hereunder by or through its
agents, officers or employees and shall be entitled to rely upon the advice of
counsel as to its duties. Agent, as such agent, shall not be liable to the
Lenders for any action taken or omitted to be taken by it in good faith and
shall neither be responsible to the Lenders for the consequences of any
oversight or error of judgment nor be answerable to the Lenders for any loss
unless the same shall happen through Agent's gross negligence or willful
misconduct. To the extent that Agent, as such agent, shall not be reimbursed by
the Borrower for any costs, liabilities or expenses incurred in such capacity,
the Lenders shall reimburse Agent therefor pro rata in accordance with their
respective Pro Rata Percentages (including Agent as one of the Lenders for this
purpose). Each Lender agrees that Agent shall be entitled to take and shall only
be required to take, any action which it is permitted to take under this
Agreement.
3.2 SECURITY INTEREST IN ALL PLEDGED NOTES RECEIVABLE. Notwithstanding that
the Lenders may be obligated, subject to the conditions of the Loan Documents,
to make Advances only in respect of Eligible Notes Receivable, Lenders shall
have a continuing security interest in all of the Pledged Notes Receivable, and
Agent may, on behalf of the Lenders, collect all payments made under or in
respect of all Pledged Notes Receivable, including Eligible Notes Receivable
that may become ineligible, until any of the same may be released by Agent, if
at all, pursuant to Section 12.10 below.
3.3 FINANCING STATEMENTS. Borrower agrees, at its own expense, to execute
the financing statements provided for by the Code together with any and all
other instruments or documents and take such other action as may be required to
perfect and to continue the perfection of Agent's security interests in the
Collateral and, unless prohibited by law, Borrower hereby authorizes Agent to
execute and file any such financing statements on the Borrower's behalf.
3.4 PRIORITY OF EACH LENDER'S LIENS. Each Lender shall have an equal
security interest in the Collateral based upon its Pro Rata Percentage and no
Lender's security interest in the Collateral shall have priority over any other
Lender's security interest in the Collateral.
3.5 INSURANCE. Insurance coverage with respect to the Resort is provided by
the Timeshare Owners' Association. Borrower shall furnish Agent, upon request,
with satisfactory evidence that the Units, Buildings and Resorts are adequately
insured.
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3.6 PROTECTION OF COLLATERAL; REIMBURSEMENT. The portion of the Collateral
consisting of (i) the original Pledged Notes Receivable, (ii) the original
Mortgages, (iii) the original purchase contract (including addendum) related to
such Pledged Notes Receivable and Mortgages, and (iv) originals or true copies
of the related truth-in-lending disclosure, loan application, warranty deed, and
if required by Agent, the related Purchaser's acknowledgement receipt and the
Exchange Company application and disclosures, shall be delivered at Borrower's
expense to the Agent, as agent for the Lenders, at its East Hartford,
Connecticut office, and held in Agent's possession and control until the
Obligations are fully satisfied; and Borrower shall pay to Agent at the time of
each Advance, to reimburse Agent for Agent's administrative costs, a custodial
fee of $10.00 for each Pledged Note Receivable (and related Collateral)
delivered into Agent's physical possession. The portion of the Collateral
delivered to Agent as described above shall be segregated by Agent and stored in
a fire-resistant filing cabinet; and Borrower agrees that such storage is and
shall be deemed to constitute reasonable care by Agent with respect to such
Collateral. All insurance expenses and all expenses of protecting the
Collateral, including without limitation, storing, warehousing, insuring,
handling, maintaining and shipping the Collateral, and any and all excise,
property, intangibles, sales and use taxes imposed by any state, federal or
local authority on any of the Collateral or in respect of the sale thereof shall
be borne and paid by the Borrower; and if the Borrower fails to promptly pay any
portion thereof when due, Agent may, at its option, but shall not be required
to, pay the same and charge the Borrower's account therefor, and the Borrower
agrees promptly to reimburse Agent therefor with interest accruing thereon daily
at the Default Rate. All sums so paid or incurred by Agent for any of the
foregoing and any and all other sums for which the Borrower may become liable
hereunder and all costs and expenses (including attorneys' and paralegals' fees,
legal expenses and court costs) which the Agent may incur in enforcing or
protecting its Lien on, or rights and interest in, the Collateral or any of its
rights or remedies under this Agreement or any other Loan Document or in respect
to any of the transactions to be had hereunder or thereunder, until paid by the
Borrower to Agent with interest at the Default Rate, shall be included among the
Obligations, and, as such, shall be secured by all of the Collateral. Provided
that Agent retains the original Pledged Notes Receivable and Mortgages, and
originals or copies of the related Timeshare Documents delivered to it and
listed above, in a fire-resistant filing cabinet as provided above, Agent shall
not be liable or responsible in any way for the safekeeping of any of the
Collateral or for any loss or damage thereto or for any diminution in the value
thereof, or for any act or default of any warehouseman, carrier, forwarding
agency, the Lockbox Agent, Servicing Agent or any other Person whomsoever.
3.7 ADDITIONAL ELIGIBLE RESORT. From time to time during the Term, Borrower
may propose to Agent that one or more additional time-share plans and projects
owned and operated by Borrower be included among the Eligible Resorts in respect
of which Advances may be made. Any such proposal will be in writing, and will be
accompanied or supported by the due diligence and supporting Borrower,
Affiliate, project, financial and related information identified in Section 4.5
hereto, and such other information as Agent may require. Borrower will
reasonably cooperate with Agent's underwriting and due diligence, and Borrower
will be responsible for payment upon billing for Agent's out-of-pocket expenses
in connection therewith. Subject to Agent's satisfactory underwriting and due
diligence review, including satisfaction of the
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conditions in Sections 4 and 5 hereof as they relate to such additional
time-share resorts, Agent may, but shall not be required to, approve one or more
such additional time-share resorts, including future phases or condominiums in
an Existing Eligible Resort, as an Eligible Resort qualifying for Advances under
and subject to the terms of this Agreement and the other Loan Documents.
Subject in each instance to Agent's acceptable underwriting and due
diligence review, and Agent's prior written approval, any project as may be
approved by Agent after the Closing Date, if any, is hereinafter referred to as
an "ADDITIONAL ELIGIBLE RESORT". Any Advances hereunder with respect to any
Additional Eligible Resort will be subject to all terms an conditions of this
Agreement and the other Loan Documents."
3.8 MODIFICATION OF ELIGIBLE NOTES RECEIVABLE. Notwithstanding anything
herein to the contrary, Borrower shall have the right to modify the interest
rate and term only of the Eligible Notes Receivable without the Agent's prior
consent, provided that: (i) any such change in the rate of interest on any one
or more Eligible Notes Receivable shall not reduce the average interest rate on
all Eligible Notes Receivable to less than twelve and one half percent (12 1/2%)
per annum at any time; (ii) the term of no Eligible Notes Receivable shall be
increased to a term longer than one hundred twenty (120) months from its
original date; (iii) at no time may the Borrower so modify the terms of Eligible
Notes Receivable constituting more than fifteen percent (15%) of the outstanding
principal balance of all Eligible Notes Receivable at any time; (iv) Borrower
immediately provides Agent with notice of any such modification together with
any original documentation evidencing such modification and (v) no Eligible Note
Receivable is modified more than once in any twelve (12) month period or more
than twice during the term of such Eligible Note Receivable.
3.9 ASSUMPTION OF OBLIGATIONS UNDER ELIGIBLE NOTES RECEIVABLE.
Notwithstanding anything herein to the contrary, upon the sale by a Purchaser of
an Interval, the new Purchaser of the Interval may be substituted as obligor
under the Eligible Note Receivable in question, provided that: (i) said new
Purchaser assumes in writing all of the obligations of the original obligor
under the Eligible Note Receivable in question; (ii) the Eligible Note
Receivable continues to meet all of the criteria for an Eligible Note Receivable
as set forth herein and (iii) the new Purchaser has made a cash down payment
equal to at least 10% of the original sales price of the Interval in question,
which down payment shall be in addition to the cash down payment made by the
original obligor.
SECTION 4 -- CONDITIONS PRECEDENT TO THE CLOSING
4.1 CONDITIONS PRECEDENT. The obligation of Agent and Lenders to enter into
this Agreement and to fund the initial Advance shall be subject to the
satisfaction of each of the following conditions precedent, in addition to all
of the conditions precedent set forth elsewhere in the Loan Documents:
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(a) REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. The
representations and warranties contained in the Loan Documents are and
shall be true and correct in all respects, and all covenants and agreements
have been complied with and correct in all respects, and all covenants and
agreements to have been complied with and performed by Borrower shall have
been fully complied with and performed to the satisfaction of Agent.
(b) NO PROHIBITED ACTS. Borrower shall not have taken any action or
permitted any condition to exist which would have been prohibited by any
provision of this Agreement or the Loan Documents.
(c) NO CHANGES. That all information and documents heretofore delivered
by Borrower to Agent with respect to the Existing Resorts, including
information and documents delivered in connection with the Existing Credit
Facility, remain true and correct in all respects.
(d) APPROVAL OF DOCUMENTS PRIOR TO CLOSING DATE. Borrower has delivered
to Agent (with copies to Agent's counsel), at least fifteen (15) Business
Days prior to the Closing Date, and Agent has reviewed and approved, at
least five (5) Business Days prior to the Closing Date, the form and
content of all of the items specified in Subsection 4.1(d)(i) through (vi)
below (the "Submissions"). Agent shall have the right to review and approve
any changes to the form of any of the Submissions. If Agent disapproves of
any changes to any of the Submissions, Agent shall have the right to
require Borrower either to cure or correct the defect objected to by Agent
or to elect not to fund the Loan or any Advance. Under no circumstances
shall Agent's failure to approve or disapprove a change to any of the
Submissions be deemed to be an approval of such Submissions. All of the
Submissions were and shall be prepared at Borrower's sole cost and expense,
unless expressly stated to be an obligation and expense of Agent. Agent
shall have the right of prior approval of any Person responsible for
preparing a Submission ("Preparer") and may disapprove any Preparer in its
sole discretion, for any reason, including without limitation, that Agent
believes that the experience, skill, reputation or other aspect of the
Preparer is unsatisfactory in any respect. All Submissions required
pursuant to this Agreement shall be addressed to Agent and include the
following language: "THE UNDERSIGNED ACKNOWLEDGES THAT TEXTRON FINANCIAL
CORPORATION AS AGENT FOR EACH LENDER IS RELYING ON THE WITHIN INFORMATION
IN CONNECTION WITH ITS DETERMINATION TO MAKE A LOAN TO SILVERLEAF RESORTS,
INC. IN CONNECTION WITH THE SUBJECT COLLATERAL."
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(i) A certificate in the form attached as Exhibit A, to be
dated as of the Closing Date and signed by the president, vice
president, or secretary of the Borrower, certifying that the conditions
specified in Sections 4.1(a), (b) and (c) above are true;
(ii) Copies of any amendments to the articles of incorporation
of Borrower not previously delivered to the Agent, certified to be true
and complete by Borrower and the Secretary of State of the State of
Texas and a current certificate of good standing for Borrower, and
copies of any amendments to the by-laws of Borrower not previously
delivered to the Agent, certified to be true, correct and complete by
the secretary or assistant secretary of Borrower;
(iii) a certificate of the Secretary of the Borrower certifying
the adoption by the Board of Directors of the Borrower of a resolution
authorizing Borrower to enter into and execute this Agreement, the
Notes, and the other Loan Documents, to borrow the Loan from Lenders,
and to grant to Lenders a first priority security interest in and to
the Collateral;
(iv) a certificate of the secretary or assistant secretary of
Borrower certifying the incumbency, and verifying the authenticity of
the signatures, of the specified officers of Borrower authorized to
sign the Agreement, the Note and the other Loan Document;
(v) Copies or other evidence of all loans to Borrower from any
officers, shareholders, or Affiliates of Borrower not previously
delivered to the Agent; and
(vi) Commitment to issue Mortgagee Title Policies (as defined
below) from the Title Company (as defined below).
(e) EXECUTION AND DELIVERY OF LOAN DOCUMENTS. Borrower shall have
delivered to Agent, on or before the Closing Date, the following Loan
Documents, each of which shall be in the form of the respective Loan
Documents attached hereto as Exhibit "A", and each of which when required,
shall be in recordable form:
(i) CLOSING OPINIONS FOR BORROWER.
(ii) NOTE.
(iii) ASSIGNMENT OF DEEDS OF TRUST.
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(iv) ENVIRONMENTAL INDEMNITY. An Environmental Indemnity
Agreement, executed by Borrower in favor of each Lender.
(v) LOCKBOX AGREEMENT. The Lockbox Agreement, executed by
Lockbox Agent, Agent, on behalf of each Lender, and Borrower, together
with signature cards, Designation of Account and Secretary's
Certificate.
(vi) DRAW REQUEST.
(vii) FINANCING STATEMENTS. Original UCC financing statements
covering the Collateral, filed with the Secretary of State of Texas and
the Secretary of State of each state in which the Collateral is
located.
(viii) OTHER ITEMS. Such other agreements, documents, instruments,
certificates and materials as Agent may request to evidence the
Obligations; to evidence and perfect the rights and Liens and security
interests of Agent as agent for Lenders contemplated by the Loan
Documents, and to effectuate the transactions contemplated herein.
(f) PHYSICAL INSPECTION. Agent shall be satisfied with its physical
inspection of the Resorts.
(g) UCC SEARCH. Agent shall have obtained, at Borrower's cost, such
searches of the applicable public records as it deems necessary under
Texas, and other applicable law to verify that it has a first and prior
perfected Lien and security interest covering all of the Collateral. Agent
shall not be obligated to fund any Advance if Agent determines that the
Lenders do not have a first and prior perfected lien and security interest
covering any portion of the Collateral.
(h) LITIGATION SEARCH. Agent shall have obtained, at Borrower's cost,
an independent search to verify that there are no bankruptcy, foreclosure
actions or other material litigation or judgments pending or outstanding
against the Resorts, any portion of the Collateral, Borrower, or any
Affiliates of Borrower (each a "Material Party"). The term "other material
litigation" as used herein shall not include matters in which (i) a
Material Party is plaintiff and no counterclaim is pending or (ii) which
Agent determines, in its sole discretion exercised in good faith, are
immaterial due to settlement, insurance coverage, frivolity, or amount or
nature of claim. The Lenders shall not be obligated to fund any Advance if
Agent determines that any such litigation is pending.
4.2 CLOSING DATE ADVANCES. In the event that Borrower desires Lenders to
make an Advance on the Closing Date, then, in addition to all of the conditions
precedent set forth in this
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Section 4, Borrower shall have complied with all of the requirements of Section
5 below at least five (5) Business Days prior to the Closing Date.
4.3 EXPENSES. Borrower shall have paid all fees and expenses required to be
paid pursuant to this Agreement. Lenders shall have no obligation to fund any
Loan or make the initial Advance or any subsequent Advance unless (a) the amount
of the initial Advance together with any moneys paid by Borrower is sufficient
to satisfy all fees and expenses required to be paid pursuant to this Agreement,
and (b) the Advance will not be used for any of the uses set forth in Section
6.11.
4.4 PROCEEDINGS SATISFACTORY. Borrower shall execute all of the Loan
Documents approved by Agent on the Closing Date, and all actions taken in
connection with the execution or delivery of the Loan Documents, and all
documents and papers relating thereto, shall be satisfactory to Agent and its
counsel. Agent and its counsel shall have received copies of such documents and
papers as Agent or such counsel may reasonably request in connection therewith,
all in form and substance satisfactory to Agent and its counsel.
4.5 CONDITIONS PRECEDENT TO FUNDING OF ADVANCES WITH RESPECT TO ADDITIONAL
ELIGIBLE RESORTS. As provided in the Section 3.7 hereof, Borrower may propose to
Agent that Agent approve one or more additional timeshare plans for inclusion
hereunder as an Additional Eligible Resort in respect of which Advances may be
made. The obligation of Lenders to fund any Advances with respect to an
Additional Eligible Resort shall be subject to the satisfaction of each of the
following conditions precedent, in addition to all of the conditions precedent
set forth elsewhere in the Loan Documents:
(a) Representations, Warranties, Covenants and Agreements. The
representations and warranties contained in the Loan Documents are and
shall be true and correct in all respects, and all covenants and agreements
have been complied with and correct in all respects, and all covenants and
agreements to have been complied with and performed by Borrower shall have
been fully complied with and performed to the satisfaction of Agent.
(b) No Prohibited Acts. Borrower shall not have taken any action or
permitted any condition to exist which would have been prohibited by any
provision of the Loan Documents.
(c) Approval of Documents Prior to Advance. Borrower has delivered or
caused to be delivered to Agent (with copies to Agent's counsel), at least
fifteen (15) Business Days prior to the date of each Advance, and Agent has
reviewed and approved, at least five (5) Business Days prior to the date of
each Advance, the form and content of all of the items specified in each of
the Submissions required pursuant to this Section 4.5. Agent shall have the
right to review and approve any changes to the form of any of the
Submissions. If Agent disapproves of any changes to any of the Submissions,
Agent shall have the right to require Borrower either to cure or correct
the defect objected to by Agent or to elect on behalf of the Lenders not to
fund the Loan or any Advance. Under no circumstances shall Agent's failure
to approve or disapprove a change to any of the
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Submissions be deemed to be an approval of such Submissions. All of the
Submissions were and shall be prepared at Borrower's sole cost and expense,
unless expressly stated to be an obligation and expense of Agent. Agent
shall have the right of prior approval of any Preparer and may disapprove
any Preparer in its sole discretion, for any reason, including without
limitation, that Agent believes that the experience, skill, reputation or
other aspect of the Preparer is unsatisfactory in any respect. All
Submissions required pursuant to this Agreement shall be addressed to Agent
and include the following language: "THE UNDERSIGNED ACKNOWLEDGES THAT
TEXTRON FINANCIAL CORPORATION AS AGENT FOR EACH LENDER IS RELYING ON THE
WITHIN INFORMATION IN CONNECTION WITH ITS DETERMINATION TO MAKE A LOAN TO
SILVERLEAF RESORTS, INC. IN CONNECTION WITH THE SUBJECT COLLATERAL."
