SILVERLEAF RESORTS INC - 10-K Annual Report

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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, 2000

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:

TITLE OF EACH CLASS
-------------------
COMMON STOCK, $.01 PAR
VALUE

Securities Registered Pursuant to Section 12(g) of the Act: None

---------------

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

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 last sales price of the Common Stock on November 13,
2002, as reported by the Electronic Quotation Service of Pink Sheets LLC under
the symbol "SVLF" was approximately $3,224,340 (based on 17,913,004 shares held
by non-affiliates). At November 13, 2002, there were 36,826,906 shares of the
Registrant's Common Stock outstanding.

Documents Incorporated by Reference: None.

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FORM 10-K INDEX

EXPLANATORY NOTE

In addition to the attached annual report on Form 10-K for 2000, on
November 19, 2002, the Company simultaneously filed the following delinquent
and/or amended reports with the Securities and Exchange Commission:

o Forms 10-Q for each of the quarterly periods ended June 30,
2002 and March 31, 2002;

o Form 10-K for the year ended December 31, 2001;

o Forms 10-Q for each of the quarterly periods ended September
30, 2001, June 30, 2001, and March 31, 2001;

o Forms 10-Q/A for each of the quarterly periods ended September
30, 2000, June 30, 2000, and March 31, 2000.

The information in the filings listed above that are related to periods
subsequent to December 31, 2000 update the information contained herein, and the
Company's 2001 Annual Report on Form 10-K supercedes this Form 10-K.

CERTAIN STATEMENTS CONTAINED IN THIS FORM 10-K UNDER ITEMS 1, 2, AND 7,
IN ADDITION TO CERTAIN STATEMENTS CONTAINED ELSEWHERE IN THIS 10-K, INCLUDING
STATEMENTS QUALIFIED BY THE WORDS "BELIEVE," "INTEND," "ANTICIPATE," "EXPECTS"
AND WORDS OF SIMILAR IMPORT, ARE "FORWARD-LOOKING STATEMENTS" AND ARE THUS
PROSPECTIVE. THESE STATEMENTS REFLECT THE EXPECTATIONS OF THE COMPANY REGARDING
THE COMPANY'S FUTURE PROFITABILITY, PROSPECTS AND RESULTS OF OPERATIONS AT
DECEMBER 31, 2000. ALL SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. THESE RISKS, UNCERTAINTIES AND OTHER FACTORS ARE DISCUSSED UNDER THE
HEADING "CAUTIONARY STATEMENTS" BEGINNING ON PAGE 28 IN PART I, ITEM 1 OF THIS
REPORT. ALL FORWARD-LOOKING STATEMENTS ARE MADE AS OF THE ANNUAL PERIOD TO WHICH
THIS REPORT ON FORM 10-K RELATES 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.

1

PART I

ITEMS 1 AND 2. BUSINESS AND PROPERTIES

OPERATIONS

Silverleaf is in the business of marketing and selling Vacation Intervals
from its inventory to individual consumers ("Silverleaf Owners"). 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; (iii) marketing and selling
upgraded Vacation Intervals to existing Silverleaf Owners; (iv) providing
financing for the purchase of Vacation Intervals; and (v) managing timeshare
resorts. The Company has in-house capabilities which enable it to coordinate all
aspects of development and expansion of the Existing Resorts and the potential
development of any future resorts, including site selection, design, and
construction pursuant to standardized plans and specifications. The Company
performs substantial marketing and sales functions internally and has made
significant investments in operating technology, including 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 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, 2000, the Company
had a portfolio of approximately 39,530 customer promissory notes, totaling
approximately $336.4 million with an average yield of 13.4% per annum, which
compares favorably to the Company's weighted average cost of borrowings of 9.6%
per annum. At December 31, 2000, approximately $26.0 million in principal, or
7.7% of the Company's loans to Silverleaf Owners, were 61 to 120 days past due,
and approximately $7.1 million in principal, or 2.1% of the Company's loans to
Silverleaf Owners, were more than 120 days past due. The Company provides for
uncollectible notes by reserving an estimated amount which management believes
is sufficient to cover anticipated losses from customer defaults.

Each Existing Resort has a timeshare owners' association (a "Club"). Each
Club operates through a centralized organization, to manage the Existing Resorts
on a collective basis. The principal such organization is Silverleaf Club.
Certain resorts which are not owned by the Company, but only managed by the
Company, are operated through "Crown Club." Crown Club is not actually a
separate entity, but consists of several individual Club management agreements
which have terms of three to five years. Silverleaf Club and Crown Club, in
turn, have contracted with the Company to perform for them 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.

CERTAIN DEVELOPMENTS OCCURRING AFTER DECEMBER 31, 2000

PROPOSED DEBT RESTRUCTURING. Since February 2001, when the Company
disclosed significant liquidity issues arising primarily from the failure to
close a credit facility with its largest secured creditor, management and its
financial advisors have been attempting to develop and implement a plan to
return the Company to sound financial condition. During this period, the Company
negotiated and closed short-term secured financing arrangements with three
lenders, which allowed it to operate at reduced sales levels as compared to
original plans and prior years. With the exception of interest due on the
Company's Senior Subordinated Notes, these short-term arrangements have been
adequate to keep the Company's unsecured creditors current on amounts owed.

