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 entered into an Assurance of Voluntary Compliance with the
Texas Attorney General, in which the Company agreed to make additional
disclosure to purchasers of Vacation Intervals regarding the limited
availability of its Bonus Time Program during certain periods. The Company paid
$15,200 for investigatory costs and attorneys' fees of the Attorney General in
connection with this matter. Also, in March 1997, the Company entered into an
agreed order (the "Agreed Order") with the Texas Real Estate Commission
requiring the Company to comply with certain

22

aspects of the Texas Timeshare Act, Texas Real Estate License Act, and Rules of
the Texas Real Estate Commission, with which it had allegedly been in
non-compliance until mid-1995. The allegations included (i) the Company's
admitted failure to register the Missouri Destination Resorts in Texas (due to
its misunderstanding of the reach of the Texas Timeshare Act); (ii) payment of
referral fees for Vacation Interval sales, the receipt of which was improper on
the part of the recipients; and (iii) miscellaneous other actions alleged to
violate the Texas Timeshare Act, which the Company denied. While the Agreed
Order acknowledged that Silverleaf independently resolved ten consumer
complaints referenced in the Agreed Order, discontinued the practices complained
of, and registered the Destination Resorts during 1995 and 1996, the Texas Real
Estate Commission ordered Silverleaf to cease its discontinued practices and
enhance its disclosure to purchasers of Vacation Intervals. In the Agreed Order,
Silverleaf agreed to make a voluntary donation of $30,000 to the State of Texas.
The Agreed Order also directed Silverleaf to revise its training manual for
timeshare salespersons and verification officers. While the Agreed Order
resolved all of the alleged violations contained in complaints received by the
Texas Real Estate Commission through December 31, 1996, the Company has
encountered and expects to encounter some level of additional consumer
complaints in the ordinary course of its business.

The Company employs the following methods in training sales and marketing
personnel as to legal requirements. With regard to direct mailings, a designated
compliance employee of the Company reviews all mailings to determine if they
comply with applicable state legal requirements. With regard to telemarketing,
the Company's Vice President -- Marketing prepares a script for telemarketers
based upon applicable state legal requirements. All telemarketers receive
training which includes, among other things, directions to adhere strictly to
the Company approved script. Telemarketers are also monitored by their
supervisors to ensure that they do not deviate from the Company approved script.
With regard to sales functions, the Company distributes sales manuals which
summarize applicable state legal requirements. Additionally, such sales
personnel receive training as to such applicable legal requirements. The Company
has a salaried employee at each sales office who reviews the sales documents
prior to closing a sale to review compliance with legal requirements.
Periodically, the Company is notified by regulatory agencies to revise its
disclosures to consumers and to remedy other alleged inadequacies regarding the
sales and marketing process. In such cases, the Company revises its direct
mailings, telemarketing scripts, or sales disclosure documents, as appropriate,
to comply with such requests.

ENVIRONMENTAL MATTERS. Under various federal, state, and local
environmental laws, ordinances, and regulations, a current or previous owner or
operator of real estate may be required to investigate and clean up hazardous or
toxic substances or petroleum product releases at such property, and may be held
liable to a governmental entity or to third parties for property damage and tort
liability and for investigation and clean-up costs incurred by such parties in
connection with the contamination. Such laws typically impose clean-up
responsibility and liability without regard to whether the owner or operator
knew of or caused the presence of the contaminants, and the liability under such
laws has been interpreted to be joint and several unless the harm is divisible
and there is a reasonable basis for allocation of responsibility. The cost of
investigation, remediation, or removal of such substances may be substantial,
and the presence of such substances, or the failure to properly remediate the
contamination on such property, may adversely affect the owner's ability to sell
such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances at a
disposal or treatment facility also may be liable for the costs of removal or
remediation of a release of hazardous or toxic substances at such disposal or
treatment facility, whether or not such facility is owned or operated by such
person. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs it incurs in connection
with the contamination. Finally, the owner or operator of a site may be subject
to common law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site or from environmental
regulatory violations. In connection with its ownership and operation of its
properties, the Company may be potentially liable for such claims.

Certain federal, state, and local laws, regulations, and ordinances govern
the removal, encapsulation, or disturbance of asbestos-containing materials
("ACMs") when such materials are in poor condition or in the event of
construction, remodeling, renovation, or demolition of a building. Such laws may
impose liability for release of ACMs and may provide for third parties to seek
recovery from owners or operators of real properties for personal injury
associated with ACMs. In connection with its ownership and operation of its
properties, the Company may be potentially liable for such costs. In 1994, the
Company conducted a limited asbestos survey at each of the Existing Resorts,
which surveys did not reveal material potential losses associated with ACMs at
certain of the Existing Resorts.

In addition, recent studies have linked radon, a naturally-occurring
substance, to increased risks of lung cancer. While there are currently no state
or federal requirements regarding the monitoring for, presence of, or exposure
to radon in indoor air, the EPA and the Surgeon General recommend testing
residences for the presence of radon in indoor air, and the EPA further
recommends that concentrations of radon in indoor air be limited to less than 4
picocuries per liter of air (Pci/L) (the "Recommended Action Level"). The
presence of radon in concentrations equal to or greater than the Recommended
Action Level in one or more of the Company's properties may adversely affect the
Company's ability to sell Vacation Intervals at

23

such properties and the market value of such property. The Company has not
tested its properties for radon. Recently-enacted federal legislation will
eventually require the Company to disclose to potential purchasers of Vacation
Intervals at the Company's resorts that were constructed prior to 1978 any known
lead-paint hazards and will impose treble damages for failure to so notify.

Electric transmission lines are located in the vicinity of some of the
Company's properties. Electric transmission lines are one of many sources of
electromagnetic fields ("EMFs") to which people may be exposed. Research into
potential health impacts associated with exposure to EMFs has produced
inconclusive results. Notwithstanding the lack of conclusive scientific
evidence, some states now regulate the strength of electric and magnetic fields
emanating from electric transmission lines, while others have required
transmission facilities to measure for levels of EMFs. In addition, the Company
understands that lawsuits have, on occasion, been filed (primarily against
electric utilities) alleging personal injuries resulting from exposure as well
as fear of adverse health effects. In addition, fear of adverse health effects
from transmission lines has been a factor considered in determining property
value in obtaining financing and in condemnation and eminent domain proceedings
brought by power companies seeking to construct transmission lines. Therefore,
there is a potential for the value of a property to be adversely affected as a
result of its proximity to a transmission line and for the Company to be exposed
to damage claims by persons exposed to EMFs.

In 2000, the Company conducted Phase I environmental assessments at each of
the Company-owned resorts in order to identify potential environmental concerns.
These Phase I assessments were carried out in accordance with accepted industry
practices and consisted of non-invasive investigations of environmental
conditions at the properties, including a preliminary investigation of the sites
and identification of publicly known conditions concerning properties in the
vicinity of the sites, physical site inspections, review of aerial photographs
and relevant governmental records where readily available, interviews with
knowledgeable parties, investigation for the presence of above ground and
underground storage tanks presently or formerly at the sites, and the
preparation and issuance of written reports. The Company's Phase I assessments
of the properties have not revealed any environmental liability that the Company
believes would have a material adverse effect on the Company's business, assets,
or results of operations taken as a whole; nor is the Company aware of any such
material environmental liability. Nevertheless, it is possible that the
Company's Phase I assessments do not reveal all environmental liabilities or
that there are material environmental liabilities of which the Company is
unaware. Moreover, there can be no assurance that (i) future laws, ordinances,
or regulations will not impose any material environmental liability or (ii) the
current environmental condition of the properties will not be affected by the
condition of land or operations in the vicinity of the properties (such as the
presence of underground storage tanks) or by third parties unrelated to the
Company. The Company does not believe that compliance with applicable
environmental laws or regulations will have a material adverse effect on the
Company's results of operations, liquidity, or financial position.

The Company believes that its properties are in compliance in all material
respects with all federal, state, and local laws, ordinances, and regulations
regarding hazardous or toxic substances. The Company has not been notified by
any governmental authority or any third party, and is not otherwise aware, of
any material noncompliance, liability, or claim relating to hazardous or toxic
substances or petroleum products in connection with any of its present
properties.

UTILITY REGULATION. The Company owns its own water supply and waste-water
treatment facilities at several of the Existing Resorts, which are regulated by
various governmental agencies. The Texas Natural Resource Conservation
Commission is the primary state umbrella agency regulating utilities at the
resorts in Texas; and the Missouri Department of Natural Resources and Public
Service Commission of Missouri are the primary state umbrella agencies
regulating utilities at the resorts in Missouri. The Environmental Protection
Agency, division of Water Pollution Control, and the Illinois Commerce
Commission are the primary state agencies regulating water utilities in
Illinois. These agencies regulate the rates and charges for the services
(allowing a reasonable rate of return in relation to invested capital and other
factors), the size and quality of the plants, the quality of water supplied, the
efficacy of waste-water treatment, and many other aspects of the utilities'
operations. The agencies have approval rights regarding the entity owning the
utilities (including its financial strength) and the right to approve a transfer
of the applicable permits upon any change in control of the entity holding the
permits. Other federal, state, regional, and local environmental, health, and
other agencies also regulate various aspects of the provision of water and
waste-water treatment services.

OTHER REGULATION. Under various state and federal laws governing housing
and places of public accommodation, the Company is required to meet certain
requirements related to access and use by disabled persons. Many of these
requirements did not take effect until after January 1, 1991. Although
management of the Company believes that its facilities are substantially in
compliance with present requirements of such laws, the Company will incur
additional costs of compliance. Additional legislation may impose further
burdens or restrictions on owners with respect to access by disabled persons.
The ultimate amount of the cost of compliance with such legislation is not
currently ascertainable, and, while such costs are not expected to have a
material effect on the Company, such costs could be substantial. Limitations or
restrictions on the

24

completion of certain renovations may limit application of the Company's growth
strategy in certain instances or reduce profit margins on the Company's
operations.

EMPLOYEES

At December 31, 2000, the Company employed 3,520 persons, including the
employees employed by the Clubs. The Company believes employee relations are
good. None of the employees are represented by a labor union.

INSURANCE

The Company carries comprehensive liability, fire, hurricane, and storm
insurance with respect to the Company's resorts, with policy specifications,
insured limits, and deductibles customarily carried for similar properties which
the Company believes are adequate. There are, however, certain types of losses
(such as losses arising from floods and acts of war) that are not generally
insured because they are either uninsurable or not economically insurable.
Should an uninsured loss or a loss in excess of insured limits occur, the
Company could lose its capital invested in a resort, as well as the anticipated
future revenues from such resort, and would continue to be obligated on any
mortgage indebtedness or other obligations related to the property. Any such
loss could have a material adverse effect on the Company's results of operation,
liquidity, or financial position. The Company self-insures for employee medical
and dental claims reduced by certain stop-loss provisions. The Company also
self-insures for property damage to certain vehicles and heavy equipment.

DESCRIPTION OF CERTAIN INDEBTEDNESS

At December 31, 2000, the Company has revolving credit agreements with four
lenders providing for loans up to an aggregate of $294.3 million, which the
Company uses to finance the sale of Vacation Intervals, to finance construction,
and for working capital needs. In addition, the Company has $66.7 million of
senior subordinated notes due 2008, with interest payable semi-annually on April
1 and October 1, guaranteed by all of the Company's present and future domestic
restricted subsidiaries. One facility will expire in August 2002, but if the
Exchange Offer is completed and the amendments to the other senior credit
facilities become effective, the maturity date will extend to August 31, 2003.
The other loans mature between August 2002 and April 2006, and are
collateralized (or cross-collateralized) by customer notes receivable,
construction in process, land, improvements, and related equipment of certain of
the Existing Resorts. These credit facilities bear interest at variable rates
tied to the prime rate, LIBOR, or the corporate rate charged by certain banks.
The credit facilities secured by customer notes receivable limit advances to 85%
of the unpaid balance of certain eligible customer notes receivable.

The Company was unable to make the interest payment due April 1, 2001 on
the senior subordinated notes as a result of a non-payment default under one of
its senior credit facilities. The trustee for the senior subordinated notes
accelerated payment of the principal, interest, and other charges on May 22,
2001. Interest on the notes has continued to accrue at the default rate of 11.5%
per annum on the principal balance of the notes outstanding and the accrued but
unpaid interest.

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 SPE formed on October 16, 2000. The agreement has a term of
5 years. During 2000, the Company sold $74 million of notes receivable to the
SPE. The SPE primarily funded these purchases through advances under their
various credit agreements and, in conjunction with these sales, the Company
received cash consideration of $62.9 million.

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.

Certain of the above debt agreements include restrictions on the Company's
ability to pay dividends based on minimum levels of net income and cash flow.
The debt agreements contain covenants including requirements that the Company
(i) preserve and maintain the collateral securing the loans; (ii) pay all taxes
and other obligations relating to the collateral; and (iii) refrain from selling
or transferring the collateral or permitting any encumbrances on the collateral.
The debt agreements also contain restrictive covenants which include (i)
restrictions on liens against and dispositions of collateral, (ii) restrictions
on distributions to affiliates and prepayments of loans from affiliates, (iii)
restrictions on changes in control and management of the Company, (iv)
restrictions on sales of substantially all of the assets of the Company, and (v)
restrictions on mergers, consolidations, or other reorganizations of the
Company. Under certain credit facilities, a sale of all or substantially all of
the assets of the Company, a merger, consolidation, or reorganization of the
Company, or other changes of control of the ownership of the Company, would
constitute an event of default and permit the lenders to accelerate the maturity
thereof.

25

Such credit facilities also contain operating covenants requiring the
Company to (i) maintain an aggregate minimum tangible net worth ranging from
$17.5 million to $110 million, minimum liquidity, including a debt to equity
ratio of not greater than 2.5 to 1 and a liquidity ratio of not less than 5%, an
interest coverage ratio of at least 2.0 to 1, a marketing expense ratio of no
more than 0.55 to 1, a consolidated cash flow to consolidated interest expense
ratio of at least 2.0 to 1, and total tangible capital funds greater than $200
million plus 75% of net income beginning October 1999; (ii) maintain its legal
existence and be in good standing in any jurisdiction where it conducts
business; (iii) remain in the active management of the Resorts; and (iv) refrain
from modifying or terminating certain timeshare documents. The credit facilities
also include customary events of default, including, without limitation (i)
failure to pay principal, interest, or fees when due, (ii) untruth of any
representation of warranty, (iii) failure to perform or timely observe
covenants, (iv) defaults under other indebtedness, and (v) bankruptcy.

Interest on the Company's Senior Subordinated Notes of $3.5 million and
$3.9 million was not paid when due on April 1, 2001 and October 1, 2001,
respectively, which caused the Company to be in monetary default.

The following table summarizes the Company's notes payable, capital lease
obligations, and senior subordinated notes at December 31, 1999 and 2000 (in
thousands):

The Company is in default under various covenants contained in
substantially all of the above described loan agreements.

At December 31, 2000, LIBOR rates were from 6.40% to 6.56%, and the Prime
rate was 9.50%.

26

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 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, 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.
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. 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 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.
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 requires 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 the Company is able to meet its revised 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. However, if the Company
is unable to satisfy the financial covenants contained in the amended credit
facilities, it could be declared in default of such agreements. Upon the
maturity of the amended credit facilities, management will be required to
replace or renegotiate the revolving arrangements subject to availability at
that time.

27

CAUTIONARY STATEMENTS

Subsequent to December 31, 2000, the Company became delinquent in its
required filings with the Securities and Exchange Commission and faces an
uncertain future due to a variety of factors, including material weaknesses in
its internal accounting controls and its need to obtain additional financing in
the near future which is not currently in place. All forward looking statements
in this annual report should be carefully considered in view of the cautionary
statements described below and in the other information included herein.

RISKS RELATED TO THE RESTRUCTURING PLAN

It is possible that the Company will not, for a variety of reasons, be able
to complete its proposed Restructuring Plan. Alternatively, the Company may be
able to complete the Restructuring Plan, but may not be able to comply with all
of the terms and conditions of either the Amended Senior Credit Facilities, the
Amended DZ Bank Facility, the New Indenture, or the Amended Indenture. If any of
these events occurs, the following undesirable events may happen:

o the Company may not be able to finance its continued operations
because it will not be able to access its Amended Senior Credit
Facilities with its Senior Lenders nor will DZ Bank be obligated to
advance funds under the Amended DZ Bank Facility;

o the Company could lose business if its customers and suppliers doubt
its ability to satisfy obligations on a timely or long-term basis;

o the Company may be unable to invest adequate capital in its business;

o an involuntary bankruptcy petition could be filed against the Company
by its creditors;

o the Company may need to commence a bankruptcy proceeding to attempt to
reorganize under applicable provisions of the Bankruptcy Code; and

o if a bankruptcy proceeding does commence following consummation of the
Restructuring Plan, exchanging holders will have exchanged one-half of
their claims as creditors for an equity interest in the Company and
may receive less in bankruptcy than if they had not tendered their Old
Notes.

There is no assurance that a bankruptcy proceeding will result in a
reorganization rather than a liquidation, or that any reorganization would be on
terms as favorable to the holders of the Old Notes as the terms of the
restructuring pursuant to the Restructuring Plan. If liquidation or lengthy
bankruptcy proceeding were to occur, there is a substantial risk that the
holders would receive substantially less than the recovery anticipated if the
Restructuring Plan is successful.

DISCLAIMER OF OPINION, GOING CONCERN ISSUES, AND RESTATEMENT OF FINANCIAL
STATEMENTS

On March 12, 2002, the Company's independent auditors disclaimed an opinion
on the consolidated balance sheet of the Company and its consolidated
subsidiaries as of December 31, 2000 and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year ended December 31,
2000 because of pervasive uncertainties regarding the Company's ability to
continue as a going concern. See "Index to Financial Statements at page F-1" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

While the Company believes that successful implementation of the
Restructuring Plan will allow it to continue as a going concern, there can be no
assurance that this will occur, or that even if the Company is able to continue
as a going concern, that its auditors will agree to either (a) express an
opinion on the Company's financial statements for the period ended December 31,
2000 or (b) issue an independent auditors' report on the Company's financial
statements for the period ended December 31, 2000, or any succeeding periods,
that does not contain an explanatory paragraph concerning the Company's ability
to continue as a going concern. If the Company is unable to obtain audit reports
on its financial statements in which the independent auditors do not disclaim an
opinion or include an explanatory paragraph concerning the Company's ability to
continue as a going concern, then the Company may not be able to comply with
various financial covenants in its Amended Senior Credit Facilities, the Amended
DZ Bank Facility, and the New Indenture.

The inability to obtain independent audit reports on its financial
statements that do not disclaim an opinion or contain an explanatory paragraph
concerning the ability of the Company to continue as a going concern could also
adversely affect the Company's ability to (a) obtain, or retain, various
necessary licenses and permits from governmental authorities, (b) achieve

28

full compliance with applicable federal and state securities laws and
regulations, and (c) be admitted for listing or quotation purposes on any
recognized securities exchange.

On March 15, 2002, the Company announced that it would restate its
consolidated financial statements for the fiscal years ended December 31, 1998
and 1999, the 1999 quarters and the quarters ended March 31, 2000, June 30,
2000, and September 30, 2000. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Note 19 to the Company's
Consolidated Financial Statements" for the year ended December 31, 2000. The
Company's restatement of its consolidated financial statements for these periods
could result in claims against the Company and its affiliates by regulatory
authorities, shareholders or others. There can be no assurance that such claims
would not have a material adverse affect on the Company and its operations.