(i) a certificate in the form attached as Exhibit A, to be dated as
of the date of each such Advance and signed by the president,
vice president, or secretary of the Borrower, certifying that
the conditions specified in Sections 4.5(a) and (b) above are
true;
(ii) copies of the articles of incorporation of Borrower, together
with any amendments thereto certified to be true and complete
by Borrower and the Secretary of State of the State of Texas, a
current certificate of good standing for Borrower issued by the
Secretary of State of the State of Texas, a current certificate
of authority to conduct business issued by the secretary of
state in each state in which the Borrower conducts business,
and copies of the by-laws of Borrower certified to be true,
correct and complete by the secretary or assistant secretary of
Borrower;
(iii) except for the Resorts listed on Schedule 4.5(c)(iii) (the
"CROWN RESORTS"), a Survey for each Additional Eligible Resort
for which Eligible Notes Receivable are being pledged to the
Agent in connection with the Advance in question; and with
respect to each Crown Resort, a legible, full size copy of the
recorded plat for each such Resort;
(iv) a certificate of the secretary or assistant secretary of
Borrower certifying the adoption by the board of directors
thereof, respectively, of a resolution authorizing the addition
of the Resort in question as an Additional Eligible Resort and
to authorize Borrower to enter into, execute and deliver any
Documents in connection therewith;
(v) a certificate of the secretary or assistant secretary of
Borrower certifying the incumbency, and verifying the
authenticity of the signatures, of the specified officers of
Borrower authorized to sign all documents required in
connection with such Additional Eligible Resort as required
pursuant to this Section 4.5;
(vi) an inspection report or reports covering each Additional
Eligible Resort for which Eligible Notes Receivable are being
pledged to the Agent in connection with the
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Advance in question, including without limitation all real
property and personal property subject to the Declaration and
all adjacent property, confirming:
(1) the absence of Hazardous Materials on the personal
property and real property comprising each such
Additional Eligible Resort;
(2) that the inspection firm has obtained, reviewed and
included within its report a CERCLIS printout from the
Environmental Protection Agency (the "EPA"), statements
from the EPA and other applicable state and local
authorities and a Phase I Environmental Audit, all of
which information shall confirm that there are no known
or suspected Hazardous Materials located at, used or
stored on, or transported to or from each such Additional
Eligible Resort or in such proximity thereto as to create
a material risk of contamination of each such Additional
Eligible Resort;
(vii) evidence that Borrower is maintaining all policies of insurance
required by and in accordance with Section 7.1(d) hereof,
including copies of the most current paid insurance premium
invoices;
(viii) evidence that Borrower and the Timeshare Documents for each
Additional Eligible Resort for which Eligible Notes Receivable
are being pledged to the Agent as agent for the Lenders in
connection with the Advance in question are in compliance with
all applicable laws in connection with its sales of Intervals,
including without limitation, the Timeshare Acts;
(ix) a current preliminary title report or certificate of title for
each Additional Eligible Resort for which Eligible Notes
Receivable are being pledged to the Agent in connection with
the Advance in question, with copies of all title exceptions;
(x) copies of all applicable governmental permits, approvals,
consents, licenses, and certificates for the establishment of
each Additional Eligible Resort for which Eligible Notes
Receivable are being pledged to the Agent as agent for the
Lenders in connection with the Advance in question as timeshare
projects in accordance with the applicable Timeshare Act, and
for the occupancy and intended use and operation of each such
Additional Eligible Resort, including the Units, including a
letter certification from Borrower regarding zoning
classification and compliance, letters or other satisfactory
evidence from utility companies, governmental entities or other
persons confirming that water, sewer (sanitary and storm),
electricity, solid waste disposal, telephone, police, fire and
rescue services are being provided to each Resort, and any
business licenses necessary for operation of each such
Additional Eligible Resort;
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(xi) certified true, correct and complete copies of all of the
Timeshare Documents for each Additional Eligible Resort for
which Eligible Notes Receivable are being pledged to the Agent
as agent for the Lenders in connection with the Advance in
question;
(xii) evidence satisfactory to Agent that all taxes and assessments
owed by or for which Borrower is responsible for collection
have been paid, including but not limited to sales taxes, room
occupancy taxes, payroll taxes, personal property taxes, excise
taxes, intangibles taxes, real property taxes, and income
taxes, and any assessments related to each Additional Eligible
Resort for which Eligible Notes Receivable are being pledged to
the Agent as agent for the Lenders in connection with the
Advance in question and copies of the most current paid tax
bills for each such Additional Eligible Resort evidencing that
each such Additional Eligible Resort have been segregated from
all other property on the applicable municipal taxrolls;
(xiii) written confirmation from an architect covering each Additional
Eligible Resort, other than a Crown Resort, for which Eligible
Notes Receivable are being pledged to the Agent as agent for
the Lenders in connection with the Advance in question as to
the physical condition of the improvements at each such
Additional Eligible Resort, including that soil conditions are
sufficient to support all existing and any contemplated
improvements to the real property; which written confirmation
shall be in form and substance reasonably acceptable to the
Agent. Each architect rendering such written confirmation shall
be licensed as an architect in the state of Texas;
(xiv) such credit references on Borrower as Agent deems necessary in
its sole discretion;
(xv) copies or other evidence of all loans to Borrower from any
officers, shareholders, or Affiliates of Borrower, if any.
(xvi) a commitment to issue Mortgagee Title Policies from Title
Company for each such Additional Eligible Resort.
Notwithstanding anything heretofore to the contrary, Agent and
each Lender agrees that Borrower shall not be required to
provide such a commitment or a Mortgagee Title Insurance Policy
with respect to any Crown Resort (other than the Quail Hollow
Resort), or, until such time as deeded Intervals are permitted
under local law governing the Oak `N Spruce Resort, the Oak `N
Spruce Resort in order to qualify any such Resort as an
Additional Eligible Resort. Notwithstanding anything heretofore
to the contrary, if any claim, lien, encumbrance, charge or
other matter arises with respect to any Interval or Intervals
for which an Eligible Note Receivable has been pledged to the
Agent as agent for the Lenders pursuant to this Agreement,
then, in such event:
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(a) The Note Receivable with respect to the Interval in
question shall cease to be an Eligible Note
Receivable and the Borrower immediately shall either
replace the Note Receivable in question or make a
Mandatory Prepayment as provided in Section 2.4(b)
hereof; and
(b) The Resort at which the Interval in question is
located shall cease to be an Additional Eligible
Resort, unless and until the Borrower shall cure any
such claim, lien, encumbrance, charge or other matter
to the satisfaction of the Agent. Furthermore, any
and all further requests for Advances in respect of
such Resort must be accompanied by satisfactory
Mortgagee Title Policies for all Intervals with
respect to which such Advances are requested.
(xvii) the Financial Statements.
(xviii) to the extent not previously delivered hereunder or in
connection with the Existing Credit Facility or the Inventory
Loan, Borrower will execute, or cause to be executed with
respect to each Additional Eligible Resort, a Negative Pledge,
a Collateral Assignment of Notes Receivable and Interval
Mortgages, Borrower's Affidavit with Respect to the Additional
Eligible Resorts and an Environmental Indemnification
Agreement, each in the form attached hereto as Exhibit A;
(xix) with respect to any improvements, including any Units,
constructed at a Resort within the twenty-four month period
prior to any Advance with respect to an Additional Eligible
Resort, Borrower shall also deliver to Agent, for its approval,
such documents and instruments as Agent may reasonably request
in connection with such newly constructed improvements,
including, without limitation, copies of building permits,
plans and specifications construction and architectural
contracts, title insurance insuring over, among other things,
mechanics liens, certificates of occupancy and satisfactory
evidence of the completion of such improvements;
(xx) such other documents, instruments, agreements, tests, reports
and inspections as the Agent may require with respect to the
Borrower or any applicable Affiliate, the Loan or any Resort,
including any Additional Eligible Resort.
(xxi) Upon request of the Agent, Borrower shall deliver to the Agent
evidence, satisfactory to the Lender, that there is no material
litigation, written complaint, suit, action, written claim or
written charge pending against the Borrower or any Affiliate
with any court or with any governmental authority with respect
to the Resort, the Timeshare Documents, any Eligible Notes
Receivable, any Interval, or any marketing, offer or sale of
any Interval.
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(d) Physical Inspection. Agent shall be satisfied with its physical
inspection of the Additional Eligible Resorts.
(e) UCC Search. Agent shall have obtained, at Borrower's cost, such
searches of the applicable public records as it deems necessary under all
applicable law to verify that it has a first and prior perfected Lien and
security interest covering all of the Collateral. Agent shall not be obligated
to fund any Advance if Agent determines that Lenders do not have a first and
prior perfected lien and security interest covering any portion of the
Collateral.
(f) Litigation Search. Agent shall have obtained, at Borrower's cost, an
independent search to verify that there are no bankruptcy, foreclosure actions
or other material litigation or judgments pending or outstanding against the
Additional Eligible Resorts, any portion of the Collateral, Borrower, or any
Affiliate, (each a "MATERIAL PARTY"). The term "other material litigation" as
used herein shall not include matters in which (i) a Material Party is plaintiff
and no counterclaim is pending or (ii) which Agent determines, in its sole
discretion exercised in good faith, are immaterial due to settlement, insurance
coverage, frivolity, or amount or nature of claim. Agent shall not be obligated
to fund any Advance if it determines that any such litigation is pending.
(g) Opinions of Borrower's Counsel. Borrower shall deliver to Agent, for
the benefit of Agent and each Lender, at Borrower's sole cost and expense, such
opinions of counsel, including counsel admitted in each state in which each
Additional Eligible Resort is located, as to such matters with respect to the
Borrower and each Additional Eligible Resort as Agent may request, and in form
and substance acceptable to Agent in its sole discretion.
(h) Funding Procedure. Borrower shall have complied to Agent's satisfaction
with each of the conditions precedent to funding of an Advance set forth in
Section 5 hereof.
(i) Management of Resort. Borrower shall provide evidence satisfactory to
Agent that Borrower, or an Affiliate, is the manager or operator of each Resort,
pursuant to a written management or operating agreement, in form and substance
satisfactory to Agent, which with respect to all Resorts (other than the Crown
Resorts) shall have a term which shall expire no earlier April 1, 2009. With
respect to each Crown Resort only, each such Resort may qualify as an Additional
Eligible Resort (subject to satisfaction by Borrower of the conditions set forth
in this Section 4.5), so long the Borrower, or an Affiliate, is the manager or
operator of each such Resort, pursuant to a written management or operating
agreement, in form and substance satisfactory to Agent. Borrower agrees to
provide an estoppel letter, in form and substance acceptable to Agent, from the
applicable Timeshare Owner's Association.
(j) Other Items. Such other agreements, documents, instruments,
certificates and materials as Agent may request to determine the acceptability
of any such Additional Eligible Resort, to evidence the Obligations; to evidence
and perfect the rights and Liens and security
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interests of Agent contemplated by the Loan Documents, and to effectuate the
transactions contemplated herein, including, without limitation, true copies of
all Resort Documents for each such Additional Eligible Resort, all Timeshare
Documents and operating and management contracts and agreements, evidence of
with the applicable Timeshare Act and other applicable laws, evidence of all
required governmental licenses and permits; title searches; title commitments or
policies, including. Complete and legible copies of each title exception,
engineering, environmental and soil reports, evidence of compliance with all
applicable zoning and building codes; each of which shall be satisfactory to
Agent in its sole and absolute discretion.
SECTION 5 -- FUNDING PROCEDURE
The obligation of any Lender to make any loan shall be subject to the
satisfaction of all of the following conditions precedent:
(a) REQUESTS FOR ADVANCES. Each request for an Advance shall:
(i) be in writing in form attached hereto as Exhibit C and
shall certify the amount of the then-current Borrowing Base, specify
the principal amount of the Advance requested and designate the account
to which the proceeds of such Advance are to be transferred;
(ii) state that the representations and warranties of the
Borrower contained in the Agreement and any closing or funding related
certifications are true and correct as of the date of the request and,
after giving effect to the making of such requested Advance, will be
true and correct as of the date on which the requested Advance is to be
made;
(iii) state that no Default or Event of Default exists as of the
date of the request and, after giving effect to the making of such
requested Advance, no Default or Event of Default would exist as of the
date on which the requested Advance is to be made;
(iv) be delivered to the office of Agent at least ten (10)
Business Days prior to the date of the requested Advance;
(v) be signed by a principal financial officer of the Borrower;
(vi) certify that the Borrower has no knowledge of any asserted
or threatened defense, offset, counterclaim, discount or allowance in
respect of each Note Receivable to be pledged in connection with such
requested Advance, or in respect of any of the Pledged Notes
Receivable;
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(vii) contain an aging report of the Pledged Notes Receivable;
identifying, among other things, which among them are Eligible Notes
Receivable; and
(viii) contain a delinquency report which shall be in form and
substance satisfactory to the Agent and shall show which of such Notes
Receivable is delinquent and the duration of such delinquency, and
which of such Pledged Notes Receivable is not an Eligible Notes
Receivable;
(b) LOAN DOCUMENTS/COLLATERAL. Not less than ten (10) Business Days
prior to the date of any Advance, the Borrower shall have:
(i) delivered to Agent a list of all Eligible Notes Receivable
and related Mortgages which are to be the subject of such requested
Advance, indicating the unpaid principal balance owing on each of the
Pledged Notes Receivable deemed to be an Eligible Note Receivable,
together with such additional information as Agent may require;
(ii) delivered to Agent (or, if Agent shall so instruct, a
designee appointed by Agent in writing) (A) the original of each
Pledged Note Receivable (duly endorsed with the words "Pay to the order
of Textron Financial Corporation as Agent with recourse"), (B) the
original of each Mortgage securing such Pledged Notes Receivable, (C)
the original of each purchase contract (including addenda) relating to
the Pledged Notes Receivable and Mortgages, (D) originals or true
copies of the related truth-in-lending disclosures, loan application,
warranty deed, Payment Authorization Agreement and, if required by
Agent, the related Purchaser's acknowledgement, receipt and exchange
company application, disclosures and materials, and (E) with respect to
each Eligible Note Receivables from the sale of Intervals at Oak N'
Spruce: (i) the original UCC-1 Financing Statement, naming the
Purchaser of the Interval giving rise to the Eligible Note Receivable
as debtor and the Borrower as secured party (the "PURCHASER FINANCING
STATEMENT"), perfecting Borrower's security interest in the applicable
Interval to secure the Purchaser's obligations under the Eligible Note
Receivable and (ii) a UCC-3 Assignment, naming the Borrower as assignor
and the Agent as assignee on behalf of the Lenders, assigning to the
Agent, on behalf of the Lenders, all of the Borrower's right, title and
interest under each Purchaser Financing Statement.
(iii) delivered to Agent a duly executed Assignment of Notes
Receivable and Mortgages assigning to Agent all of the Borrower's
right, title and interest in and to each such Pledged Note Receivable
and the related Mortgage; and
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(iv) subject to Section 4.5(c)(xvi) hereof, delivered to Agent,
with respect to each Encumbered Interval, a commitment for a
mortgagee's title insurance policy showing that the Mortgage in respect
of such Interval has been assigned to Agent and insuring in favor of
Agent the first priority Lien of such Mortgage in the amount of the
Advance to be made in respect of such Pledged Note Receivable, with a
satisfactory title insurance policy to be issued on the date of
Advance.
The Mortgages and the assignments thereof to Agent shall each have been
duly recorded in the applicable land records which are described in
Schedule D hereof. The mortgagee's title insurance policies shall be in
form and substance satisfactory to Agent and shall be issued by a title
insurance company satisfactory to Agent (the "Title Company"), and name
Agent as the insured party therein as agent for the Lenders. The funding of
the requested Advance, delivery of the Collateral and issuance of the title
insurance policy, and recording of the assignments or any releases may, in
Agent's discretion, be effected by way of an escrow arrangement with the
Title Company or other fiduciary, the form and substance of which shall be
satisfactory to Agent.
(c) OTHER CONDITIONS. In addition to the other conditions set forth in
this Agreement, the making of the initial or any requested Advance shall be
subject to the satisfaction of the following conditions:
(i) no Default or Event of Default shall exist immediately
prior to the making of such requested Advance or, after giving effect
thereto, immediately after the making of such requested Advance;
(ii) each agreement required to have been executed and delivered
in connection with any prior Advance shall be consistent with the terms
of this Agreement and shall be in full force and effect;
(iii) the date on which such requested Advance is to be made
shall be a Business Day;
(iv) Borrower shall have delivered to Agent a certification
showing the dollar amount of the requested Advance based on the
Eligible Notes Receivable pledged to Agent, and the Notes Receivable
being pledged contemporaneously with each requested Advance in the form
attached hereto as Exhibit "C";
(v) not more than one Advance shall have previously been made
in the same calendar month in which such requested Advance is to be
made, unless Agent, in its sole discretion, agrees to make an
additional Advance during such calendar month;
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(vi) such requested Advance shall be in a principal amount of
not less than $50,000, unless Agent, in its sole discretion, agrees to
make an Advance in an amount less than $50,000;
(vii) Agent shall have determined that the requested Advance,
when added to the aggregate outstanding principal amount of all
previous Advances, if any, does not exceed the total amount of the
Borrowing Base, based on the Eligible Notes Receivable that have been
duly pledged in favor of Agent;
(viii) If Agent shall so require, Agent shall have received an
executed Closing Protection Letter issued by the Title Company, which
shall be reasonably acceptable to Agent.
(d) EXPENSES. The Borrower shall have paid all fees and expenses
required to be paid by pursuant to this Agreement in connection with such
requested Advance or any conditions related thereto.
(e) PROCEEDINGS SATISFACTORY. All actions taken in connection with such
requested Advance and all documents and papers relating thereto shall be
satisfactory to Agent and its counsel. Agent and its counsel shall have
received copies of such documents and papers as the Agent or such counsel
may reasonably request in connection with such requested Advance, all in
form and substance reasonably satisfactory to the Agent and its counsel.
(f) PARTIAL WAIVER OF REQUIREMENT FOR TITLE INSURANCE POLICIES UPON
SATISFACTORY MAINTENANCE OF INVENTORY CONTROL PROCEDURES. Anything in
Section 5(b)(iv) hereof to the contrary notwithstanding, the delivery of a
commitment for a mortgagee title insurance policy and a mortgagee title
insurance policy shall be required only with respect to twenty-five percent
(25%) of the Eligible Notes Receivable delivered to Agent in respect of
each advance, subject to the following requirements and limitations:
(i) Borrower shall be in full compliance with the Inventory Control
Procedures (as defined herein); and
(ii) Agent shall have the right in its sole discretion to determine
those Eligible Notes Receivables in respect of which commitments for
mortgagee title insurance policies and also the mortgagee title
insurance policies themselves shall be required.
In the event that Borrower fails to satisfy the requirements of
Subparagraph 5(f)(i), then,
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immediately upon such failure, the partial waiver provided under this
subparagraph shall no longer be effective.
SECTION 6 -- GENERAL REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Agent and each Lender as
follows:
6.1 ORGANIZATION, STANDING, QUALIFICATION. Borrower (a) is a duly organized
and validly existing Texas corporation duly organized, validly existing and in
good standing under the laws of the State of Texas, and (b) as all requisite
power, corporate or otherwise, to conduct its business and to execute and
deliver, and to perform its obligations under, the Loan Documents.
6.2 AUTHORIZATION, ENFORCEABILITY, ETC.
(a) The execution, delivery and performance by Borrower of the Loan
Documents has been duly authorized by all necessary corporate action by
Borrower and does not and will not (i) violate any provision of the
certificate or articles of incorporation of Borrower, bylaws of Borrower,
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
in favor of Lenders; or (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.
(b) No approval, authorization, order, license, permit, franchise or
consent of, or registration, declaration, qualification or filing with, any
governmental authority or other Person, including without limitation, the
Division or the Timeshare Owners' Association is required in connection
with the execution, delivery and performance by Borrower of any of the Loan
Documents.
(c) The Loan Documents constitute legal, valid and binding obligations
of Borrower, enforceable against Borrower in accordance with their
respective terms.
(d) Borrower has good and marketable title to the Collateral, free and
clear of any lien, security interest, charge or encumbrance except for the
security interests created by this Agreement or any Loan Document or
otherwise created in favor of Agent or those specifically consented to in
writing by the Agent. No financing statement or other instrument similar in
effect covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of Lenders
hereunder or Agent.
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(e) The execution and delivery of the Loan Documents, the delivery and
endorsement to Agent as agent for the Lenders of the Pledged Notes
Receivable, the filing of the UCC-1's with the with the office of the
secretary of state of the state in which the applicable Resort is located
and the Assignment of Notes Receivable and Mortgages in the official
records of the county in which the applicable Resort is located, create in
favor of Agent as agent for the Lenders a valid and perfected continuing
first priority security interest in the Collateral. The Collateral shall
secure the full payment and performance of the Obligations.
(f) None of the Pledged Notes Receivable is forged or has affixed
thereto any unauthorized signatures or has been entered into by any Person
without the required legal capacity; and during the term of the Agreement,
none will be forged, or will have affixed thereto, any unauthorized
signatures.
(g) Except as permitted in Sections 3.8 and 3.9 hereof, there have been
no modifications or amendments to the Pledged Notes Receivable or
Mortgages.
(h) The makers of the Eligible Notes Receivable have no defenses,
offsets, counterclaims or claims relating to the Eligible Notes Receivable
or the Mortgages.
(i) The Pledged Notes Receivable and the Mortgages were executed and
delivered by Purchasers in favor of Borrower in connection with the
purchase of the related Encumbered Intervals.
(j) The Mortgages constitute and will constitute valid and enforceable
first and prior liens and security interests on the Encumbered Intervals.
(k) The Pledged Notes Receivable and the Mortgages are and shall remain
in full force and effect, are and will be valid and binding obligations of
the respective makers in favor of Agent, as holder on behalf of the
Lenders; and the Borrower further warrants and guarantees the value,
quantity, sound condition, grade and quality of the Encumbered Intervals
and rights, properties, easements and interests appurtenant or related
thereto.