Under the Exchange Offer described in the Company's Form 8-K dated March
18, 2002, the agreeing holders of the Company's 10 1/2 Senior Subordinated Notes
due 2008 (the "Old Notes") will exchange their Old Notes for 65% of the
post-Exchange Offer Silverleaf common stock and new notes (the "New Notes") for
50% of the original note balance bearing interest ranging from 5%, if 80% of the
original notes are exchanged, to 8%, if 98% or more of the notes are exchanged.
Under the terms of the proposed reconstitution of the Board, following the
Exchange Date, the five member Board of Directors will be comprised of (i) two
existing directors, (ii) two directors designated for election by the
Noteholders' Committee, and (iii) a fifth director elected by a majority vote of
the other four directors. As a condition to the Exchange Offer, the secured
credit facilities shall have been restructured (including the waiver of any and
all defaults) in a manner acceptable to the exchanging holders.

Management has also negotiated two-year revolving, three-year term out,
arrangements for $214 million with its three principal secured lenders, subject
to completion of the Exchange Offer and funding under the off-balance sheet $100
million

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credit facility through the Company's SPE. Under these revised credit
arrangements, two of the three creditors will convert $43.6 million of existing
debt to a subordinated tranche B. Tranche A will be secured by a first lien on
currently pledged notes receivable. Tranche B will have a second lien on the
notes, a lien on resort assets, and an assignment of the Company's management
contracts with the Clubs, a portfolio of unpledged receivables currently
ineligible for pledge under the existing facility, and a security interest in
the stock of Silverleaf Finance I, Inc. Among other aspects of these revised
arrangements, the Company will be required to operate within certain parameters
of a revised business model and satisfy the financial covenants set forth in the
Amended Senior Credit Facilities. However, such results cannot be assured.

Lastly, management negotiated a revised arrangement with DZ Bank under the
$100 million off-balance sheet credit facility through the Company's SPE. This
arrangement is subject only to completion of both the Exchange Offer and the
arrangements with senior lenders described above.

Assuming the revised credit arrangements and restructuring described above
occurs and that the Company's financial performance in future periods is
substantially as projected in its business plan, the Company believes it will
have adequate financing to operate for the two-year revolving term of the
proposed financing with the senior lenders. At that time management will be
required to replace or renegotiate the revolving arrangements subject to
availability.

GOING CONCERN ISSUES. As previously described, the Company is in default on
its Senior Subordinated Notes. However, it has finalized (subject only to
completion of the Exchange Offer) refinancing and restructuring transactions
related to its debt in order to return to a liquid financial condition. In
addition, the Company has experienced significant losses in 2000. Under the
terms of the proposed debt refinancing and restructuring, future results must be
within certain parameters of a revised business model, which assumes significant
improvements over 2000 results.

The principal changes in operations necessary to accomplish the results in
the business model are sustained Vacation Interval sales at reduced levels,
reduced sales and marketing expense as a percentage of sales, reduced operating,
general and administrative expense, and improved customer credit quality which
the Company believes will result in a reduced provision for uncollectible notes.
During the second and third quarters of 2001, the Company closed three outside
sales offices, closed three telemarketing centers, and reduced headcount in
sales, marketing, and general and administrative functions. As a result of these
reductions, management believes that the necessary operating changes needed to
achieve the desired sales, sales and marketing expense, and operating, general
and administrative expense are substantially complete. However, there can be no
assurance that the Company will be able to achieve the financial results
necessary to comply with the financial covenants contained in the Amended Senior
Credit Facilities and the Amended DZ Bank Facility.

Due to the 2000 increase in the Company's provision for uncollectible
notes, its provision for uncollectible notes represent approximately 46.3% of
Vacation Interval sales for the year ended December 31, 2000. The significant
increase in the 2000 provision was due to a substantial reduction by the Company
in two programs that were previously used to bring delinquent notes receivable
current, and the deterioration of the economy that came to public awareness in
late 2000. Had neither of the two discontinued programs been in place in 1998
and 1999, the provision for uncollectible notes as a percentage of sales would
have been significantly higher. Management believes the high provision
percentage remained necessary in 2001 because overall consumer confidence in the
economy continued to decline in 2001 and customers concerned about the Company's
liquidity issues began defaulting on their notes after the Company's liquidity
announcement in February 2001.

Since the third quarter of 2001, the Company has been operating under new
sales practices whereby no sales are permitted unless the touring customer has
represented a minimum income level beyond that previously required by each
market, has a valid major credit card, and, further, the marketing division is
employing a best practices program, which should facilitate marketing to
customers more likely to be a good credit risk. The Company believes it has made
the improvements in its sales practices necessary to achieve the provision for
uncollectible notes assumed in its revised business model. However, should the
economy continue to deteriorate, and if enhanced sales practices do not result
in sufficiently improved collections, the Company may not realize the
improvements contemplated in its revised business model. If the Company is
unable to significantly reduce the existing levels of defaults on customer
receivables (and thereby reduce its allowance for doubtful accounts), it may not
be able to comply with the financial covenants in the Amended Senior Credit
Facilities, which could have a material adverse effect on the Company and to
operations.