MATERIAL WEAKNESSES IN INTERNAL ACCOUNTING CONTROLS

The Company has been advised by its auditors that they have identified
weaknesses in internal controls during the audit of the Company's financial
statements for the year ended December 31, 2000. The Company's auditors have
further advised that certain of these weaknesses in internal controls are
considered by the auditors to be reportable conditions and that these reportable
conditions when viewed in the aggregate constitute material weaknesses. Under
generally accepted auditing standards, reportable conditions are matters coming
to an auditor's attention that, in the auditor's judgment, should be
communicated to the Company because they represent significant deficiencies in
the design or operation of internal control, which could adversely affect the
Company's ability to record, process, summarize, and report financial data
consistent with the assertions of management in the financial statements. A
material weakness in internal control is a reportable condition in which the
design or operation of one or more of the internal control components does not
reduce to a relatively low level the risk that misstatements caused by an error
or fraud in amounts that would be material in relation to the financial
statements being audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions. Until
such time as these continuing material weaknesses are corrected, there is a risk
that the present deficient internal control environment of the Company could
impair the Company's ability to issue accurate reports related to financial
matters, especially on an interim basis. The Company believes that given
sufficient time and financial resources, the material weaknesses identified by
the Company's auditors can be corrected. The Company expects that remediation of
these material weaknesses will require significant time and resources. The
Company has begun to assess its weaknesses in internal accounting controls and
also to develop a response to such weaknesses. While the Company is committed to
taking whatever corrective action is necessary to enhance the level of its
internal control, there can be no assurance that the Company will have the time
and resources available in future periods to successfully resolve existing
material weaknesses. The continued existence of these material weaknesses could
materially and adversely impact the Company's efforts to obtain additional
financing, become compliant with its SEC reporting obligations, and remain
compliant with the terms and conditions of the Amended Senior Credit Facilities
and the Amended DZ Bank Facility.

29

FINANCIAL COVENANTS BASED UPON ASSUMPTIONS AND ESTIMATES IN BUSINESS PLAN

All of the financial covenants in the Company's Amended Senior Credit
Facilities with its Senior Lenders and the Amended DZ Bank Facility are based
upon substantial compliance with a business plan prepared by the Company and
approved by the Senior Lenders. The Company's independent auditors have not
compiled, examined, or performed any procedures with respect to the Company's
business plan, nor have they expressed an opinion or any other form of assurance
as to such business plan or its achievability and assumes no responsibility for,
and disclaims any association with the Company's business plan. The financial
projections in the business plan, which have not been reviewed by the Company's
auditors or any one else outside the Company, are based upon a number of
assumptions and estimates. For example, the Company is estimating that it will
be able to sell its existing and planned inventory of Vacation Intervals within
15 years. The Company is also assuming that it will be able to obtain
approximately $100 million in additional off-balance sheet financing during
2003, either through an expansion of the Amended DZ Bank Facility or through
some other source. The Company has also made specific assumptions about its
ability to (a) maintain levels of sales and operating profits, (b) control costs
(c) significantly reduce its existing levels of defaults on customer notes
receivable, and (d) raise the prices on its products and services when market
conditions allow. Some or all of these assumptions and estimates may be
incorrect and, as a result, the Company may not achieve the financial results,
including the level of cash flow, that management projects. The assumptions and
estimates underlying the projections are inherently uncertain and are subject to
significant business, economic and competitive risks and uncertainties.
Accordingly, the Company's future financial condition and results of operations
following the Exchange Offer may vary significantly from those projected in the
business plan. If the projected results are not substantially achieved, a
default would result under the terms of the financial covenants of the Company's
Amended Senior Credit Facilities and the Amended DZ Bank Facility. In that
event, the Company's Senior Lenders and DZ Bank would have the right to cease
all further funding in which case, it is likely that the Company would be forced
to seek protection from its creditors through a court supervised reorganization.

CONCENTRATION IN TIMESHARE INDUSTRY

Because the Company's operations are conducted solely within the timeshare
industry, any adverse changes affecting the timeshare industry such as an
oversupply of timeshare units, a reduction in demand for timeshare units,
changes in travel and vacation patterns, a decrease in popularity of any of the
Company's resorts with consumers, changes in governmental regulations or
taxation of the timeshare industry, as well as negative publicity about the
timeshare industry, could have a material adverse effect on the Company's
results of operations, liquidity, and financial position.

POSSIBLE FUTURE CHANGES IN ACCOUNTING FOR REAL ESTATE TIME-SHARING TRANSACTIONS

The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has approved a draft of a proposed AICPA Statement
of Position (the "Proposed SOP") providing guidance for the accounting for real
estate time-sharing transactions in financial statements prepared in conformity
with generally accepted accounting principles. The Proposed SOP provides
comprehensive guidance and makes many changes and clarifications to the current
accounting for real estate time-sharing transactions. The Proposed SOP (i)
provides guidance for when a time-sharing transaction should be accounted for as
a sale; (ii) limits the use of the full accrual method for revenue recognition
and provides that, under various conditions, the percentage-of-completion
method, the cash received method, the deposit method or a combination thereof
must be used; and (iii) provides further guidance on accounting for various
other items such as sales incentives, costs incurred to sell time-shares, cost
of sales and time-sharing inventory, credit losses, rental and other operations
during the holding periods for inventory, special purpose entities, points
systems, vacation clubs, sampler programs and mini-vacations, reloads, upgrades,
and payments to owners associations. In its present form, the Proposed SOP would
be generally effective for financial statements for fiscal years beginning after
December 15, 2003. The Proposed SOP, however, has not been released for public
comment, although there are indications that an exposure draft may be released
for comment during calendar year 2002. Accordingly, there is no way to predict
what the final version may contain or when, if ever, any final version may be
effective. Nevertheless, in its present form, there would be substantial
material adverse effects on the accounting for many time-share sellers, such as
the Company, including significant deferrals under the revenue recognition
provisions mandated by the Proposed SOP. If adopted in its present form, the
Proposed SOP may make it impossible for the Company to comply with certain
financial covenants contained in the Amended Senior Credit Facilities. In that
event, it would be necessary for the Company to negotiate waiver or forbearance
agreements with its Senior Lenders concerning such covenants.

ABILITY TO OBTAIN ADDITIONAL FINANCING

Several unpredictable factors may cause the Company's adjusted earnings
before interest, income taxes, depreciation and amortization to be insufficient
to meet debt service requirements or satisfy financial covenants. The Company
incurred net

30

losses for the year ended December 31, 2000. Should the Company's net losses
continue in future periods, the Company's cash flow and its ability to obtain
additional financing could be materially and adversely impacted.

Many of the factors that will determine whether or not the Company
generates sufficient earnings before interest, income taxes, depreciation and
amortization to meet current or future debt service requirements and satisfy
financial covenants are inherently difficult to predict. These include a
decrease in the number of sales of Vacation Intervals and the average purchase
price per interval, an increase in the number of customer defaults, an increase
in the costs to the Company of borrowing, and an increase in the sales and
marketing costs and other operating expenses of the Company.

These developments have previously led to the Company's inability to obtain
additional financing from outside sources and pay required interest payments on
the Old Notes. Additionally, due to the adverse impact these developments have
had on the Company, the Company has been declared in default by certain of its
Senior Lenders.

The Company has suffered losses in recent periods and there can be no
assurance that such losses will not continue. Revenues and operating results may
fluctuate in future periods, leading to fluctuations in available cash flow,
trading prices and possible liquidity problems.

Future fluctuations in the Company's revenues and operating results may
occur due to many factors, particularly a decreased sale of Vacation Intervals
and an increased rate of customer defaults. The Company's current and planned
expenses and debt repayment levels are and will be to a large extent fixed in
the short term, and are based in part on past expectations as to future revenues
and cash flows. The Company has previously reduced its costs of operations
through a reduction in workforce and other cost-savings measures. The Company
may be unable to further reduce spending in a timely manner to compensate for
any past or future revenue or cash flow shortfall. It is possible that the
Company's revenue, cash flow or operating results may not meet the expectations
of the financial forecast approved by Senior Lenders, and may even result in the
Company being unable to meet the debt repayment schedules or financial covenants
contained in the Company's other debt instruments, including the Old and New
Indentures.

Even if the Exchange Offer is successful and the Amended Senior Credit
Facilities are implemented, the Company's leverage will still be significant and
may continue to burden its operations, impair its ability to obtain additional
financing, reduce the amount of cash available for operations and required debt
payments, and make the Company more vulnerable to financial downturns.

The Amended Senior Credit Facilities of the Company may:

o require a substantial portion of the Company's cash flow to be used to
pay interest expense and principal to Senior Lenders;

o impair the Company's ability to obtain on acceptable terms, if at all,
additional financing that might be necessary for working capital,
capital expenditures or other purposes; and

o limit the Company's ability to further refinance or amend the terms of
its existing debt obligations, if necessary or advisable.

The Company may not be able to reduce its financial leverage as it intends, and
it may not be able to achieve an appropriate balance between the rate of growth
which it considers acceptable and future reductions in financial leverage. If
the Company is not able to achieve growth in adjusted earnings before interest,
income taxes, depreciation and amortization, it may not be able to amend or
refinance its existing debt obligations and it may be precluded from incurring
additional indebtedness due to cash flow coverage requirements under existing or
future debt instruments, including the New Indenture.

The Company's business plan and its ability to comply with the terms of the
Amended Senior Credit Facilities is based in part upon the Company's ability to
obtain additional financing. See "-- Financial Covenants Based Upon Assumptions
and Estimates in Business Plan."

RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS

The New Indenture will restrict, among other things, the Company's ability
to incur additional indebtedness, incur liens, pay dividends or make certain
other restricted payments, enter into certain transactions with affiliates,
impose restrictions on the ability of a subsidiary to pay dividends or make
certain payments to the Company, merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company.

31

The Amended Senior Credit Facilities require the Company to maintain specified
financial collateral ratios and satisfy certain financial covenants. The
Company's ability to meet those ratios and covenants can be affected by events
beyond its control, and there can be no assurance that the Company will meet
those covenants. A breach of any of these covenants could result in a default
under the Amended Senior Credit Facilities, the Amended DZ Bank Facility, the
Amended Indenture, and/or the New Indenture. Upon the occurrence of an event of
default under the Amended Senior Credit Facilities, the Company would be
prohibited from making any payment on the Exchange Notes and the Old Notes.
Additionally, the Senior Lenders could elect to declare all amounts outstanding
under such Amended Senior Credit Facilities, together with accrued interest, to
be immediately due and payable. If the Company were unable to repay those
amounts, the Senior Lenders could proceed against the collateral granted to them
to secure that indebtedness. If the lenders under any of the credit facilities
accelerate the payment of the indebtedness, there can be no assurance that the
assets of the Company would be sufficient to repay in full such indebtedness and
the other indebtedness of the Company, including the Old Notes and the Exchange
Notes. See "Business -- Description of Certain Indebtedness."

SENSITIVITY OF CUSTOMERS TO GENERAL ECONOMIC CONDITIONS

The Company's customers may be more vulnerable to deteriorating economic
conditions than consumers in the luxury or upscale markets. The present economic
slowdown in the United States could depress spending for Vacation Intervals,
limit the availability, or increase the cost of financing for the Company and
its customers, and adversely affect the collectibility of the Company's loans to
Vacation Interval buyers. During the present economic slowdown and in past
economic slowdowns and recessions, the Company and/or its affiliates have
experienced increased delinquencies in the payment of Vacation Interval
promissory notes and monthly Club dues and consequently increased foreclosures
and loan losses. During the present economic slowdown and during any future
economic slowdown or recession, the Company projects that increased
delinquencies, foreclosures, and loan losses are likely to occur. Similar
adverse consequences could result from significant increases in transportation
costs. Any or all of the foregoing conditions could have a material adverse
effect on the Company's results of operations, liquidity, and financial
position.

CUSTOMER DEFAULTS

The Company offers financing to the buyers of Vacation Intervals at the
Company's resorts. These buyers make a down payment of at least 10% of the
purchase price and deliver a promissory note to the Company for the balance. The
promissory notes generally bear interest at a fixed rate, are payable over a
seven-year to ten-year period, and are secured by a first mortgage on the
Vacation Interval. The Company bears the risk of defaults on these promissory
notes, and this risk is heightened as the Company generally does not verify the
credit history of its customers.

The Company's credit experience is such that for the year ended December
31, 2000, it recorded 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's sales were decreased by $7.0 million for customer returns
and operating, general and administrative expenses increased by $1.1 million for
customer releases. If a buyer of a Vacation Interval defaults, the Company
generally must foreclose on the Vacation Interval and attempt to resell it; the
associated marketing, selling, and administrative costs from the original sale
are not recovered; and such costs must be incurred again to resell the Vacation
Interval. Although the Company, in many cases, may have recourse against a
Vacation Interval buyer for the unpaid price, certain states have laws which
limit or hinder the Company's ability to recover personal judgments against
customers who have defaulted on their loans. For example, if the Company were to
pursue a post-foreclosure deficiency claim in Texas (where approximately 48% of
Vacation Interval sales took place in 2000) 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.

At December 31, 2000, the Company had Vacation Interval customer notes
receivable in the approximate principal amount of $336.4 million and had an
allowance for uncollectible notes of approximately $74.8 million. There can be
no assurance that such allowances are adequate. On December 31, 2000, the
Company was contingently liable with respect to approximately $817,000 for notes
receivable sold with recourse.

FINANCING CUSTOMER BORROWINGS

To finance its operations, the Company borrows funds under existing or
future credit arrangements and is dependent on its ability to finance customer
notes receivable through third party lenders to conduct its business.

32

BORROWING BASE. To finance Vacation Interval customer notes receivable, the
Company has entered into agreements with lenders to borrow up to approximately
$291.0 million collateralized by customer promissory notes and mortgages. At
December 31, 2000, the Company had such borrowings from lenders in the
approximate principal amount of $257.0 million. The Company's lenders typically
lend the Company up to 85% of the principal amount of performing notes, and
payments from Silverleaf Owners on such notes are credited directly to the
lender and applied against the Company's loan balance. At December 31, 2000, the
Company had a portfolio of approximately 39,530 Vacation Interval customer notes
receivable in the approximate principal amount of $336.4 million, of which
approximately $33.1 million in principal amount were 61 days or more past due
and therefore ineligible as collateral.

NEGATIVE CASH FLOW. The Company ordinarily receives only 10% of the
purchase price on the sale of a Vacation Interval but must pay in full the costs
of development, marketing, and sale of the interval. Maximum borrowings
available under the Company's credit facilities may not be sufficient to cover
these costs, thereby straining the Company's capital resources, liquidity, and
capacity to grow.

INTEREST RATE MISMATCH. At December 31, 2000, the Company's portfolio of
customer loans had a weighted average fixed interest rate of 13.4%. At such
date, the Company's borrowings (which bear interest at variable rates) against
the portfolio had a weighted average cost of funds of 9.6%. 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 enjoyed and could cause the interest expense on the
Company's borrowings to exceed its interest income on its portfolio of customer
notes receivable. The Company has not engaged in interest rate hedging
transactions. Therefore, any increase in interest rates, particularly if
sustained, could have a material adverse effect on the Company's results of
operations, liquidity, and financial position. To the extent interest rates
decrease generally on loans available to the Company's customers, the Company
faces an increased risk that customers will pre-pay their loans and reduce the
Company's income from financing activities.

MATURITY MISMATCH. The Company typically provides financing to customers
over a seven-year to ten-year period, and customer notes had an average maturity
of 6.3 years at December 31, 2000. At December 31, 2000, the Company's related
revolving credit facilities had original maturity dates between August 2002 and
April 2006, with $43.0 million of these credit facilities maturing in 2002.
Additionally, should the Company's revolving credit facilities be declared in
default, the amount outstanding could be declared to be immediately due and
payable. Accordingly, there could be a mismatch between the Company's
anticipated cash receipts and cash disbursements in subsequent periods. Although
the Company has historically been able to secure financing sufficient to fund
its operations, it does not presently have agreements with its lenders to extend
the term of its existing funding commitments or to replace such commitments upon
their expiration. Failure to obtain such refinancing facilities could require
the Company to sell its portfolio of customer notes receivable, probably at a
substantial discount, or to seek other alternatives to enable it to continue in
business. There is no assurance that the Company will be able to obtain required
financing in the future.

IMPACT ON SALES. Limitations on the availability of financing would inhibit
sales of Vacation Intervals due to (i) the lack of funds to finance the initial
negative cash flow that results from sales that are financed by the Company and
(ii) reduced demand if the Company is unable to provide financing to purchasers
of Vacation Intervals.

REGULATION OF MARKETING AND SALES OF VACATION INTERVALS AND RELATED LAWS

The Company's marketing and sales of Vacation Intervals and other
operations are subject to extensive regulation by the federal government and the
states and jurisdictions in which the resorts that are owned or managed by the
Company 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. The states in which the Company currently owns existing resorts, as well
as other states in which the Company markets its Vacation Intervals, have
adopted specific laws and regulations regarding the marketing and sale of
Vacation Intervals. The laws of most states require the Company to file a
detailed offering statement

33

and supporting documents with a designated state authority, which describe the
Company, the project, and the promotion and sale of Vacation Intervals. The
offering statement must be approved by the appropriate state agency before the
Company may solicit residents of such state. The laws of most states require the
Company to deliver an offering statement (or disclosure statement), together
with certain additional information concerning the terms of the purchase, to
prospective purchasers of Vacation Intervals who are residents of such state,
even if the resort is not located in such state. There are also laws in each
state where the Company currently sells Vacation Intervals which grant the
purchaser of a Vacation Interval the right to cancel a contract of purchase at
any time within three to fifteen calendar days following the date the contract
was signed by the purchaser.

The Company qualifies each resort under the timeshare laws of the state
where it is located. The Company also markets and sells its Vacation Intervals
to residents of certain states which are near the states where the Company's
resorts are located. Many of these neighboring states also regulate the
marketing and sale of Vacation Intervals to their residents. Most states have
additional laws which regulate the Company's activities and protect purchasers,
such as real estate licensure laws; travel sales licensure laws; anti-fraud
laws; consumer protection laws; telemarketing laws; prize, gift, and sweepstakes
laws; and other related laws.

The Company believes it is in material compliance with federal and state
laws and regulations to which it is currently subject relating to the sale and
marketing of Vacation Intervals. However, the Company is normally and currently
the subject of a number of consumer complaints generally relating to marketing
or sales practices filed with relevant authorities, and there can be no
assurance that all of these complaints can be resolved without adverse
regulatory actions or other consequences. The Company expects some level of
consumer complaints in the ordinary course of its business as the Company
aggressively markets and sells Vacation Intervals in the value segment of the
timeshare industry, which may include individuals who are less financially
sophisticated than more affluent customers. There can be no assurance that the
costs of resolving consumer complaints or of qualifying under Vacation Interval
ownership regulations in all jurisdictions in which the Company desires to
conduct sales will not be significant, that the Company is in material
compliance with applicable federal, state, or other laws and regulations, or
that violations of law will not have adverse implications for the Company,
including negative public relations, potential litigation, and regulatory
sanctions. The expense, negative publicity, and potential sanctions associated
with the failure to comply with applicable laws or regulations could have a
material adverse effect on the Company's results of operations, liquidity, and
financial position. Further, there can be no assurance that either the federal
government or states having jurisdiction over the Company's business will not
adopt additional regulations or take other actions which would adversely affect
the Company's results of operations, liquidity, and financial position. See
"Business -- Government Regulations" and "-- Litigation."

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 corporations or
partnerships whose assets were acquired by the Company (the "Affiliated
Companies") and their affiliates. Some of the settlements, injunctions, and
decrees resulting from litigation and enforcement actions (the "Orders") to
which certain of the Affiliated Companies consented purport to bind all
successors and assigns, and accordingly binds the Company. In addition, at that
time the Company was directly a party to one such Order issued in Missouri. No
past or present officers, directors, or employees of the Company or any
Affiliated Company were named as subjects or respondents in any of these Orders;
however, each Order purports to bind generically unnamed "officers, directors,
and employees" of certain Affiliated Companies. Therefore, certain of these
Orders may be interpreted to be enforceable against the present officers,
directors, and employees of the Company even though they were not individually
named as subjects of the enforcement actions which resulted in these Orders.
These Orders require, among other things, that all parties bound by the Orders,
including the Company, refrain from engaging in deceptive sales practices in
connection with the offer and sale of Vacation Intervals. In one particular case
in 1988, an Affiliated Company pled guilty to deceptive uses of the mails in
connection with promotional sales literature mailed to prospective timeshare
purchasers and agreed to pay a judicially imposed fine of $1.5 million and
restitution of $100,000. The requirements of the Orders are substantially what
applicable state and federal laws and regulations mandate, but the consequence
of violating the Order may be that sanctions (including possible financial
penalties and suspension or loss of licensure) may be imposed more summarily and
may be harsher than would be the case if the Orders did not bind the Company. In
addition, the existence of the Orders may be viewed negatively by prospective
regulators in jurisdictions where the Company does not now do business, with
attendant risks of increased costs which may have to be incurred to qualify to
sell Vacation Intervals in such states, or reduced opportunities in the event
the Company is unable to qualify to sell Vacation Intervals in such states.