(l) The grant of the security interests described herein has not
affected and will not affect the validity or enforceability of the
obligations of the respective makers of the Pledged Notes Receivable under
such Notes Receivable or the respective Mortgages.
(m) Neither Agent nor any Lender shall be required to take, and the
Borrower has taken any and all required steps to protect each Lender's
security interest in the Collateral (other than maintaining possession of
the portion of the Collateral constituting instruments); and neither Agent
nor any Lender is or shall be required to collect or realize
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upon the Collateral or any distribution of interest or principal, nor shall
loss of, or damage to, the Collateral release the Borrower from any of the
Obligations.
6.3 FINANCIAL STATEMENTS AND BUSINESS CONDITION. The Financial Statements
fairly present the respective financial conditions and results of operations of
Borrower as of the date or dates thereof and for the periods covered thereby.
There were no material liabilities, direct or indirect, fixed or contingent, of
Borrower as of the dates of such Financial Statements which were not reflected
therein or in the notes thereto, which have not otherwise been disclosed to
Agent in writing. Except for any such changes heretofore expressly disclosed in
writing to Agent, there has been no material adverse change in the respective
financial conditions of Borrower from the financial conditions shown in their
respective Financial Statements, nor has Borrower incurred any material
liabilities, direct or indirect, fixed or contingent, which are not shown in its
Financial Statements. Borrower is able to pay all of its debts as they become
due and Borrower shall maintain such solvent financial condition, giving effect
to the Obligations, as long as the Borrower is obligated to Lenders under the
Agreement or in any other manner whatsoever. Borrower's Obligations under this
Agreement and under the Loan Documents will not render Borrower unable to pay
its debts as they become due. The present fair market value of Borrower's assets
is greater than the amount required to pay its total liabilities.
6.4 TAXES. In accordance with the requirements set forth in the
Declaration, the Borrower represents and warrants that the Borrower or Timeshare
Owners' 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 the Collateral; and the Borrower knows of no basis for any additional
taxes or assessments against the Resort or the Collateral. The Borrower or the
Timeshare Owners' Association, as the case may be, has filed all tax returns
required to have been filed by it and has paid or will pay 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
have become due and payable.
6.5 TITLE TO PROPERTIES: PRIOR LIENS. Borrower has good and marketable
title to all of the Collateral and to all unsold Units and Intervals at each
Resort, and all rights, properties and benefits appurtenant to or benefiting
them. Borrower is not in default under any of the documents evidencing or
securing any indebtedness which is secured, wholly or in part, by any portion of
any Resort or any portion or all the Collateral and no event has occurred which
with the giving of notice, the passage of time or both, would constitute a
default under any of the documents evidencing or securing any such indebtedness.
Other than the Liens granted in favor of Agent, the Liens granted to secure the
Additional Credit Facility and the Inventory Loan and the Liens described in
Schedule 6.5 hereto, there are no liens or encumbrances against the Collateral,
or against any Resort.
6.6 SUBSIDIARIES, AFFILIATES AND CAPITAL STRUCTURE. Borrower has no
subsidiaries or Affiliates which have any involvement or interest in any Resort
in any way. None of the Affiliates
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of Borrower are parties to any proxies, voting trusts, shareholders agreements
or similar arrangements pursuant to which voting authority, rights or discretion
with respect to the Borrower is vested in any other Person.
6.7 LITIGATION, PROCEEDINGS, ETC. There are no actions, suits, proceedings,
orders or injunctions pending or threatened against or affecting Borrower, the
Resort or the Timeshare Owners' Association at law or in equity, or before or by
any governmental authority or other tribunal, which (a) could have a material
adverse effect on Borrower or (b) relate to the Loan or which could have a
material effect on the Collateral or the Resort. Borrower has received no notice
from any court, governmental authority or other tribunal alleging that Borrower
or the Resort have violated the Timeshare Act, any of the rules or regulations
thereunder, the Declaration or any other applicable laws, agreements or
arrangements that could have any material effect on the Loan, the Collateral or
the Resorts.
6.8 LICENSES, PERMITS, ETC. The Borrower, the Resorts, the Timeshare
Owners' Associations or Borrower's Affiliates involved in the operations of the
Resorts, and, to the best of Borrower's knowledge after diligent inquiry, other
Persons involved in the operations of the Resorts, possess all requisite
franchises, certificates of convenience and necessity, operating rights,
approvals, licenses, permits, consents, authorizations, exemptions and orders as
are necessary to carry on its or their business as now being conducted, without
any known conflict with the rights of others and, with respect to the Borrower,
the Resorts and the Timeshare Owners' Associations, in each case subject to no
mortgage, pledge, Lien, lease, encumbrance, charge, security interest, title
retention agreement or option other than as provided for by this Agreement.
6.9 ENVIRONMENTAL MATTERS. Except as otherwise noted on Schedule 6.9, (a)
no Resort contains any Hazardous Materials, (b) no Hazardous Materials are used
or stored at or transported to or from the Resorts, (c) neither Borrower nor the
Resorts nor any manager thereof or to Borrower's knowledge, the Timeshare
Owners' Associations, have received notice from any governmental agency, entity
or other Person with regard to Hazardous Materials on, under or affecting any
Resort, and (d) neither Borrower nor the Resorts, nor any portion thereof, nor
to Borrower's knowledge after diligent inquiry, the Timeshare Owners'
Associations, are in violation of any Environmental Laws.
6.10 FULL DISCLOSURE. No information, exhibit or written report or the
content of any schedule furnished by or on behalf of Borrower to Agent or any
Lender in connection with the Loan or the Resorts contains any material
misstatement of fact or omits the statement of a material fact necessary to make
the statement contained herein or therein not misleading. Borrower knows of no
fact or condition which will prevent the sale of Intervals to Purchasers or
prevent the operation of the Resorts in accordance with the Declarations and
related public offering statements, and in accordance with applicable law, or
prevent Borrower's performing its Obligations pursuant to the Loan Documents.
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6.11 USE OF PROCEEDS/MARGIN STOCK. None of the proceeds of the Loan will be
used to purchase or carry any "margin stock" (as defined under Regulation U of
the Board of Governors of the Federal Reserve System, as in effect from time to
time), and no portion of the proceeds of the Loan will be extended to others for
the purpose of purchasing or carrying margin stock. None of the transactions
contemplated in the Agreement (including, without limitation, the use of the
proceeds from the Loan) will violate or result in the violation of Section 7 of
the Securities Exchange Act of 1934, as amended, or any regulations issued
pursuant thereto, including, without limitation, Regulations G, T, U and X of
the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter 11.
6.12 NO DEFAULTS. No Default or Event of Default exists, and there is no
violation in any material respect of any term of any agreement, charter
instrument, bylaw or other instrument to which the Borrower is a party or by
which it may be bound.
6.13 COMPLIANCE WITH LAW. The Borrower
(a) is not in violation, nor are any of its Resorts, or the business
operations in respect of any of the Resorts, or to the Borrower's knowledge
after diligent inquiry, the Timeshare Owners' Association, in violation, of
the Timeshare Act, or any laws, ordinances, governmental rules or
regulations of any state in which a Resort is located, any political
subdivision of said states or any other jurisdiction to which the Borrower
or the Resorts, or the business operations conducted in respect of the
Resorts, or the Timeshare Owners' Association, are subject; and
(b) has not failed, nor have the Resorts or, to Borrower's knowledge,
the Timeshare Owners' Associations failed, to obtain any consents or
joinders, or any approvals, licenses, permits, franchises 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 Resorts or any of Borrower's Properties, or to the conduct of
Borrower's business, including, without limitation, the operation of the
Resorts and the sale, or offering for sale, of Intervals therein; which
violation or failure to obtain or register materially adversely affects the
Borrower, the Resorts or the business, prospects, profits, properties or
condition (financial or otherwise) of the Borrower or the Resorts. The
Borrower has, to the extent required by its activities and businesses, and
the operations of the Resorts, fully complied with (1) all of the
applicable provisions of (a) the Consumer Credit Protection Act; (b)
Regulation Z of the Federal Reserve Board; (c) the Equal Credit Opportunity
Act; (d) Regulation B of the Federal Reserve Board; (e) the Federal Trade
Commission's 3-day cooling-off Rule for Door-to-Door Sales; (f) Section 5
of the Federal Trade Commission Act; (g) the Interstate Land Sales Full
Disclosure Act ("ILSA"); (h) federal postal laws; (i) applicable state and
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federal securities laws; (j) applicable usury laws; (k) applicable trade
practices, home and telephone solicitation, sweepstakes, anti-lottery and
consumer credit and protection laws; (l) applicable real estate sales
licensing, disclosure, reporting and escrow laws; (m) the Americans With
Disabilities Act and related accessibility guidelines ("ADA"); (n) the Real
Estate Settlement Procedures Act ("RESPA"); (o) all amendments to and rules
and regulations promulgated under the foregoing acts or laws; and (p) other
applicable federal statutes and the rules and regulations promulgated
thereunder; and (2) all of the applicable provisions of the Timeshare Acts,
any law or laws 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.
6.14 RESTRICTIONS OF BORROWER. Neither the Borrower nor any Resort, nor to
the Borrower's knowledge, any Timeshare Owners' Association, is a party to any
contract or agreement, or subject to any Lien, charge or corporate restriction,
which materially and adversely affects its or their business. The Borrower will
not be, on or after the Closing Date, a party to any contract or agreement which
restricts its right or ability to incur indebtedness, or prohibits the
Borrower's execution of, or compliance with the terms of this Agreement or the
other Loan Documents. The Borrower has not agreed or consented to cause or
permit in the future (upon the happening of a contingency or otherwise) any of
the Collateral, whether now owned or hereafter acquired, to be subject to a Lien
except in favor of Agent or Lenders as provided hereunder.
6.15 BROKER'S FEES. Borrower, Agent and each Lender represent to each other
that none of them has made any commitment or taken any action which will result
in a claim for any brokers', finders' or other similar fees or commitments with
respect to the transactions described in the Agreement. The Borrower agrees to
indemnify Agent and each Lender and save and hold Agent and each Lender harmless
from all claims of any Person for any broker's or finder's fee or commission,
and this indemnity shall include reasonable attorneys' fees and legal expenses.
6.16 DEFERRED COMPENSATION PLANS. The Borrower has no pension, profit
sharing or other compensatory or similar plan (herein called a "Plan") providing
for a program of deferred compensation for any employee or officer. No fact or
situation, including but not limited to, any "Reportable Event," as that term is
defined in Section 4043 of the Employee Retirement Income Security Act of 1974
as the same may be amended from time to time ("Pension Reform Act"), exists or
will exist in connection with any Plan of the Borrower which might constitute
grounds for termination of any Plan by the Pension Benefit Guaranty Corporation
or cause the appointment by the appropriate United States District Court of a
Trustee to administer any such Plan. No "Prohibited Transaction" within the
meaning of Section 406 of the Pension Reform Act exists or will exist upon the
execution and delivery of the Agreement or the performance by the parties hereto
of their respective duties and obligations hereunder. The Borrower will (1) at
all times make prompt payment of contributions required to meet the minimum
funding standards set forth in Sections 302 through 305 of the Pension Reform
Act with respect to each of its Plans; (2) promptly,
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after the filing thereof, furnish to the Agent copies of each annual report
required to be filed pursuant to Section 103 of the Pension Reform Act in
connection with each Plan for each Plan Year, including any certified financial
statements or actuarial statements required pursuant to said Section 103; (3)
notify the Agent immediately of any fact, including, but not limited to, any
Reportable Event arising in connection with any Plan which might constitute
grounds for termination thereof by the Pension Benefit Guaranty Corporation or
for the appointment by the appropriate United States District Court of a Trustee
to administer the Plan; and (4) notify the Agent of any "Prohibited Transaction"
as that term is defined in Section 406 of the Pension Reform Act. The Borrower
will not (a) engage in any Prohibited Transaction or (b) terminate any such Plan
in a manner which could result in the imposition of a Lien on the Property of
the Borrower pursuant to Section 4068 of the Pension Reform Act.
6.17 LABOR RELATIONS. The employees of the Borrower are not a party to any
collective bargaining agreement with the Borrower, and, to the best knowledge of
the Borrower and its officers, there are no material grievances, disputes or
controversies with any union or any other organization of the Borrower's
employees, or threats of strikes, work stoppages or any asserted pending demands
for collective bargaining by any union or organization.
6.18 RESORT.
(a) TIMESHARE PLAN. Each Resort has been established and dedicated, and
is and will remain, a time-share plan and project in full compliance with
all applicable laws and regulations, including without limitation, the
Timeshare Act.
(b) ACCESS. Each Resort has direct access to a publicly dedicated road
and all roadways inside each Resort are subject to an access and use
easement or other dedication or provision that benefits and will continue
to benefit all Purchasers.
(c) UTILITIES. Electric, sanitary and stormwater sewer, telephone,
water facilities and other necessary utilities are available in sufficient
capacity to service each Resort and any easements necessary to the
furnishing of such utility services have been obtained and duly recorded,
and inure to the benefit of each Resort and each Timeshare Owners'
Association.
(d) AMENITIES. Each Purchaser of an Interval has and will have access
to and the full use and enjoyment of all of the Common Elements and public
utilities of the Resort in which such interval is located, all in
accordance with the Declaration and Timeshare Documents.
(e) CONSTRUCTION. All costs arising from the construction or
acquisition of any Units and any other improvements and the purchase of any
fixtures or equipment, inventory,
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furnishings or other personalty located in, at, or on the Resorts have been
paid or will be paid when due.
(f) SALE OF INTERVALS. The marketing, sale, offering of sale, rental,
solicitation of Purchasers or, if applicable, lessees, and financing of
Intervals in the Resort (1) do not constitute the sale, or the offering of
sale, of Securities subject to the registration requirements of the
Securities Act of 1933, as amended, or any state securities law; (2) do not
violate the Timeshare Act or any land sales or consumer protection law,
statute or regulation of state 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 state 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 of Borrower, all of whom are and shall be properly
licensed in accordance with applicable laws.
(g) TANGIBLE PROPERTY. Except for specific items which may be owned by
independent contractors, the machinery, equipment, fixtures, tools and
supplies used in connection with the Resort, including without limitation,
with respect to the operations and maintenance of the Common Elements, are
owned either by the Borrower or the applicable Timeshare Owners'
Association.
(h) OPERATING CONTRACTS. The Borrower has entered into the contracts,
agreements, and arrangements necessary for the operation of the Resorts,
including but not limited to those with respect to utilities, maintenance,
management, services, marketing and sales (hereinbelow defined as
"Operating Contracts").
6.19 TIMESHARE REGIMEN REPORTS. The Borrower has furnished to the Agent
true and correct copies of the Timeshare Documents listed on SCHEDULE 6.19,
which consist of all those placed on file by the Borrower with the Divisions or
any 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 Resorts,
including without limitation, the Units, Intervals, and all appurtenant Common
Elements, and all related use and access rights, have been done or obtained and
all laws, regulations and statutes, and all agreements or arrangements, in
connection therewith have been complied with.
6.20 OPERATING CONTRACTS. The contracts, agreements and arrangements
comprising those agreements or arrangements relating to the operation of the
Resorts, including without limitation, with respect to utilities, maintenance,
management, services, marketing and sales under which the fees to be paid equal
or exceed $50,000.00 (collectively, all such agreements and arrangements are
referred to herein as the "Operating Contracts") are unmodified and in full
force and effect and shall remain free and clear of any lien.
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6.21 ARCHITECTURAL AND ENVIRONMENTAL CONTROL. All Units, Common Elements
and other improvements at, upon or appurtenant to the Resort are and will be in
compliance with the design, use, architectural and environmental control
provisions, if any, set forth in the Declaration.
6.22 TAX IDENTIFICATION/SOCIAL SECURITY NUMBERS. The Borrower's federal
taxpayer's identification number is: 75-2259890.
6.23 INVENTORY CONTROL PROCEDURES. Borrower has provided to Agent a true
and complete copy of the Borrower's Inventory, Sales and Assignments procedures
(the "Inventory Control Procedures"), a copy of which is attached hereto as
Schedule 6.23.
SECTION 7 -- COVENANTS
7.1 AFFIRMATIVE COVENANTS. So long as any portion of the Obligations
remains unsatisfied, Borrower hereby covenants and agrees with Agent and each
Lender as follows:
(a) PAYMENT AND PERFORMANCE OF OBLIGATIONS. Borrower shall pay all of
the Loan and related expenses when and as the same become due and payable,
and Borrower shall strictly observe and perform all of the Obligations,
including without limitation, all covenants, agreements, terms, conditions
and limitations contained in the Loan Documents, and will do all things
necessary which are not prohibited by law to prevent the occurrence of any
Event of Default hereunder; and the Borrower will maintain an office or
agency in the State of Texas where notices, presentations and demands in
respect of the Loan Documents may be made upon the Borrower. Such office or
agency and the books and records of the Borrower shall be maintained at
1221 Riverbed Drive, Suite 120, Dallas, Texas 75221 until such time as the
Borrower shall so notify the Agent, in writing, of any change of location
of such office or agency.
(b) MAINTENANCE OF EXISTENCE, QUALIFICATION AND ASSETS. Borrower shall
at all times (i) maintain its legal existence, (ii) maintain its
qualification to transact business and good standing in any state and in
any jurisdiction where it conducts business in connection with the Resort,
and (iii) comply or cause compliance with all governmental laws, rules,
regulations and ordinances applicable to the Resort, the Borrower or its
business, including, without limitation, the Timeshare Act.
(c) CONSOLIDATION AND MERGER. Borrower will not consolidate with or
merge into any other Person or permit any other Person to consolidate with
or merge into it, unless: (i) Borrower is the continuing or surviving
corporation in any such consolidation or merger and (ii) prior to and
immediately after such consolidation or merger, Borrower shall not be in
default hereunder.
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(d) MAINTENANCE OF INSURANCE. The Borrower, or if required pursuant to
the Declaration, the Timeshare Owners' Association, shall maintain (or the
Borrower shall cause to be maintained) at all times during the term of this
Agreement, policies of insurance with premiums being paid when due, and
shall deliver to Agent originals of insurance policies issued by insurance
companies, in amounts, in form and in substance, and with expiration dates,
all acceptable to Agent and containing a waiver of subrogation rights by
the insuring company, a non-contributory standard mortgage benefit clause,
or their equivalents, and a mortgagee loss payable endorsement in favor of
and satisfactory to Agent on behalf of each Lender, and breach of warranty
coverage, providing the following types of insurance on and with respect to
the Borrower (or, as appropriate, the respective Associations) and the
Resort:
(i) Fire and extended coverage insurance (including lightning,
hurricane, tornado, wind and water damage, vandalism and malicious
mischief coverage) covering the improvements at the Resort and any
personal property located in or on the Resort, in an amount not less
than the full replacement value of such improvements and personal
property, and said policy of insurance shall provide for a deductible
acceptable to Agent, breach of warranty coverage, replacement cost
endorsements satisfactory to Agent, and shall not permit co-insurance;
(ii) Public liability and property damage insurance covering the
Resort in amounts and on terms satisfactory to Agent; and
(iii) Such other insurance on the Resort or any replacements or
substitutions therefor including, without limitation, flood insurance
(if the Property is or becomes located in an area which is considered a
flood risk by the U.S. Emergency Management Agency or pursuant to the
National Flood Insurance program), in such amounts and upon terms as
may from time to time be reasonably required by Agent.
To the extent any other timeshare receivable lender has any rights
to approve the form of insurance policies with respect to the Resort, the
amounts of coverage thereunder, the insurers under such policies, or the
designation of an attorney-in-fact for purposes of dealing with damage to
any part of the Resort or insurance claims or matters related thereto, or
any successor to such attorney-in-fact, or any changes with respect to any
of the foregoing, Borrower shall take all steps as may be necessary (and,
after turnover, if any, of control of the Resort to the Timeshare Owners'
Association, Borrower shall use its best efforts) to ensure that Agent, on
behalf of each Lender, shall at all times have a co-equal right, with such
other lender (including, without limitation, Borrower or any third-party
lender), to approve all such matters and any proposed changes in respect
thereof; and Borrower shall not cause or permit any changes with respect to
any insurance policies,
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insurers, coverage, attorney-in-fact, or insurance trustee, if any, without
Agent's prior written approval.