The Company's ability to continue as a going concern, requires the
completion of the restructuring and refinancing transactions described above. It
also requires that the improvements to the Company's operations described above
be achieved. The Amended Senior Credit Facilities require the Company to satisfy
certain financial covenants. Management believes that if the Exchange Offer, the
restructuring of the Senior Credit Facilities, and the improvements to its
operations are successful, the Company will be able to improve its operating
results to achieve compliance with the financial covenants during the term of
the Amended Senior Credit Facilities. However, the Company's plan to utilize
certain of its assets,

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predominantly inventory, extends for periods of up to fifteen years.
Accordingly, the Company will need to either extend the Amended Senior Credit
Facilities or obtain new sources of financing through the issuance of other
debt, equity, or collateralized mortgage-backed securities, the proceeds of
which would be used to refinance the debt under the Amended Senior Credit
Facilities, finance mortgages receivable, or for other purposes. The Company may
not have these additional sources of financing available to it at the times when
such financings are necessary.

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 84 additional units (4,368 Vacation Intervals) at this
resort as of December 31, 2000. During 2000, the Company added no units at the
resort.

CONTINUED DEVELOPMENT OF FOX RIVER RESORT. Fox River Resort, located
approximately 70 miles southwest of Chicago, Illinois, has 174 existing units.
Silverleaf intends to develop approximately 276 additional units (14,352
Vacation Intervals) on this property as of December 31, 2000. During 2000, the
Company added 48 units at the resort.

CONTINUED DEVELOPMENT OF OAK N' SPRUCE RESORT. Oak N' Spruce Resort,
located 134 miles west of Boston, has 224 existing units. Silverleaf intends to
develop approximately 240 additional units (12,480 Vacation Intervals) at this
resort as of December 31, 2000. During 2000, the Company added 48 units at this
resort.

CONTINUED DEVELOPMENT OF THE VILLAGES. The Villages Resort, located on the
shores of Lake Palestine, approximately 100 miles east of Dallas, Texas, has 334
existing units. Silverleaf intends to develop approximately 96 additional units
(4,992 Vacation Intervals) at this resort as of December 31, 2000. During 2000,
the Company added 40 units at the resort.

CONTINUED DEVELOPMENT OF HOLIDAY HILLS RESORT. Holiday Hills Resort,
located two miles east of Branson, Missouri, in Taney County, has 308 existing
units. Silverleaf intends to develop approximately 480 additional units (24,932
Vacation Intervals) at this resort as of December 31, 2000. During 2000, the
Company added 108 units at the resort.

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 254 existing units. Silverleaf intends to develop approximately 258
additional units (13,416 Vacation Intervals) at this resort as of December 31,
2000. During 2000, the Company added 28 units at the resort.

CONTINUED DEVELOPMENT OF APPLE MOUNTAIN RESORT. Apple Mountain Resort,
located 72 miles north of Atlanta, Georgia, has 60 existing units. Silverleaf
intends to develop approximately 192 additional units (9,984 Vacation Intervals)
at this resort as of December 31, 2000. During 2000, the Company added 12 units
at this resort.

CONTINUED DEVELOPMENT OF PINEY SHORES RESORT. Piney Shores Resort, located
near Conroe, Texas, north of Houston, has 166 existing units. Silverleaf intends
to develop approximately 126 additional units (6,552 Vacation Intervals) at this
resort as of December 31, 2000. During 2000, the Company added 6 units at this
resort.

CONTINUED DEVELOPMENT OF SILVERLEAF'S SEASIDE RESORT. Silverleaf's Seaside
Resort, located in Galveston, Texas, has 72 existing units. Silverleaf intends
to develop approximately 210 additional units (10,920 Vacation Intervals) at
this resort as of December 31, 2000. During 2000, the Company added 60 units at
this resort.

POSSIBLE DEVELOPMENT OF NEW RESORTS. In December 1998, the Company
purchased 1,940 acres of undeveloped land near Philadelphia, Pennsylvania, for
approximately $1.9 million. The property may be developed as a Drive-to Resort
(i.e., Beech Mountain Resort). The Company has received regulatory approval to
develop 408 units (21,216 Vacation Intervals), but has not scheduled target
dates for construction, completion of initial units, or commencement of
marketing and sales efforts.

DISCONTINUED DEVELOPMENT OF CERTAIN RESORTS. The Company discontinued its
development plans for its undeveloped timeshare resorts in Kansas City, Missouri
and Las Vegas, Nevada and has placed each property for sale.

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GROWTH STRATEGY

Silverleaf intends to grow through the following strategies:

MAINTAINING DEVELOPMENT AND SALES OF VACATION INTERVALS. Silverleaf intends
to capitalize on its significant expansion capacity at the Existing Resorts by
maintaining marketing, sales, and development activities in accordance with its
revised business model. Furthermore, Silverleaf continues to emphasize its
secondary products such as biennial (alternate year) intervals 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. For example, at
Ozark Mountain Resort in Branson, Missouri, luxury "Presidents View" units are
offered for sale at prices ranging from $9,500 to $21,500 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 $76.4 million in 2000 from $50.4 million in 1999 (upgrade
sales represented 32.5% of Silverleaf's Vacation Interval sales in 2000 as
compared to 26.1% for 1999). 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.