In early 1997, the Company was the subject of some consumer complaints
which triggered governmental investigations into the Company's affairs. In March
1997, the Company entered into an Assurance of Voluntary Compliance with the
Texas Attorney General, in which the Company agreed to make additional
disclosure to purchasers of Vacation Intervals regarding

34

the limited availability of its Bonus Time Program during certain periods. The
Company paid $15,200 for investigatory costs and attorneys' fees of the Attorney
General in connection with this matter. Also, in March 1997, the Company entered
into an agreed order (the "Agreed Order") with the Texas Real Estate Commission
requiring the Company to comply with certain aspects of the Texas Timeshare Act,
Texas Real Estate License Act, and Rules of the Texas Real Estate Commission,
with which it had allegedly been in non-compliance until mid-1995. The
allegations included (i) the Company's admitted failure to register the Missouri
Destination Resorts in Texas (due to its misunderstanding of the reach of the
Texas Timeshare Act); (ii) payment of referral fees for Vacation Interval sales,
the receipt of which was improper on the part of the recipients; and (iii)
miscellaneous other actions alleged to violate the Texas Timeshare Act, which
the Company denied. While the Agreed Order acknowledged that Silverleaf
independently resolved ten consumer complaints referenced in the Agreed Order,
discontinued the practices complained of, and registered the Missouri
Destination Resorts during 1995 and 1996, the Texas Real Estate Commission
ordered Silverleaf to cease its discontinued practices and enhance its
disclosure to purchasers of Vacation Intervals. In the Agreed Order, Silverleaf
agreed to make a voluntary donation of $30,000 to the State of Texas. The Agreed
Order also directed Silverleaf to revise its training manual for timeshare
salespersons and verification officers. While the Agreed Order resolved all of
the alleged violations contained in complaints received by the Texas Real Estate
Commission through December 31, 1996, the Company has encountered and expects to
encounter some level of additional consumer complaints in the ordinary course of
its business. See "Business -- Government Regulations" and "-- Litigation."

EFFECTS OF DOWNSIZING AND DEPENDENCE ON KEY PERSONNEL

During 2001, the Company was forced to downsize its staff and had to
terminate many employees with extended in-depth experience of its business and
operations. However, the Company has retained all key members of management. The
loss of the services of any one of the key members of management could have a
material adverse effect on the Company. Should the Company's business develop
and expand again in the future, the Company would require additional management
and employees. Inability to hire when needed, retain, and integrate needed new
or replacement management and employees could have a material adverse effect on
the Company's results of operations, liquidity, and financial position in future
periods. Additionally, in connection with the Exchange Offer, the Company has
agreed to reconstitute its Board of Directors. 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. Since the
identity of the reconstituted Board is not known at this time, there can be no
assurance that the reconstituted Board will be able to work harmoniously with
key members of management and employees.

COMPETITION

The Company believes there are presently a number of public or privately
owned and operated timeshare resorts in most states in which the Company owns
resorts which compete with the Company. The timeshare industry is highly
fragmented and includes a large number of local and regional resort developers
and operators. However, some of the world's most recognized lodging,
hospitality, and entertainment companies, such as Marriott, Disney, Hilton,
Hyatt, and Four Seasons, have entered the industry. Also, lesser known companies
which compete with Silverleaf in the timeshare industry, have enhanced access to
capital and other resources which may be superior to the Company's resources.

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 that certain other competitors 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.

DEVELOPMENT AND CONSTRUCTION ACTIVITIES

The Company intends to continue to develop the existing resorts; however,
continued development of its resorts places substantial demands on the Company's
liquidity and capital resources, as well as on its personnel and administrative

35

capabilities. Risks associated with the Company's development and construction
activities include the following: construction costs or delays at a property may
exceed original estimates, possibly making the development uneconomical or
unprofitable; sales of Vacation Intervals at a newly completed property may not
be sufficient to make the property profitable; and financing may be unavailable
or may not be available on favorable terms for development of or the continued
sales of Vacation Intervals at a property. There can be no assurance the Company
will have the liquidity and capital resources to develop and expand the existing
resorts.

In addition, the Company's development and construction activities, as well
as its ownership and management of real estate, are subject to comprehensive
federal, state, and local laws regulating such matters as environmental and
health concerns, protection of endangered species, water supplies, zoning, land
development, land use, building design and construction, marketing and sales,
and other matters. Such laws and difficulties in obtaining, or failing to
obtain, the requisite licenses, permits, allocations, authorizations, and other
entitlements pursuant to such laws could impact the development, completion, and
sale of the Company's projects. The enactment of "slow growth" or "no-growth"
initiatives or changes in labor or other laws in any area where the Company's
projects are located could also delay, affect the cost or feasibility of, or
preclude entirely the expansion planned at each of the existing resorts.

Most of the Company's resorts are located in rustic areas, often requiring
the Company to provide public utility water and sanitation services in order to
proceed with development. Such activities are subject to permission and
regulation by governmental agencies, the denial or conditioning of which could
limit or preclude development. Operation of the utilities also subjects the
Company to risk of liability in connection with both the quality of fresh water
provided and the treatment and discharge of waste-water.

COSTS OF COMPLIANCE WITH LAWS GOVERNING ACCESSIBILITY OF FACILITIES TO DISABLED
PERSONS

A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act (the "ADA"), impose requirements related to
access and use by disabled persons of a variety of public accommodations and
facilities. The ADA requirements did not become effective until after January 1,
1991. Although the Company believes the existing resorts are substantially in
compliance with laws governing the accessibility of its facilities to disabled
persons, the Company will incur additional costs of complying with such laws.
Additional federal, state, and local legislation may impose further burdens or
restrictions on the Company, the Clubs, or the Management Clubs at the existing
resorts or other resorts, with respect to access by disabled persons. The
ultimate cost of compliance with such legislation is not currently
ascertainable, and, while such costs are not expected to have a material effect
on the Company's results of operations, liquidity, and financial position, such
costs could be substantial.

VULNERABILITY TO REGIONAL CONDITIONS

Prior to August 1997, all of the Company's operating resorts and
substantially all of the Company's customers and borrowers were located in Texas
and Missouri. Since August 1997, the Company has expanded into other states. The
Company's performance and the value of its properties is affected by regional
factors, including local economic conditions (which may be adversely impacted by
business layoffs or downsizing, industry slowdowns, changing demographics, and
other factors) and the local regulatory climate. The Company's current
geographic concentration could make the Company more susceptible to adverse
events or conditions which affect these areas in particular.

POSSIBLE ENVIRONMENTAL LIABILITIES

Under various federal, state, and local laws, ordinances, and regulations,
as well as common law, the owner or operator of real property generally is
liable for the costs of removal or remediation of certain hazardous or toxic
substances located on, in, or emanating from, such property, as well as related
costs of investigation and property damage. Such laws often impose liability
without regard to whether the owner knew of, or was responsible for, the
presence of the hazardous or toxic substances. The presence of such substances,
or the failure to properly remediate such substances, may adversely affect the
owner's ability to sell or lease a property or to borrow money using such real
property as collateral. Other federal and state laws require the removal or
encapsulation of asbestos-containing material when such material is in poor
condition or in the event of construction, demolition, remodeling, or
renovation. Other statutes may require the removal of underground storage tanks.
Noncompliance with these and other environmental, health, or safety requirements
may result in the need to cease or alter operations at a property. Further, the
owner or operator of a site may be subject to common law claims by third parties
based on damages and costs resulting from violations of environmental
regulations or from contamination associated with the site. Phase I
environmental reports (which typically involve inspection without soil sampling
or ground water analysis) were prepared in 2000 and 2001 by independent
environmental consultants for all of the Existing Resorts owned by the Company.
The reports did not reveal, nor is the Company aware of, any environmental
liability that would have a material adverse

36

effect on the Company's results of operations, liquidity, or financial position.
No assurance, however, can be given that these reports reveal all environmental
liabilities or that no prior owner created any material environmental condition
not known to the Company.

Certain environmental laws impose liability on a previous owner of property
to the extent hazardous or toxic substances were present during the prior
ownership period. A transfer of the property may not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by it or by its predecessors.

The Company believes that it is in compliance in all material respects with
all federal, state, and local ordinances and regulations regarding hazardous or
toxic substances. The Company has not been notified by any governmental
authority or third party of any non-compliance, liability, or other claim in
connection with any of its present or former properties.

DEPENDENCE ON VACATION INTERVAL EXCHANGE NETWORKS; POSSIBLE INABILITY TO QUALIFY
RESORTS

The attractiveness of Vacation Interval ownership is enhanced by the
availability of exchange networks that allow Silverleaf Owners to exchange in a
particular year the occupancy right in their Vacation Interval for an occupancy
right in another participating network resort. According to ARDA, the ability to
exchange Vacation Intervals was cited by many buyers as an important reason for
purchasing a Vacation Interval. Several companies, including RCI, provide
broad-based Vacation Interval exchange services, and the Existing Resorts,
except Oak N' Spruce Resort, are currently qualified for participation in the
RCI exchange network. Oak N' Spruce Resort is currently under contract with
another exchange network provider, Interval International. However, no assurance
can be given that the Company will continue to be able to qualify such resorts
or any other future resorts for participation in these networks or any other
exchange network. If such exchange networks cease to function effectively, or if
the Company's resorts are not accepted as exchanges for other desirable resorts,
the Company's sales of Vacation Intervals could be materially adversely
affected.

RESALE MARKET FOR VACATION INTERVALS

Based on its experience at the Existing Resorts, the Company believes the
market for resale of Vacation Intervals by the owners of such intervals is very
limited and that resale prices are substantially below their original purchase
price. This may make ownership of Vacation Intervals less attractive to
prospective buyers. Also, attempts by buyers to resell their Vacation Intervals
compete with sales of Vacation Intervals by the Company. While Vacation Interval
resale clearing houses or brokers do not currently have a material impact, if
the secondary market for Vacation Intervals were to become more organized and
liquid, the availability of resale intervals at lower prices could materially
adversely affect the prices and number of sales of new Vacation Intervals by the
Company.

SEASONALITY AND VARIABILITY OF QUARTERLY RESULTS

Sales of Vacation Intervals have generally been lower in the months of
November and December. Cash flow and earnings may be impacted by the timing of
development, the completion of future resorts, and the potential impact of
weather or other conditions in the regions where the Company operates. The above
may cause significant variations in quarterly operating results.

NATURAL DISASTERS; UNINSURED LOSS

There are certain types of losses (such as losses arising from floods and
acts of war) that are not generally insured because they are either uninsurable
or not economically insurable and for which neither the Company, the Clubs, nor
the Management Clubs has insurance coverage. Should an uninsured loss or a loss
in excess of insured limits occur, the Company could be required to repair
damage at its expense or lose its capital invested in a resort, as well as the
anticipated future revenues from such resort. The Company would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss could have a material adverse effect on the Company's
results of operations, liquidity, and financial position. Additionally,
disasters such as the terrorist attacks on the United States which occurred on
September 11, 2001 may indirectly have a material adverse effect on the Company
by causing a general increase in property and casualty insurance rates, or
causing certain types of coverages to become unavailable.

ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF TEXAS LAW AND THE COMPANY'S
CHARTER AND BYLAWS

Certain provisions of the Company's articles of incorporation (the
"Charter") and bylaws (the "Bylaws"), as well as Texas corporate law, may be
deemed to have anti-takeover effects and may delay, defer or prevent a takeover
attempt that a shareholder might consider to be in the shareholder's best
interest. Such provisions may (i) deter tender offers for Common

37

Stock, which offers may be beneficial to shareholders, or (ii) deter purchases
of large blocks of Common Stock, thereby limiting the opportunity for
shareholders to receive a premium for their Common Stock over then-prevailing
market prices.

LEVERAGE

The Company's future lending and development activities will likely be
financed with indebtedness obtained under the Company's existing credit
facilities or under credit facilities to be obtained by the Company in the
future. Such credit facilities are and would be collateralized by the Company's
assets and contain restrictive covenants.

The New Indenture pertaining to the Exchange Notes permits the Company to
incur additional indebtedness, including indebtedness secured by the Company's
customer notes receivable. Accordingly, to the extent customer notes receivable
of the Company increase and the Company has sufficient credit facilities
available to it, the Company may be able to borrow additional funds. The New
Indenture pertaining to the Exchange Notes also permits the Company to borrow
additional funds in order to finance development of the Company's resorts.
Future construction loans will likely result in liens against the respective
properties.

The level of the Company's indebtedness could have important consequences
to holders of the Common Stock, including, but not limited to, (i) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of principal and interest on the Exchange Notes and other indebtedness;
(ii) the Company's ability to obtain additional debt financing in the future for
working capital, capital expenditures or acquisitions may be limited; (iii) the
Company's level of indebtedness could limit its flexibility in reacting to
changes in the industry and economic conditions generally; (iv) certain of the
Company's borrowings are at variable rates of interest, and a substantial
increase in interest rates could adversely affect the Company's ability to meet
debt service obligations; and (v) increased interest expense will reduce
earnings, if any. In addition, the New Indenture and the Amended Senior Credit
Facilities contain, and future credit facilities could contain, financial and
other restrictive covenants that will limit the ability of the Company to, among
other things, borrow additional funds. Failure by the Company to comply with
such covenants could result in an event of default which, if not cured or
waived, could have a material adverse effect on the Company's results of
operations, liquidity, and financial position.

Finally, if the Offer to Exchange is consummated, creditors' claims against
the Company, including the claims of holders of both the Old Notes and the
Exchange Notes will be paid in full before the claims of shareholders in the
event of a liquidation, bankruptcy or winding up of the Company.

PREFERRED STOCK OF THE COMPANY

The Company's Articles of Incorporation authorize the Board of Directors to
issue up to 10,000,000 shares of Preferred Stock in one or more series and to
establish the preferences and rights (including the right to vote and the right
to convert into Common Stock) of any series of Preferred Stock issued. Such
preferences and rights would likely grant to the holders of the Preferred Stock
certain preferences in right of payment upon a dissolution of the Company and
the liquidation of its assets. To the extent that the Company's credit
facilities would permit, the Board could also establish a dividend payable to
the holders of the Preferred Stock that would not be available to the holders of
the Common Stock.

ACCELERATION OF DEFERRED TAXES

While the Company reports sales of Vacation Intervals as income currently
for financial reporting purposes, for regular federal income tax purposes the
Company reports substantially all Vacation Interval sales on the installment
method. Under the installment method, the Company recognizes income for federal
income tax purposes on the sale of Vacation Intervals when cash is received in
the form of a down payment and as payments on customer loans are received. The
Company's December 31, 2000 liability for deferred taxes (i.e., taxes owed to
taxing authorities in the future in consequence of income previously reported in
the financial statements) was $97.9 million, primarily attributable to this
method of reporting Vacation Interval sales, before utilization of any available
deferred tax benefits (up to $97.7 million at December 31, 2000), including net
operating loss carryforwards. These amounts do not include accrued interest on
such deferred taxes which also will be payable when the taxes are due, the
amount of which is not now reasonably ascertainable. If the Company should sell
the installment notes or be required to factor them or if the notes were
foreclosed on by a lender of the Company or otherwise disposed of, the deferred
gain would be reportable for tax purposes and the deferred taxes, including
interest on the taxes for the period the taxes were deferred, as computed under
Section 453 of the Internal Revenue Code of 1986, as amended (the "Code"), would
become due. There can be no assurance that the Company would have sufficient
cash resources to pay those taxes and interest. Furthermore, if the Company's
sales of Vacation Intervals should decrease in the future, the Company's

38

diminished operations may not generate either sufficient tax losses to offset
taxable income or funds to pay the deferred tax liability from prior periods.

ALTERNATIVE MINIMUM TAXES

For purposes of computing the 20% alternative minimum tax (imposed under
Section 55 of the Code) ("AMT") on the Company's alternative minimum taxable
income ("AMTI"), the installment sale method is generally not allowed. The Code
requires an adjustment to the Company's AMTI for a portion of the Company's
adjusted current earnings ("ACE"). The Company's ACE must be computed without
application of the installment sale method. Prior to 1997, the Company used the
installment method for the calculation of ACE for federal alternative minimum
tax purposes. In 1998, the Company received a ruling from the Internal Revenue
Service granting the Company's request for permission to change to the accrual
method for this computation effective January 1, 1997. As a result, the
Company's alternative minimum taxable income for 1997 through 2000 was increased
each year by approximately $9 million, which resulted in the Company paying
substantial additional federal and state taxes in 1997 through 1999. As a result
of this change, the Company paid $641,000, $4.9 million and $4.3 million of
federal alternative minimum tax for 1997, 1998 and 1999, respectively. As a
result of losses incurred in 2000, the Company received refunds totaling $4.4
million for 1998 and $3.9 million for 1999, respectively. As a result of the
impact of the limitation imposed by Section 172(b) of the Code which limits the
carryback of corporate net operating losses to two years and absent any
statutory change to such limitation, any AMT net operating loss carryback of the
Company may not be applied against any remaining AMT paid by the Company in
1997. Moreover, as a result of the impact of the limitation imposed by Section
56(d)(1)(A) of the Code which limits the amount of the AMT net operating loss
deduction to 90 percent of the Company's AMTI, the Company was unable to offset
the entire amount of AMT paid in 1998 and 1999 with AMT net operating losses.
However, this result may change due to pending legislation. Proposed limits, if
applicable, will result in the Company having credits for prior years' minimum
tax liability (as provided in Section 53 of the Code) which cannot be utilized
until such time as the Company has a regular tax liability. The Company
estimates that the amount of such credits for prior years' minimum tax
liabilities are $641,000 for 1997, $494,000 for 1998, and $428,000 for 1999. As
discussed below, such credits for prior years' minimum tax liabilities may be
subject to further limitations imposed by Section 383 of the Code.

As a result of the use of the accrual method in computing the Company's
alternative minimum tax liability and other specifics regarding such
computation, the Company anticipates that it will have an alternative minimum
tax liability. Additionally, there can be no assurance that additional
"ownership changes" within the meaning of Section 382(g) of the Code will not
occur in the future.

39

LIMITATIONS ON USE OF CARRYOVERS FROM OWNERSHIP CHANGE

The Company had net operating loss carryforwards of approximately $240.3
million at December 31, 2000, for regular federal income tax purposes, related
primarily to the deferral of installment sale gains. In addition to the general
limitations on the carryback and carryforward of net operating losses under
Section 172 of the Code, Section 382 of the Code imposes additional limitations
on the utilization of a net operating loss by a corporation following various
types of ownership changes which result in more than a 50 percentage point
change in ownership of a corporation within a three year period. If successful,
the Exchange Offer will result in an ownership change within the meaning of
Section 382(g) of the Code. Additionally, there can be no assurance that
additional "ownership changes" within the meaning of Section 382(g) of the Code
will not occur in the future.

There can be no assurance that the limitations of Section 382 will not
limit or deny the future utilization of the net operating loss by the Company,
resulting in the Company paying substantial additional federal and state taxes
and interest for any periods following the Exchange Offer or other such change
in ownership. Moreover, when such an ownership change occurs, Section 383 of the
Code may also limit or deny the future utilization of certain carryover excess
credits, including any unused minimum tax credit attributable to payment of
alternative minimum taxes. Under Section 383, the amount of the excess credits
(including the Company's unused minimum tax credits discussed above) which exist
as of the date of the ownership change can be used to offset the Company's tax
liability for post-change years only to the extent of the Section 383 Credit
Limitation, which amount is defined as the tax liability which is attributable
to so much of the taxable income of the Company as does not exceed the Section
382 limitation for such post-change year to the extent available after the
application of Sections 382 and 383(b) and (c). However, the amount and
existence of such excess credits may be affected by recent legislation.

Accordingly, there can be no assurance that these additional limitations
will not limit or deny the future utilization of any net operating loss and/or
excess tax credits of the Company, resulting in the Company paying substantial
additional federal and state taxes and interest for any periods following the
Exchange Offer or other such change in ownership.