In the event of any insured loss or claim in respect of the Resort,
Borrower shall apply (or cause to be applied), and Borrower covenants that
the Timeshare Owners' Association shall apply (or cause to be applied), all
proceeds of such insurance policies in a manner consistent with the
Timeshare Documents and the Timeshare Act.
All insurance policies required pursuant to this Agreement (or the
Timeshare Documents or Timeshare Act) shall provide that the coverage
afforded thereby shall not expire or be amended, canceled, modified or
terminated without at least thirty (30) days prior written notice to Agent.
At least thirty (30) days prior to the expiration date of each policy
maintained pursuant to this Section 7.1(d), a renewal or replacement
thereof satisfactory to Agent shall be delivered to Agent. Borrower shall
deliver or cause to be delivered to Agent receipts evidencing the payment
for all such insurance policies and renewals or replacements.
In the event of any fire or other casualty to or with respect to
the improvements on or at the Resort, Borrower covenants that Borrower or
the Timeshare Owners' Association, as the case may be, will promptly
restore or repair (or cause to be restored, repaired or replaced) the
damaged improvements and repair or replace any other personal property to
the same condition as immediately prior to such fire or other casualty and,
with respect to the improvements and personal property on the Resort, in
accordance with the terms of the Timeshare Documents or Timeshare Act. The
insufficiency of any net insurance proceeds shall in no way relieve the
Borrower or, as applicable, Borrower and Timeshare Owners' Association, of
its obligation to restore, repair or replace such improvements and other
personal property in accordance with the terms hereof, of the Declaration
or other Timeshare Documents or of the Timeshare Act, and Borrower
covenants that Borrower or, as the case may be, the Timeshare Owners'
Association, shall promptly comply and cause compliance with the provisions
of the Declaration and other Timeshare Documents, or of the Timeshare Act
relating to such restoration, repair or replacement. In Agent's sole
discretion, all insurance proceeds payable to or received by Agent pursuant
to the Declaration or the applicable policies may be applied to the payment
of the Obligations, whether or not due and in whatever order Agent elects.
(e) MAINTENANCE OF SECURITY. Borrower shall execute and deliver (or
cause to be executed and delivered) to Agent all security agreements,
financing statements, assignments and such other agreements, documents,
instruments and certificates, and supplements and amendments thereto, and
take such other actions, as Agent deems necessary or appropriate in order
to maintain as valid, enforceable and perfected first priority liens and
security interests, all Liens and security interests in the Collateral
granted to Agent as agent for the Lenders to secure the Obligations. The
Borrower shall not grant
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extensions of time for the payment of, compromise for less than the full
face value or release in whole or in part, any Purchaser or other Person
liable for the payment of, or allow any credit whatsoever except for the
amount of cash to be paid upon, any Collateral or any instrument, chattel
paper or document representing the Collateral.
(f) PAYMENT OF TAXES AND CLAIMS. Borrower will pay, and, as applicable
pursuant to the Declaration, Borrower covenants that the Timeshare Owners'
Association will pay, when due, all taxes imposed upon the Resort, the
Collateral, the Borrower, the Timeshare Owners' Association, or any of its
or their property, or with respect to any of its or their franchises,
businesses, income or profits, or with respect to the Loan or any of the
Loan Documents; and Borrower and the Timeshare Owners' Association, as the
case may be, shall pay all other charges and assessments against Borrower,
the Collateral and the Resort before any claim (including, without
limitation, claims for labor, services, materials and supplies) arises for
sums which have become due and payable. Except for the Liens in connection
with the Existing Credit Facility and the Inventory Loan and the Liens in
favor of Agent on behalf of the Lenders granted pursuant to the Loan
Documents, and except as otherwise specifically provided for herein,
Borrower covenants that no statutory or other Liens whatsoever (including,
without limitation, mechanics', materialmens', judgment or tax liens) shall
attach to any of the Collateral or the Resort except for such Liens as are
expressly provided for pursuant to the Declaration, which shall, in any
event, be subordinate to the Lien of Agent on behalf of the Lenders. In the
event any such Lien attaches to any of the Collateral or the Resort
Borrower shall, within thirty (30) days after any such Lien attaches,
either (i) cause such Lien to be released of record or (ii) provide Agent
with a bond in accordance with the applicable laws of the State, issued by
a corporate surety acceptable to Agent, in an amount and form acceptable to
Agent.
(g) INSPECTIONS. Borrower shall, at any time and from time to time and
at the expense of Borrower, permit Agent or its agents or representatives
to inspect the Resort, the Collateral and if necessary, in Agent's opinion,
to ascertain or assure Borrower's compliance with the terms of this
Agreement, any of the Borrower's other assets or Property, and to examine
and make copies of and abstracts from its and, to the extent it has access
thereto or possession thereof, the Timeshare Owners' Association's, books,
accounts, records, original correspondence, computer tapes, disks,
software, and other papers as it may desire; and to discuss its affairs,
finances and accounts with any of its officers, employees, Affiliates,
contractors or independent public accountants (and by this provision
Borrower authorizes said accountants to discuss with Agent, its agents or
representatives, the affairs, finances and accounts of Borrower). Agent
agrees to use reasonable efforts not to unreasonably interfere with
Borrower's business operations in connection with any such inspections.
Without limiting the foregoing, Agent shall have the right to make such
credit investigations as Agent may deem appropriate in connection with its
review of Notes Receivable, and Borrower shall make available to Agent all
credit information in Borrower's possession or under its control or to
which it may have access, with respect to Purchasers or other obligors
under Notes Receivable as Agent may request.
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(h) REPORTING REQUIREMENTS. So long as any portion of the Obligations
remain unsatisfied, Borrower shall furnish (or cause to be furnished, as
the case may be) to Agent the following:
(i) MONTHLY FINANCIAL REPORTS. As soon as available and in any
event within ten (10) days after the end of each calendar month, a
report showing (i) the trial balance of the Pledged Notes Receivable,
(ii) an aging report on the Pledged Notes Receivable, (iii) a report
detailing the collections on each of the Pledged Notes Receivable, (iv)
an Borrowing Base Report and (v) monthly reports from the Lockbox Agent
required pursuant to the Lockbox Agreement;
(ii) QUARTERLY FINANCIAL REPORTS. As soon as available and in
any event within forty-five (45) days after the end of each fiscal
quarter, copies of income statements and balance sheets for the
operations of each Resort and for Borrower, certified by the Chief
Financial Officer of Borrower.
(iii) ANNUAL FINANCIAL REPORTS. As soon as available and in any
event within ninety (90) days after the end of each of calendar year or
other fiscal year as may be applicable with respect to the Borrower (a
"Fiscal Year"), a statement of income and expense of Borrower for the
annual period ended as of the end of such Fiscal Year, and a balance
sheet of Borrower as of the end of such Fiscal Year, all in such detail
and scope as may be reasonably required by Agent and prepared in
accordance with GAAP and on a basis consistent with prior accounting
periods. Each annual financial statement of Borrower shall be prepared
by an independent certified public accountant and certified by Borrower
to be true, correct and complete, and shall otherwise be in form
acceptable to Agent. In the event that Agent, acting in good faith, is
not satisfied with any such Financial Statement, and if Borrower fails
to provide Agent with new Financial Statements acceptable to Agent
within fifteen (15) days after Agent delivers written notice of such
dissatisfaction to Borrower, then, at Agent's request, Borrower shall
furnish to Agent copies of audited income statements and balance sheets
certified by an independent certified public accountant acceptable to
Agent and prepared in accordance with GAAP and on a basis consistent
with prior accounting periods. Such audited annual statements shall
also be in form and content satisfactory to Agent. If the figures for
net and total operating income (as such terms are defined in accordance
with GAAP) in the audited annual statements do not vary by more than
five percent (5%) from the figures in the unaudited annual statements,
each Lender shall bear, pro rata based upon its Pro Rata Percentage,
the cost of the certified public accountant's audit. If, however, such
figures vary by more than five percent (5%), Borrower shall bear the
cost of such certified public accountant's audit;
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(iv) OFFICER'S CERTIFICATE. Each set of annual Financial
Statements or reports delivered to the Agent pursuant to Sections
7.1(h)(i), (ii) and (iii) of this Agreement will be accompanied by a
certificate of the President or the Treasurer of the Borrower in the
form attached as Exhibit D setting forth that the signers have reviewed
the relevant terms of the Agreement (and all other agreements and
exhibits between the parties) and have made, or caused to be made,
under their supervision, a review of the transactions and conditions of
the Borrower from the beginning of the period covered by the Financial
Statements or reports being delivered therewith to the date of the
certificate and that such review has not disclosed the existence during
such period of any condition or event which constitutes a Default or
Event of Default or, if any such condition or event existed or exists
or will exist, specifying the nature and period of existence thereof
and what action the Borrower has taken or proposes to take with respect
thereto;
(v) SALES REPORTS. Concurrently with the financial statements
required pursuant to Section 7.1(h)(i) and (ii), Borrower shall deliver
to Agent, annually, an annual sales report, detailing the sales of all
Intervals at the Resorts for the period covered thereby, certified by
Borrower to be true, correct and complete and otherwise in a form
approved by Agent;
(vi) AUDIT REPORTS. Promptly upon receipt thereof, one (1) copy
of each other report submitted to the Borrower by independent public
accountants or other Persons in connection with any annual, interim or
special audit made by them of the books of the Borrower;
(vii) NOTICE OF DEFAULT OR EVENT OF DEFAULT. Immediately upon
becoming aware of the existence of any condition or event which
constitutes a Default or an Event of Default, a written notice
specifying the nature and period of existence thereof and what action
the Borrower is taking or proposes to take with respect thereto;
(viii) NOTICE OF CLAIMED DEFAULT. Immediately upon becoming aware
that the holder of any material obligation or of any evidence of
material indebtedness of the Borrower has given notice or taken any
other action with respect to a claimed default or event of default
thereunder, a written notice specifying the notice given or action
taken by such holder and the nature of the claimed default or event of
default and what action the Borrower is taking or proposes to take with
respect thereto;
(ix) MAINTENANCE OF INVENTORY CONTROL. Borrower shall maintain
and at all times fully comply with the Inventory Control Procedures
from the date hereof
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until the Loan is repaid in full. Borrower shall permit Agent, its
officers, employees, auditors, and other agents or designees to review
the books and records of Borrower and make such other examinations and
inspections as Agent in its sole discretion deems necessary to
determine that Borrower is in full compliance with such Inventory
Control Procedures.
(x) MATERIAL ADVERSE DEVELOPMENTS. Immediately upon becoming
aware of any claim, action, proceeding, development or other
information which may materially and adversely affect the Borrower, the
Collateral, the Resort, or the business, prospects, profits or
condition (financial or otherwise) of the Borrower or the ability of
the Borrower to perform its Obligations under the Agreement, Borrower
shall provide Agent with telephonic or telegraphic notice, followed by
telefaxed and mailed written confirmation, specifying the nature of
such development or information and such anticipated effect; and
(xi) OTHER INFORMATION. Borrower shall deliver to Agent: (i)
within five (5) days of the filing thereof with the United States
Securities and Exchange Commission, copies of each Form 8-K, 10-Q and
10-K filed by Borrower; (ii) at least semi-annually during the Term (or
more frequently upon request of the Agent), current addresses and
telephone numbers for each obligor under an Eligible Note Receivable
pledged to the Agent on behalf of the Lenders hereunder and (iii) any
other information related to the Loan, the Collateral, the Resort or
the Borrower as Agent may in good faith request including, without
limitation, annually, federal call reports relating to Lockbox Agent.
(i) RECORDS. Borrower shall keep adequate records and books of account
reflecting all financial transactions of Borrower and with respect to the
Resort in which complete entries will be made in accordance with GAAP. In
addition, Borrower shall keep, and shall promptly deliver to Agent upon
Agent's request therefore, complete, timely and accurate records of all
sales of Intervals and all payments in respect of Pledged Notes Receivable.
(j) MANAGEMENT. Borrower shall: (i) remain engaged in the active
management of the Resorts, (ii) unless Borrower notifies Agent in writing
at least thirty (30) days in advance of its new location, it will retain
its executive offices at 1221 Riverbend Drive, Suite 120, Dallas, Texas
75221, and (iii) will continue to perform duties substantially similar to
those presently performed as provided in the Management Agreement relating
to each Resort.
(k) FICA. Borrower shall furnish to Agent within thirty (30) days after
the expiration of each calendar quarter proof reasonably satisfactory to
Agent that Borrower's obligations to make deposits for F.I.C.A., social
security and withholding taxes have been satisfied.
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(l) OPERATING CONTRACTS. Subject to the rights of the Timeshare Owners'
Association as set forth in the Timeshare Documents, no Operating Contract
shall be modified, extended, terminated or entered into, without the prior
written approval of Agent, if any such modification, extension, termination
or new agreement could have a material adverse impact on the operation of
the Resort or the Collateral.
(m) NOTICES. Borrower shall notify Agent within five (5) Business Days
of the occurrence of any event (i) as a result of which any representation
or warranty of Borrower contained in any Loan Documents would be incorrect
or materially misleading if made at that time, or (ii) as a result of which
Borrower is not in full compliance with all of its covenants and agreements
contained in this Agreement or any Loan Document, or (iii) which
constitutes or, with the passage of time, notice or a determination by
Agent would constitute, an Event of Default.
(n) MAINTENANCE. Borrower shall maintain, or shall cause to be
maintained, or to the extent provided for pursuant to the Declaration,
shall use its best efforts to cause the Timeshare Owners' Association to
maintain, the Resort in good repair, working order and condition and shall
make all necessary replacements and improvements to the Resort so that the
value and operating efficiency of the Resort will be maintained at all
times and so that the Resort remains in compliance in all respects with the
Timeshare Act, the Timeshare Documents and other applicable law.
(o) CLAIMS. Borrower shall promptly notify Agent of any claim, action
or proceeding affecting the Resort or Collateral, or any part thereof, or
Agent, any Lender or any of the security interests or rights granted in
favor of Agent hereunder or under any of the Loan Documents. At the request
of Agent, Borrower shall appear in and defend in favor of each Lender, at
Borrower's sole expense, with regard to any such claim, action or
proceeding.
(p) REGISTRATION AND REGULATIONS.
(i) LOCAL LEGAL COMPLIANCE. The Borrower will comply, and will
cause the Resort to comply, with all applicable servitudes, restrictive
covenants, applicable planning, zoning or land use ordinances and
building codes, all applicable health and Environmental Laws and
regulations, and all other applicable laws, rules, regulations,
agreements or arrangements.
(ii) REGISTRATION COMPLIANCE. The Borrower will maintain, or
cause to be maintained, all necessary registrations, current filings,
consents, franchises,
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approvals, and exemption certificates, and the Borrower will make or
pay, or cause to be made or paid, all registrations, declarations or
fees with the Division and any other government or any agency or
department thereof, whether in the state or another jurisdiction,
required in connection with the Resort and the occupancy, use and
operation thereof, the incorporation of Units into the time-share plan
established pursuant to the Declaration and the other Timeshare
Documents, and the sale, advertising, marketing, and offering for sale
of Intervals. All such registrations, filings and reports will be
truthfully completed; and true and complete copies of such
registrations, applications, consents, licenses, permits, franchises,
approvals, exemption certificates, filings and reports will be
delivered to the Agent. Borrower shall advise Agent of any changes with
respect to its marketing or sales programs in any jurisdiction,
including jurisdictions other than the state, and at Agent's request
from time to time, Borrower shall deliver to Agent: (A) written
statements by the applicable state authorities, in form acceptable to
Agent, stating that no registration is necessary for the sale of
Intervals in the particular state, (B) an opinion of counsel in form
acceptable to Agent and rendered by counsel acceptable to Agent,
stating that no such registration is necessary, or (C) such other
evidence of compliance with applicable laws as Agent may require; and
(iii) OTHER COMPLIANCE. The Borrower has, in all material
respects, complied with and will comply with all laws and regulations
of the United States, the State of Texas, the each state in which an
applicable Resort is located, any political subdivision of either such
state and any other governmental, quasi-governmental or administrative
jurisdiction in which Intervals have been 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: (1) the Timeshare Act; (2) the Consumer
Credit Protection Act; (3) Regulation Z of the Federal Reserve Board;
(4) the Equal Credit Opportunity Act; (5) Regulation B of the Federal
Reserve Board; (6) the Federal Trade Commission's 3-day cooling-off
Rule for Door-to-Door Sales; (7) Section 5 of the Federal Trade
Commission Act; (8) ILSA; (9) federal postal laws; (10) applicable
state and federal securities laws; (11) applicable usury laws; (12)
applicable trade practices, home and telephone solicitation,
sweepstakes, anti-lottery and consumer credit and protection laws; (13)
applicable real estate sales licensing, disclosure, reporting and
escrow laws; (14) the ADA; (15) RESPA; (16) all amendments to and rules
and regulations promulgated under the foregoing acts or laws; and (17)
other applicable federal statutes and the rules and regulations
promulgated thereunder; and (18) 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.
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(r) OTHER DOCUMENTS. The Borrower will maintain to the satisfaction of
the Agent, and make available to Agent, accurate and complete files
relating to the Resort, the Pledged Notes Receivable and other Collateral,
and such files will contain true copies of each Pledged Note Receivable, as
amended from time to time, copies of all relevant credit memoranda relating
to such Notes Receivable and all collection information and correspondence
relating thereto.
(s) FURTHER ASSURANCES. Borrower will execute and deliver, or cause to
be executed and delivered, such other and further agreements, documents,
instruments, certificates and assurances as, in the judgment of Agent
exercised in good faith may be necessary or appropriate to more effectively
evidence or secure, and to ensure the performance of, the Obligations. In
addition, Borrower shall deliver to Agent from time to time upon each
request by Agent such documents, instruments or other matters or items as
Agent may require to evidence Borrower's compliance with the covenants set
forth in this Section 7.1.
(t) UTILITIES. The Borrower will cause, or to the extent provided for
pursuant to the Declaration, covenants to use its best efforts to ensure
that the Timeshare Owners' Association, or the manager of the Resort, as
applicable, 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
service the Resort.
(u) AMENITIES. The Borrower will cause, or to the extent provided for
pursuant to the Declarations, will use its best efforts to ensure that the
Timeshare Owners' Association, or the manager of the Resort, as applicable,
will cause, the Resort to be maintained in good condition and repair, and
in accordance with the provisions of the applicable Timeshare Documents,
and the Borrower will cause each Purchaser of an Interval at the Resort to
have continuing access to, and the use of, to the extent of such
Purchaser's time-share periods, all of the Common Elements and related or
appurtenant services, rights and benefits, all as provided in the
Declaration and the Timeshare Documents.