COMPETITIVE ADVANTAGES

Assuming Silverleaf can effectively overcome its current financial
difficulties and continue as a going concern, Silverleaf believes the following
characteristics of its business 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 Bonus Time Program,
allowing Silverleaf Owners to use vacant units, 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, 2000, Silverleaf had
an inventory of 18,029 Vacation Intervals and a master plan to construct new
units which will result in up to 105,220 additional Vacation Intervals at the
Existing Resorts, respectively. Silverleaf's master plan for construction of new
units is contingent upon future sales at the Existing 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 to 270
days.

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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 Bonus Time Program.

EXPERIENCED MANAGEMENT. The Company's senior management has extensive
experience in the acquisition, development, and operation of timeshare resorts.
The Company's senior officers have an average of sixteen 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 at December 31, 2000, unless otherwise indicated.

EXISTING RESORTS

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(a) These totals do not reflect sales of upgraded Vacation Intervals to
Silverleaf Owners. For the year ended December 31, 2000, upgrade sales at
the Existing Owned Resorts were as follows:

The average sales price for the 16,112 upgraded Vacation Intervals sold was
$4,741 for the year ended December 31, 2000.

(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, 2000:

"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.

"Shell Complete" units are currently devoted to such uses as a general
store, registration office, sales office, activity center, construction
office, or pro shop.

(c) These totals are net of intervals received from upgrading customers and from
intervals received from cancellations.

(d) Principal amenities available to Silverleaf Owners at each resort are
indicated by the following symbols: B -- boating and/or canoeing; F --
fishing; G -- golf; H -- horseback riding; M -- miniature golf; S --
swimming pool; and T -- tennis.

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(e) The Company has management rights with respect to these resorts and
presently has no ability to expand the resorts. In 2000, the Company
discontinued plans to sell Vacation Intervals at these resorts and the
Company's costs associated with its unsold inventory of Vacation Intervals
at these resorts were written off.

(f) Boating is available near the resort.

(g) Includes three units which have not been finished-out for accommodations and
which are currently used for other purposes.

(h) Engineering, architectural, and construction estimates have not been
completed by the Company, and there can be no assurance that the Company
will develop these properties at the unit numbers currently projected.

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:

BONUS TIME PROGRAM. The Company's Bonus Time 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 Bonus Time Program
allows Silverleaf Club members to also use vacant units at any of the Company's
owned resorts. The Bonus Time 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. Members
who purchase after January 10, 2001, also pay a charge for Friday and Saturday
night Bonus Time Program Usage.

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 1,098 intra-company exchanges in 2000. In addition, for
an annual fee of approximately $84, most Silverleaf Owners may join the exchange
program administered by RCI.

DEEDED OWNERSHIP. The Company typically sells a Vacation Interval which
entitles the owner to use a specific unit for a designated one-week interval
each year. The Vacation Interval purchaser receives a recorded deed which grants
the purchaser a percentage interest in a specific unit for a designated week.
The Company also sells a biennial (alternate year) Vacation Interval, which
allows the owner to use a unit for a one-week interval every other year with
reduced dues.

MANAGEMENT CLUBS. Each of the Existing Resorts has a Club for the benefit
of the Silverleaf Owners. The Clubs operate under either Silverleaf Club or
Crown Club to manage the Existing Resorts on a centralized and collective basis.
Silverleaf Club and Crown Club have contracted with the Company to perform the
supervisory, management, and maintenance functions granted by the 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.

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, Texas.
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

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within Holly Lake, of which approximately 2,667 acres may not be developed due
to deed restrictions. At December 31, 2000, approximately 27 acres were
developed. The Company has no future development plans.

At December 31, 2000, 130 units were completed and no additional 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, 2000, the resort contained 6,500 Vacation Intervals, of
which 745 intervals remained available for sale. The Company has no plans to
build additional units. Vacation Intervals at the resort are currently priced
from $7,400 to $11,300 for one-week stays. During 2000, 905 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 652 acres, of which approximately 379 may not be developed due to
deed restrictions. At December 31, 2000, approximately 181 acres were developed
and 18 acres are currently planned by the Company to be used for future
development.

At December 31, 2000, 334 units were completed at The Villages and 64 units
were completed at Lake O' The Woods. At December 31, 2000, an additional 96
units were planned for development at The Villages. No additional units are
planned for development at Lake O' The Woods. 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 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, 2000, The Villages contained 16,960 total Vacation
Intervals, of which 2,456 remained available for sale. The Company plans to
build 96 additional units at The Villages, which would yield an additional 4,992
Vacation Intervals available for sale. At December 31, 2000, Lake O' The Woods
contained 3,200 total Vacation Intervals, of which

10

431 remained available for sale. The Company has no plans to build additional
units at Lake O' The Woods. Vacation Intervals at The Villages and Lake O' The
Woods are currently priced from $7,000 to $12,300 for one-week stays (and start
at $5,000 for biennial intervals), while one-week "Presidents Harbor" intervals
are priced at $8,900 to $19,500 depending on the value rating of the interval.
During 2000, 2,923 and 398 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. The resort contains
approximately 113 acres. At December 31, 2000, approximately 72 acres were
developed and 11 acres are currently planned by the Company to be used for
future development.