TAX RE-CLASSIFICATION OF INDEPENDENT CONTRACTORS AND RESULTING TAX LIABILITY

Although all on-site sales personnel are treated as employees of the
Company for payroll tax purposes, the Company does have independent contractor
agreements. The Company has not treated these independent contractors as
employees; accordingly, the Company does not withhold payroll taxes from the
amounts paid to such persons or entities. In the event the Internal Revenue
Service or any state or local taxing authority were to successfully classify
such persons or entities as employees of the Company, rather than as independent
contractors, and hold the Company liable for back payroll taxes, such action may
have a material adverse effect on the Company's results of operations,
liquidity, and financial position.

40

ITEM 3. LEGAL PROCEEDINGS

The Company is subject to litigation arising in the normal course of its
business. Litigation has been initiated from time to time by persons seeking
individual recoveries for themselves, as well as, in some instances, persons
seeking recoveries on behalf of an alleged class. The Company has been able to
settle such claims in the past upon terms that it believes were immaterial to
its operations and financial condition. Such litigation includes claims
regarding matters concerning employment, tort, contract, truth-in-lending,
marketing and sale of Vacation Intervals, and other consumer protection related
matters.

CERTAIN ALLEGED CLASS ACTION CLAIMS. In September 1999, an action was
commenced against the Company by various named Plaintiffs who brought the action
on behalf of themselves and on behalf of a purported class of plaintiffs made up
of persons who purchased Vacation Intervals from the Company between 1995 and
1999. The case was filed in federal district court in Texas in reliance upon
alleged violations of the federal truth in lending statutes. The asserted claims
involved an alleged inconsistency between the way a certain handling and
recording fee was described in the contract signed by each alleged class member
and the form of the settlement statement utilized by the Company to close the
sales. While the Company believes that the case was without merit and that it
would have been successful in defending the action in court, the Company
determined that it would be less expensive to settle the matter than to defend
it. The Company and the named Plaintiffs settled the claim through mediation.
The settlement was later approved by the court. Except for the costs of setting
aside sales of approximately fifteen Vacation Intervals and a $75,000 lump sum
payment to named Plaintiffs, the Company paid no money; however, the Company did
agree to certification of a class so that it could receive a release in a form
which bound the entire class concerning the allegations raised in the complaint.
The Company believes that the value of the recovered Vacation Intervals
essentially offset the payments made to the twenty-seven named Plaintiffs.
Additionally, the Company granted upgrade credits ranging from $20 to $350 per
Vacation Interval to class members to upgrade their Vacation Interval to a
higher price interval. The upgrade credits may not be used for any other purpose
and are non-transferable, non-assignable and expire if unused in 2002. The
Company also paid the legal fees of the counsel for the named Plaintiffs in an
amount of approximately $514,000.

A second purported class action suit was filed in state district court in
Texas against the Company in March 2000 by various Named Plaintiffs who brought
the action on behalf of themselves and on behalf of a purported class of
Plaintiffs made up of persons who owned a Vacation Interval, with Bonus Time
Privileges. The Plaintiffs asserted various claims against the Company based
primarily on the Company's sale of Vacation Intervals with Bonus Time Program
benefits. The Plaintiffs asserted there were various misrepresentations
regarding the limitations on the use of the Bonus Time, as well as other similar
allegations. The Company believes it had substantial defenses to the claims
asserted by the Plaintiffs and had made more than adequate written disclosures
as well as signed acknowledgments from each purported class member regarding the
limitations of the Bonus Time Program, which would have prevented any recovery
under the various theories relied upon. In addition, the Company believes that
the court would not have certified the case as a class action because there were
too many fact issues applicable to each putative class member. The case was
successfully submitted to mediation and a Mediation Settlement Agreement and
Memorandum of Understanding was signed by the parties. This out of court
settlement was subsequently approved by the court. All members of the class,
including the Named Plaintiffs, released the Company and the Silverleaf Club
from any and all claims they held in regards to the suit. In return, the Company
and Silverleaf Club released the Named Plaintiffs, and Silverleaf Club provided
all Class Members with one Preferred Guest Reservation Certificate. These
Certificates allow the holder to receive a five night and six day reservation
(Sunday through Thursday and during white or blue color times only) at one of
the Company's resorts during a four year period, so long as the holder is
current on their dues and note payable obligations. Each Certificate is
guaranteed by the Company but only to the extent of $100 per Certificate if the
reservation cannot be fulfilled. In addition to the Certificates the Company and
the Silverleaf Club, agreed to make various changes to its sales, operating and
marketing procedures, including changes to its Bonus Time Program which the
Company implemented in 2001. As part of the settlement, the Company also paid
the Class Representatives $8,000 for each time share week owned for a total of
$120,000 and set aside fifteen Vacation Interval sales to the Class
Representatives. Finally, in order to facilitate a prompt conclusion to this
matter on grounds deemed to be favorable, the Company paid $1,000,000 in
attorneys' fees, plus court costs. The Company also paid Plaintiff's counsel
$30,000 for all expenses.

An additional purported class action was filed in state district court in
Texas against the Company on October 19, 2001 by Plaintiffs who each purchased
Vacation Intervals from the Company. The Plaintiffs allege that the Company
violated the Texas Timeshare Act, the Texas Deceptive Trade Practices Act and
the Texas Timeshare Act by failing to deliver to them complete copies of the
contracts for the purchase of the Vacation Intervals as they did not receive a
complete legal description of the Hill Country Resort as attached to the
Declaration of Restrictions, Covenants and Conditions of the Resort. The
Plaintiffs also claim that the Company violated various provisions of the Texas
Deceptive Trade Practices Act with respect to the maintenance fees charged by
the Company to its Vacation Interval owners. The Petition asserts Texas class

41

action allegations and alleges actual damages in the amount of $34,536,505 plus
consequential damages in an unspecified amount and all attorneys' fees, expenses
and costs. The Company intends to vigorously defend against the Plaintiffs'
claims and believes it has valid defenses to the claims. Discovery with regard
to the Plaintiffs' claims is still at the preliminary stage. The Company was
only recently served with this action and has not yet fully assessed the claims.

A further purported class action was filed in state district court against
the Company on February 26, 2002, by a couple who purchased a Vacation Interval
from the Company. The Company was served with this action via U. S. Mail and
first received a copy of the Plaintiff's original petition on or about March 5,
2002. The Plaintiffs allege that the Company violated the Texas Government Code
by charging a document preparation fee in regard to instruments affecting title
to real estate. Alternatively, the Plaintiffs allege that the document
preparation fee constituted a partial prepayment that should have been credited
against their note and additionally seek a declaratory judgment. The petition
asserts Texas class action allegations and seeks recovery of the $275.00
document preparation fee and treble damages for a total of $1,100.00, and
injunctive relief preventing the Company from engaging in the unauthorized
practice of law in connection with the sale of its Vacation Intervals in Texas.
Since the Company was served very recently, it is in the process of retaining
defense counsel and has not yet had sufficient time to evaluate the merits of
the case.

CERTAIN CONSTRUCTION CLAIMS BY CONDOMINIUM OWNERS. The homeowner
associations of three condominium projects that a former subsidiary of the
Company constructed in Missouri filed separate actions against the Company and
one of its subsidiaries alleging construction defects and breach of management
agreements pursuant to which the Company is responsible for the management of
the projects. Two of the suits have been consolidated. One of the Company's
insurers has agreed to provided a defense to the Company, subject to a
reservation of rights. The Company paid approximately $1.3 million in 1999 and
2000 correcting a portion of the problems alleged by the Plaintiffs. The Company
believes that a substantial portion of these costs may be reimbursed by its
insurance carrier though the Company continues to contest additional claims
alleged by the Plaintiffs. The Company cannot predict the final outcome of these
claims and cannot estimate the additional costs it could incur.

Additional claims may be made against the Company in the future. Following
a complete assessment of such claims, the Company will either defend the claims
or attempt to settle such claims out of court if management believes that the
cost of settlement would be less than the cost to defend such matters.

Various legal actions and claims may be instituted or asserted in the
future against the Company and its subsidiaries, including those arising out of
the Company's sales and marketing activities and contractual arrangements. Some
of the matters may involve compensatory, punitive or other treble damage claims
in very large amounts, which, if granted, could be materially adverse to the
Company's financial condition.

Litigation is subject to many uncertainties, and the outcome of individual
litigated matters is not predictable with assurance. Reserves will be
established from time to time by the Company when deemed appropriate under
generally acceptable accounting principles. However, the outcome of a claim for
which the Company has not deemed a reserve to be necessary may be decided
unfavorably to the Company and could require the Company to pay damages or make
other expenditures in amounts or a range of amounts that could be materially
adverse to the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 2000.

42

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The following table sets forth the high and low closing prices of the
Company's common stock for the quarterly periods indicated, which correspond to
the quarterly fiscal periods for financial reporting purposes. Prices for the
common stock are closing prices on the NYSE through June 2001 and last sale
prices reported by the Electronic Quotation Service of the Pink Sheets LLC.

The Company's common stock was traded on the NYSE until June, 2001 when it
was suspended from trading and subsequently delisted in August 2001. Since
August 2001, there has been no established market for the common stock; however,
the common stock has been quoted since then on the Electronic Quotations Service
of the Pink Sheets LLC under the symbol "SVLF." The Pink sheets are not an
exchange but only an interdealer quotation system. Quotations appearing in the
Pink Sheets may not necessarily be indicative of actual trading activity. The
Pink Sheets may be accessed over the internet at www.pinksheets.com.

Because of the various uncertainties related to the Company's future
prospects, it is unlikely that an active public trading market will develop for
the Common Stock in the foreseeable future and the Common Stock may be illiquid
or experience significant price and volume volatility.

DIVIDEND POLICY

The Company is, and will continue to be restricted from paying dividends
and, therefore, does not intend to pay cash dividends on its common stock in the
foreseeable future. The Company currently intends to retain future earnings to
finance its operations and fund the growth of its business. Any payment of
future dividends will be at the discretion of the Board of Directors of the
Company and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
and other restrictions in respect of the payment of dividends, and other factors
that the Company's Board of Directors deems relevant.

ITEM 6. SELECTED FINANCIAL DATA

The following selected historical consolidated financial data has been
taken or derived from the consolidated financial statements of the Company and
should be read in conjunction with the consolidated financial statements and the
notes thereto beginning on page F-1, of which the Report of the Independent
Auditors contains a disclaimer of opinion with respect to the consolidated
financial statements for the year ended December 31, 2000 as a result of
pervasive uncertainties related to the Company's ability to continue as a going
concern.

As discussed in Note 19 to the Company's consolidated financial statements
beginning on Page F-1, the Company's financial statements have been restated to
give effect to adjustments identified subsequent to their original issuance.

43

(1) Earnings (loss) per share are based on the weighted average number of
shares outstanding. Diluted income from continuing operations per share and
net income per share for the year ending December 31, 1998 were $1.37.

(2) Adjusted EBITDA represents income (loss) from operations before interest
expense, income taxes and depreciation and amortization and impairment loss
of long lived assets. Adjusted EBITDA is presented because it is a widely
accepted indicator of a company's financial performance. However, Adjusted
EBITDA should not be construed as an alternative to net income (loss) as a
measure of the Company's operating results or to cash flows from operating
activities (determined in accordance with generally accepted accounting
principles) as a measure of liquidity. Since revenues from Vacation
Interval sales include promissory notes received by the Company, Adjusted
EBITDA does not reflect cash flow available to the Company. Additionally,
due to varying methods of reporting Adjusted EBITDA within the timeshare
industry, the computation of EBITDA for the Company may not be comparable
to other companies in the timeshare industry which compute EBITDA in a
different manner. The Company's management interprets trends in EBITDA to
be an indicator of the Company's financial performance, in addition to net
income and cash flows from operating activities (determined in accordance
with generally accepted accounting principles).

44

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the "Selected
Financial Data" and the Company's Financial Statements and the notes thereto and
other financial data included elsewhere herein. The following Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements.

Subsequent to the issuance of its annual and interim financial statements
for the year ended December 31, 1999 and the quarterly periods in the nine
months ended September 30, 2000, the Company's management determined that
accounting treatment afforded to certain types of transactions was
inappropriate. Accordingly, the previously reported financial information for
the first, second, and third quarters of 2000, the year ended December 31, 1999
and all quarters within 1999, and the year ended December 31, 1998 have been
restated. Such restatement is further discussed in Note 19 to the Company's
financial statements included herein. The discussion and analysis below takes
into account the effect of the restatement.

OVERVIEW

In February 2001, the Company announced liquidity concerns arising from the
inability to close a credit facility with its largest secured creditor. Since
then, Company management and its financial advisors have been attempting to
develop and implement a plan to return the Company to a liquid financial
condition. During this period, the Company negotiated and closed short-term
secured financing arrangements with its three principal secured lenders, which
allowed it to operate at reduced sales levels as compared to 1999 and 2000. The
Company remained in default under its agreements with these three secured
lenders, but they each agreed to forebear taking any action as a result of the
Company's defaults and to continue funding so long as the Company complies with
the terms of the short-term financing arrangements with these lenders. Unless
extended, these short-term arrangements expire March 31, 2002. In addition, the
Company is in monetary default regarding delinquent interest due on the senior
subordinated notes of $3.5 million and $3.9 million payable on April 1, 2001 and
October 1, 2001, respectively, and principal due upon acceleration of maturity
in May 2001. The Company is also in default due to under-collateralization under
a non-revolving credit facility with the fourth secured creditor. If the Company
is unable to complete the restructuring plan, it will not have sufficient cash
to pay the principal and interest payments due under the secured credit
facilities and senior subordinated notes. In that event, it is likely that the
Company will be forced to seek protection from its creditors through a
court-supervised reorganization.

CRITICAL ACCOUNTING POLICIES

The Company generates revenues primarily from the sale and financing of
Vacation Intervals, including upgraded intervals. Additional revenues are
generated from management fees from the Management Clubs, lease income from
Sampler sales, and utility operations.

The Company recognizes Vacation Interval sales revenues on the accrual
method. A sale is recognized after a binding sales contract has been executed,
the buyer has made a down payment of at least 10%, and the statutory rescission
period has expired. If all accrual method criteria are met except that
construction is not substantially complete, revenues are recognized on the
percentage-of-completion basis. Under this method, the portion of revenue
applicable to costs incurred, as compared to total estimated construction and
direct selling costs, is recognized in the period of sale. The remaining amount
is deferred and recognized as Vacation Interval sales in future periods as the
remaining costs are incurred. Certain Vacation Interval sales transactions are
deferred until the minimum down payment has been received. The Company accounts
for these transactions utilizing the deposit method. Under this method, the sale
is not recognized, a receivable is not recorded, and inventory is not relieved.
Any cash received is carried as a deposit until the sale can be recognized. When
these types of sales are cancelled without a refund, deposits forfeited are
recognized as income and the interest portion is recognized as interest income.

The Company accounts for uncollectible notes by recording a provision to its
allowance for uncollectible notes at the time revenue is recognized. The Company
classifies the components of the provision for uncollectible notes into the
following three categories based on the nature of the item -- credit losses,
customer returns (customers who fail to make their first installment payment),
and customer releases (voluntary cancellations of properly recorded sales
transactions, which in the opinion of management are consistent with the
maintenance of overall customer goodwill). The provision for uncollectible notes
pertaining to credit losses, customer returns, and customer releases is
classified in the Consolidated Statements of Operations in provision for
uncollectible notes, Vacation Interval sales, and operating, general and
administrative expenses, respectively. The Company sets the provision for
uncollectible notes at an amount sufficient to maintain the allowance at a

45

level which management considers adequate to provide for anticipated losses from
customers' failure to fulfill their obligations under the notes. When inventory
is returned to the Company, any unpaid notes receivable balances are charged
against the previously established bad debt reserves net of the amount at which
the Vacation Interval is restored to inventory, which is the lower of the
historical cost basis or market value of the Vacation Interval.

Costs associated with the acquisition and development of resorts (including
land, construction costs, furniture, interest, and taxes) are capitalized and
included in inventory. Vacation Interval inventory is segregated into three
ratings based on customer demand, with greater costs apportioned to higher value
ratings. As Vacation Intervals are sold, these costs are deducted from inventory
on a specific identification basis.

Vacation Intervals may be reacquired as a result of (i) foreclosure (or deed
in lieu of foreclosure) and (ii) trade-in associated with the purchase of an
upgraded or downgraded Vacation Interval. Vacation Intervals reacquired are
recorded in inventory at the lower of their original cost or market value.
Vacation Intervals that have been reacquired are relieved from inventory on a
specific identification basis when resold. Inventory acquired prior to 1996
through the Company's program to reacquire Vacation Intervals owned but not
actively used by Silverleaf Owners has a significantly lower average cost basis
than recently constructed inventory, contributing significantly to historical
operating margins. New inventory added through the Company's construction and
acquisition programs has a higher average cost than the Company's pre-1996
inventory.

The Company recognizes interest income as earned. As interest payments
become delinquent, the Company ceases recognition of the interest income until
collection is probable.

The Company recognizes a maximum management fee of 15% of Silverleaf Club's
gross revenues and 10% to 15% of Crown Club's dues collected, subject to a
limitation of each Club's net income. However, if the Company does not receive
the maximum management fees, such deficiency is deferred for payment in
succeeding years, subject again to the net income limitation.

LIQUIDITY AND CAPITAL RESOURCES

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 a liquid
financial condition. During this period, the Company negotiated and closed
short-term secured financing arrangements with its three principal secured
lenders, which allowed it to operate at reduced sales levels as compared to 1999
and 2000. The Company remained in default under its agreements with these three
secured lenders, but they each agreed to forebear taking any action as a result
of the Company's defaults and to continue funding so long as the Company
complies with the terms of the short-term financing arrangements with these
lenders. Unless extended, these short-term arrangements expire March 31, 2002.
In addition, the Company is in monetary default regarding interest due on the
senior subordinated notes of $3.5 million and $3.9 million payable on April 1,
2001 and October 1, 2001, respectively, and principal due upon acceleration of
maturity in May 2001. The Company is also in default due to
under-collateralization under a non-revolving credit facility with the fourth
secured creditor.

Under the proposed terms of the Exchange Offer, the agreeing holders of the
senior subordinated debt notes will exchange their notes (the "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 Old Notes are exchanged, to 8%, if 98% or more of the Old Notes
are exchanged. Additionally, under the terms of the Exchange Offer, the
Indenture related to the Old Notes will be amended, substantially reducing the
rights of the original holders and making the Old Notes subordinate to the New
Notes. 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 with the Company's four principal secured creditors must be
restructured (including the waiver of any and all defaults) in a manner
acceptable to the exchanging holders.

In this regard, management has 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 Special
Purpose Entity ("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 be secured by a second lien on the notes, a lien on
resort assets, 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 the
Company's SPE. Among other aspects of these revised arrangements, the Company
will be required to meet certain financial covenants, including

46

maintaining a minimum tangible net worth of $100 million or greater, as defined,
an acceptable level of sales and marketing expenses, a notes receivable
delinquency rate below 25.0%, a minimum interest coverage ratio, and a minimum
net income. However, such results cannot be assured.

Management negotiated a revised arrangement with the lender under the $100
million off-balance sheet credit facility through the Company's SPE. This
arrangement requires completion of both the Exchange Offer and the arrangements
with senior lenders described above. This revised facility will have a term of
five years, however, the lender will have the right to put the loan back to the
SPE after two years. It is vitally important to the Company's liquidity plan
that this credit facility, or another new facility, continues 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.

Under the terms of the proposed debt refinancing and restructuring, future
results must meet certain financial covenants that require significant
improvements over 2000 and 2001 results. 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
being implemented.

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
indicated a minimum income level above that previously required and has a valid
major credit card. Further, the marketing division is employing a best practices
program, which should facilitate marketing to customers who management believes
are more likely to be a good credit risk. However, if the economy deteriorates
further or if enhanced sales practices do not result in sufficiently improved
collections, the Company may not be able to realize such improvements.

Management believes that the restructuring and refinancing transactions
described above will occur, and that the operating improvements required under
the debt covenants will be accomplished. If the Company accomplishes these
goals, it will have adequate financing to operate for the two-year revolving
term of the proposed financing with the senior lenders. If the Company is unable
to complete the restructuring plan, it will not have sufficient cash to pay the
principal and interest payments due under the secured credit facilities and
senior subordinated notes. In that event, it is likely that the Company will be
forced to seek protection from its creditors through a court-supervised
reorganization.