(v) EXPENSES AND CLOSING FEES. Whether or not the transactions
contemplated hereunder are completed, the Borrower shall pay all expenses
of the Agent and each Lender relating to negotiating, preparing,
documenting, closing and enforcing this Agreement, including, but not
limited to:
(i) the cost of preparing, reproducing and binding this
Agreement, the other Loan Documents and all Exhibits and Schedules
thereto;
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(ii) the fees and disbursements of Agent's and each Lender's
counsel;
(iii) Agent's and each Lender's out-of-pocket expenses;
(iv) all fees and expenses (including fees and expenses of the
Agent's and each Lender's counsel) relating to any amendments, waivers,
consents or subsequent closings pursuant to the provisions hereof;
(v) all costs, outlays, legal fees and expenses of every kind
and character had or incurred in (1) the interpretation or enforcement
of any of the provisions of, or the creation, preservation or exercise
of rights and remedies under, any of the Loan Documents including the
costs of appeal (2) the preparation for, negotiations regarding,
consultations concerning, or the defense or prosecution of legal
proceedings involving any claim or claims made or threatened against
the Agent arising out of this transaction or the protection of the
Collateral securing the Loan or Advances made hereunder, expressly
including, without limitation, the defense by Agent and each Lender of
any legal proceedings instituted or threatened by any Person to seek to
recover or set aside any payment or setoff theretofore received or
applied by the Agent and each Lender with respect to the Obligations,
and any and all appeals thereof; and (3) the advancement of any
expenses provided for under any of the Loan Documents;
(vi) all expenses relating to the maintenance and administration
of the Lockbox and Lockbox Account by the Lockbox Agent and Servicing
and any escrow by the Title Company or any other escrow agent;
(vii) the custodial fees payable to Agent with respect to the
original Pledged Notes Receivable and related Collateral;
(viii) all costs and expenses incurred by Agent under the Note,
and all late charges under the Note; and
(ix) all real and personal property taxes and assessments,
documentary stamp and intangible taxes, sales taxes, recording fees,
title insurance premiums and other title charges, document copying,
transmittal and binding costs, appraisal fees, lien and judgment search
costs, fees of architects, engineers, environmental consultants,
surveyors and any special consultants, construction inspection fees,
brokers fees, escrow fees, wire transfer fees, and all travel and
out-of-pocket expenses of Agent and each Lender to conduct inspections
or audits; Without limitation of the foregoing, Borrower shall pay the
costs of UCC and other searches, UCC and other Loan Document recording
fees and applicable taxes, and premiums on each Mortgagee Policy of
Title Insurance delivered to Agent pursuant to this Agreement.
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(w) INDEMNIFICATION OF AGENT AND LENDERS. In addition to (and not in
lieu of) any other provisions of any Loan Document providing for
indemnification in favor of the Agent or the Lenders, the Borrower shall
defend, indemnify and hold harmless Agent and each Lender, its respective
subsidiaries, affiliates, officers, directors, agents, employees,
representatives, consultants, contractors, servants, and attorneys, as well
as the respective heirs, personal representatives, successors or assigns of
any or all of them (hereafter collectively the "Indemnified Lender
Parties"), from and against, and promptly pay on demand or reimburse each
of them with respect to, any and all liabilities, claims, demands, losses,
damages, costs and expenses (including without limitation, reasonable
attorneys' and paralegals' fees and costs), actions or causes of action of
any and every kind or nature whatsoever asserted against or incurred by any
of them by reason of or arising out of or in any way related or
attributable to (i) this Agreement, the Loan Documents, the Commitment or
the Collateral; (ii) the transactions contemplated under any of the Loan
Documents or any of the Timeshare Documents, including without limitation,
those in any way relating to or arising out of the violation of any federal
or state laws, including the Timeshare Act; (iii) any breach of any
covenant or agreement or the incorrectness or inaccuracy of any
representation and warranty of the Borrower contained in this Agreement or
any of the Loan Documents (including without limitation any certification
of the Borrower delivered to any Lender or Agent; (iv) any and all taxes,
including real estate, personal property, sales, mortgage, excise,
intangible or transfer taxes, and any and all fees or charges, including,
without limitation under the Timeshare Act, which may at any time arise or
become due prior to the payment, performance and discharge in full of the
Obligations; (v) the breach of any representation or warranty as set forth
herein regarding any Environmental Laws; (vi) the failure of Borrower to
perform any obligation or covenant herein required to be performed pursuant
to any Environmental Laws; (vii) the use, generation, storage, release,
threatened release, discharge, disposal or presence on, under or about the
Resort of any Hazardous Materials; (viii) the removal or remediation of any
Hazardous Materials from the Resort required to be performed pursuant to
any Environmental Laws or as a result of recommendations of any
environmental consultant or as required by Agent; (ix) claims asserted by
any Person (including without limitation any governmental or
quasi-governmental agency, commission, department, instrumentality or body,
court, arbitrator or administrative board (collectively, a "Governmental
Agency"), in connection with or any in any way arising out of the presence,
use, storage, disposal, generation, transportation, release, or treatment
of any Hazardous Materials on, in, under or affecting the Resort; (x) the
violation or claimed violation of any Environmental Laws in regard to the
Resort; or (xi) the preparation of an environmental audit or report on the
Resort, whether conducted by a Lender, Agent, Borrower or a third-party, or
the implementation of environmental audit recommendations. Such
indemnification shall not give Borrower any right to participate in the
selection of counsel for Agent or any Lender or the conduct or settlement
of any dispute or proceeding for which indemnification may be claimed.
Agent
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and each Lender agrees to give Borrower written notice of the assertion of
any claim or the commencement of any action or lawsuit described in this
Section. It is the express intention of the parties hereto that the
indemnity provided for in this Section, as well as the disclaimers of
liability referred to in this Agreement, are intended to and shall protect
and indemnify Agent and each Lender from the consequences of Agent's and
each Lender's own negligence, whether or not that negligence is the sole or
concurring cause of any liability, obligation. loss, damage, penalty,
action, judgment, suit, claim, cost, expense or disbursement provided,
however, that Borrower shall not be required to protect and indemnify Agent
or any Lender from the consequences of Agent's or any such Lender's gross
negligence, where that gross negligence is the sole cause of the liability,
obligation, loss, damage, penalty, action, judgment, suit, claim, cost,
expense or disbursement for which indemnification or protection would
otherwise be required. The provisions of this Section shall survive the
full payment, performance and discharge of the Obligations and the
termination of this Agreement, and shall continue thereafter in full force
and effect.
7.2 NEGATIVE COVENANTS. So long as any portion of the Obligations remain
unsatisfied, Borrower hereby covenants and agrees with Agent and each Lender as
follows:
(a) LIMITATION ON OTHER DEBT/FURTHER ENCUMBRANCES. Without the prior
written consent of Agent which may be granted, withheld or conditioned in
Agent's sole discretion, Borrower will not obtain financing or grant liens
with respect to the Collateral. Provided that such financing is in the
ordinary course of Borrower's business, Borrower may, however, obtain arms
length financing in a manner consistent with each Lender's rights under
this Agreement with respect to any Units or Intervals, the Resorts or any
Properties used in connection with the Resorts, or any Notes Receivable or
other accounts receivable (whether now existing or created hereafter) other
than those included among the Collateral.
(b) RESTRICTIONS ON TRANSFERS. Except as hereinafter specifically
provided, Borrower shall not, whether voluntarily or involuntarily, by
operation of law or otherwise, (i) without obtaining the prior written
consent of Agent (which consent may be given, withheld or conditioned by
Agent in Agent's sole discretion), transfer, sell, pledge, convey,
hypothecate, factor or assign all or any portion of the Collateral, the
Encumbered Intervals, the Common Elements relating to the Encumbered
Intervals or any Resort facilities or amenities, or contract to do any of
the foregoing, including, without limitation, pursuant to options to
purchase, and so-called "installment sales contracts", "land contracts", or
"contracts for deed", (ii) without obtaining the prior written consent of
Agent (which consent may be given, withheld or conditioned by Agent in
Agent's sole discretion), lease or license all or any portion of the
Collateral, the Encumbered Intervals, the Common Elements relating to the
Encumbered Intervals or any Resort facilities or amenities, or change the
legal or actual possession or use thereof, (iii) permit the assignment,
transfer, delegation, change, modification or diminution of the duties or
responsibilities of Borrower,
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of any manager of the Resort approved by Agent as manager of the Resort
(except for an assignment of such duties to a professional management
company or companies reasonably acceptable to Agent in advance) without
obtaining the prior written consent of Agent (which consent shall not be
unreasonably withheld), or (iv) without obtaining the prior written consent
of Agent (which consent may be given, withheld or conditioned by Agent in
Agent's sole discretion), cause or permit the assignment, pledge or other
encumbrance of any of the Operating Contracts or all or any portion of
Borrower's right, title or interest in the Declaration. Without limiting
the generality of the preceding sentence, and subject to the terms of this
Agreement, the prior written consent of Agent (as specified above) shall be
required for (A) any transfer of the Encumbered Intervals, the Common
Elements relating to the Encumbered Intervals or any Resort facilities or
amenities or any part thereof made to a subsidiary or Affiliate or
otherwise, (B) any transfer of all or any part of the Encumbered Intervals,
the Common Elements relating to the Encumbered Intervals or any Resort
facilities or amenities by Borrower to its stockholders or Affiliates or
vice versa, and (C) any corporate merger or consolidation, disposition or
other reorganization, except as permitted in Section 7.1(c). In the event
that Agent is willing to consent to a transfer which would otherwise be
prohibited by this Section 7.2(b) Agent may condition its consent on such
terms as it desires, including, without limitation, an increase in the
Interest Rate and the requirement that Borrower pay a transfer fee,
together with any expenses incurred by Agent in connection with the
granting of such consent (including, without limitation, attorneys' fees
and expenses). If Borrower violates the terms of this Section 7.2(b), in
addition to any other rights or remedies which Agent may have herein, in
any other Loan Document, or at law or in equity, Agent may by written
notice to Borrower increase, effective immediately as of the date of such
violation, the Interest Rate to the Default Rate.
(c) USE OF A LENDER'S OR AGENT'S NAME. Borrower will not, and will not
permit any Affiliate to, without the prior written consent of Agent or such
Lender, use the name of Agent or any Lender or the name of any affiliate of
Agent or any Lender in connection with any of their respective businesses
or activities, except in connection with internal business matters and as
required in dealings with governmental agencies.
(d) TRANSACTIONS WITH AFFILIATES. Without the prior written consent of
Agent, which shall not unreasonably be withheld, Borrower will not enter
into any transaction with any Affiliate in connection with the Resorts,
including, without limitation, relating to the purchase, sale or exchange
any assets or properties or the rendering of any service, except in the
ordinary course of, and pursuant to the reasonable requirements of, the
operations of the Resorts and upon fair and reasonable terms.
(e) RESTRICTIVE COVENANTS. Borrower will not without Agent's prior
written consent seek, consent to, or otherwise acquiesce in, any change in
any private restrictive covenant, planning or zoning law or other public or
private restriction, which would limit or alter the use of the Resort.
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(f) SUBORDINATED OBLIGATIONS. Borrower will not, directly or
indirectly, (i) permit any payment to be made in respect of any
indebtedness, liabilities or obligations, direct or contingent, (the
"Subordinated Debt") to any of its shareholders or their affiliates or
which are subordinated by the terms thereof or by separate instrument to
the payment of principal of, and interest on, the Note, except that the
Borrower may make and the Subordinated Lender may receive, accept and
retain such payments so long as no Default or Event of Default under, and
as defined, in the Loan Agreement shall have occurred and be continuing and
such payments are in respect of regularly scheduled payments of principal
and/or interest under the Subordinated Debt (the terms of which regularly
scheduled payments shall have previously been approved, in writing by the
Agent in its sole discretion) provided that in no case may the Borrower
make, or the Subordinated Lender accept, a prepayment of any principal
and/or interest in respect of the Subordinated Debt, (ii) permit the
amendment, rescission or other modification of any such subordination
provisions of any of the Borrower's subordinated obligations in such a
manner as to affect adversely the Lien in and to the Collateral or Lender's
senior priority position and entitlement as to payment and rights with
respect to the Note and the Obligations, or (iii) permit the prepayment or
redemption, except for mandatory prepayments, of all or any part of
Borrower's obligations to its shareholders, or of any subordinated
obligations of the Borrower except in accordance with the terms of such
subordination.
(g) TIMESHARE REGIME. Without Agent's prior written consent, Borrower
shall not amend, modify or terminate the Declarations or other Timeshare
Documents, or any other restrictive covenants, agreements or easements
regarding the Resorts (except for routine non-substantive modifications
which have no impact on the Collateral); nor shall Borrower assign its
rights as "developer" under the Declarations without Agent's prior written
consent, or file or permit to be filed any additional covenants,
conditions, easements or restrictions against or affecting the Resorts (or
any portion thereof) without Agent's prior written consent, which consent
shall not be unreasonably withheld.
(h) NAME CHANGE. Borrower will not change its name.
(i) COLLATERAL. Borrower shall not take any action (nor permit or
consent to the taking of any action) which might impair the value of the
Collateral or any of the rights of the Lenders in the Collateral, nor shall
Borrower cause or permit any amendment to or modification of the form or
terms of any of the Pledged Notes Receivable, Mortgages or, except as
specifically provided hereinabove, the other Timeshare Documents.
(j) MARKETING/SALES. 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
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Timeshare Act and applicable laws in state and other jurisdictions where
marketing, sales or solicitation activities occur.
SECTION 8 -- EVENTS OF DEFAULT
8.1 NATURE OF EVENTS. An "Event of Default" shall exist if any of the
following shall occur:
(a) PAYMENTS. If Borrower shall fail to make, as and when due, any
payment or mandatory prepayment of principal, interest, fees or other
amounts with respect to the Loan and such failure shall continue for five
(5) days after notice of such failure is provided by Agent.
(b) COVENANT DEFAULTS. If Borrower shall fail to perform or observe any
covenant, agreement or warranty contained in this Agreement or in any of
the Loan Documents, (other than with respect to the failure to make timely
payments in respect of the Loan as provided in Section 8.1(a) or violation
of any negative covenants in Section 7.2) and, such failure shall continue
for fifteen (15) days after notice of such failure is provided by Agent,
provided however, that if Borrower commences to cure such failure within
such 15 day period, but, because of the nature of such failure, cure cannot
be completed within 15 days notwithstanding diligent effort to do so, then,
provided Borrower diligently seeks to complete such cure, an Event of
Default shall not result unless such failure continues for a total of
thirty (30) days.
(c) WARRANTIES OR REPRESENTATIONS. If any representation or other
statement made by or on behalf of Borrower in this Agreement, in any of the
Loan Documents or in any instrument furnished in compliance with or in
reference to the Loan Documents, is false, misleading or incorrect in any
material respect as of the date made or reaffirmed.
(d) ENFORCEABILITY OF LIENS. If any lien or security interest granted
by Borrower to the Lenders in connection with the Loan is or becomes
invalid or unenforceable or is not, or ceases to be, a perfected first
priority lien or security interest in favor of the Lenders encumbering the
asset to which it is intended to encumber, and Borrower fails to cause such
lien or security interest to become a valid, enforceable, first and prior
lien or security interest in a manner satisfactory to Agent within ten (10)
days after Agent delivers written notice thereof to Borrower.
(e) INVOLUNTARY PROCEEDINGS. If a case is commenced or a petition is
filed against Borrower under any Debtor Relief Law; a receiver, liquidator
or trustee of Borrower or of any material asset of Borrower is appointed by
court order and such order remains in effect for more than forty-five (45)
days; or if any material asset of Borrower is sequestered
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by court order and such order remains in effect for more than forty-five
(45) days.
(f) PROCEEDINGS. If Borrower voluntarily seek, consent to or acquiesce
in the benefit of any provision of any Debtor Relief Law, whether now or
hereafter in effect; consent to the filing of any petition against it under
such law; make an assignment for the benefit of its creditors; admit in
writing its inability to pay its debts generally as they become due; or
consents or suffers to the appointment of a receiver, trustee, liquidator
or conservator for it, him or her or any part of its, his or her assets.
(g) ATTACHMENT, JUDGMENT, TAX LIENS. The issuance, filing, levy or
seizure against the Collateral, or, with respect to the Resort or the
Obligations, against the Borrower of one or more attachments, injunctions,
executions, tax liens or judgments for the payment of money cumulatively in
excess of $100,000, which is not discharged in full or stayed within thirty
(30) days after issuance or filing.
(h) FAILURE TO DEPOSIT PROCEEDS. If Borrower shall fail to deliver
payments made under the Pledged Notes Receivable directly to Agent as
required pursuant to Section 2.3 above, or if Borrower shall take any other
act which Agent shall deem to be a conversion of the Collateral or
fraudulent with respect to any Lender.
(i) TIMESHARE DOCUMENTS. If the Declaration, any of the other documents
creating or governing the Resort, its timeshare regime, or the Timeshare
Owners' Association, or the restrictive covenants with respect to the
Resort, shall be terminated, amended or modified without Agent's prior
written consent (except for routine non-substantive modifications which
have no impact on the Collateral).
(j) REMOVAL OF COLLATERAL. If Borrower conceals, removes, transfers,
conveys, assigns or permits to be concealed, removed, transferred, conveyed
or assigned, any of the Collateral in violation of the terms of the Loan
Documents or with the intent to hinder, delay or defraud its creditors or
any of them including, without limitation, any Lender.
(k) OTHER DEFAULTS. If a material default shall occur in any of the
covenants or Obligations set forth in any of the Loan Documents.
(l) MATERIAL ADVERSE CHANGE. Any material adverse change in the
financial condition of the Borrower in the condition of the Collateral. For
purposes of this provision, a decline in the net worth of the Borrower of
$100,000.00 or less shall not be considered a material adverse change.
(m) DEFAULT BY BORROWER IN OTHER AGREEMENTS. Any default by the
Borrower (i) in the payment of any indebtedness to any Lender, including
any indebtedness owed to
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Agent under the Existing Credit Facility or the Inventory Loan, (ii) in the
payment or performance of other indebtedness for borrowed money or
obligations secured by any part of the Resort; or (iii) in the payment or
performance of other material indebtedness or obligations (material
indebtedness or obligations being defined for purposes of this provision as
any indebtedness or obligation in excess of $50,000) where such default
accelerates or permits the acceleration (after the giving of notice or
passage of time or both) of the maturity of such indebtedness, or permits
the holders of such indebtedness to elect a majority of the board of
directors of Borrower (whether or not such default[s] have been waived by
such holder).
(n) LOSS OF LICENSE. 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 the 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 the Borrower's business in the same manner as it
is being conducted at the time of such loss, revocation, failure to renew
or failure to pay.
(o) VIOLATION OF NEGATIVE COVENANTS. Borrower violates any negative
covenants set forth in Section 7.2.
SECTION 9 -- REMEDIES
9.1 REMEDIES UPON DEFAULT. Should an Event of Default occur, Agent, on
behalf of each Lender, may, and upon request of Lenders having at the time of
such request total Pro Rata Percentages of more than 66 2/3% the Agent shall,
take any one or more of the actions described in this Section 9, all without
notice to Borrower:
(a) ACCELERATION. Without demand or notice of any nature whatsoever,
declare the unpaid balance of the Loans, or any part thereof, immediately
due and payable, whereupon the same shall be due and payable.
(b) TERMINATION OF OBLIGATION TO ADVANCE. Terminate any obligation of
the Lenders to lend under this Agreement in its entirety, or any portion of
any such commitment, to the extent Agent shall deem appropriate, all
without notice to Borrower.
(c) JUDGMENT. Reduce each Lender's claim to judgment, foreclose or
otherwise enforce each Lender's security interest in all or any part of the
Collateral by any available judicial or other procedure under law.
(d) SALE OF COLLATERAL. After notification, if any, provided for in
Section 9.2
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below, sell or otherwise dispose of, at the office of Agent, or elsewhere,
as chosen by Agent, all or any part of the Collateral, and any such sale or
other disposition may be as a unit or in parcels, by public or private
proceedings, and by way of one or more contracts (it being agreed that the
sale of any part of the Collateral shall not exhaust Agent's power of sale,
but sales may be made from time to time until all of the Collateral has
been sold or until the Obligations have been paid in full and fully
performed), and at any such sale it shall not be necessary to exhibit the
Collateral. Borrower hereby acknowledges and agrees that a private sale or
sales of the Collateral, after notification as provided for in Section 9.2,
shall constitute a commercially reasonable disposition of the Collateral
sold at any such sale or sales, and otherwise, commercially reasonable
action on the part of the Agent.
(e) RETENTION OF COLLATERAL. At its discretion, retain such portion of
the Collateral as shall aggregate in value to an amount equal to the
aggregate amount of the Loans, in satisfaction of the Obligations, whenever
the circumstances are such that Agent is entitled on behalf of the Lenders
and elects to do so under applicable law.
(f) RECEIVER. Apply by appropriate judicial proceedings for appointment
of a receiver for the Collateral, or any part thereof, and Borrower hereby
consents to any such appointment.
(g) PURCHASE OF COLLATERAL. Buy the Collateral at any public or private
sale.