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 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, 2000, the resort contained 8,128 Vacation Intervals, of
which 1,389 remained available for sale. The Company intends to build 132
additional units, which would yield an additional 6,864 Vacation Intervals
available for sale. Vacation Intervals at the resort are currently priced from
$7,000 to $12,300 for one-week stays (and start at $5,000 for biennial
intervals). During 2000, 1,365 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. The resort
contains approximately 110 acres. At December 31, 2000, approximately 38 acres
were developed and 19 acres are currently planned by the Company to be used for
future development.

At December 31, 2000, 254 units were completed and 258 units were planned
for development at Hill Country Resort. Twenty units are single story, while
certain other units are two-story structures in which the bedrooms and baths are
located on the second story. Each unit contains two bedrooms, two bathrooms,
living room with sleeper sofa, and full kitchen. Other amenities within each
unit include whirlpool tub, color television, and interior design details such
as vaulted ceilings. Certain units include interior ceiling fans, imported
ceramic tile, over-sized sliding glass doors, rattan and pine furnishings, or
fireplace. 134 units feature the Company's new "lodge style." 32 "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
Guadeloupe 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, 2000, the resort contained 12,836 Vacation Intervals, of
which 1,908 remained available for sale. The Company plans to build 258
additional units, which collectively would yield 13,416 additional Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $7,000 to $12,300 for one-week stays (and start at $5,000 for
biennial intervals), while one-week "Presidents Villas" intervals are priced at
$8,900 to $21,500 depending on the value rating of the interval. During 2000,
2,113 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, 2000, the resort contained approximately 116
acres. The Company has no future development plans.

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

11

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, 2000, the resort contained 6,848 Vacation Intervals, of
which 414 remained available for sale. The Company has no plans to build
additional units. Vacation Intervals at the resort are currently priced from
$8,500 to $13,500 for one-week stays, while one-week "Presidents View" intervals
are priced at $9,500 to $21,500 depending on the value rating of the interval.
During 2000, 197 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. The resort contains approximately 405 acres, including a
91-acre golf course. At December 31, 2000, approximately 296 acres were
developed and 68 acres are currently planned by the Company to be used for
future development.

At December 31, 2000, 284 units were completed and an additional 504 units
were 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" 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 an 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 5,356 square foot clubhouse that includes a pro shop, restaurant,
and meeting space, and a 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, 2000, the resort contained 14,632 Vacation Intervals, of
which 1,419 remained available for sale. The Company plans to build 504
additional units, which would yield an additional 26,180 Vacation Intervals
available for sale. Vacation Intervals at the resort are currently priced from
$7,800 to $14,500 for one-week stays (and start at $6,500 for biennial
intervals), while one-week "Presidents Fairways" intervals are priced at $9,500
to $21,500 depending on the value rating of the interval. During 2000, 1,437
Vacation Intervals were sold.

TIMBER CREEK RESORT. Timber Creek Resort, in DeSoto, Missouri, is located
approximately 50 miles south of St. Louis, Missouri. The resort contains
approximately 332 acres. At December 31, 2000, approximately 180 acres were
developed and 6 acres are currently planned by the Company to be used for future
development.

At December 31, 2000, 72 units were completed and 84 units were planned for
future development at Timber Creek Resort. 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 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 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, fitness center,
horseshoes, archery, a welcome center, playground, arcade, movie room, tanning
bed, cedar sauna, sales and registration building, hook-ups for recreational
vehicles, and boat docks. The Company is obligated to maintain and provide
campground facilities for members of the previous owner's campground system.

At December 31, 2000, the resort contained 3,744 Vacation Intervals and
1,436 Vacation Intervals remained available for sale. The Company planned to
build 84 additional units, which would collectively yield 4,368 additional
Vacation Intervals available for sale. Vacation Intervals at the resort are
currently priced from $7,000 to $12,300 for one-week stays (and start at $5,000
for biennial intervals). During 2000, 954 Vacation Intervals were sold.

12

FOX RIVER RESORT. Fox River Resort, in Sheridan, Illinois, is located
approximately 70 miles southwest of Chicago, Illinois. The resort contains
approximately 372 acres. At December 31, 2000, approximately 156 acres were
developed and 26 acres are currently planned by the Company to be used for
future development.

At December 31, 2000, 174 units are completed and 276 units were planned
for future development at Fox River Resort. 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 include ceiling
fans, ceramic tile, and rattan or pine furniture.

Amenities currently available at the resort include a par three five-hole
executive golf course, outdoor swimming pool, clubhouse, covered pool, miniature
golf course, horseback riding trails, stable and corral, welcome center, sales
and registration buildings, hook-ups for recreational vehicles, a tennis court,
a basketball court / ice-skating rink, shuffleboard courts, sand volleyball
court, outdoor pavilion, and a playground. 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.

At December 31, 2000, the resort contained 9,048 Vacation Intervals and
1,907 Vacation Intervals remained available for sale. The Company planned to
build 276 additional units, which would collectively yield 14,352 additional
Vacation Intervals available for sale. Vacation Intervals at the resort are
currently priced from $6,900 to $12,300 for one-week stays (and start at $5,000
for biennial intervals). During 2000, 2,765 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. The resort contains approximately 244 acres. At December 31,
2000, approximately 37 acres were developed and 10 acres are currently planned
by the Company to be used for future development.