Realization of inventory is dependent upon execution of management's
long-term sales plan for each resort, which extend for up to fifteen years. Such
sales plans depend upon management's ability to obtain financing to facilitate
the build-out of each resort and marketing of the Vacation Intervals over the
planned time period.

SOURCES OF CASH. The Company generates cash primarily from the cash received
on the sale of Vacation Intervals, the financing of customer notes receivable
from Silverleaf Owners, management fees, sampler sales, and resort and utility
operations. The Company typically receives a 10% down payment on sales of
Vacation Intervals and finances the remainder by receipt of a seven-year to
ten-year customer promissory note. The Company generates cash from the financing
of customer notes receivable by (i) borrowing at an advance rate of up to 85% of
eligible customer notes receivable and (ii) from the spread between interest
received on customer notes receivable and interest paid on related borrowings.
Because the Company uses significant amounts of cash in the development and
marketing of Vacation Intervals, but collects cash on customer notes receivable
over a seven-year to ten-year period, borrowing against receivables has
historically been a necessary part of normal operations. During the years ended
December 31, 1998, 1999, and 2000, the Company's operating activities reflected
cash used in operating activities of $99.5 million, $121.0 million, and $62.2
million, respectively. In 2000,

47

the decrease in cash used in operating activities compared to 1999 is the result
of $62.9 million in proceeds from sales of notes receivable. The increase in
cash used in operating activities in 1999 compared to 1998 primarily related to
increases in customer notes receivable.

Net cash provided by financing activities for the years ended December 31,
1998, 1999, and 2000 was $118.4 million, $124.9 million, and $67.2 million,
respectively. During 2000, the decrease in cash provided by financing activities
compared to 1999 was primarily due to increased payments on borrowings against
pledged notes receivable resulting from funds received from sales of notes
receivable to the SPE. The increase in cash provided by financing activities in
1999 compared to 1998 primarily relates to increased borrowings against pledged
notes receivable. At December 31, 2000, the Company's revolving credit
facilities provided for loans of up to $291.0 million, of which approximately
$257.0 million of principal and interest related to advances under the credit
facilities was outstanding. For the year ended December 31, 2000, the weighted
average cost of funds for all borrowings, including the senior subordinated
debt, was 9.6%. Customer defaults have a significant impact on cash available to
the Company from financing customer notes receivable in that notes more than 60
days past due are not eligible as collateral. As a result, the Company must
repay borrowings against such delinquent notes.

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 SPE, formed on October 16, 2000. The agreement presently
has a term of 5 years. However, on the second anniversary date of the proposed
amended facility, the SPE's lender under the credit agreement shall have the
right to put, transfer, and assign to the SPE all of its rights, title, and
interest in and to all of the assets securing the facility at a price equal to
the then outstanding principal balance under the facility. During 2000, the
Company sold $74 million of notes receivable to the SPE, which the Company
services for a fee. 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.

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 in accordance with the
terms of the conduit agreement to repurchase some defaulted contracts in public
auctions to facilitate the re-marketing of the underlying collateral. The
investment in the SPE was valued at $5.3 million at December 31, 2000.

For regular federal income tax purposes, the Company reports substantially
all of the Vacation Interval sales it finances under the installment method.
Under this method, income on sales of Vacation Intervals is not recognized until
cash is received, either in the form of a down payment or as installment
payments on customer notes receivable. The deferral of income tax liability
conserves cash resources on a current basis. Interest is imposed, however, on
the amount of tax attributable to the installment payments for the period
beginning on the date of sale and ending on the date the related tax is paid. If
the Company is otherwise not subject to tax in a particular year, no interest is
imposed since the interest is based on the amount of tax paid in that year. The
consolidated financial statements do not contain an accrual for any interest
expense that would be paid on the deferred taxes related to the installment
method as the interest expense is not estimable. In addition, the Company is
subject to current alternative minimum tax ("AMT") as a result of the deferred
income that results from the installment sales treatment. Payment of AMT reduces
the future regular tax liability attributable to Vacation Interval sales, and
creates a deferred tax asset. In 1998, the Internal Revenue Service approved a
change in the method of accounting for installment sales effective as of January
1, 1997. As a result, the Company's alternative minimum taxable income for 1997
through 1999 was increased each year by approximately $9.0 million for the
pre-1997 adjustment, which results in the Company paying substantial additional
federal and state taxes in those years. The Company's AMT loss for 2000 was
decreased by such amount. Subsequent to December 31, 2000, the Company applied
for and received refunds of $8.3 million as the result of the carryback of its
2000 AMT loss to 1999 and 1998.

The net operating losses ("NOL") expire between 2007 through 2020.
Realization of the deferred tax assets arising from net operating losses is
dependent on generating sufficient taxable income prior to the expiration of the
loss carryforwards. Management currently does not believe that it will be able
to utilize its net operating losses from normal operations. However, sufficient
temporary differences existed at December 31, 2000 to allow for utilization of
its NOL. At present, future NOL utilization is expected to be limited to the
temporary differences creating deferred tax liabilities. If necessary,
management could implement a strategy to accelerate income recognition for
federal income tax purposes to utilize the existing NOL. The amount of the
deferred tax asset considered realizable could be decreased if estimates of
future taxable income during the carryforward period are reduced.

48

Given its current economic condition, the Company's access to capital and
other financial markets is anticipated to be limited. However, to finance the
Company's growth, development, and any future expansion plans, the Company may
at some time be required to consider the issuance of other debt, equity, or
collateralized mortgage-backed securities, the proceeds of which would be used
to finance future acquisitions, refinance debt, finance mortgage receivables, or
for other purposes. Any debt incurred or issued by the Company may be secured or
unsecured, have fixed or variable rate interest, and may be subject to such
terms as management deems prudent.

USES OF CASH. Investing activities typically reflect a net use of cash due
to capital additions and property acquisitions. Net cash used in investing
activities for the years ended December 31, 1998, 1999, and 2000 was $12.6
million, $10.5 million, and $3.1 million, respectively. In 2000, the cash used
in investing activities decreased compared to 1999 due to reduced purchases of
property and equipment. In 1999, the decrease in cash used in investing
activities compared to 1998 resulted from proceeds from property sales, which
offset investments in a new central telemarketing facility and related automated
dialers and computer equipment, and investments in undeveloped land, including
$1.5 million of undeveloped land near The Villages Resort in Tyler, Texas,
$500,000 of undeveloped land near Holiday Hills Resort in Branson, Missouri, and
$805,000 of undeveloped land near Fox River Resort in Sheridan, Illinois. In
1998, the acquisition of the Crown resorts, the Atlanta, Kansas City, and
Philadelphia sites, and a second parcel of land in Galveston in 1998,
contributed to the cash used in operating and investing activities in that year.
The Company acquired a second tract of the Galveston property in February 1998
for $1.2 million, the Crown resorts in May 1998 for $4.8 million, the Kansas
City site in September 1998 for $1.5 million, the Philadelphia site in December
1998 for $1.9 million, and various tracts of the Atlanta property throughout the
fourth quarter of 1998 for $4.2 million. The decrease in net cash used in
investing activities relates to a reduction in equipment purchases in 2001. The
Company evaluates sites for additional new resorts or acquisitions on an ongoing
basis. As of December 31, 2000, the Company had construction commitments of
approximately $13.3 million, the majority of which had been paid by December 31,
2001. Certain debt agreements include restrictions on the Company's ability to
pay dividends based on minimum levels of net income and cash flow.

RESULTS OF OPERATIONS

The following table sets forth certain operating information for the
Company.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31,
1999

Revenues

Revenues in 2000 were $285.8 million, representing a $55.4 million, or
24.0%, increase over revenues of $230.4 million for the year ended December 31,
1999. The increase was primarily due to a $42.0 million increase in sales of
Vacation Intervals and a $9.5 million increase in interest income. The strong
increase in Vacation Interval revenues primarily resulted from increased sales
at Holiday Hills Resort in Branson, Missouri, Silverleaf's Seaside Resort in
Galveston, Texas, which

49

opened a sales office in the first quarter of 2000, and Apple Mountain Resort
near Atlanta, Georgia, which opened a sales office in 1999. Also contributing to
increased Vacation Interval revenues were improved closing percentages and
higher sales prices. In 2000 and 1999, sales were reduced by $7.0 million and
$3.7 million, respectively, for cancellations related to customer returns (i.e.,
customers who failed to make their first installment payment).

In 2000, the number of Vacation Intervals sold, exclusive of upgraded
Vacation Intervals, increased 1.4% to 16,216 from 15,996 in 1999; the average
price per interval increased 9.7% to $9,768 from $8,901. Total interval sales
for 2000 included 6,230 biennial intervals (counted as 3,115 Vacation Intervals)
compared to 5,936 biennial intervals (counted as 2,968 Vacation Intervals) in
1999. The Company also experienced increased sales of upgraded intervals through
the continued implementation of marketing and sales programs focused on selling
upgraded intervals to the Company's existing Vacation Interval owners. In 2000,
the number of upgraded Vacation Intervals sold was 16,112 at an average price of
$4,741 compared to 11,400 upgraded Vacation Intervals sold in 1999 at an average
price of $4,420. In addition, Vacation Interval sales at existing resorts
increased as a result of enhanced telemarketing capacity, arising from
investments in computer and automated dialing technology.

Sampler sales increased to $3.6 million in 2000 compared to $1.7 million in
1999. The increase is consistent with the overall growth in Company sales
resulting from increased marketing efforts and an expanded sales force.

Interest income increased 33.7% to $37.8 million for the year ended December
31, 2000 from $28.3 million for 1999. This increase primarily resulted from an
increase in notes receivable, net of allowance for uncollectible notes, in 2000
compared to 1999.

Management fee income decreased 83.6% to $462,000 in 2000 from $2.8 million
in 1999. The decrease in management fee income was primarily the result of
increased operating expenses at the management clubs.

Other income consists of water and utilities income, condominium rental
income, marina income, golf course and pro shop income, and other miscellaneous
items. Other income was $4.9 million for both the years ended December 31, 2000
and December 31, 1999. In 2000, a $317,000 gain associated with the sale of
land, growth in water and utilities income, and increased pro shop income at two
resorts was offset by a reduction in sales of Bonus Time Program upgrades to
owners of seven resorts managed by the Company since May 1998.

Gain on sale of notes receivable was $4.3 million for the year ended
December 31, 2000, compared to $0 in 1999. This gain resulted from the sale of
$74 million of notes receivable to a special purpose entity ("SPE") in the
fourth quarter of 2000.

Cost of Sales

Cost of sales as a percentage of Vacation Interval sales increased to 25.2%
in 2000 from 15.9% in 1999. Due to liquidity concerns experienced in the fourth
quarter of 2000, the Company reduced its future sales plan for most resorts and
discontinued its efforts to sell Crown intervals. As a result, the Company
recorded an inventory write-down of $15.5 million based on a lower of cost or
market assessment and wrote-off $3.1 million of unsold Crown inventory
intervals. In addition, as the Company continues to deplete its inventory of
low-cost Vacation Intervals acquired primarily in 1995 and 1996, the Company's
sales mix has shifted to more recently constructed units, which were built at a
higher average cost per Vacation Interval. Hence, the cost of sales as a
percentage of Vacation Interval sales has increased compared to 1999 regardless
of the impairments recorded. These percentage increases, however, were partially
offset by increased sales prices since the third quarter of 1999.

50

Sales and Marketing

Sales and marketing costs as a percentage of total sales was 52.6% for the
year ended December 31, 2000 compared to 52.4% for 1999. Due to 2000 growth
rates and implementation of new lead generation programs, the Company
experienced relatively higher marketing costs in 2000 compared to 1999. The
Company increased its headcount at the call centers significantly since the
third quarter of 1999, which created inefficiencies due to temporary lack of
available training resources in the first half of the year. The Company also
moved towards reliance on national retail chains for its lead generation
efforts, in addition to the traditional local programs. The transition to
national programs was slower in generating leads than originally planned.

Provision for Uncollectible Notes

Provision for uncollectible notes as a percentage of Vacation Interval sales
increased to 46.3% for the year ended December 31, 2000 from 10.1% for 1999. The
provision for uncollectible notes in 2000 related to sales originating in 2000
was approximately 26%, with the remainder relating to an additional provision
needed for notes related to sales from prior years. The increase in the
provision is the result of the deterioration in the economy that came to public
awareness in late 2000 and the Company's decision to substantially reduce two
programs during 2000 that had previously been used to remedy defaulted notes
receivable. The assumptions program, which had been used by the Company since
December 1997 to allow delinquent loans to be assumed by other customers, was
virtually eliminated due to its high cost of operation. The downgrade program,
which was implemented in April 2000 to supplement the assumptions program,
allows delinquent customers to downgrade to a more affordable product. Late in
2000, the downgrade program was reduced as it became apparent that this program
did not significantly reduce delinquencies. As a result of these issues, the
provision for uncollectible notes recognized in 2000 was increased by
approximately $85 million.

Operating, General and Administrative

Operating, general and administrative expenses as a percentage of total
revenues increased to 12.9% in 2000 from 11.8% in 1999. The increase is
primarily attributable to higher salaries, increased headcount, increased legal
expense, and increased title and recording fees due to increased borrowings
against pledged notes receivable. In addition, the Company incurred $3.5 million
in 2000 related to three lawsuits.

Depreciation and Amortization

Depreciation and amortization expense as a percentage of total revenues
increased to 2.6% in 2000 from 2.5% in 1999. Overall, depreciation and
amortization expense increased $1.8 million from 1999, primarily due to
investments in new automated dialers, investments in telephone systems, and
investments in a central marketing facility, which opened in September 1999.

Interest Expense

Interest expense as a percentage of interest income increased to 86.6% for
the year ended December 31, 2000 from 59.6% in 1999. This increase is primarily
the result of interest expense related to increased borrowings against pledged
notes receivable.

Impairment Loss of Long-Lived Assets

Due to liquidity concerns experienced in the fourth quarter of 2000, the
Company was required to abandon plans to develop two resorts already in
predevelopment status, place one resort in predevelopment status on hold, and
abandon plans to sell at the Crown resorts. As a result, the Company recorded an
impairment of $5.4 million to write-down land to its estimated fair value and
land held for sale to its estimated sales price less estimated disposal costs.
Due to its decision to discontinue sales efforts of Crown intervals, the Company
also wrote-off $922,000 of intangible assets, originally recorded with the
acquisition of Crown resorts in May 1998, which management believes are not
recoverable under its new business plan.

Write-off of Affiliate Receivable

At December 31, 2000, due to the liquidity concerns and the planned
reduction in future sales, the Company anticipated that future membership dues
would not be sufficient to recover its advances to Silverleaf Club. Hence, the
Company's Board of Directors approved the write-off of $7.5 million of
uncollectible receivables from Silverleaf Club.

51

Income (Loss) Before Provision (Benefit) for Income Taxes and Extraordinary Item

Income (loss) before provision (benefit) for income taxes and extraordinary
item decreased to a loss of $98.5 million for the year ended December 31, 2000,
from income of $28.8 million for the year ended December 31, 1999, as a result
of the above mentioned operating results.

Provision (Benefit) for Income Taxes

Provision (benefit) for income taxes as a percentage of income (loss) before
provision (benefit) for income taxes and extraordinary item was 37.1% in 2000
versus 38.5% in 1999. The decrease in effective income tax rate was primarily
the result of permanent differences in 2000 lowering the benefit recognized.

Extraordinary Item

The Company recognized an extraordinary gain of $2.1 million, net of income
tax of $1.3 million, related to the early extinguishment of $8.3 million of 10
1/2% senior subordinated notes during the year ended December 31, 2000. There
were no extraordinary items during the year ended December 31, 1999.

Net Income (Loss)

Net income (loss) was a net loss of $59.9 million for the year ended
December 31, 2000, as compared to net income of $17.7 million for the year ended
December 31, 1999, as a result of the above mentioned operating results.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31,
1998

Revenues

Revenues in 1999 were $230.4 million, representing a $72.0 million, or
45.5%, increase over revenues of $158.4 million for the year ended December 31,
1998. The increase was primarily due to a $58.4 million increase in sales of
Vacation Intervals and an $11.4 million increase in interest income. The strong
increase in Vacation Interval revenues primarily resulted from increased sales
at core resorts and increased sales at new resorts, primarily relating to Oak N'
Spruce near Boston, Massachusetts, which opened a sales office in the second
quarter of 1998, Foxwood Hills in Westminster, South Carolina, which opened a
sales office in the third quarter of 1998, and Apple Mountain near Atlanta,
Georgia, which opened a sales office in the first quarter of 1999. In 1999 and
1998, sales were reduced by $3.7 million and $1.9 million, respectively, for
cancellations related to customer returns (i.e., customers who failed to make
their first installment payment).

In 1999, the number of Vacation Intervals sold, exclusive of upgraded
Vacation Intervals, increased 22.6% to 15,996 from 13,046 in 1998; the average
price per interval increased 10.7% to $8,901 from $8,042. Total interval sales
for 1999 included 5,936 biennial intervals (counted as 2,968 Vacation Intervals)
compared to 3,860 biennial intervals (counted as 1,930 Vacation Intervals) in
1998. The Company also experienced increased sales of upgraded intervals through
the continued implementation of marketing and sales programs focused on selling
upgraded intervals to the Company's existing Vacation Interval owners. In 1999,
the number of upgraded Vacation Intervals sold was 11,400 at an average price of
$4,420 compared to 6,817 upgraded Vacation Intervals sold in 1998 at an average
price of $4,396. In addition, Vacation Interval sales at existing resorts
increased as a result of enhanced telemarketing capacity, arising from
investments in computer and automated dialing technology.

Sampler sales increased to $1.7 million in 1999 compared to $1.4 million in
1998. Increased sales of overnight samplers were partially offset by an increase
in biennial interval sales, which are an alternative to the sampler program. The
increase is consistent with the overall growth in Company sales resulting from
increased marketing efforts and an expanded sales force.

Interest income increased 67.4% to $28.3 million for the year ended December
31, 1999 from $16.9 million for 1998. This increase primarily resulted from an
increase in notes receivable, net of allowance for uncollectible notes, since
December 31, 1998, due to increased sales. The increase in interest income
related to notes receivable was partially offset by interest income on
short-term investments, which decreased from $959,000 in 1998 to $234,000 in
1999 as proceeds from the debt and equity offerings completed in April 1998 were
invested prior to their utilization.

52

Management fee income increased 10.7% to $2.8 million in 1999 from $2.5
million in 1998. The increase in management fee income was primarily the result
of greater net income from the Management Clubs due to higher dues income
resulting from an increased membership base, partially offset by an increase in
the Management Clubs' operating expenses.

Other income consists of water and utilities income, condominium rental
income, marina income, golf course and pro shop income, and other miscellaneous
items. Other income increased 53.4% to $4.9 million for the year ended December
31, 1999 from $3.2 million for the year ended December 31, 1998. The increase
primarily relates to the Apple Mountain golf course and pro shop, which opened
in the fourth quarter of 1998, and the Holiday Hills restaurant, which opened in
the second quarter of 1999, and increased sales of Bonus Time Program upgrades
to owners at seven resorts managed by the Company since May 1998.

Cost of Sales

Cost of sales as a percentage of Vacation Interval sales increased to 15.9%
in 1999 from 14.8% in 1998. As the Company continues to deplete its inventory of
low-cost Vacation Intervals acquired primarily in 1995 and 1996, the Company's
sales mix has shifted to more recently constructed units, which were built at a
higher average cost per Vacation Interval. Hence, the cost of sales as a
percentage of Vacation Interval sales has increased compared to 1998. This
increase, however, was partially offset by increased sales prices during 1999.

Sales and Marketing

Sales and marketing costs as a percentage of total sales was 52.4% for the
year ended December 31, 1999 compared to 49.0% for 1998. This increase, in part,
was due to the implementation of new marketing programs, including a vacation
product whereby related revenues received are deferred until the guest actually
stays at the resort. Additionally, the Company is incurring substantial
marketing and start-up costs associated with two new sales offices and one
expanded sales office in recently opened markets where sales have not yet
reached mature levels. Implementation costs associated with new predictive
dialing equipment at the Company's call centers as well as the opening of a
fourth central marketing facility in September 1999 also contributed to the
increase.