(h) EXERCISE OF OTHER RIGHTS. Agent, on behalf of each Lender, shall
have all the rights and remedies of a secured party under the Code and
other legal and equitable rights to which it may be entitled, including,
without limitation, and without notice to the Borrower, the right to
continue to collect all payments made on the Pledged Notes Receivable, and
to apply such payments to the Obligations, and to sue in its own name the
maker of any defaulted Pledged Notes Receivable. Agent may also exercise
any and all other rights or remedies afforded by any other applicable laws
or by the Loan Documents as Agent shall deem appropriate, at law, in equity
or otherwise, including, but not limited to, the right to bring suit or
other proceeding, either for specific performance of any covenant or
condition contained in the Loan Documents or in aid of the exercise of any
right or remedy granted to Agent in the Loan Documents. Agent shall also
have the right to require the Borrower to assemble any of the Collateral
not in Agent's possession, at Borrower's expense, and make it available to
Agent at a place to be determined by Agent which is reasonably convenient
to both parties, and shall, on behalf of each Lender, have the right to
take immediate possession of all of the Collateral, and may enter the
Resort or any of the premises of Borrower or wherever the Collateral shall
be located, with or without process of law wherever the Collateral may be,
and, to the extent such premises are not the property of Agent, to keep and
store the same on said premises until sold (and if said premises be the
property of Borrower, Borrower agrees not to charge Agent or any Lender for
use and occupancy, rent, or storage of the Collateral, for a period of at
least ninety (90) days after sale or disposition of the Collateral).
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9.2 NOTICE OF SALE. Reasonable notification of time and place of any public
sale of the Collateral or reasonable notification of the time after which any
private sale or other intended disposition of the Collateral is to be made shall
be sent to Borrower and to any other person entitled under the Code to notice;
provided, however, that if the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Agent may sell or
otherwise dispose of the Collateral without notification, advertisement or other
notice of any kind. It is agreed that notice sent not less than five (5)
calendar days prior to the taking of the action to which such notice relates is
reasonable notification and notice for the purposes of this Section 9.2. Agent
shall have the right to bid at any public or private sale on behalf of the
Lenders. Out of money arising from any such sale, Agent shall retain an amount
equal to all of its costs and charges, including attorneys' fees for advice,
counsel or other legal services or for pursuing, reclaiming, seeking to reclaim,
taking, keeping, removing, storing and advertising such Collateral for sale,
selling same and any and all other charges and expenses in connection therewith
and in satisfying any prior Liens thereon. Any balance shall be applied upon the
Obligations, and in the event of deficiency, the Borrower shall remain liable to
the Lenders. In the event of any surplus, such surplus shall be paid to the
Borrower or to such other Persons as may be legally entitled to such surplus.
If, by reason of any suit or proceeding of any kind, nature or description
against the Borrower, or by the Borrower or any other party against Agent or any
Lender, which in such Agent's sole discretion makes it advisable for such to
seek counsel for the protection and preservation of the Lenders' security
interest, or to defend the interest of the Lenders, such expenses and counsel
fees shall be allowed to Agent and the same shall be made a further charge and
Lien upon the Collateral.
In view of the fact that federal and state securities laws may impose
certain restrictions on the methods by which a sale of Collateral comprised of
Securities may be effected after an Event of Default, Borrower agrees that upon
the occurrence or existence of an Event of Default, Agent may, on behalf of the
Lenders, from time to time, attempt to sell all or any part of such Collateral
by means of a private placement restricting the bidding and prospective
purchasers to whose who will represent and agree that they are purchasing for
investment only and not for, or with a view to, distribution. In so doing, Agent
may solicit offers to buy such Collateral, or any part of it for cash, from a
limited number of investors deemed by Agent, in its reasonable judgment, to be
responsible parties who might be interested in purchasing the Collateral, and if
Agent solicits such offers from not less than two (2) such investors, then the
acceptance by Agent of the highest offer obtained therefrom shall be deemed to
be a commercially reasonable method of disposition of such Collateral.
9.3 APPLICATION OF COLLATERAL; TERMINATION OF AGREEMENTS. Upon the
occurrence of any Event of Default: (i) each Lender may, with or without
proceeding with such sale or foreclosure or demanding payment or performance of
the Obligations, without notice, terminate each Lender's further performance
under this Agreement or any other agreement or agreements between any Lender and
the Borrower, without further liability or obligation by Agent or any Lender;
(ii) Agent
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may, on behalf the Lenders, at any time, appropriate and apply on any
Obligations any and all Collateral in its (or the Lockbox Agent's) possession
and (iii) each Lender may apply any and all balances, credits, deposits,
accounts, reserves, indebtedness or other moneys due or owing to the Borrower
held by any Lender hereunder or under any other financing agreement or
otherwise, whether accrued or not. Neither such termination, nor the termination
of this Agreement by lapse of time, the giving of notice or otherwise, shall
absolve, release or otherwise affect the liability of the Borrower in respect of
transactions prior to such termination, or affect any of the Liens, security
interests, rights, powers and remedies of the Agent or the Lenders, but they
shall, in all events, continue until all of the Obligations are satisfied.
9.4 RIGHTS OF LENDER REGARDING COLLATERAL. In addition to all other rights
possessed by the Agent or the Lenders, Agent, at its option, may on behalf of
each Lender from time to time after there shall have occurred an Event of
Default, and so long as such Event of Default remains uncured, at its sole
discretion, take the following actions:
(a) Transfer all or any part of the Collateral into the name of Agent
or its nominee;
(b) Take control of any proceeds of any of the Collateral;
(c) Extend or renew the Loan and grant releases, compromises or
indulgences with respect to the Obligations, any portion thereof, any
extension or renewal thereof, or any security therefor, to any obligor
hereunder or thereunder; and
(d) Exchange certificates or instruments representing or evidencing the
Collateral for certificates or instruments of smaller or larger
denominations for any purpose consistent with the terms of this Agreement.
9.5 DELEGATION OF DUTIES AND RIGHTS. Agent may execute any of its duties
and/or exercise any of its rights or remedies under the Loan Documents by or
through its officers, directors, employees, attorneys, agents or other
representatives.
9.6 AGENT AND/OR LENDERS NOT IN CONTROL. None of the covenants or other
provisions contained in this Agreement or in any Loan Document shall give Agent
or any Lender the right or power to exercise control over the affairs and/or
management of Borrower.
9.7 WAIVERS. The acceptance by Agent or any Lender at any time and from
time to time of partial payments of the Loan or performance of the Obligations
shall not be deemed to be a waiver of any Event of Default then existing. No
waiver by Agent or any Lender of any Event of Default shall be deemed to be a
waiver of any other or subsequent Event of Default. No delay or omission by
Agent or any Lender in exercising any right or remedy under the Loan Documents
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shall impair such right or remedy or be construed as a waiver thereof or an
acquiescence therein, nor shall any single or partial exercise of any such right
or remedy preclude other or further exercise thereof, or the exercise of any
other right or remedy under the Loan Documents or otherwise. Further, except as
otherwise expressly provided in this Agreement or by applicable law, Borrower
and each and every surety, endorser, guarantor and other party liable for the
payment or performance of all or any portion of the Obligations, severally waive
notice of the occurrence of any Event of Default, presentment and demand for
payment, protest, and notice of protest, notice of intention to accelerate,
acceleration and nonpayment, and agree that their liability shall not be
affected by any renewal or extension in the time of payment of the Loan, or by
any release or change in any security for the payment or performance of the
Loan, regardless of the number of such renewals, extensions, releases or
changes.
9.8 CUMULATIVE RIGHTS. All rights and remedies available to the any Lender
or the Agent on behalf of Lenders under the Loan Documents shall be cumulative
of and in addition to all other rights and remedies granted under any of the
Loan Document, at law or in equity, whether or not the Loan is due and payable
and whether or not Agent shall have instituted any suit for collection or other
action in connection with the Loan Documents.
9.9 EXPENDITURES BY LENDERS OR AGENT. Any sums expended by or on behalf of
Agent or Lenders pursuant to the exercise of any right or remedy provided herein
shall become part of the Obligations and shall bear interest at the Default
Rate, from the date of such expenditure until the date repaid.
9.10 DIMINUTION IN VALUE OF COLLATERAL. Neither Agent nor any Lender shall
have any liability or responsibility whatsoever for any diminution or loss in
value of any of the Collateral, specifically including that which may arise from
Agent or any Lender's negligence or inadvertence, whether such negligence or
inadvertence is the sole or concurring cause of any damage, but specifically
excluding any diminution or loss in value which is actually and proximately
caused by Agent's failure to retain the Pledged Notes Receivable in a
fire-resistant filing cabinet as provided in Section 3.6 above.
9.11 AGENT'S KNOWLEDGE. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Event of Default unless the Agent has actual
knowledge of the Event of Default or has received a notice from a Lender or the
Borrower referring to this Agreement and describing such Event of Default. Each
Lender agrees that upon learning of the existence of an Event of Default, it
will promptly notify the Agent thereof in writing. Any such notice by a Lender,
shall be in writing sufficient to identify the nature of the Event of Default.
9.12 LENDER'S ENFORCEMENT RIGHTS. Each Lender has assigned to the Agent its
absolute and unconditional right to enforce the payment of its Note. No Lender
may unilaterally enforce any Lien or security interest in the Collateral, or
bring suit against the Borrower to enforce such Lender's rights hereunder or
under its Note.
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SECTION 10 -- CERTAIN RIGHTS OF LENDERS
10.1 PROTECTION OF COLLATERAL. Agent on behalf of each Lender may at any
time and from time to time take such actions as it deems necessary or
appropriate to protect the Lender's Liens and security interests in and to
preserve the Collateral, and to establish, maintain and protect the
enforceability of Lender's rights with respect thereto, all at the expense of
Borrower. Borrower agrees to cooperate fully with all of Agent's efforts to
preserve the Collateral and Lender's Liens, security interests and rights and
will take such actions to preserve the Collateral and Lender's Liens, security
interests and rights as Agent may direct, including, without limitation, by
promptly paying upon Lender's demand therefor, all documentary stamp taxes or
other taxes that may be or may become due in respect of any of the Collateral.
All of Agent's expenses of preserving the Collateral and each Lender's liens and
security interests and rights therein shall be added to the Loan.
10.2 PERFORMANCE BY AGENT. If Borrower fails to perform any agreement
contained herein, Agent may itself perform, or cause the performance of, such
agreement on behalf of the Lenders, and the expenses of Agent incurred in
connection therewith shall be payable by Borrower under Section 10.5 below. In
no event, however, shall Agent or any Lender have any obligation or duties
whatsoever to perform any covenant or agreement of Borrower contained herein or
in any of the Loan Documents, Timeshare Documents or Operating Contracts, and
any such performance by Agent shall be wholly discretionary with Agent. The
performance by Agent, of any agreement or covenant of Borrower on any occasion
shall not give rise to any duty on the part of Agent to perform any such
agreements or covenants on any other occasion or at any time. In addition,
Borrower acknowledges that neither Agent nor any Lender shall at any time or
under any circumstances whatsoever have any duty to Borrower or to any third
party to exercise any of Lender's rights or remedies hereunder.
10.3 NO LIABILITY OF LENDER. Neither the acceptance of this Agreement by
Agent and each Lender, nor the exercise of any rights hereunder by Lender or
Agent on its behalf, shall be construed in any way as an assumption by Agent or
any Lender of any obligations, responsibilities or duties of Borrower arising in
connection with any Resort or under the Timeshare Documents or Timeshare Acts,
or under any of the Operating Contracts, or in connection with any other
business of Borrower, or the Collateral, or otherwise bind Agent or any Lender
to the performance of any obligations with respect to any Resort or the
Collateral; it being expressly understood that neither Agent nor Lender shall be
obligated to perform, observe or discharge any obligation, responsibility, duty,
or liability of Borrower with respect to any Resort or any of the Collateral, or
under any of the Timeshare Documents, the Timeshare Acts or under any of the
Operating Contracts, including, but not limited to, appearing in or defending
any action, expending any money or incurring any expense in connection
therewith. Without limitation of the foregoing, neither this Agreement, any
action or actions on the part of Agent taken hereunder, nor the acquisition of
the Pledged Notes Receivable and the Mortgages by Agent prior to or following
the occurrence of an Event of Default shall
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constitute an assumption by Agent or any Lender of any obligations of Borrower
with respect to any Resort or the Pledged Notes Receivable, the Mortgages or any
documents or instruments executed in connection therewith, and Borrower shall
continue to be liable for all of its obligations thereunder or with respect
thereto. Borrower agrees to indemnify, protect, defend and hold Agent and each
Lender harmless from and against any and all claims, demands, causes of action,
losses, damages, liabilities, suits, costs and expenses, including, without
limitation, attorneys' fees and court costs, asserted against or incurred by
Agent and each Lender by reason of, arising out of, or connected in any way with
(i) any failure or alleged failure of Borrower to perform any of its covenants
or obligations with respect to each Resort or to the Purchasers of any of the
Intervals, (ii) a breach of any certification, representation, warranty or
covenant of Borrower set forth in any of the Loan Documents, (iii) the ownership
of the Pledged Notes Receivable, the Mortgages and the rights, titles and
interests assigned hereby, or intended so to be, (iv) the debtor-creditor
relationships between Borrower on the one hand, and the Purchasers, Agent or
Lender, as the case may be, on the other, or (v) the Pledged Notes Receivable,
the Mortgages or the operation of the Resorts or sale of Intervals. The
obligations of Borrower to indemnify, protect, defend and hold Agent and each
Lender harmless as provided in this Agreement are absolute, unconditional,
present and continuing, and shall not be dependent upon or affected by the
genuineness, validity, regularity or enforceability of any claim, demand or suit
from which Agent or any Lender is indemnified. The indemnity provisions in this
Section 10.3 shall survive the satisfaction of the Obligations and termination
of this Agreement, and remain binding and enforceable against the Borrower, or
its successors or assigns. Borrower hereby waives all notices with respect to
any losses, damages, liabilities, suits, costs and expenses, and all other
demands whatsoever hereby indemnified, and agrees that its obligations under
this Agreement shall not be affected by any circumstances, whether or not
referred to above, which might otherwise constitute legal or equitable
discharges of its obligations hereunder.
10.4 RIGHT TO DEFEND ACTION AFFECTING SECURITY. Agent may, at Borrower's
expense, appear in and defend any action or proceeding at law or in equity which
Agent in good faith believes may affect the security interests granted under
this Agreement, including without limitation, with respect to Pledged Notes
Receivables or Mortgages, the value of the Collateral or each Lender's rights
under any of the Loan Documents.
10.5 EXPENSES. All expenses payable by Borrower, under any provision of
this Agreement shall be an Obligation of the Borrower and shall be paid by
Borrower to Agent, upon demand, and shall bear interest at the Default Rate from
the date of expense until repaid by Borrower.
10.6 LENDER'S RIGHT OF SET-OFF. Subject to Section 2.8 hereof, each Lender
shall have the right to set-off against any Collateral any Obligations then due
and unpaid by Borrower.
10.7 NO WAIVER. No failure or delay on the part of Agent in exercising any
right, remedy
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or power under this Agreement or in giving or insisting upon strict performance
by Borrower hereunder or in giving notice hereunder shall operate as a waiver of
the same or any other power or right, and no single or partial exercise of any
such power or right shall preclude any other or further exercise thereof or the
exercise of any other such power or right. Agent, notwithstanding any such
failure, shall have the right thereafter to insist upon the strict performance
by Borrower of any and all of the terms and provisions of this Agreement to be
performed by Borrower. The collection and application of proceeds, the entering
and taking possession of the Collateral, and the exercise by Agent of the rights
of Lenders contained in the Loan Documents and this Agreement shall not cure or
waive any default, or affect any notice of default, or invalidate any acts done
pursuant to such notice. No waiver by Agent or any Lender of any breach or
default of or by any party hereunder shall be deemed to alter or affect Lender's
rights hereunder with respect to any prior or subsequent default.
10.8 RIGHT OF AGENT TO EXTEND TIME OF PAYMENT, SUBSTITUTE, RELEASE
SECURITY, ETC. Without affecting the liability of any Person or entity including
without limitation, any Purchasers, for the payment of any of the Obligations or
without affecting or impairing Lender's Lien on the Collateral, or the remainder
thereof, as security for the full amount of the Loan unpaid and the Obligations,
Agent may from time to time, without notice: (a) release any Person liable for
the payment of the Loan, (b) extend the time or otherwise alter the terms of
payment of the Loan, (c) accept additional security for the Obligations of any
kind, including deeds of trust or mortgages and security agreements, (d) alter,
substitute or release any property securing the Obligations, (e) realize upon
any collateral for the payment of all or any portion of the Loan in such order
and manner as it may deem fit, or (f) join in any subordination or other
agreement affecting this Agreement or the lien or charge thereof.
10.9 ASSIGNMENT OF LENDER'S INTEREST. Each Lender shall have the right to
assign its Loans and all or any portion of its rights in or pursuant to this
Agreement or any of the Loan Documents to any subsequent holder or holders of
its Note or the Obligations evidenced thereby, provided that each Lender shall
give Agent concurrent written notice of each such assignment.
10.10 NOTICE TO PURCHASER. The Borrower authorizes any of the Agent, the
Lockbox Agent or Servicing Agent (but none of the Agent, the Lockbox Agent nor
Servicing Agent shall be obligated) to communicate at any time and from time to
time with any Purchaser or any other Person primarily or secondarily liable
under a Pledged Note Receivable with regard to the Lien of the Agent thereon and
any other matter relating thereto, and by no later than the Closing Date,
Borrower shall deliver to Agent a notification to the Purchasers executed in
blank by the Borrower and in form acceptable to Agent, pursuant to which the
Purchasers (or other obligors) may be directed to remit all payments in respect
of the Collateral as Agent may require.
10.11 COLLECTION OF THE NOTES. Borrower hereby directs and authorizes each
party liable for the payment of the Pledged Notes Receivable, and by no later
than the Closing Date shall direct
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in writing each such party, to pay each installment thereon to Lockbox Agent
pursuant to the Lockbox Agreement, unless and until directed otherwise by
written notice from Agent or, at Agent's direction, from Borrower, after which
such parties are and shall be directed to make all further payments on the
Pledged Notes Receivable in accordance with the directions of Agent. Following
the occurrence of an Event of Default, Agent shall have the right to require
that all payments becoming due under the Pledged Notes Receivable be paid
directly to Agent as agent for the Lenders, and Agent is hereby authorized to
receive, collect, hold and apply the same in accordance with the provisions of
this Agreement. In the event that following the occurrence of an Event of
Default, Agent or Lockbox Agent does not receive any installment of principal or
interest due and payable under any of the Pledged Notes Receivable on or prior
to the date upon which such installment becomes due, Agent may, at its election
(but without any obligation to do so), give or cause Lockbox Agent to give
notice of such default to the defaulting party or parties, and Agent shall have
the right (but not the obligation), subject to the terms of such Notes, to
accelerate payment of the unpaid balance of any of the Pledged Notes Receivable
in default and to foreclose each of the Mortgages securing the payment thereof,
and to enforce any other remedies available to the holder of such Pledged Notes
Receivable with respect to such default. Borrower hereby further authorizes,
directs and empowers Agent (and Lockbox Agent or any other Person as may be
designated by Agent in writing) to collect and receive all checks and drafts
evidencing such payments and to endorse such checks or drafts in the name of
Borrower and upon such endorsements, to collect and receive the money therefor.
The right to endorse checks and drafts granted pursuant to the preceding
sentence is irrevocable by Borrower, and the banks or banks paying such checks
or drafts upon such endorsements, as well as the signers of the same, shall be
as fully protected as though the checks or drafts have been endorsed by
Borrower.