At December 31, 2000, the resort had 204 units and an additional 260 units
were 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
include a living room with sleeper sofa, full kitchen, whirlpool tub, and color
television. Certain units include ceiling fans, ceramic tile, and rattan or pine
furniture.

Amenities at the resort include two indoor heated swimming pools with hot
tubs, an 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, 2000, the resort contained 10,608 Vacation Intervals, of
which 1,659 remained available for sale. The Company plans to build 260
additional "lodge-style" units, which would yield an additional 13,520 Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $8,150 to $14,500 for one-week stays (and start at $4,200 for
biennial intervals). During 2000, 1,732 Vacation Intervals were sold.

APPLE MOUNTAIN RESORT. Apple Mountain Resort, in Clarkesville, Georgia, is
located approximately 125 miles north of Atlanta, Georgia. The resort is
situated on 285 acres of beautiful open pastures and rolling hills, with 150
acres being the resort's golf course. At December 31, 2000, approximately 191
acres were developed and 16 acres are currently planned by the Company to be
used for future development.

At December 31, 2000, 60 units are completed and 192 units were planned for
development at Apple Mountain Resort. 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, a member services
building, 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.

13

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, 2000, the resort contained 3,120 Vacation Intervals, of
which 1,002 remained available for sale. The Company plans to build 192
additional "lodge-style" units, which would yield an additional 9,984 Vacation
Intervals available for sale. Vacation Intervals at the resort are currently
priced from $7,000 to $12,300 for one-week stays (and start at $4,500 for
biennial intervals). During 2000, 1,376 Vacation Intervals were sold.

SILVERLEAF'S SEASIDE RESORT. Silverleaf's Seaside Resort is located in
Galveston, Texas, approximately 50 miles south of Houston, Texas. The resort
contains approximately 87 acres. At December 31, 2000, approximately 45 acres
were developed and 42 acres are currently planned by the Company to be used for
future development.

At December 31, 2000, the resort had 60 units and an additional 222 were
planned for development. The two bedroom, two bath units are situated in
three-story 12-plex buildings. Amenities within each unit include two large
bedrooms, two bathrooms (one with a whirlpool tub), living room with sleeper
sofa, full kitchen, color television, and vaulted ceilings.

With 635 feet of beachfront, the primary amenity at the resort is the Gulf
of Mexico. Other amenities include a lodge with kitchen, tennis court, swimming
pool, sand volleyball court, playground, picnic pavilion, horseshoes, and
shuffleboard. The Company is obligated to maintain and provide campground
facilities for members of the previous owner's campground system.

At December 31, 2000, the Company planned to build 222 units which would
yield 11,544 Vacation Intervals for sale and 788 Vacation Intervals remained
available for sale. Vacation Intervals at the resort are currently priced from
$8,500 to $20,500 for one-week stays. During 2000, 56 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. Management has determined that
there will be no further sales efforts related to these resorts, and has
therefore written off all associated inventory costs.

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. During 2000, no Vacation Intervals and
Silverleaf Club Bonus Time Program memberships were sold. No further development
or sales are 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. During 2000, no Vacation Intervals and Silverleaf Club Bonus
Time Program memberships were sold. No further development or sales are 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.
During 2000, no Vacation Intervals and Silverleaf Club Bonus Time Program
memberships were sold, respectively. No further development or sales are 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,

14

indoor pool/sauna, outdoor pool, clubhouse, tennis courts, and pontoon boat.
During 2000, no Vacation Intervals and Silverleaf Club Bonus Time Program
memberships were sold. No further development or sales are 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. During 2000, no Vacation Intervals and
Silverleaf Club Bonus Time Program memberships were sold. No further development
or sales are 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.
During 2000, no Vacation Intervals and Silverleaf Club Bonus Time Program
memberships were sold. No further development or sales are 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. During 2000, no Vacation Intervals and Silverleaf Club
Bonus Time Program memberships were sold. No further development or sales are
planned at this resort.

POTENTIAL NEW RESORT

BEECH MOUNTAIN RESORT. In December 1998, the Company acquired 1,998 acres
of undeveloped land near Philadelphia, Pennsylvania, which could be developed as
a Drive-to Resort. The primary recreational amenity available at this site is a
fishing lake. The Company has received regulatory approval to develop 408 units,
which would yield 21,216 Vacation Intervals for sale. The Company has not
scheduled target dates for construction, completion of initial units, or
commencement of marketing and sales efforts for this location.

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.

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 with outside vendors 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. On a
limited basis the Company retains outside vendors to arrange tours at the
Company's resorts.

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. The
verification officer also plays a Bonus Time video for the customer to explain
the limitations on the Bonus Time Program. 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 2% 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 2%, which are also subject to chargebacks.

Prospects who are interested in a lower priced product are offered biennial
(alternate year) intervals or other low priced products, which entitle the
prospect to sample a resort for a specified number of nights. The prospect may
apply the cost of a lower priced product against the down payment on a Vacation
Interval if purchased by a later fixed date. In addition, the

15

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 32.5% and 26.1% of
the Company's gross revenues from Vacation Interval sales for the year ended
December 31, 2000, and the year ended December 31, 1999, respectively. By
offering lower price products 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
broaden its market with its lower-priced products and gradually upgrade such
purchasers over time.