Provision for Uncollectible Notes

Provision for uncollectible notes as a percentage of Vacation Interval sales
decreased to 10.1% in 1999 from 12.1% in 1998. This is the result of continued
improvements in the Company's collection efforts, including increased staffing,
improved collections software, the implementation of a program through which
delinquent loans are assumed by existing owners with a consistent payment
history, and an increase in receivables related to upgrade sales, which
typically represent better performing accounts, resulting in fewer
delinquencies.

Operating, General and Administrative

Operating, general and administrative expenses as a percentage of total
revenues increased to 11.8% in 1999 from 10.8% in 1998. The increase is
primarily attributable to higher salaries, increased headcount, increased
travel, legal, and professional fees, primarily related to expansion into new
markets, an increase in title and recording fees due to increased borrowings
against pledged notes receivable, an increase in costs to the Apple Mountain
golf course and pro shop, which opened in the fourth quarter of 1998, and an
increase in costs to operate the Holiday Hills restaurant, which opened in the
second quarter of 1999.

Depreciation and Amortization

Depreciation and amortization expense as a percentage of total revenues
increased to 2.5% in 1999 from 2.2% in 1998. Overall, depreciation and
amortization expense increased $2.2 million from 1998, primarily due to
investments in new automated dialers, investments in telephone systems, and
investments in two central marketing facilities, which opened in September 1998
and September 1999, respectively.

Interest Expense

Interest expense as a percentage of interest income increased to 59.6% for
the year ended December 31, 1999 from 41.2% in 1998. This increase is primarily
the result of interest expense related to increased borrowings against pledged
notes receivable.

53

Income Before Provision for Income Taxes

Income before provision for income taxes increased 2.2% to $28.8 million for
the year ended December 31, 1999, from $28.2 million for the year ended December
31, 1998, as a result of the above mentioned operating results.

Provision for Income Taxes

Provision for income taxes as a percentage of income before provision for
income taxes remained relatively flat at 38.5% in 1999 versus 38.3% in 1998.

Net Income

Net income increased $330,000, or 1.9%, to $17.7 million for the year ended
December 31, 1999, from $17.4 million for the year ended December 31, 1998, as a
result of the aforementioned operating results.

INFLATION

Inflation and changing prices have not had a material impact on the
Company's revenues, operating income, and net income during any of the Company's
three most recent fiscal years. However, to the extent inflationary trends
affect short-term interest rates, a portion of the Company's debt service costs
may be affected as well as the rates the Company charges on its customer notes
receivable.

RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 133 - In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, as amended,
is effective for fiscal years beginning after June 15, 2000 and was adopted
January 1, 2001. SFAS No. 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
the derivatives are recorded each period in current earnings or other
comprehensive income depending on whether a derivative is designated as part of
a hedge transaction, and if it is, the type of hedge transaction. The adoption
of SFAS No. 133 had no significant impact on the Company's results of
operations, financial position, or cash flows in 2001.

SAB No. 101 - In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB No. 101"),
which was adopted by the Company in the fourth quarter of 2000. In connection
with the adoption of SAB No. 101, management determined that its methodology for
recording sampler sales was inappropriate. As a result, the Company has changed
its method of accounting for sampler sales, which change has been treated as a
correction of an error. (See Note 19 to the Consolidated Financial Statements.)
There were no other significant changes in the Company's accounting practices
resulting from the adoption of SAB No. 101.

SFAS No. 140 - In September 2000, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS No. 140"), which replaces SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 140
revises SFAS No. 125's standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures,
but it carries over most of the SFAS No. 125's provisions without
reconsideration. SFAS No. 140 was effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001 and for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. The Company has adopted the new disclosures required
under SFAS No. 140 as of December 31, 2000. SFAS No. 140 is to be applied
prospectively with certain exceptions. The adoption of SFAS No. 140 in 2001 did
not have a material impact on the Company's results of operations, financial
position, or cash flows.

SFAS No. 144 - In August 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." SFAS No. 144 establishes a single
accounting method for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and extends the presentation of
discontinued operations to include more disposal transactions. SFAS No. 144 also
requires that an impairment loss be recognized for assets held-for-use when the
carrying amount of an asset (group) is not recoverable. The carrying amount of
an asset (group) is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the asset
(group), excluding interest

54

charges. Estimates of future cash flows used to test the recoverability of a
long-lived asset (group) must incorporate the entity's own assumptions about its
use of the asset (group) and must factor in all available evidence. SFAS No. 144
is effective on January 1, 2002. Management has yet to determine the impact that
the adoption of SFAS No. 144 will have on the Company's results of operations,
financial position, or cash flows.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

As of and for the year ended December 31, 2000, the Company had no
significant derivative financial instruments or foreign operations. Interest on
the Company's notes receivable and senior subordinated notes is fixed. See notes
5, 6, 10 and 14 to the Company's consolidated financial statements beginning on
page F-1.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the information described in the Index to Consolidated Financial
Statements beginning on Page F-1 of this report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND
FINANCIAL DISCLOSURES

None.

55

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

RECONSTITUTION OF BOARD FOLLOWING EXCHANGE OFFER

One of the principal terms of the Exchange Offer negotiated with the
Noteholders' Committee involves a reconstitution of the Company's existing Board
of Directors. 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. Each of the two designees of the
Noteholders' Committee will serve on both the Audit Committee and the
Compensation Committee, with one of the Noteholders' Committee's designees
holding the chairmanship of each of these two committees.

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AT DECEMBER 31 2000

The following table sets forth certain information concerning each person
who is a director or executive officer of the Company.

ROBERT E. MEAD, founded the Company, has served as its Chairman of the
Board since its inception, and has served as its Chief Executive Officer since
May 1990. Mr. Mead began his career in hotel and motel management and also
operated his own construction company. Mr. Mead has over 23 years of experience
in the timeshare industry, with special expertise in the areas of consumer
finance, hospitality management, and real estate development.

SHARON K. BRAYFIELD, has served as the President of the Company since 1992
and manages all of the Company's day to day activities. Ms. Brayfield began her
career with an affiliated company in 1982 as the Public Relations Director of
Ozark Mountain Resort. In 1989, she was promoted to Executive Vice President of
Resort Operations for an affiliated company and in 1991 was named Chief
Operations Officer of the Company.

DAVID T. O'CONNOR, has over 23 years of experience in real estate and
timeshare sales and has worked periodically with Mr. Mead over the past 17
years. Mr. O'Connor has served as the Company's Executive Vice President --
Sales for the past five years and as Vice President -- Sales since 1991. In such
capacities he directed all field sales, including the design and preparation of
all training materials, incentive programs, and follow-up sales procedures.

56

THOMAS C. FRANKS was hired in August 1997 as President of a newly-formed,
wholly-owned subsidiary of the Company, Silverleaf Resort Acquisitions, Inc. In
February 1998, Mr. Franks was named as Vice President -- Investor Relations and
Governmental Affairs for the Company, and in October 1998 he was named Executive
Vice President--Corporate Affairs. Mr. Franks has more than 17 years of
experience in the timeshare industry and is responsible for acquisitions and
industry and governmental relations. Mr. Franks served as the President of ARDA
from February 1991 through July 1997.

HARRY J. WHITE, JR., joined the Company in June 1998 as Chief Financial
Officer and has responsibility for all accounting, financial reporting, and
taxation issues. Prior to joining the Company, Mr. White was Chief Financial
Officer of Thousand Trails, Inc. from 1992 to 1998 and previously was a senior
manager with Deloitte & Touche LLP.

LARRY H. FRITZ, has been employed by the Company (or an affiliated company)
in various marketing management positions. Since 1991, Mr. Fritz has served as
the Company's chief marketing officer, with responsibility for daily marketing
operations, and currently serves as the Company's Vice President -- Marketing.

IOANNIS N. GIOLDASIS has been with the Company since May 1993 and currently
serves as Vice President -- Promotions. Mr. Gioldasis is responsible for the
design and implementation of marketing strategies and promotional concepts for
lead generation in Texas and other markets. Prior to joining the Company, Mr.
Gioldasis was a national field director for Resort Property Consultants, Inc.

ALLEN L. HUDSON joined the Company on June 1, 1998 as Vice President -
Architecture and Engineering Services. Prior to joining the Company, Mr. Hudson
was President and Chief Operating Officer of an architectural firm which
provided consultant design and project management services to the Company from
1995 until June 1998. See "Certain Relationships and Related Transactions."

MICHAEL L. JONES, was appointed Vice President -- Information Services in
May 1999. For more than five years prior to that time, Mr. Jones served in
various positions with the Company, including Network Manager, Payroll Manager,
and Director of Information Services.

EDWARD L. LAHART, has served as Vice President -- Corporate Operations
since June 1998. Prior to June 1998, Mr. Lahart served in various capacities in
the Company's Credit and Collections department.

ROBERT G. LEVY, was appointed Vice President -- Resort Operations in March
1997 and administers the Company's Management Agreement with the Silverleaf
Club. Since 1990, Mr. Levy has held a variety of managerial positions with
Silverleaf Club including Project Manager, General Manager, Texas Regional
Manager, and Director of Operations. Prior thereto, Mr. Levy spent 18 years in
hotel, motel, and resort management, and was associated with the Sheraton,
Ramada Inn, and Holiday Inn hotel chains.

DAVID D. MCPHERSON was elected Vice President--Finance in May 1999. Prior
to that time, Mr. McPherson served as Director of Audit of the Company from July
1998 to May 1999 and as Director of Finance from May 1997 to July 1998. Before
joining the Company, Mr. McPherson served as Chief Financial Officer of Neutral
Posture Ergonomics, Inc. from May 1996 to April 1997 and as a Senior Auditor of
Deloitte & Touche, LLP from September 1992 until May 1996.

JAMES J. OESTREICH joined the Company in February 1998 as Vice President --
Marketing Development. From January 1991 to August 1995, Mr. Oestreich served as
Vice President of Sales and Marketing for Casablanca Express, Inc. From August
1995 until joining the Company in 1998, Mr. Oestreich served as President of
Bull's Eye Marketing, Inc., a provider of marketing services to the resort and
direct sales industries. See "Certain Relationships and Related Transactions."

SANDRA G. CEARLEY, has served as Secretary of the Company since its
inception. Ms. Cearley maintains corporate minute books, oversees regulatory
filings, and coordinates legal matters with the Company's attorneys.

JAMES B. FRANCIS, JR., was elected as a Director of the Company in July
1997. During 1996, Mr. Francis' company, Francis Enterprises, Inc., served as a
consultant to the Company in connection with governmental and public affairs.
From 1980 to 1996, Mr. Francis was a partner in the firm of Bright & Co., which
managed various business investments, including the Dallas Cowboys Football
Club.

MICHAEL A. JENKINS, was elected as a Director of the Company in July 1997.
In 1971, Mr. Jenkins founded and became the President of Leisure and Recreation
Concepts, Inc., which as planned and designed over 850 theme parks, resorts,
retail areas, and major attractions worldwide. Mr. Jenkins has more than 35
years in the leisure industry. Mr. Jenkins also serves as President of the
Dallas Summer Musicals, Inc. and the Broadway Contemporary Series.

57

STUART MARSHALL BLOCH was elected as a Director of the Company in July
1997. Since 1972, Mr. Bloch has been a partner in the law firm of Ingersoll &
Bloch, in Washington, D.C. Ingersoll & Bloch has served as general counsel to
ARDA since 1972. Mr. Bloch is also currently serving as counsel to the law firm
of Holland & Knight, LLC. Mr. Bloch is the founding director and a past
president of the International Foundation for Timesharing. Mr. Bloch has
authored numerous articles dealing with real estate law and the timeshare
industry.

58

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the annual base salary and other annual
compensation earned in 1998, 1999 and 2000 by the Company's Chief Executive
Officer and each of the other four most highly compensated executive officers
whose cash compensation (salary and bonus) exceeded $100,000 (the "Named
Executive Officers").

- ----------

(a) The amounts shown are before elective contributions by the Named
Executive Officers in the form of salary reductions under the
Company's Section 125 Flexible Benefit Plan. Such plan is available to
all employees, including the Named Executive Officers.

(b) Except as otherwise noted, these amounts represent additional
compensation based on sales of Vacation Intervals and other sales
related criteria. See "Executive Compensation -- Employment and
Noncompetition Agreements" for a discussion of other annual
compensation.

(c) A portion of this amount was paid as sales commissions to Recreational
Consultants, Inc., a corporation of which Mr. O'Connor is the
principal. See "Certain Relationships and Related Transactions."

(d) Effective as of January 1, 2002, Mr. Franks was no longer employed by
the Company.

(e) Effective as of March 15, 2001, Mr. Oestreich was no longer employed
by the Company.

EMPLOYMENT AND NONCOMPETITION AGREEMENTS

Effective January 1, 2000, Mr. Mead entered into a three-year employment
agreement with the Company which provides for an annual base salary of $500,000,
a company vehicle, and other fringe benefits such as health insurance, vacation,
and sick leave as determined by the Board of Directors of the Company from time
to time.

Effective January 1, 2000, Ms. Brayfield entered into a three-year
employment agreement with the Company which provides for an annual base salary
of $435,000, a company vehicle, and other fringe benefits such as health
insurance, vacation, and sick leave as determined by the Board of Directors of
the Company from time to time.

Effective January 1, 2000, Mr. O'Connor entered into a three-year
employment agreement with the Company which, as amended, provides for base
compensation payable equal to five tenths percent (0.5%) of the Company's net
sales from outside

59

sales and six tenths percent (0.6%) of the Company's net sales from in-house
sales, plus incentive bonuses based upon performance, a company vehicle, and
other fringe benefits such as health insurance, vacation, and sick leave as
determined by the Board of Directors of the Company from time to time.

Effective June 29, 1998, Mr. White entered into an employment agreement
with the Company which provides for an annual base salary of $250,000, a company
vehicle, and other fringe benefits such as health insurance, vacation, and sick
leave as determined by the Board of Directors of the Company from time to time.
The agreement provides for severance pay equal to six months of Mr. White's then
current salary if his services are terminated at any time for a reason other
than good cause.

The agreements with Ms. Brayfield and Messrs. Mead and O'Connor also
provide that for a period of two years following the termination of his or her
services with the Company, he or she will not engage in or carry on, directly or
indirectly, either for himself or herself or as a member of a partnership or
other entity or as a stockholder, investor, officer or director of a corporation
or as an employee, agent, associate or contractor of any person, partnership,
corporation or other entity, any business in competition with the business of
the Company or its affiliates in any county of any state of the United States in
which the Company or its affiliates conduct such business or market the products
of such business immediately prior to the effective date of termination.

EMPLOYEE BENEFIT PLANS

1997 STOCK OPTION PLAN. The Company adopted the 1997 Stock Option Plan (the
"Plan") in May 1997 to attract and retain directors, officers, and key employees
of the Company. The Plan was amended by the Company's shareholders at the 1998
Annual Meeting of Shareholders to increase the number of options which may be
granted under the Plan to 1,600,000 and to modify the number of outside
directors who, as members of the Compensation Committee, may administer the
Plan. The following is a summary of the provisions of the Plan. This summary
does not purport to be a complete statement of the provisions of the Plan and is
qualified in its entirety by the full text of the Plan.

The purpose of the Plan is to afford certain of the Company's directors,
officers and key employees and the directors, officers and key employees of any
subsidiary corporation or parent corporation of the Company who are responsible
for the continued growth of the Company, an opportunity to acquire a proprietary
interest in the Company, and thus to create in such directors, officers and key
employees an increased interest in and a greater concern for the welfare of the
Company. The Company, by means of the Plan, seeks to retain the services of
persons now holding key positions and to secure the services of persons capable
of filling such positions. The Plan provides for the award to directors,
officers, and key employees of nonqualified stock options and provides for the
grant to salaried key employees of options intended to qualify as "incentive
stock options" under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). The Company has filed a Registration Statement to register
such shares.

Nonqualified stock options provide for the right to purchase common stock
at a specified price which may be less than fair market value on the date of
grant (but not less than par value). "Fair market value" per share shall be
deemed to be the average of the high and low quotations at which the Company's
shares of common stock are sold on a national securities exchange, or if not
sold on a national securities exchange, the closing bid and asked quotations in
the over-the-counter market for the Company's shares on such date. If no public
market exists for the Company's shares on any date on which the fair market
value per share is to be determined, the Compensation Committee shall, in its
sole discretion and best, good faith judgment, determine the fair market value
of a share. Nonqualified stock options may be granted for any term and upon such
conditions determined by the Compensation Committee.

Incentive stock options are designed to comply with the provisions of the
Code and are subject to restrictions contained therein, including exercise
prices equal to at least 100% of fair market value of common stock on the grant
date and a ten year restriction on their term; however, incentive stock options
granted to any person owning more than 10% of the voting power of the stock of
the Company shall have exercise prices equal to at least 110% of the fair market
value of the common stock on the grant date and shall not be exercisable after
five years from the date the option is granted. Except as otherwise provided
under the Code, to the extent that the aggregate fair market value of Shares
with respect to which Incentive Options are exercisable for the first time by an
employee during any calendar year exceeds $100,000, such Incentive Options shall
be treated as Non-Qualified Options.

The Plan may either be administered by the Compensation Committee or the
Board of Directors which selects the individuals to whom options are to be
granted and determines the number of shares granted to each optionee. For the
period ending December 31, 2000, the Compensation Committee and the Board of
Directors made all decisions concerning administration of the Plan.

60

An optionee may exercise all or any portion of an option that is
exercisable by providing written notice of such exercise to the Corporate
Secretary of the Company at the principal business office of the Company,
specifying the number of shares to be purchased and specifying a business day
not more than fifteen days from the date such notice is given, for the payment
of the purchase price in cash or by certified check. Options are not
transferable by the optionee other than by will or the laws of descent and
distribution, and an option may be exercised only by the optionee.

The following are the federal tax rules generally applicable to options
granted under the Plan. The grant of a stock option will not be a taxable event
for the participant nor a tax deduction for the Company. The participant will
have no taxable income upon exercising an incentive stock option within the
meaning of section 422 of the Internal Revenue Code of 1986, as amended (except
that the alternative minimum tax may apply). Upon exercising a stock option that
is not an incentive option, the participant must recognize ordinary income in an
amount equal to the difference between the exercise price and the fair market
value of the stock on the exercise date and the Company receives a tax deduction
equal to the amount of ordinary income recognized by the participant. The tax
treatment upon disposition of shares of the Company's Common Stock acquired
under the Plan through the exercise of a stock option will depend on how long
such shares have been held, and on whether or not such shares were acquired by
exercising an incentive stock option.

An option shall terminate upon termination of the directorship, office or
employment of an optionee with the Company or its subsidiary, except that if an
optionee dies while serving as a director or officer or while in the employ of
the Company or one of its subsidiaries, the optionee's estate may exercise the
unexercised portion of the option. If the directorship, office or employment of
an optionee is terminated by reason of the optionee's retirement, disability, or
dismissal other than "for cause" while such optionee is entitled to exercise all
or any portion of an option, the optionee shall have the right to exercise the
option, to the extent not theretofore exercised, at any time up to and including
(i) three months after the date of such termination of directorship, office or
employment in the case of termination by reason of retirement or dismissal other
than for cause and (ii) one year after the date of termination of directorship,
office, or employment in the case of termination by reason of disability. If an
optionee voluntarily terminates his directorship, office or employment, or is
discharged for cause, any option granted shall, unless otherwise specified by
the Compensation Committee pursuant to the terms and condition of the grant of
the option, forthwith terminate with respect to any unexercised portion thereof.
All terminated options shall be returned to the Plan and shall be available for
future grants to other optionees.

The Plan will terminate on May 15, 2007 (the "Termination Date"), the tenth
anniversary of the day the Plan was adopted by the Board of Directors of the
Company and approved by its shareholders. Any options granted prior to the
Termination Date and which remain unexercised may extend beyond that date in
accordance with the terms of the grant thereof.

Under the Plan, the Board of Directors of the Company reserves the right to
exercise the powers and functions of the Compensation Committee. Also, the Board
of Directors reserves the right to amend the Plan at any time; however, the
Board of Directors may not, without the approval of the shareholders of the
Company (i) increase the total number of shares reserved for options under the
Plan (other than for certain changes in the capital structure of the Company),
(ii) reduce the required exercise price of any incentive stock options, or (iii)
modify the provisions of the Plan regarding eligibility.

OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 2000. The following table
contains information concerning the grant of stock options under the Plan made
during the year ended December 31, 2000 to the Named Executive Officers. The
table also lists potential realizable values of such options on the basis of
assumed annual compounded stock appreciation rates of 5% and 10% over the life
of the options which are set for a maximum of ten years. No options were
exercised during 2000 by any of the Named Executive Officers.

61

- ----------

(a) These options will vest in four equal increments on the first, second,
third and fourth anniversaries of the date of the grant.

(b) The potential realizable value (in thousands of dollars) is reported
net of the option price, but before income taxes associated with
exercise. These amounts represent assumed annual compounded rates of
appreciation at 5% and 10% only from the date of grant to the
expiration date of the option. The rates of appreciation shown in this
table are required by the Securities and Exchange Commission and are
not intended to forecast or be indicative of possible future
performance of the Common Stock.

(c) As of January 1, 2002, Mr. Franks is no longer employed by the
Company.

(d) As of March 15, 2001, Mr. Oestreich is no longer employed by the
Company.

OPTIONS/SARS EXERCISES AND DECEMBER 31, 2000 YEAR-END VALUE TABLE.

- ----------

(a) The Unexercised Options of the Named Executive Officers were not
in-the-money at fiscal year end; therefore, the options had no value
as of December 31, 2000.

(b) As of January 1, 2002, Mr. Franks was no longer employed by the
Company.

(c) As of March 15, 2001, Mr. Oestreich was no longer employed by the
Company.

SECTION 162(m) LIMITATION. In general, under Section 162(m) of the Code,
income tax deductions of publicly-held corporations may be limited to the extent
total compensation (including base salary, annual bonus, stock option exercises
and non-qualified benefits paid) for certain executive officers exceeds $1
million (less the amount of any "excess parachute payments" as defined in
Section 280G of the Code) in any one year. However, under Section 162(m), the
deduction limit does not apply to certain "performance-based compensation"
established by an independent compensation committee which is adequately
disclosed to, and approved by, the shareholders.

DISCRETIONARY PERFORMANCE AWARDS. Performance awards, including bonuses,
may be granted by the Compensation Committee on an individual or group basis.
Generally, these awards will be based upon specific agreements or performance
criteria and will be paid in cash.

401(k) PLAN. Effective January 1, 1999, the Company established the
Silverleaf Resorts, Inc. 401(k) Plan (the "401(k) Plan"), a qualified defined
contribution retirement plan covering employees 21 years of age or older who
have completed one year of service. The Plan allows eligible employees to defer
receipt of up to 15% of their compensation and contribute such amounts to
various investment funds. The employee contributions vest immediately. Other
than normal costs of administration, the Company has no obligation to make any
payments under the 401(k) Plan.

62

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Set forth in the following table is the beneficial ownership of the
Company's Common Stock as of December 31, 2000 by (i) those persons known to the
Company to be the beneficial owners of more than five percent of the outstanding
shares, (ii) each director and the five executive officers of the Company named
under the table titled "Executive Compensation" and (iii) all directors and
executive officers as a group.

- ----------

* Less than 1%

(a) Except as otherwise indicated, each beneficial owner has the sole
power to vote and to dispose of all shares of Common Stock owned by
such beneficial owner.

(b) Pursuant to the rules of the Securities and Exchange Commission, in
calculating percentage ownership, each person is deemed to
beneficially own his own shares subject to options exercisable within
sixty days, but options owned by others (even if exercisable within
sixty days) are deemed not to be outstanding shares. In calculating
the percentage ownership of the directors and officers as a group, the
shares subject to options exercisable by directors and officers within
sixty days are included within the number of shares beneficially
owned.

(c) The address of such person is 1221 River Bend Drive, Suite 120,
Dallas, Texas 75247.

(d) Includes options to purchase 68,750 shares which options were
exercisable within sixty days from December 31, 2000.

(e) Comprised of options to purchase shares which options were exercisable
within sixty days from December 31, 2000.

(f) Includes options to purchase 46,667 shares which options were
exercisable within sixty days from December 31, 2000.

(g) The address of such person is 1300 N Street N.W., Washington, D.C.
20005.

(h) The address of such person is 2911 Turtle Creek Boulevard, Suite 925,
Dallas, Texas 75219.

(i) The address of such person is 2151 Fort Worth Avenue, Dallas, Texas
75211-1812.

(j) Dimensional Fund Advisors, Inc. ("Dimensional") furnishes investment
advice to four investment companies and serves as investment manager
to certain other commingled group trusts and separate accounts (the
"Funds"). The shares described are owned by the Funds. In its role as
investment adviser or manager to the Funds, Dimensional possesses
voting and/or investment power over the shares described, but
disclaims beneficial ownership of such securities. The address for
Dimensional is 1299 Ocean Avenue, 11th Floor, Santa Monica, California
90401. This information is based upon information provided by
Dimensional on Schedule 13G dated February 2, 2001.

63

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Each timeshare owners association has entered into a management agreement,
which authorizes the Management Clubs to manage the resorts. The Management
Clubs, in turn, have entered into management agreements with the Company,
whereby the Company manages the operations of the resorts. Pursuant to the
management agreements, the Company receives a management fee equal to the lesser
of 15% of gross revenues for Silverleaf Club and 10% to 15% of dues collected
for owners associations within Crown Club or the net income of each Management
Club; however, if the Company does not receive the aforementioned maximum fee,
such deficiency is deferred for payment in the succeeding year(s), subject again
to the net income limitation. The Silverleaf Club Management Agreement is
effective through March 2010, and will continue year-to-year thereafter unless
cancelled by either party. Crown Club consists of several individual Club
agreements that have terms of two to five years with a minimum of two renewal
options remaining. During the years ended December 31, 1998, 1999, and 2000, the
Company recorded management fees of $2.5 million, $2.8 million, and $462,000,
respectively, in management fee income.

The direct expenses of operating the resorts are paid by the Management
Clubs. To the extent the Management Clubs provide payroll, administrative, and
other services that directly benefit the Company, a separate allocation charge
is generated and paid by the Company to the Management Clubs. During the years
ended December 31, 1998, 1999, and 2000, the Company incurred $5.8 million,
$10.3 million, and $155,000, respectively, of expenses under these agreements.
As of January 1, 2000, certain employees were transferred from the Management
Clubs to the Company. Hence, the allocation of overhead from the Management
Clubs to the Company was substantially reduced in 2000. As a result of the
payroll changes implemented January 1, 2000, the Company allocated overhead to
the Management Clubs of $1.7 million during the year ended December 31, 2000.

The following schedule represents amounts due from (to) affiliates at
December 31, 1999 and 2000 (in thousands):

66

(incorporated by reference to Exhibit 10.7 to Registrant's
Registration Statement on Form S-1, File No. 333-24273).
10.8 -- Loan and Security Agreement among Textron Financial Corporation
("Textron"), Ascension Resorts, Ltd. and Ascension Capital
Corporation, dated August 15, 1995 (incorporated by reference to
Exhibit 10.9 to Registrant's Registration Statement on Form S-1, File
No. 333-24273).
10.9 -- First Amendment to Loan and Security Agreement, dated December 28,
1995, between Textron and Silverleaf Vacation Club, Inc.
(incorporated by reference to Exhibit 10.10 to Registrant's
Registration Statement on Form S-1, File No. 333-24273).
10.10 -- Second Amendment to Loan and Security Agreement, dated October 31,
1996, executed by Textron and Silverleaf Vacation Club, Inc.
(incorporated by reference to Exhibit 10.11 to Registrant's
Registration Statement on Form S-1, File No. 333-24273).
10.11 -- Loan and Security Agreement, dated December 27, 1995, executed by
Ascension Resorts, Ltd. and Heller (incorporated by reference to
Exhibit 10.13 to Registrant's Registration Statement on Form S-1,
File No. 333-24273).
10.12 -- Amendment to Restated and Amended Loan and Security Agreement,
dated August 15, 1996, between Heller and Silverleaf Vacation Club,
Inc. (incorporated by reference to Exhibit 10.14 to Registrant's
Registration Statement on Form S-1, File No. 333-24273).
10.13 -- Form of Indemnification Agreement (between Registrant and all
officers, directors, and proposed directors) (incorporated by
reference to Exhibit 10.18 to Registrant's Registration Statement on
Form S-1, File No. 333-24273).
10.14 -- Resort Affiliation and Owners Association Agreement between Resort
Condominiums International, Inc., Ascension Resorts, Ltd., and Hill
Country Resort Condoshare Club, dated July 29, 1995 (similar
agreements for all other Existing Owned Resorts) (incorporated by
reference to Exhibit 10.19 to Registrant's Registration Statement on
Form S-1, File No. 333-24273).
10.15 -- First Amendment to Silverleaf Club Agreement, dated March 28, 1990,
among Silverleaf Club, Ozark Mountain Resort Club, Holiday Hills
Resort Club, the Holly Lake Club, The Villages Condoshare Association, The
Villages Club, Piney Shores Club, and Hill Country Resort Condoshare
Club (incorporated by reference to Exhibit 10.22 to Amendment No. 1
dated May 16, 1997 to Registrant's Registration Statement on Form
S-1, File No. 333-24273).
10.16 -- First Amendment to Management Agreement, dated January 1, 1993,
between Master Endless Escape Club and Ascension Resorts, Ltd.
(incorporated by reference to Exhibit 10.23 to Amendment No. 1 dated
May 16, 1997 to Registrant's Registration Statement on Form S-1, File
No. 333-24273).
10.17 -- Amendment to Loan Documents, dated December 27, 1996, among
Silverleaf Vacation Club, Inc., Ascension Resorts, Ltd., and Heller
Financial, Inc. (incorporated by reference to Exhibit 10.25 to
Amendment No. 1 dated May 16, 1997 to Registrant's Registration
Statement on Form S-1, File No. 333-24273).
10.18 -- Second Amendment to Restated and Amended Loan and Security
Agreement between Heller Financial, Inc. and Registrant ($40 million
revolving credit facility) (incorporated by reference to Exhibit 10.4
to Registrant's Form 10-Q for quarter ended September 30, 1997).
10.19 -- Silverleaf Club Agreement dated September 25, 1997, between Registrant
and Timber Creek Resort Club (incorporated by reference to Exhibit 10.13 to
Registrant's Form 10-Q for quarter ended September 30, 1997).
10.20 -- Second Amendment to Management Agreement, dated December 31, 1997,
between Silverleaf Club and Registrant (incorporated by reference to
Exhibit 10.33 to Registrant's Annual Report on Form 10-K for year Ended
December 31, 1997).
10.21 -- Silverleaf Club Agreement, dated January 5, 1998, between Silverleaf Club
And Oak N' Spruce Resort Club (incorporated by reference to Exhibit 10.34 to
Registrant's Annual Report on Form 10-K for year ended December 31, 1997).
10.22 -- Master Club Agreement, dated November 13, 1997, between Master Club
and Fox River Resort Club (incorporated by reference to Exhibit
10.43 to Registrant's Annual Report on Form 10-K for year ended
December 31, 1997).
10.23 -- Letter Agreement dated March 16, 1998, between the Company and Heller
Financial, Inc. (incorporated by reference to Exhibit 10.44 to
Amendment No. 1 to Form S-1, File No. 333-47427 filed March 16, 1998).
10.24 -- Bill of Sale and Blanket Assignment dated May 28, 1998, between the
Company and Crown Resort Co., LLC (incorporated by reference to
Exhibit 10.6 to Registrant's Form 10-Q for quarter ended June 30,
1998).
10.25 -- Management Agreement dated October 13, 1998, by and between the
Company and Eagle Greens, Ltd. (incorporated by reference to
Exhibit 10.6 to Registrant's Form 10-Q for quarter ended September 30,
1998).
10.26 -- One to Four Family Residential Contract (Resale) between the Company

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

* Filed herewith

(b) No reports on Form 8-K were filed by the Company during the
three-month period ended December 31, 2000.

(c) The exhibits required by Item 601 of Regulation S-K have been listed
above.

(d) Financial Statement Schedules

None. Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the consolidated financial statements or the notes
thereto.

68

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized in the City of Dallas,
State of Texas, on November 19, 2002.

SILVERLEAF RESORTS, INC.

By: /s/ ROBERT E. MEAD
-------------------------------------------
Name: Robert E. Mead
Title: Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below on behalf of the
Registrant in the capacities and on the dates indicated.

69

CERTIFICATION

I, Robert E. Mead, Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Silverleaf
Resorts, Inc.;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.

Date: November 19, 2002 /s/ ROBERT E. MEAD
----------------- --------------------------------------
Robert E. Mead
Chief Executive Officer

70

CERTIFICATION

I, Harry J. White, Jr., Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Silverleaf
Resorts, Inc.;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.

Date: November 19, 2002 /s/ HARRY J. WHITE, JR.
----------------- ----------------------------------------
Harry J. White, Jr.
Chief Financial Officer

71

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

INDEPENDENT AUDITORS' REPORT

To the Shareholders of
Silverleaf Resorts, Inc.

We have audited the accompanying consolidated balance sheets of Silverleaf
Resorts, Inc. and subsidiaries (the "Company") as of December 31, 1999 and 2000,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express (or disclaim) an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our report.

In our opinion, the consolidated financial statements as of December 31,
1999 and for the years ended December 31, 1999 and 1998 present fairly, in all
material respects, the financial position of Silverleaf Resorts, Inc. and
subsidiaries as of December 31, 1999, and the results of their operations and
their cash flows for the years ended December 31, 1999 and 1998 in conformity
with accounting principles generally accepted in the United States of America.

The accompanying 2000 consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As described in
Notes 2 and 3 to the consolidated financial statements, at December 31, 2000 the
Company was in default under the terms of its senior subordinated notes and was
not in compliance with certain covenants of its other long-term loan agreements.
The Company is attempting to negotiate a debt restructuring with the holders of
its senior subordinated notes that would involve the exchange of new notes and
shares of its common stock for the existing notes, and to modify the terms and
covenants of its other long-term debt agreements. The Company's difficulties in
meeting its loan agreement covenants and financing needs, its losses from
operations, and its negative cash flows from operating activities raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Notes 2 and 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

Because of the possible material effects of the uncertainty referred to in
the preceding paragraph, we are unable to express, and we do not express, an
opinion on the consolidated financial statements for 2000.

As discussed in Note 19, the accompanying consolidated financial statements
as of December 31, 1999 and for the years ended December 31, 1999 and 1998 have
been restated.

/s/ DELOITTE & TOUCHE LLP

Dallas, Texas
March 12, 2002

F-2

SILVERLEAF RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

See notes to consolidated financial statements.

F-3

SILVERLEAF RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

See notes to consolidated financial statements.

F-4

SILVERLEAF RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

See notes to consolidated financial statements.

F-5

SILVERLEAF RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

See notes to consolidated financial statements.

F-6

SILVERLEAF RESORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 (AS RESTATED),
1999 (AS RESTATED), AND 2000

1. NATURE OF BUSINESS

Silverleaf Resorts, Inc., a Texas Corporation (the "Company" or
"Silverleaf") is in the business of marketing and selling vacation intervals
("Vacation Intervals"). Silverleaf's principal activities, in this regard,
consist of (i) developing and acquiring timeshare resorts; (ii) marketing and
selling one-week annual and biennial Vacation Intervals to new owners; (iii)
marketing and selling upgraded Vacation Intervals to existing Silverleaf owners
("Silverleaf Owners"); (iv) providing financing for the purchase of Vacation
Intervals; and (v) operating timeshare resorts. The Company has in-house sales,
marketing, financing, and property management capabilities and coordinates all
aspects of the operation of the 19 existing owned or managed resorts (the
"Existing Resorts") and the development of any new timeshare resort, including
site selection, design, and construction. Sales of Vacation Intervals are
marketed to individuals primarily through direct mail and telephone
solicitation.

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 managed, but not owned, 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 two to
five years with a minimum of two renewal options remaining). Silverleaf Club and
Crown Club, in turn, have contracted with the Company to perform the
supervisory, management, and maintenance functions at the Existing Resorts. 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. Subject to availability of funds from the
Clubs, the Company is entitled to a management fee to compensate it for the
services provided.

In addition to Vacation Interval sales revenues, interest income derived
from financing activities, and management fees received from the Management
Clubs, the Company generates additional revenue from leasing unsold intervals
(i.e., sampler sales), utility operations related to the resorts, and other
sources. All of the operations are directly related to the resort real estate
development industry.

The consolidated financial statements of the Company as of and for the
years ended December 31, 1998, 1999, and 2000, reflect the operations of the
Company and its wholly owned subsidiaries, Condominium Builders, Inc. ("CBI"),
Villages Land, Inc. ("VLI"), Silverleaf Travel, Inc., Database Research, Inc.,
Silverleaf Resort Acquisitions, Inc., Bull's Eye Marketing, Inc., Silverleaf
Berkshires, Inc., and eStarCommunications, Inc. Two subsidiaries, CBI and VLI,
were liquidated in 1998 and 2000, respectively.

2. BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the ordinary course of business. As shown in the
accompanying financial statements, during the year ended December 31, 2000, the
Company incurred net losses of $59.9 million. It has also experienced negative
cash flows from operating activities of $99.5 million, $121.0 million and $62.2
million during the years ended December 31, 1998, 1999, and 2000. In addition,
as discussed in Note 3, the Company is in monetary default on its senior
subordinated notes, is in default under loan agreements with its three principal
lenders who have agreed to exercise forbearance subject to the Company's
compliance with the terms of short-term financing arrangements that, unless
extended, expire March 31, 2002, and is in default with a fourth non-revolving
secured lender due to under-collateralization. These factors, among others,
indicate that the Company may be unable to continue as a going concern.

The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability of recorded asset amounts or the
amounts of liabilities that might be necessary should the Company be unable to
continue as a going concern. The Company's continuation as a going concern is
dependent upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to comply with the terms and covenants of its
financing agreements, to obtain additional financing or refinancing as may be
required, and ultimately to attain profitable operations.

F-7

As discussed in Note 3, the Company has finalized, subject to completion of
an exchange offer (the "Exchange Offer"), refinancing and restructuring
transactions related to its debt to provide liquidity to the Company. However,
the terms of the proposed debt refinancing and restructuring require the Company
to comply with certain financial covenants that will necessitate achievement of
significant improvements in future operating results over the operating results
for 2000. Compliance with those covenants will require that improvements be made
in several areas of the Company's operations. The principal changes in
operations that management believes will be necessary to satisfy the proposed
financial covenants are to reduce sales and marketing expense as a percentage of
sales, to improve profitability, and to improve customer credit quality, which
the Company believes will result in reduced credit losses.

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. These changes
resulted in $2.7 million of asset write-offs, including $1.4 million of prepaid
booth rentals and marketing supplies and $1.3 million of fixed assets related to
the closed sales offices and closed telemarketing centers. As a result of these
actions, management believes that the necessary operating changes needed to
reduce sales and marketing expense to an appropriate level are being
implemented.

Due to the high level of defaults experienced in customer receivables
during 2000, the Company's provision for uncollectible notes was relatively high
as a percentage of Vacation Interval sales during 2000. Management believes the
high level of defaults experienced in 2000 was due to the deterioration of the
economy in the United States, which began to have a significant impact on the
Company's existing customers and on consumer confidence in general in late 2000,
and a substantial reduction by the Company in two programs that were previously
used to remedy defaulted notes receivable. Management believes the high level of
defaults in 2001 was also attributable to the fact that customers concerned
about the Company's liquidity issues began defaulting on their notes after the
Company's liquidity announcement in February 2001, in addition to continuing
economic concerns.

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 a
minimum income level beyond that previously required and has a valid major
credit card. Further, the marketing division is employing a best practices
program, which management believes should facilitate marketing to customers who
are more likely to be a good credit risk. However, should there be further
deterioration in the economy, and if enhanced sales practices do not result in
sufficiently improved collections, the Company may not be able to realize
improvements in the overall credit quality of its notes receivable portfolio
that these actions are designed to achieve.