10.12 POWER OF ATTORNEY. Borrower does hereby irrevocably constitute and
appoint Agent as Borrower's true and lawful agent and attorney-in-fact, with
full power of substitution, for Borrower and in Borrower's name, place and
stead, or otherwise, to (a) endorse any checks or drafts payable to Borrower in
the name of Borrower and in favor of Agent on behalf of each Lender as provided
in Section 10.11 above, (b) to demand and receive from time to time any and all
property, rights, titles, interests and liens hereby sold, assigned and
transferred, or intended so to be, and to give receipts for same, (c) from time
to time to institute and prosecute in Agent's own name any and all proceedings
at law, in equity, or otherwise, that Agent may deem proper in order to collect,
assert or enforce any claim, right or title, of any kind, in and to the
property, rights, titles, interests and liens hereby sold, assigned or
transferred, or intended so to be, and to defend and compromise any and all
actions, suits or proceedings in respect of any of the said property, rights,
titles, interests and liens, (d) upon an Event of Default to change the
Borrower's post office mailing address, and (e) generally to do all and any such
acts and things in relation to the Collateral as Agent shall in good faith deem
advisable. Borrower hereby declares that the appointment made and the powers
granted pursuant to this Section 10.12 are coupled with an interest and are and
shall be irrevocable by Borrower in any manner, or for any reason, unless and
until a release of the same is executed by Agent and duly recorded in the
appropriate public records of Dallas County, Texas.
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10.13 RELIEF FROM AUTOMATIC STAY, ETC. To the fullest extent permitted by
law, in the event the Borrower shall make application for or seek relief or
protection under the federal bankruptcy code ("Bankruptcy Code") or other Debtor
Relief Laws, or in the event that any involuntary petition is filed against the
Borrower under such Code or other Debtor Relief Laws, and not dismissed with
prejudice within 45 days, the automatic stay provisions of Section 362 of the
Bankruptcy Code are hereby modified as to Agent and each Lender to the extent
necessary to implement the provisions hereof permitting set-off and the filing
of financing statements or other instruments or documents; and Agent and each
Lender shall automatically and without demand or notice (each of which is hereby
waived) be entitled to immediate relief from any automatic stay imposed by
Section 362 of the Bankruptcy Code or otherwise, on or against the exercise of
the rights and remedies otherwise available to the Lenders as provided in the
Loan Documents.
SECTION 11 -- TERM OF AGREEMENT
This Agreement shall continue in full force and effect and the security
interests granted hereby and the duties, covenants and liabilities of the
Borrower hereunder and all the terms, conditions and provisions hereof relating
thereto shall continue to be fully operative until all of the Obligations have
been satisfied in full. The Borrower expressly agrees that if the Borrower makes
a payment to Agent on behalf of any Lender, which payment or any part thereof is
subsequently invalidated, declared to be fraudulent or preferential, or
otherwise required to be repaid to a trustee, receiver or any other party under
any Debtor Relief Laws, state or federal law, common law or equitable cause,
then to the extent of such repayment, the Obligations or any part thereof
intended to be satisfied and the Liens provided for hereunder securing the same
shall be revived and continued in full force and effect as if said payment had
not been made.
SECTION 12 -- MISCELLANEOUS
12.1 NOTICES. All notices, requests and other communications to either
party hereunder shall be in writing and shall be given to such party at its
address set forth below or at such other address as such party may hereafter
specify for the purpose of notice to Agent, any Lender or Borrower. Each such
notice, request or other communication shall be effective (a) if given by mail,
when such notice is deposited in the United States Mail with first class postage
prepaid, addressed as aforesaid, provided that such mailing is by registered or
certified mail, return receipt requested, (b) if given by overnight delivery,
when deposited with a nationally recognized overnight delivery service such as
Federal Express or Airborne with all fees and charges prepaid, addressed as
provided below, or (c) if given by any other means, when delivered at the
address specified in this Section 12.1.
IF TO BORROWER: Silverleaf Resorts, Inc.
1221 Riverbend Drive, Suite 120
Dallas, TX 75221
Attn: Mr. Robert Mead, CEO
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WITH A COPY TO: Meadows, Owens, Collier, Reed, Cousins and Blau
3700 Nations Bank Plaza
901 Main St.
Dallas, TX 75202
Attn: George R. Bedell, Esq.
IF TO ANY LENDER Textron Financial Corporation
OR AGENT: 40 Westminster Street
Providence, Rhode Island 02903
Attention: Collections
WITH A COPY TO: Textron Financial Corporation
P.O. Box 6687
Providence, Rhode Island 02940-6687
Attention: Division Counsel (RRD)
AND TO: Textron Financial Corporation
333 East River Drive, Suite 305
East Hartford, Connecticut 06108
Attn: Division Manager
Notwithstanding the foregoing, copies of the requests or notices from
Borrower to Lender or Agent which are specified in the Sections of this
Agreement listed below shall not be delivered to Providence, Rhode Island as
provided above, but rather shall be delivered in accordance with this Section
12.1 to Textron Financial Corporation, 333 East River Drive, Suite 305, East
Hartford, Connecticut 06108, Attention: Nicholas L. Mecca, Vice President. The
applicable Sections of this Agreement are Section 2.4(a) Voluntary Prepayments,
Section 5(a) Request for Advances, and Section 12.10 Return of Notes Receivable.
In addition, all documents, instruments and other items to be delivered to the
Lenders from time to time pursuant to this Agreement shall be delivered to
Agent's office at 333 East River Drive, Suite 305, East Hartford, Connecticut
06108.
12.2 SURVIVAL. All representations, warranties, covenants and agreements
made by Borrower herein, in the other Loan Documents or in any other agreement,
document, instrument or certificate delivered by or on behalf of Borrower under
or pursuant to the Loan Documents shall be considered to have been relied upon
by Lenders and shall survive the delivery to Lenders of such Loan Documents (and
each part thereof), regardless of any investigation made by or on behalf of
Lenders.
12.3 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (EXCEPT AS
MAY BE EXPRESSLY PROVIDED THEREIN TO THE CONTRARY) SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE
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WITH THE LAWS OF THE STATE OF RHODE ISLAND, EXCLUSIVE OF ITS CHOICE OF LAWS
PRINCIPLES.
12.4 LIMITATION ON INTEREST. Agent, each Lender and Borrower intend to
comply at all times with applicable usury laws. All agreements between the
Agent, each Lender and Borrower, whether now existing or hereafter arising and
whether written or oral, are hereby limited so that in no contingency, whether
by reason of demand or acceleration of the maturity of the Note or otherwise,
shall the interest contracted for, charged, received, paid or agreed to be paid
to any Lender exceed the highest lawful rate permissible under applicable usury
laws. If, from any circumstance whatsoever fulfillment of any provision hereof,
of the Note or of any other Loan Documents shall involve transcending the limit
of such validity prescribed by any law which a Court of Competent jurisdiction
may deem applicable hereto, then ipso facto, the obligation to be fulfilled
shall be reduced to the limit of such validity; and if from any circumstance
Agent or any Lender shall ever receive anything of value deemed interest by
applicable law which would exceed the highest lawful rate, such amount which
would be excessive interest shall be applied to the reduction of the principal
of the Loan and not to the payment of interest, or if such excessive interest
exceeds the unpaid balance of principal of the Loan, such excess shall be
refunded to Borrower. All interest paid or agreed to be paid to the Lenders
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full period until payment in full of the
principal so that the interest on the Loan for such full period shall not exceed
the highest lawful rate. Borrower agrees that in determining whether or not any
interest payment under the Loan Documents exceeds the highest lawful rate, any
non-principal payment (except payments specifically described in the Loan
Documents as "interest") including without limitation, prepayment fees and late
charges, shall to the maximum extent not prohibited by law, be an expense, fee,
premium or penalty rather than interest. Agent and each Lender hereby expressly
disclaim any intent to contract for, charge or receive interest in an amount
which exceeds the highest lawful rate. The provisions of the Note, this
Agreement, and all other Loan Documents are hereby modified to the extent
necessary to conform with the limitations and provisions of this Section, and
this Section shall govern over all other provisions in any document or agreement
now or hereafter existing. This Section shall never be superseded or waived
unless there is a written document executed by Agent, each Lender and the
Borrower, expressly declaring the usury limitation of this Agreement to be null
and void, and no other method or language shall be effective to supersede or
waive this paragraph.
12.5 INVALID PROVISIONS. If any provision of this Agreement or any of the
other Loan Documents is held to be illegal, invalid or unenforceable under
present or future laws effective during the term thereof, such provision shall
be fully severable, this Agreement and the other Loan Documents shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof or thereof, and the remaining provisions
hereof or thereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision there shall be added automatically as a part of this Agreement and/or
the
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Loan Documents (as the case may be) a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable.
12.6 SUCCESSORS AND ASSIGNS. This Agreement and the other Loan Documents
shall be binding upon and inure to the benefit of Borrower, Agent and each
Lender and their respective successors and assigns; provided that Borrower may
not transfer or assign any of its rights or obligations under this Agreement,
the Commitment or the other Loan Documents without the prior written consent of
Agent. This Agreement and the transactions provided for or contemplated
hereunder or under any of the Loan Documents are intended solely for the benefit
of the parties hereto. No third party shall have any rights or derive any
benefits under or with respect to this Agreement, the Commitment or the other
Loan Documents except as provided in advance in a writing signed on behalf of
Agent and each Lender.
12.7 AMENDMENT. This Agreement may not be amended or modified, and no term
or provision hereof may be waived, except by written instrument signed by the
Borrower and the Agent on behalf of itself and the Lenders.
12.8 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signature thereto and hereto were on the same instrument. This
Agreement shall become effective upon Agent's receipt of one or more
counterparts hereof signed by Borrower.
12.9 LENDERS AND AGENT NOT FIDUCIARIES. The relationship between Borrower,
Agent and each Lender is solely that of debtor and creditor, and Agent and
Lenders have no fiduciary or other special relationship with Borrower, and no
term or provision of any of the Loan Documents shall be construed so as to deem
the relationship between Borrower, Agent or and Lenders to be other than that of
debtor and creditor.
12.10 RETURN OF NOTES RECEIVABLE.
(a) In the event Borrower complies with its Obligations under Section
2.4(b) of this Agreement with respect to Pledged Notes Receivable that
cease to be Eligible Notes Receivable, and Borrower thereafter desires to
enforce such ineligible Note Receivable against the Purchaser thereof, then
provided that no Event of Default has occurred which has not been cured to
Agent's satisfaction (as evidenced by a written acceptance of such cure
executed by Agent), and no event has occurred which with notice, the
passage of time or both, would constitute an Event of Default, then within
thirty (30) days after its receipt of a written request from Borrower,
Agent shall endorse the ineligible Note Receivable "Pay to the order of
Silverleaf Resorts, Inc., without recourse," and deliver such ineligible
Note Receivable to Borrower.
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(b) In the event that all Obligations hereunder are fully satisfied,
then within a reasonable thereafter, Agent shall endorse the Pledged Notes
Receivable "Pay to the order of Silverleaf Resorts, Inc. without recourse",
and deliver such Pledged Notes Receivable, together with any other
nonrecourse Collateral reassignment documents requested and prepared by
Borrower, at Borrower's sole cost and expense. In addition, if requested by
Borrower in its written request, Agent shall execute and deliver to
Borrower UCC-3 termination statements covering the ineligible Note
Receivable being returned to Borrower, provided that such termination
statements are limited to the specific ineligible Notes Receivable being
released, are prepared by Borrower at Borrower's sole cost and expense.
12.11 ACCOUNTING PRINCIPLES. Where the character or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be determined or made in accordance
with GAAP consistently applied at the time in effect, to the extent applicable,
except where such principles are inconsistent with the requirements of this
Agreement.
12.12 TOTAL AGREEMENT. This Agreement and the other Loan Documents,
including the Exhibits and Schedules to them, is the entire agreement between
the parties relating to the subject matter hereof, incorporates or rescinds all
prior agreements and understandings between the parties hereto relating to the
subject matter hereof, cannot be changed or terminated orally or by course of
conduct, and shall be deemed effective as of the date it is accepted by the
Agent at the offices set forth above.
12.13 LITIGATION. TO THE FULLEST EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, THE BORROWER, THE AGENT AND EACH LENDER HEREBY
KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND OR CLARIFY
ANY RIGHT, POWER, REMEDY OR DEFENSE ARISING OUT OF OR RELATED TO THIS AGREEMENT,
THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN,
WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE, OR WITH RESPECT TO ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY PARTY; AND EACH AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A JUDGE AND NOT BEFORE A JURY. EACH OF THE BORROWER, AGENT AND EACH
LENDER FURTHER WAIVES ANY RIGHT TO SEEK TO CONSOLIDATE ANY SUCH LITIGATION IN
WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY
TRIAL CANNOT OR HAS NOT BEEN WAIVED. FURTHER, THE BORROWER HEREBY CERTIFIES THAT
NO REPRESENTATIVE OR AGENT OF AGENT OR ANY LENDER, NOR AGENT'S OR ANY LENDER'S
COUNSEL HAS REPRESENTED,
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EXPRESSLY OR OTHERWISE, THAT AGENT OR ANY LENDER WOULD NOT, IN THE EVENT OF SUCH
LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. THE
BORROWER ACKNOWLEDGES THAT THE PROVISIONS OF THIS SECTION ARE A MATERIAL
INDUCEMENT TO AGENTS AND EACH LENDER'S ACCEPTANCE OF THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS.
The waiver and stipulations of the Borrower, the Agent, and each
Lender in this Section 12.13 shall survive the final payment or performance of
all of the Obligations of the Borrower and the resulting termination of this
Agreement.
12.14 INCORPORATION OF EXHIBITS. This Agreement, together with all Exhibits
and Schedules hereto, constitute one document and agreement which is referred to
herein by the use of the defined term "Agreement." Such Exhibits and Schedules
are incorporated herein as to fully set out in this Agreement. The definitions
contained in any part of this Agreement shall apply to all parts of this
Agreement.
12.15 CONSENT TO ADVERTISING AND PUBLICITY OF TIMESHARE DOCUMENTS. The
Borrower hereby consents that Agent and each Lender may issue and disseminate to
the public information describing the credit accommodation entered into pursuant
to this Agreement, including the names and addresses of Borrower and any
subsidiaries and Affiliates, the amount and a general description of the
Borrower's business.
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12.16 DIRECTLY OR INDIRECTLY. Where any provision in the Agreement refers
to action to be taken by any Person, or which such Person is prohibited from
taking, such provisions shall be applicable whether such action is taken
directly or indirectly by such Person.
12.17 HEADINGS. Section headings have been inserted in the Agreement as a
matter of convenience of reference only; such section headings are not a part of
the Agreement and shall not be used in the interpretation of this Agreement.
12.18 GENDER AND NUMBER. Words of any gender in this Agreement shall
include each other gender and the singular shall mean the plural and vice versa
where appropriate.
SECTION 13 -- AGENT
13.1 AUTHORIZATION AND ACTION. Each Lender hereby accepts the appointment
of and irrevocably (but subject to Section 13.8) authorizes the Agent to take
such action as Agent on its behalf and to exercise such powers as are expressly
delegated to Agent by the terms hereof, together with such powers as are
reasonably incidental thereto. Agent shall not be required to take any action
which exposes Agent to personal liability or which is contrary to this Agreement
or applicable law. Agent agrees to give to each Lender prompt notice of each
notice given to it by Borrower pursuant to the terms of this Agreement. The
appointment and authority of the Agent hereunder shall terminate upon the
payment of the Obligations in full.
13.2 NATURE OF AGENT'S DUTIES. The Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement or in the
other Loan Documents. The duties of the Agent shall be mechanical and
administrative in nature. Agent shall not have by reason of this Agreement a
fiduciary relationship in respect of any Lender. Nothing in this Agreement or
any of the Loan Documents, express or implied, is intended to or shall be
construed to impose upon Agent any obligations in respect of this Agreement or
any of the Loan Documents except as expressly set forth herein or therein. Agent
shall not have any duty or responsibility, either initially or on a continuing
basis, to provide any Lender with any credit or other information with respect
to Borrower, whether coming into its possession before the date hereof or at any
time or times thereafter (except as expressly set forth in this Agreement). If
Agent seeks the consent or approval of the Lenders, to the taking or refraining
from taking any action hereunder, Agent shall send notice thereof to each
Lender.
13.3 UCC FILINGS. Each of Borrower, the Agent and the Lender expressly
recognizes and agrees that the Agent shall be listed as the assignee or secured
party of record on the various UCC filings required to be made hereunder in
order to perfect the grant of a security interest in the Collateral herein for
the benefit of the Lenders, that such listing shall be for administrative
convenience only in creating a single secured party to take certain actions
hereunder on behalf of
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the holders of the Obligations, and that such listing will not affect in any way
the status of such holders as the beneficial holders of such security interest.
In addition, such listing shall impose no duties on the Agent other than those
expressly and specifically undertaken in accordance with this Section 13.
13.4 AGENT'S RELIANCE, ETC. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable for any action taken or omitted to
be taken by it or them as Agent under or in connection with this Agreement
(including Agent's servicing, administering or collecting Receivables) except
for its or their own gross negligence or willful misconduct. Without limiting
the foregoing, Agent: (i) may consult with legal counsel (including counsel for
Borrower), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts; (ii)
makes no warranty or representation to Lender and shall not be responsible to
any Lender for any statements, warranties or representations made in or in
connection with this Agreement; (iii) shall not have any duty to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement on the part of Borrower or to inspect the property
(including the books and records) of Borrower (except as otherwise expressly set
forth in this Agreement); (iv) shall not be responsible to any Lender for the
due execution, legality, validity, enforceability, genuineness, sufficiency, or
value of this Agreement, or any other instrument or document furnished pursuant
hereto, or any certificate, report, statement or other document referred to or
provided for in, or received by the Agent under or in connection with, the Loan
Documents, or for any failure of Borrower or any of its Affiliates to perform
its obligation under the Loan Documents; and (v) shall incur no liability under
or in respect of this Agreement by acting upon any notice (including notice by
telephone), consent, certificate or other instrument or writing (which may be by
telex or telecopier) believed by it to be genuine and to be or to have been
signed or sent by the proper party or parties. Agent may, but shall not be
required to, at any time request instructions from the Lenders, with respect to
any actions or approvals which by the terms of this Agreement or of any of the
other Loan Documents. Agent is permitted or required to take or to grant, and
Agent shall be absolutely entitled to refrain from taking any action or to
withhold any approval and shall not be under any liability whatsoever to any
Person for refraining from any action or withholding any approval under any of
the Loan Documents until it shall have received such instructions from the
requisite Lender, as applicable in accordance with this Agreement. Without
limiting the foregoing, Lender shall not have any right of action whatsoever
against Agent as a result of Agent acting or refraining from acting under this
Agreement or any of the other Loan Documents in accordance with the instructions
of the requisite Lender as applicable in accordance with this Agreement. The
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation reasonably believed by it or them to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including counsel to
Borrower), independent accountants and other experts selected by the Agent.
83
<PAGE> 84
13.5 AGENT AND AFFILIATES. To the extent that the Agent or any of its
Affiliates are or shall become Lenders hereunder, Agent or such Affiliate, in
such capacity, shall have each and every right and power under this Agreement as
would any other Lender hereunder (including the right to vote upon any matter
upon which any of the Lenders are entitled to vote) and, without exception, may
exercise the same as though it were not an Agent. Agent and its Affiliates may
engage in any kind of business with Borrower, any of its Affiliates and any
Person who may do business with or own securities of Borrower or any of its
Affiliates, all as if it were not an Agent hereunder and without any duty to
account therefor to the Lenders.
13.6 CREDIT DECISION. Independently, and without reliance upon the Agent,
each Lender has, to the extent it deems appropriate, made and shall continue to
make (a) its own independent investigation of the financial affairs and business
affairs of the Borrower in connection with any action or inaction with respect
to the transactions contemplated herein, and (b) its own evaluation of the
creditworthiness of the Borrower and of the value of the Collateral, and, except
as expressly provided in this Agreement, the Agent has had and shall have no
duty or responsibility to provide any Lender with any credit or other
information with respect thereto. The Agent shall not be responsible to any
Lender for any recitals, statements, representation or warranties herein or in
any document, certificate or other writing delivered in connection herewith
(unless made by the Agent) or for the execution, effectiveness, genuineness,
validity, enforceability, collectibility, priority or sufficiency of this
Agreement (except with respect to the Agent's obligations hereunder) or the Loan
Documents or the financial condition of the Borrower or the value of the
Collateral. Except as expressly herein provided with respect to its duties as
agent, the Agent shall not be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or the Loan Documents, the financial condition of the Borrower, or the
existence or possible existence of any Event of Default.