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, 2000, the Company employed
approximately 792 sales representatives at its Existing Resorts.

As a result of the Company's aforementioned liquidity concerns, the Company
closed three outside sales offices, closed three telemarketing centers, and
reduced headcount in sales and marketing functions during the second and third
quarters of 2001.

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 prior to purchase
and will provide financing if the customer is presently employed and meets
certain income and buyer profile criteria.

The Company's credit experience is such that in 2000 it provided 46.3% of
the purchase price of Vacation Intervals as a provision for uncollectible notes.
In addition, for the year ended December 31, 2000, the Company decreased sales
by $7.0 million for customer returns (cancellations of sales transactions in
which the customer fails to make the first installment payment). During the year
ended December 31, 2000, the Company also increased operating, general and
administrative expenses by $1.1 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. The significant increase in the 2000
provision was due in part to a substantial reduction by the Company in two
programs that were previously used to bring delinquent notes receivable current.
Had neither of these two discontinued programs been in place in 1998 and 1999,
the provision for uncollectible notes as a percentage of sales would have been
significantly higher.

At December 31, 2000, the Company had notes receivable (including notes
unrelated to Vacation Intervals) in the approximate principal amount of $338.6
million, was contingently liable with respect to approximately $817,000
principal amount of customer notes sold with recourse, and had an allowance for
uncollectible notes of approximately $74.8 million.

Effective October 30, 2000, the Company entered into a $100 million
revolving credit agreement to finance Vacation Interval notes receivable through
an off-balance-sheet Special Purpose Entity ("SPE") formed on October 16, 2000.
The principal balance of the facility, which was originally scheduled to mature
on October 30, 2005, will mature on the fifth anniversary date of the amendment
date; however, the amended agreement provides that the lender has the right to
put the receivables back to the SPE at the end of two years following the
amendment date. During 2000, the Company sold $74 million of notes receivable to
the SPE and recognized pre-tax gains of $4.3 million. The SPE funded these
purchases through advances under a credit agreement arranged for this purpose.
In conjunction with these sales, the Company received cash consideration of
$62.9 million, which was used to pay down borrowings under its revolving loan
facilities.

16

At December 31, 2000, the SPE held notes receivable totaling $70.2 million,
with related borrowings of $63.6 million. Except for the repurchase of notes
that fail to meet initial eligibility requirements, the Company is not obligated
to repurchase defaulted or any other contracts sold to the SPE. It is
anticipated, however, that the Company will place bids to repurchase some
defaulted contracts in public auctions to facilitate the remarketing of the
underlying collateral.

It is vitally important to the Company's liquidity plan that this credit
facility, or another new facility, continue beyond the two-year period. In
addition, the Company's business plan assumes that expanded off-balance-sheet
financing will be available to the Company in 2003 and 2004. This expanded
facility will be necessary to reduce outstanding balances on non-revolving
credit facilities and to finance future sales. Factors that could affect the
Company's ability to obtain additional off-balance-sheet financing are as
follows:

o Capital markets must be available to fund off-balance-sheet
financings.

o The current facility requires a minimum number of payments and credit
criteria before a customer note is eligible for funding. Management
believes that the expanded facilities necessary in 2003 and 2004 will
require enhanced eligibility requirements for customer notes
receivable. Management has implemented revised sales practices that it
believes will result in higher quality notes receivable by 2003 and
2004. If the quality of the notes receivable portfolio does not
improve significantly by 2003, it is unlikely that the Company will be
able to secure additional off-balance-sheet facilities. In this case,
the Company will attempt to secure additional secured credit
facilities.

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 and its SPE to finance its operations. At December 31, 2000,
the Company had borrowings under credit facilities in the approximate principal
amount of $255.5 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, 2000, the Company had a portfolio of approximately
39,530 Vacation Interval customer promissory notes in the approximate principal
amount of $336.4 million, of which approximately $33.1 million in principal
amount was 61 days or more past due, and therefore ineligible as collateral.

At December 31, 2000, the Company's portfolio of customer notes receivable
had an average yield of 13.4%. At such date, the Company's borrowings, which
bear interest at variable rates, had a weighted average cost of 9.6%. 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.

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 6.3 years at
December 31, 2000. The Company's revolving credit facilities have scheduled
maturities between February 2002 and April 2006. Additionally, the Company's
revolving credit facilities could be declared immediately due and payable as a
result of a default by the Company. Accordingly, there could be a mismatch
between the Company's cash receipts and the Company's cash disbursements
obligations in subsequent periods. Although the Company

17

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 would require
the Company to seek other alternatives to enable it to continue in business. Due
to the uncertainties inherent in the Company's current financial condition, as
well as capital market uncertainties, the Company may not have viable
alternatives available if its current lenders are unwilling to extend
refinancing to replace existing credit facilities.