13.7 INDEMNIFICATION. Each Lender agrees to indemnify the Agent (to the
extent not reimbursed by Borrower), ratably in accordance with each Lender's Pro
Rata Percentage, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against the Agent in any way relating to or arising out of this
Agreement or any action taken or omitted by the Agent under this Agreement;
provided, however, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, or disbursements resulting from the Agent's gross negligence or
willful misconduct. Without limiting the generality of the foregoing, each
Lender agrees to reimburse the Agent (to the extent not reimbursed by Borrower,
ratably in accordance with the Lender's Pro Rata Percentage, promptly upon
demand, for any out-of-pocket expenses (including reasonable counsel fees)
incurred by the Agent in connection with the administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of its rights or responsibilities
under, this Agreement. The rights of the Agent under this Section 13.7 shall
survive the termination of this Agreement. For purposes of this
84
<PAGE> 85
paragraph, the term "Agent" shall include Agent, its affiliates and their
respective officers, directors, employees and agents.
13.8 SUCCESSOR AGENT. The Agent may resign at any time by giving thirty
days notice thereof to the Lenders and the Borrower. Upon any such resignation
the Lenders, including Textron Financial Corporation, shall have the right to
appoint a successor Agent, and such resignation shall not be effective until
such successor Agent is appointed and has accepted such appointment. If no
successor Agent shall have been so appointed and accepted such appointment
within seventy-five (75) days after the Agent's giving of notice of resignation,
then the Agent may, on behalf of the Lenders, appoint a successor Agent, which
successor Agent shall be experienced in the types of transactions contemplated
by this Agreement. Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, such successor Agent shall thereupon succeed to and become
vested with all of the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from all further duties and
obligations under this Agreement. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Section 13 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was the Agent
under this Agreement.
13.9 DUTY OF CARE. The Agent shall endeavor to exercise the same care in
its administration of the Loan Documents as it exercises with respect to similar
transactions in which it is involved and where no other co-lenders or
participants are involved; provided that the liability of the Agent for failing
to do so shall be limited as provided in the preceding paragraphs of this
Section 13.
13.10 DELEGATION OF AGENCY. (a) If at any time or times it shall be
necessary or prudent in connection with the exercise or protection of the Agents
rights hereunder in order to conform to any law of any jurisdiction in which any
of the Collateral shall be located, or Agent shall be advised by counsel that it
is so necessary or prudent in the interest of the Lenders, or the Agent shall
deem it necessary for its own protection in the performance of its duties
hereunder. The Agent and, to the extent required by the Agent, Borrower shall
execute and deliver all instruments and agreements reasonably necessary or
proper to constitute another bank or trust company, or one or more individuals
approved by the Agent (each an "Approved Delegate"), either to act as co-agent
or co-agents or trustee of all or any of the Collateral, jointly with the Agent
originally named herein or any successor, or to act as separate agent or agents
or trustee of any such Collateral. Every separate agent and every co-agent and
every trustee, other than any agent which may be appointed as successor to the
Agent, shall, to the extent permitted by applicable law, be appointed to act and
be such, subject to the following provisions and conditions, namely:
(i) except as otherwise provided herein, all rights, remedies,
powers, duties and obligations conferred upon, reserved or imposed upon
the Agent in respect of the custody, control and management of moneys,
paper or securities shall be exercised solely by the Agent hereunder;
85
<PAGE> 86
(ii) all rights, remedies, powers, duties and obligations conferred
upon, reserved to or imposed upon Agent hereunder shall be conferred,
reserved or imposed and exercised or performed by Agent except to the
extent that the instrument appointing such separate agent or separate
agents or co-agent or co-agents or trustee shall otherwise provide, and
except to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed, Agent shall be incompetent or
unqualified to perform such act or acts, in which event such rights,
remedies, powers, duties and obligations shall be exercised and performed
by such separate agents or co-agent or co-agents to the extent
specifically directed in writing by Agent;
(iii) no power given thereby to, or which it is provided hereby may
be exercised by, any such separate agent or separate agents or co-agent
or co-agents or trustee shall be exercised hereunder by such separate
agent or separate agents or co-agent or co-agents or trustee except
jointly with, or with the consent in writing of, anything herein
contained to the contrary notwithstanding;
(iv) no separate agent or co-agent or trustee constituted under this
Section 13.10 shall be personally liable by reason of any act or omission
of any other agent, separate agent, co-agent or trustee hereunder; and
(v) Agent, at any time by an instrument in writing, executed by it,
may accept the resignation of or remove any such separate agent or
co-agent or trustee of Agent, and in that case, by an instrument in
writing executed by Agent and Borrower (to the extent necessary or
requested by Agent) jointly may appoint a successor to such separate
agent or co-agent or trustee, as the case may be, anything therein
contained to the contrary notwithstanding. In the event that Borrower
shall not have joined in the execution of any such instrument with a
Person or entity within ten (10) days after the receipt of a written
request from Agent to do so, Agent, acting alone, may appoint a successor
and may execute any instrument in connection therewith, and Borrower
hereby irrevocably appoints the Agent its agent and attorney to act for
it in such connection in either of such contingencies.
In the event that Borrower shall not have joined in the execution of such
instruments or agreements with any Approved Delegate within thirty (30) Business
Days after the receipt of a written request from the Agent to do so, Borrower
hereby irrevocably appoints Agent as its agent and attorney to act for it under
the foregoing provisions of this Section 13.10 in such contingency, it being
understood that the power of attorney granted hereunder is coupled with an
interest.
(b) The Agent may execute any of its duties under the Loan Documents by
or through agents or attorneys-in-fact and shall be entitled to advice of
counsel, and other specialists and advisors (including affiliates of such Agent)
selected by it, concerning all matters pertaining to such duties. The Agent
shall not be responsible for the negligence or misconduct of any such agents,
attorneys-in-fact, counsel and other specialists and advisors selected by it
with reasonable care.
86
<PAGE> 87
13.11 AGENT'S RESPONSIBILITIES.
(a) Each subsequent holder of any Note by its acceptance thereof
irrevocably joins in the designation of Textron Financial Corporation as agent
for the Lenders as provided herein with the same force and effect as if it were
an original Lender hereunder and signatory hereto. Textron Financial Corporation
hereby accepts such designation and appointment as agent. The Agent, acting as
such under the provisions of this Agreement, or under any other instrument or
document delivered pursuant hereto, shall not be liable or responsible, directly
or indirectly, for any action taken, or omitted to be taken, by it in good
faith, nor shall the Agent be liable or responsible for the consequences of any
oversight or error of judgment on its part, but the Agent shall only be liable
or responsible for any loss suffered by any of the Lenders hereunder provided
such loss was caused by the Agent's gross negligence or willful misconduct. The
Agent shall not, by any action or inaction hereunder, be deemed to make any
representation or warranty regarding the legality, legal effect or sufficiency
of any act of the Borrower in connection with, or under any of the provisions
of, this Agreement, or any instrument or document delivered pursuant thereto, or
the validity or enforceability of any instrument or document furnished to the
Agent pursuant to this Agreement. The Agent shall have no liability or
responsibility in connection with the collection or payment of any sums due to
the Lenders by the Borrower, the sole responsibility of the Agent being to
account to the Lenders only for monies actually received by it. The Agent shall
have no obligation to make any application of any funds received by it until
such funds are immediately available at the Agent's office. Any monies received
by the Agent need not be segregated from other funds except to the extent
required by law, and the Agent shall not be liable for interest on any funds
received by it. The Agent shall not be charged with knowledge of any facts which
would prohibit the making of any payment of monies in accordance with the
provisions of this Agreement unless and until the Agent shall have received
written notice thereof at its office from the Borrower or any Lender. The duties
of the Agent shall be mechanical and administrative in nature, the Agent shall
not, by reason of this Agreement, be deemed a fiduciary in respect of the
Lenders, and nothing in this Agreement shall impose upon the Agent any
obligations in respect of this Agreement except as expressly herein set forth.
(b) The Agent shall have the right to exercise all the rights granted to,
and exercisable by, it under this Agreement and any instrument or document
delivered pursuant to this Agreement, in such manner from time to time, as the
Agent, in its sole discretion, shall deem proper.
13.12 POWER OF ATTORNEY. Each Lender does hereby irrevocably constitute and
appoint Agent as its true and lawful agent and attorney-in-fact, with full power
of substitution, for and in its name, place and stead, or otherwise, to (a)
demand and receive from time to time any and all property, rights, titles,
interests and liens hereby sold, assigned and transferred, or intended so to be,
and to give receipts for same, (b) from time to time to institute and prosecute
in Agent's own name any and all proceedings at law, in equity, or otherwise,
that Agent may deem proper in order to collect, assert or enforce any claim,
right or title, of any kind, in and to the property, rights, titles, interests
and liens hereby sold, assigned or transferred, or intended so to be, and to
defend and compromise any and all actions, suits or proceedings in respect of
any of the said property, rights,
87
<PAGE> 88
titles, interests and liens, and (c) generally to do all and any such acts and
things in relation to the Loans, the Collateral and this Agreement as Agent
shall in good faith deem advisable. Each Lender hereby declares that the
appointment made and the powers granted pursuant to this Section 13.12 are
coupled with an interest and are and shall be irrevocable by it in any manner,
or for any reason, unless and until the repayment in full of the Obligation.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]
88
<PAGE> 89
IN WITNESS WHEREOF, Borrower and Agent, for itself and as agent for
each of the Lenders, have caused this Agreement to be duly executed and
delivered effective as of the date first above written.
BORROWER:
SILVERLEAF RESORTS, INC., a Texas
corporation
/s/ GEORGE R. BEDELL By: /s/ ROBERT E. MEAD
- -------------------------------- ---------------------------------
Name: Robert E. Mead
Title: Chief Executive Officer
LENDER:
TEXTRON FINANCIAL CORPORATION,
a Delaware corporation
/s/ MELISSA [ILLEGIBLE] By: /s/ JOHN T. D'ANNEBALE
- -------------------------------- ---------------------------------
Name: John T. D'Annebale
Title: AVP
AGENT:
TEXTRON FINANCIAL CORPORATION,
a Delaware corporation
as Agent for each Financial
Institution listed on Schedule A
/s/ MARY PELLENGER By: /s/ JOHN T. D'ANNEBALE
- -------------------------------- ---------------------------------
Name: John T. D'Annebale
89
<PAGE> 90
STATE OF TEXAS )
) ss:
COUNTY OF DALLAS )
The foregoing instrument was acknowledged before me this 8th day of
December, 1999 by Robert E. Mead, Chief Executive Officer of Silverleaf Resorts,
Inc., a Texas corporation, on behalf of the Corporation.
/s/ SANDRA CEARLEY
[SEAL] ----------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires: 12-28-2002
STATE OF CONNECTICUT )
) ss:
COUNTY OF HARTFORD )
The foregoing instrument was acknowledged before me this 16th day of
December, 1999 by John T. D'Annebale, AVP of TEXTRON FINANCIAL
CORPORATION, a Delaware corporation, on behalf of the corporation.
/s/ CHRISTINE M. CORDEIRA
--------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires: April 30, 2002
STATE OF CONNECTICUT )
) ss:
COUNTY OF HARTFORD )
The foregoing instrument was acknowledged before me this 16th day of
December, 1999 by John T. D'Annebale, AVP of TEXTRON FINANCIAL CORPORATION, a
Delaware corporation, on behalf of the corporation.
/s/ CHRISTINE M. CORDEIRA
----------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires: April 30, 2002
90
<PAGE> 1
EXHIBIT 10.46
================================================================================
SECOND AMENDMENT TO 1997
STOCK OPTION PLAN FOR
SILVERLEAF RESORTS, INC.
================================================================================
<PAGE> 2
SECOND AMENDMENT TO 1997
STOCK OPTION PLAN FOR
SILVERLEAF RESORTS, INC.
This SECOND AMENDMENT ("Second Amendment") to the 1997 Stock Option
Plan dated May 15, 1997, (the "Plan") for Silverleaf Resorts, Inc. (the
"Company") is unanimously adopted by the Compensation Committee as of the 19th
day of November, 1999.
R E C I T A L S:
A. Section 8.9 of the Plan contains restrictions on the transfer of
Shares of the Company issued pursuant to Incentive Options under the Plan; and
B. The Compensation Committee has determined that it would be in the
best interests of the Company to amend the provisions of Section 8.9 to provide
lesser restrictions on the transfer of Shares issued pursuant to future Options
granted under the Plan.
A M E N D M E N T:
SECTION 1 AMENDMENT. Pursuant to the powers granted to the Compensation
Committee under Section 12.2 of the Plan, the Committee hereby revokes Section
8.9 of the Plan for Options granted under the Plan on or after the date hereof
and replaces it with a new Section 8.9 which provides as follows:
SECTION 8.9 Restrictions on Transfer of Stock. The Company may
endorse such legend or legends upon the certificates for Shares issued
upon exercise of an Option and may issue such "stop transfer"
instructions to its transfer agent in respect of such Shares as, in its
discretion, it determines to be necessary or appropriate to (i) prevent
a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act, (ii) implement the provisions of
the Plan and any agreement between the Company and the Participant with
respect to such Shares, or (iii) permit the Company to determine the
occurrence of a disqualifying disposition, within the meaning of
Section 421(b) of the Code, of Shares transferred upon exercise of an
Incentive Option granted under the Plan. No Shares acquired by a
Participant pursuant to a Option shall be sold or otherwise disposed of
within a period of six (6) months following the date of acquisition of
such Shares, unless either the grant of the 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 the 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
<PAGE> 3
of the Company entitled to vote, provided that such ratification occurs
no later than the date of the next annual meeting of the shareholders.
SECTION 2 EFFECTIVE DATE. This Amendment shall be effective as of the
date hereof as to all Options granted under the Plan on or after the date
hereof. The restrictions contained in Section 8.9 of the Plan, as in effect
prior to the date hereof, shall continue to apply to Options granted under the
Plan prior to the date hereof.
SECTION 3 RATIFICATION. Except as amended by this Amendment, all of the
terms and provisions of the Plan, as amended, are hereby ratified and confirmed.
Adopted as of the 19th day of November, 1999.
COMPENSATION COMMITTEE
/s/ JAMES B. FRANCIS, JR.
-------------------------------------
James B. Francis, Jr.
/s/ MICHEAL A. JENKINS
-------------------------------------
Michael A. Jenkins
<PAGE> 1
EXHIBIT 10.47
EIGHTH AMENDMENT TO MANAGEMENT AGREEMENT
THIS EIGHTH AMENDMENT TO MANAGEMENT AGREEMENT (the "Eighth Amendment")
is entered into as of this 9th day of March, 1999, by and between Silverleaf
Club, a Texas non-profit corporation, f/k/a Master Club, f/k/a Master Endless
Escape Club ("Silverleaf 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, Silverleaf 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 Silverleaf Club and certain resorts, as designated in the
Management Agreement; and
WHEREAS, on December 28, 1993, Silverleaf 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; and
WHEREAS, on December 31, 1997, Silverleaf Club and Manager executed
that certain Second Amendment to Management Agreement (the "Second Amendment")
to provide for the addition of two (2) additional Resorts to be subject to the
Management Agreement; and
WHEREAS, on December 31, 1997, Silverleaf Club and Manager executed
that certain Third Amendment to Management Agreement (the "Third Amendment") to
provide for the addition of the New Units at Oak N'Spruce Resort, to be subject
to the Management Agreement; and
WHEREAS, on December 3, 1998, Silverleaf Club and Manager executed that
certain Fourth Amendment to Management Agreement (the "Fourth Amendment") to
make Manager responsible for the administration and management of all Units at
Oak N'Spruce Resort, not just the New Units; and
WHEREAS, on January 20, 1999, Silverleaf Club and Manager executed that
certain Fifth Amendment to Management Agreement (the "Fifth Amendment") to
provide for Apple Mountain Resort located in Habersham County, Georgia to be
subject to the Management Agreement; and
WHEREAS, on January 20, 1999, Silverleaf Club and Manager executed that
certain Sixth Amendment to Management Agreement (the "Sixth Amendment") to
provide for Silverleaf's Seaside Resort located in Galveston County, Texas to be
subject to the Management Agreement; and
WHEREAS, on January 20, 1999, Silverleaf Club and Manager executed that
certain Seventh Amendment to Management Agreement (the "Seventh Amendment") to
provide for Beech Mountain Resort located in Luzerne County, Pennsylvania to be
subject to the Management Agreement; and
WHEREAS, Silverleaf Club and Manager now desire to further amend the
Management Agreement to extend the term of the Management Agreement;
<PAGE> 2
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, Silverleaf Club and Manager hereby agree as
follows:
A. Paragraph 9 of the Management Agreement shall be amended to provide
for an extension of the ten (10) year term of the Management Agreement for an
additional ten (10) year term beginning on the current date of expiration of the
Management Agreement, i.e., March 28, 2000, and continuing through and including
March 27, 2010. All other provisions of Paragraph 9 of the Management Agreement
shall remain the same.
B. Except as expressly amended hereby, the original terms and
conditions of the Management Agreement, the First Amendment, Second Amendment,
Third Amendment Fourth Amendment, Fifth Amendment, Sixth Amendment and Seventh
Amendment are hereby ratified and confirmed by Silverleaf Club and Manager. This
Eighth Amendment inures to the benefit, and is binding upon, the Silverleaf Club
and Manager and their respective successors, legal representatives, and assigns.
C. This Eighth 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 9th day of March, 1999.
SILVERLEAF CLUB:
SILVERLEAF 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/ HARVEY J. WHITE JR.
---------------------------------------------
Name: Harvey J. White Jr.
-------------------------------------------
Its: Vice President & CFO
-------------------------------------------
-2-
<PAGE> 1
EXHIBIT 12.1
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1996 1997 1998 1999
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations
before provision for income taxes 3,058 8,409 18,984 29,810 31,356
Interest expense 3,609 4,759 4,664 7,150 16,773
Interest component of rent expense 87 119 227 367 995
Amortization of previously capitalized interest -- 497 520 1,008 1,212
----- ------ ------ ------ ------
Earnings 6,754 13,784 24,395 38,335 50,336
===== ====== ====== ====== ======
Fixed Charges:
Interest expense 3,609 4,759 4,664 7,150 16,773
Interest capitalized 516 711 823 2,662 2,748
Interest component of rent expense 87 119 227 367 995
----- ------ ------ ------ ------
Fixed Charges 4,212 5,589 5,714 10,179 20,516
===== ====== ====== ====== ======
Ratio of earnings to fixed charges 1.6 2.5 4.3 3.8 2.5
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SILVERLEAF RESORTS, INC.
WHOLLY-OWNED SUBSIDIARIES
Silverleaf Travel, Inc., a Texas corporation
Silverleaf Berkshires, Inc., a Texas corporation
Silverleaf Resort Acquisitions, Inc., a Texas corporation
Database Research, Inc., a Texas corporation
Villages Land, Inc., a Texas corporation
Bull's Eye Marketing, Inc., a Delaware corporation
EStarCommunications, Inc., a Texas corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,717,000
<SECURITIES> 0
<RECEIVABLES> 318,907,000
<ALLOWANCES> 32,326,000
<INVENTORY> 112,810,000
<CURRENT-ASSETS> 142,326,000
<PP&E> 64,070,000
<DEPRECIATION> 13,020,000
<TOTAL-ASSETS> 479,957,000
<CURRENT-LIABILITIES> 25,352,000
<BONDS> 75,000,000
0
0
<COMMON> 133,000
<OTHER-SE> 161,210,000
<TOTAL-LIABILITY-AND-EQUITY> 479,957,000
<SALES> 195,457,000
<TOTAL-REVENUES> 230,758,000
<CGS> 30,207,000
<TOTAL-COSTS> 163,508,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 19,121,000
<INTEREST-EXPENSE> 16,773,000
<INCOME-PRETAX> 31,356,000
<INCOME-TAX> 12,072,000
<INCOME-CONTINUING> 19,284,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,284,000
<EPS-BASIC> 1.50
<EPS-DILUTED> 1.50
</TABLE>