Since February 2001, when the Company disclosed significant liquidity
issues arising primarily from the failure to close a credit facility with its
largest secured creditor, management and its financial advisors have been
attempting to develop and implement a plan to return the Company to sound
financial condition. During this period, the Company negotiated and closed
short-term secured financing arrangements with three lenders, which allowed it
to operate at reduced sales levels as compared to prior years. With the
exception of interest due on the Old Notes, these short-term arrangements have
been adequate to keep the Company's unsecured creditors current on amounts owed.

Under the Exchange Offer, the agreeing holders will exchange their notes
for 65% of the post-Exchange Offer Silverleaf common stock and new notes for 50%
of the original note balance bearing interest ranging from 5%, if 80% of the
original notes are exchanged, to 8%, if 98% or more of the notes are exchanged.
Additionally, under the terms of the Exchange Offer, the Indenture related to
the non-exchanging notes will be amended, reducing the rights of the original
holders and making the notes subordinate to the new notes. Exchanging holders
will also receive the Partial Interest Payment and the Additional Interest
Payment. Under the terms of the proposed reconstitution of the Board, following
the Exchange Date, the five member Board of Directors will be comprised of (i)
two existing directors, (ii) two directors designated for election by the
Noteholders' Committee, and (iii) a fifth director elected by a majority vote of
the other four directors. As a condition to the Exchange Offer, the secured
credit facilities shall have been restructured (including the waiver of any and
all defaults) in a manner acceptable to the exchanging holders.

Management has also negotiated two-year revolving, three-year term out,
arrangements for $214 million with its three principal secured lenders, subject
to completion of the Exchange Offer and funding under the off-balance sheet $100
million credit facility through the Company's SPE. Under these revised credit
arrangements, the three creditors will convert $43.6 million of existing debt to
a subordinated Tranche B facility . Tranche A facility will maintain a first
lien on currently pledged notes receivable. Tranche B facility will have a
second lien on the notes, a lien on resort assets, and an assignment of the
Company's interest in its SPE. Among other aspects of these revised
arrangements, the Company will be required to operate substantially within the
parameters of a revised business model. However, such results cannot be assured.

Lastly, management negotiated a revised arrangement with the lender under
the $100 million off-balance sheet credit facility through the Company's SPE.
This arrangement is subject only to completion of both the Exchange Offer and
the arrangements with senior lenders described above.

Assuming the revised credit arrangements and restructuring described above
occurs, the Company believes it will have adequate financing to operate
substantially in compliance with its revised business model for the two-year
revolving term of the proposed financing with the senior lenders. However, if
the Company's results of operations differ materially from those contained in
its revised business model, it is likely that the Company would be unable to
satisfy the financial covenants contained in the amended credit facilities, and
the Company would, therefore, be in default of those agreements. Additionally,
upon the expiration of the revised credit agreements, management will be
required to replace revolving arrangements subject to availability at that time.

DEVELOPMENT AND ACQUISITION PROCESS

As part of its current business plan, the Company intends to develop at its
Existing Resorts and/or acquire new resorts only to the extent the capital
markets and the covenants of its existing facilities permit.

Assuming the Company is successful in implementing its revised business
model, it would only consider developing or acquiring new resorts under its
established development policies. 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.

18

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 to 270 days based on demand, weather permitting. A normal part of the
development process is the establishment of a functional sales office at the new
resort.

CLUBS / MANAGEMENT CLUBS

The Company has the right to appoint the directors of the Silverleaf Club.
However, the Company does not have this right related to 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
institute foreclosure proceedings regarding the delinquent Silverleaf Owner's
Vacation Interval. The number of foreclosures that occurred as a result of
Silverleaf Owners failing to pay monthly dues were 556 in 2000 and 266 in 1999.
Typically, the Company purchases at foreclosure all Vacation Intervals that are
the subject of foreclosure proceedings instituted by the Club because of
delinquent dues.

Each Existing Resort has a Club that operates through a centralized
organization to manage the Existing Resorts on a collective basis. See "Business
- - Operations." 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 either that resort's Club or the Silverleaf Club, rather than the Company.

At December 31, 2000, the Management Clubs had 628 full-time employees,
respectively, and are 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's 2000 management fees were subject
to the net income limitation. Accordingly, for the year ended December 31, 2000,
management fees recognized were $462,000. 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. As a
result of the performance of the Silverleaf Club it is uncertain when the
Silverleaf Club will be able to generate positive net income. Therefore, future
income to the Company could be limited. Additionally, by 2000 the Company
determined the receivable from Silverleaf Club for certain expenses advanced by
the Company was not collectible and was therefore written off resulting in a
charge to expense of $7.5 million. 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, 2000, there were approximately 92,000
and 24,000 Silverleaf Owners who pay

19

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.

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.

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, 2000 and 1999, the Company recognized
$3.6 million and $1.7 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 opened in 2000 as Silverleaf's Seaside Resort. This resort was developed
in lieu of the Pass Christian property. Additionally, the Company owns
approximately 14 more 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.

The Company also owns 260 acres of land near Kansas City, Missouri, and two
acres of undeveloped land in Las Vegas, Nevada, two blocks off the "strip." Both
properties are now held for sale as a result of the Company's aforementioned
liquidity concerns.

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.

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

20

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. 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 $84 per year. Exchange rights require an additional fee
of approximately $129 for domestic exchanges and $169 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 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 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.

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 income levels as 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 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

21

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.

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