Management believes that if the Exchange Offer and the revised credit
facilities are completed and the actions described above are effective, the
Company will be able to improve its operating results sufficiently to achieve
compliance with the proposed financial covenants during the terms of the new
credit facilities, provided there is no further deterioration in the U.S.
economy. However, the Company's plan to utilize certain of its assets,
predominantly inventory, extends for periods up to fifteen years. Accordingly,
the Company will need to either extend the revolving periods of the new
facilities with its secured lenders upon expiration, or obtain new sources of
financing in order to realize the value of its assets in the long-term. As a
result, the ultimate outcome of this uncertainty is not presently determinable.

3. 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 a liquid financial
condition. During this period, the Company negotiated and closed short-term
secured financing arrangements with its three principal secured lenders, which
allowed it to operate at reduced sales levels as compared to 1999 and 2000. The
Company remained in default under its agreements with these three secured
lenders, but they each agreed to forebear taking any action as a result of the
Company's defaults and to continue funding so long as the Company complies with
the terms of the short-term financing arrangements with these lenders. Unless
extended, these short-term arrangements expire on March 31, 2002, and are
discussed below.

Effective February 23, 2001, the Company reached a definitive agreement
with a lender for a $10 million revolving loan agreement, due August 2002,
principal and interest payable from the proceeds obtained on customer notes
receivable pledged as collateral for the note, at an interest rate of LIBOR plus
4.00%. This revolving loan agreement reduced the $70 million revolving loan
agreement with this same lender by $10 million.

Effective February 28, 2001, the Company reached a definitive agreement
with a lender to extend the balance outstanding on its $60 million loan
agreement, due December 2000, to February 2002. Effective September 1, 2001, the

F-8

interest rate on the balance outstanding was increased from LIBOR plus 2.55% to
LIBOR plus 3.55%. Effective February 28, 2002, the Company reached a definitive
agreement with this lender to extend the maturity date of this credit facility
to August 2002, and upon the completion of the proposed debt restructuring to
August 2003. Additional draws are no longer available under this facility.

Effective March 8, 2001, the Company reached a definitive agreement with a
lender to increase the interest rate on its $45 million revolving loan
agreement, due August 2005, from an interest rate of Prime to Prime plus 2.00%.
Effective May 2, 2001, the Company reached a definitive agreement with this same
lender to increase its revolving loan agreement to $55 million.

Effective April 17, 2001, the Company reached a definitive agreement with a
lender for an additional $10.2 million revolving loan, due April 2006, principal
and interest payable from the proceeds obtained on customer notes receivable
pledged as collateral for the note, at an interest rate of Prime plus 2.00%.

The Company is also in monetary default with respect to interest owed on
its senior subordinated notes. Under the proposed terms of the Exchange Offer,
the agreeing holders will exchange their existing notes (the "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 Old Notes are exchanged, to 8%, if 98% or more of the Old Notes
are exchanged. Additionally, under the terms of the Exchange Offer, the
Indenture related to the Old Notes will be amended, substantially reducing the
rights of the original holders and making the Old Notes subordinate to the New
Notes. 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 with the Company's three principal secured creditors must be
restructured (including the waiver of any and all defaults) in a manner
acceptable to the exchanging holders.

In this regard, management has negotiated two-year revolving, three-year
term 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, two of the three creditors will convert $43.6
million of existing debt to a subordinated tranche B. Tranche A will maintain a
first lien on currently pledged notes receivable. Tranche B will have a second
lien on the notes, a lien on resort assets, 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 the Company's SPE. Among other aspects of these revised
arrangements, the Company will be required to meet certain financial covenants,
including maintaining a minimum tangible net worth of $100 million or greater,
as defined, sales and marketing expenses as a percentage of sales below 55.0%
for the last three quarters of 2002 and below 52.5% thereafter, a notes
receivable delinquency rate below 25%, a minimum interest coverage ratio, and
minimum net income. However, such results cannot be assured.

Management negotiated a revised arrangement with the lender under the $100
million off-balance sheet credit facility through Silverleaf Finance I, Inc.
("SFI"), the Company's unconsolidated SPE. This arrangement is subject 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 is able to meet the financial covenants set forth,
the Company expects to have adequate financing to operate for the two-year
revolving term of the proposed financing with the senior lenders, at which time
replacement revolving arrangements will need to be obtained. There can be no
assurance that the Company will be able to obtain such financings at that time.

4. SIGNIFICANT ACCOUNTING POLICIES SUMMARY

Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries (excluding
SF1). All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements.

Revenue and Expense Recognition -- A substantial portion of Vacation
Interval sales are made in exchange for mortgage notes receivable, which are
secured by a deed of trust on the Vacation Interval sold. The Company recognizes
the sale of a Vacation Interval under the accrual method after a binding sales
contract has been executed, the buyer's initial and continuing investment are
adequate to demonstrate a commitment to the Vacation Interval, and the statutory
rescission period has expired. If all accrual method criteria are met except
that construction is not substantially complete, revenues are recognized on the
percentage-of-completion basis. Under this method, the portion of revenue
applicable to costs incurred, as compared to

F-9

total estimated construction and direct selling costs, is recognized in the
period of sale. The remaining amount is deferred and recognized as the remaining
costs are incurred. The deferral of sales and costs related to the
percentage-of-completion method is not significant.

Certain Vacation Interval sales transactions are deferred until the minimum
down payment has been received. The Company accounts for these transactions
utilizing the deposit method. Under this method, the sale is not recognized, a
receivable is not recorded, and inventory is not relieved. Any cash received is
carried as a deposit until the sale can be recognized. When these types of sales
are cancelled without a refund, deposits forfeited are recognized as income and
the interest portion is recognized as interest income.

In addition to sales of Vacation Intervals to new prospective owners, the
Company sells upgraded Vacation Intervals to existing Silverleaf Owners.
Revenues are recognized on these upgrade Vacation Interval sales when the
criteria described above are satisfied. The revenue recognized is the net of the
incremental increase in the upgrade sales price and cost of sales is the
incremental increase in the cost of the Vacation Interval purchased.

A provision for estimated customer returns (customer returns represent
cancellations of sales transactions in which the customer fails to make the
first installment payment) is reported net against Vacation Interval sales.

The Company recognizes interest income as earned. To the extent interest
payments become delinquent the Company ceases recognition of the interest income
until collection is probable.

Revenues related to one-time sampler contracts, which entitles the
prospective owner to sample a resort for various periods, are recognized when
earned. Revenue recognition is deferred until the customer uses the stay,
purchases a Vacation Interval, or allows the contract to expire.

The Company receives fees for management services provided to the
Management Clubs. These revenues are recognized on an accrual basis in the
period the services are provided if collection is deemed probable.

Utilities, services, and other income are recognized on an accrual basis in
the period service is provided.

Sales and marketing costs are charged to expense in the period incurred.
Commissions, however, are recognized in the same period as the related sales.

Cash and Cash Equivalents -- Cash and cash equivalents consist of all
highly liquid investments with an original maturity at the date of purchase of
three months or less. Cash and cash equivalents include cash, certificates of
deposit, and money market funds.

Restricted Cash -- Restricted cash consists of certificates of deposit that
serve as collateral for construction bonds and cash restricted for repayment of
debt.

Investment in Special Purpose Entity -- Sales of notes receivable from the
Company to a SPE that meet certain underwriting criteria occur on a periodic
basis with the gain or loss on the sale determined based on the proceeds
received and the recorded value of notes receivable sold. The fair value of the
investment in the SPE is estimated based on the present value of future expected
cash flows of the SPE's residual interest in the notes receivable sold. For the
year ended December 31, 2000, the Company utilized the following key assumptions
to estimate the fair value of such cash flows: customer prepayment rate - 6.4%;
expected accounts paid in full as a result of upgrades - 8.1%; expected credit
losses - 7.8%; discount rate - 19%; base interest rate - 3.9%, agent fee - 2%,
and loan servicing fees - 1%. The Company's assumptions are based on experience
with its notes receivable portfolio, available market data, estimated
prepayments, the cost of servicing, and net transaction costs.

Provision for Uncollectible Notes -- The Company records a provision for
uncollectible notes at the time revenue is recognized. Such provision is
recorded in an amount sufficient to maintain the allowance for uncollectible
notes at a level management considers adequate to provide for anticipated losses
resulting from customers' failure to fulfill their obligations under the terms
of their notes. The allowance for uncollectible notes takes into consideration
both notes held by the Company and those sold with recourse. Such allowance for
uncollectible notes is adjusted based upon periodic analysis of the notes
receivable portfolio, historical credit loss experience, and current economic
factors. In estimating the allowance, the Company projects future cancellations
related to each sales year by using historical cancellations experience.

F-10

The allowance for uncollectible notes is reduced by actual cancellations
and losses experienced, including losses related to previously sold notes
receivable which became delinquent and were reacquired pursuant to the recourse
obligations discussed herein. Actual cancellations and losses experienced
represents all notes identified by management as being probable of cancellation.
Recourse to the Company on sales of customer notes receivable is governed by the
agreements between the purchasers and the Company.

The Company classifies the components of the provision for uncollectible
notes into the following three categories based on the nature of the item:
credit losses, customer returns (cancellations of sales whereby the customer
fails to make the first installment payment), and customer releases (voluntary
cancellations of properly recorded sales transactions which in the opinion of
management is consistent with the maintenance of overall customer goodwill). The
provision for uncollectible notes pertaining to credit losses, customer returns,
and customer releases are classified in provision for uncollectible notes,
Vacation Interval sales, and operating, general and administrative expenses,
respectively.

Inventories -- Inventories are stated at the lower of cost or market value.
Cost includes amounts for land, construction materials, direct labor and
overhead, taxes, and capitalized interest incurred in the construction or
through the acquisition of resort dwellings held for timeshare sale. These costs
are capitalized as inventory and are allocated to Vacation Intervals based upon
their relative sales values. Upon sale of a Vacation Interval, these costs are
charged to cost of sales on a specific identification basis. Vacation Intervals
reacquired are placed back into inventory at the lower of their original
historical cost basis or market value. Company management periodically reviews
the carrying value of its inventory on an individual project basis to determine
that the carrying value does not exceed market value.

Land, Equipment, Buildings, and Utilities -- Land, equipment (including
equipment under capital lease), buildings, and utilities are stated at cost,
which includes amounts for construction materials, direct labor and overhead,
and capitalized interest. When assets are disposed of, the cost and related
accumulated depreciation are removed, and any resulting gain or loss is
reflected in income for the period. Maintenance and repairs are charged to
expense as incurred; significant betterments and renewals, which extend the
useful life of a particular asset, are capitalized. Depreciation is calculated
for all fixed assets, other than land, using the straight-line method over the
estimated useful life of the assets, ranging from 3 to 20 years. Company
management periodically reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.

Prepaid and Other Assets -- Prepaid and other assets consists primarily of
prepaid insurance, prepaid postage, intangibles, commitment fees, debt issuance
costs, novelty inventories, deposits, and miscellaneous receivables. Commitment
fees and debt issuance costs are amortized over the life of the related debt.
Intangibles are amortized over their useful lives, which do not exceed ten
years.

Income Taxes -- Deferred income taxes are recorded for temporary
differences between the bases of assets and liabilities as recognized by tax
laws and their carrying value as reported in the consolidated financial
statements. A provision is made or benefit recognized for deferred income taxes
relating to temporary differences in the recognition of expense and income for
financial reporting purposes. To the extent a deferred tax asset does not meet
the criteria of "more likely than not" for realization, a valuation allowance is
recorded.

Earnings (Loss) Per Share -- Basic earnings (loss) per share is computed by
dividing net income (loss) by the weighted average shares outstanding. Earnings
per share assuming dilution is computed by dividing net income by the weighted
average number of shares and potentially dilutive shares outstanding. The number
of potentially dilutive shares is computed using the treasury stock method,
which assumes that the increase in the number of shares resulting from the
exercise of the stock options is reduced by the number of shares that could have
been repurchased by the Company with the proceeds from the exercise of the stock
options.

F-11

The following table reconciles basic and diluted weighted average shares
used in the calculation of per share data for the years ended December 31, 1998,
1999, and 2000:

For the year ended December 31, 2000, the impact of stock options on the
net loss per share calculation was anti-dilutive.

Use of Estimates -- The preparation of the consolidated financial statements
requires the use of management's estimates and assumptions in determining the
carrying values of certain assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts for certain revenues and expenses during the reporting
period. Actual results could differ from those estimated. Significant management
estimates include the allowance for uncollectible notes and the future sales
plan used to allocate certain inventories to cost of sales.

Reclassifications -- Certain reclassifications have been made to the 1998
and 1999 consolidated financial statements to conform to the 2000 presentation.
These reclassifications had no effect on net income (loss). The most significant
reclassification to the consolidated statements of operations relates to equity
on sampler sales applied to the purchase of a Vacation Interval. The equity
portion of the sampler upgrade sale is now classified as Vacation Interval sales
rather than sampler sales.

Recent Accounting Pronouncements --

SFAS No. 133 -- In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133,
as amended, was effective for fiscal years beginning after June 15, 2000 and was
adopted for the period beginning January 1, 2001. SFAS No. 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of the derivatives are recorded each period in current
earnings or other comprehensive income depending on whether a derivative is
designated as part of a hedge transaction, and if it is, the type of hedge
transaction. The adoption of SFAS No. 133 had no significant impact on the
Company's results of operations, financial position, or cash flows in 2001.

SAB No. 101 - In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB No. 101"),
which was adopted by the Company in the fourth quarter of 2000. In connection
with the adoption of SAB No. 101, management determined that its methodology for
recording sampler sales was inappropriate. As a result, the Company has changed
its method of accounting for sampler sales, and treated such change as a
correction of an error. See Note 19. There were no other significant changes in
the Company's accounting practices resulting from the adoption of SAB No. 101.

SFAS No. 140 - In September 2000, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS No. 140"), which replaces SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 140
revises SFAS No. 125's standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain disclosures,
but it carries over most of the SFAS No. 125's provisions without
reconsideration. SFAS No. 140 was effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001 and for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. The Company has adopted the new disclosures required
under SFAS No. 140 as of December 31, 2000. SFAS No. 140 is to be applied
prospectively with certain exceptions. The adoption of SFAS No. 140 in 2001 did
not have a material impact on the Company's results of operations, financial
position, or cash flows.

SFAS No. 144 - In August 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which supersedes
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS No. 144 establishes a single accounting method for long-lived assets to be
disposed

F-12

of by sale, whether previously held and used or newly acquired, and extends the
presentation of discontinued operations to include more disposal transactions.
SFAS No. 144 also requires that an impairment loss be recognized for assets
held-for-use when the carrying amount of an asset (group) is not recoverable.
The carrying amount of an asset (group) is not recoverable if it exceeds the sum
of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset (group), excluding interest charges. Estimates of
future cash flows used to test the recoverability of a long-lived asset (group)
must incorporate the entity's own assumptions about its use of the asset (group)
and must factor in all available evidence. SFAS No. 144 is effective on January
1, 2000 for the Company. Management has not yet determined the impact that the
adoption of SFAS No. 144 will have on the Company's results of operations,
financial position, or cash flows.

5. CONCENTRATIONS OF RISK

Credit Risk -- The Company is exposed to on-balance sheet credit risk
related to its notes receivable. The Company is exposed to off-balance sheet
credit risk related to notes sold under recourse provisions.

The Company offers financing to the buyers of Vacation Intervals at the
Company's resorts. These buyers generally make a down payment of at least 10% of
the purchase price and deliver a promissory note to the Company for the balance.
The promissory notes generally bear interest at a fixed rate, are payable over a
seven-year to ten-year period, and are secured by a first mortgage on the
Vacation Interval. The Company bears the risk of defaults on these promissory
notes, and this risk is heightened inasmuch as the Company generally does not
verify the credit history of its customers and will provide financing if the
customer is presently employed and meets certain household income criteria.

If a buyer of a Vacation Interval defaults, the Company generally must
foreclose on the Vacation Interval and attempt to resell it; the associated
marketing, selling, and administrative costs from the original sale are not
recovered; and such costs must be incurred again to resell the Vacation
Interval. Although the Company in many cases may have recourse against a
Vacation Interval buyer for the unpaid price, certain states have laws that
limit the Company's ability to recover personal judgments against customers who
have defaulted on their loans. Accordingly, the Company has generally not
pursued this remedy.

Interest Rate Risk -- The Company has historically derived net interest
income from its financing activities because the interest rates it charges its
customers who finance the purchase of their Vacation Intervals exceed the
interest rates the Company pays to its lenders. Because the Company's
indebtedness bears interest at variable rates and the Company's customer
receivables bear interest at fixed rates, increases in interest rates will erode
the spread in interest rates that the Company has historically obtained and
could cause the rate on the Company's borrowings to exceed the rate at which the
Company provides financing to its customers. The Company has not engaged in
interest rate hedging transactions. Therefore, any increase in interest rates,
particularly if sustained, could have a material adverse effect on the Company's
results of operations, cash flows, and financial position.

Availability of Funding Sources -- The Company funds substantially all of
the notes receivable, timeshare inventories, and land inventories which it
originates or purchases with borrowings through its financing facilities, sales
of notes receivable, internally generated funds, and proceeds from public debt
and equity offerings. Borrowings are in turn repaid with the proceeds received
by the Company from repayments of such notes receivable. To the extent that the
Company is not successful in maintaining or replacing existing financings, it
would have to curtail its operations or sell assets, thereby having a material
adverse effect on the Company's results of operations, cash flows, and financial
condition. See Notes 2 and 3.

Geographic Concentration -- The Company's notes receivable are primarily
originated in Texas, Missouri, Illinois, Massachusetts, and Georgia. The risk
inherent in such concentrations is dependent upon regional and general economic
stability, which affects property values, and the financial stability of the
borrowers. The Company's Vacation Interval inventories are concentrated in
Texas, Missouri, Illinois, Massachusetts, and Georgia. The risk inherent in such
concentrations is in the continued popularity of the resort destinations, which
affects the marketability of the Company's products and the collection of notes
receivable.

6. NOTES RECEIVABLE

The Company provides financing to the purchasers of Vacation Intervals,
which are collateralized by their interest in such Vacation Intervals. The notes
receivable generally have initial terms of seven to ten years. The average yield
on outstanding notes receivable at December 31, 2000 was approximately 13.4%. In
connection with the sampler program, the Company routinely enters into notes
receivable with terms of 10 months. Notes receivable from sampler sales were
$3.1 million and $3.7 million at December 31, 1999 and December 31, 2000,
respectively.

F-13

In connection with promotional sales to certain customers, the Company
entered into non-interest bearing notes receivable of $3.8 million and $1.5
million, for the years ended December 31, 1999 and December 31, 2000,
respectively. The Company had a remaining note discount of $1.2 million and
$940,000, for these notes receivable in aggregate as of December 31, 1999 and
December 31, 2000, respectively, utilizing a 10% discount rate, which represents
the lowest rate offered its existing customers.

Notes receivable are scheduled to mature as follows at December 31, 2000
(in thousands):

2001 ........................................ $ 40,513
2002 ........................................ 42,193
2003 ........................................ 48,152
2004 ........................................ 54,952
2005 ........................................ 62,712
2006 ........................................ 71,569
Thereafter .................................. 19,419
---------
339,510
Less discounts on notes ..................... (940)
Less allowance for uncollectible notes ...... (74,778)
---------
Notes receivable, net ............. $ 263,792
=========

There were no notes sold with recourse during the years ended December 31,
1998, 1999, and 2000. Outstanding principal maturities of notes receivable sold
with recourse as of December 31, 1999 and 2000, were $2.2 million and $817,000,
respectively.

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 SPE, formed on October 16, 2000. The agreement presently
has a term of 5 years. Following the debt restructuring discussed in Note 3 the
principal balance of the loan will mature on the fifth anniversary date of the
amended loan; however, the lender shall have the right to put the loan back to
the SPE at the end of two years following the date of the amendment. 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.

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 in accordance with the
terms of the conduit agreement to repurchase some defaulted contracts in public
auctions to facilitate the re-marketing of the underlying collateral.

Management considers both pledged and sold-with-recourse notes receivable
in the Company's allowance for uncollectible notes. The Company considers
accounts over 60 days past due to be delinquent. As of December 31, 2000, $33.1
million of notes receivable, net of accounts charged off, were considered
delinquent. An additional $38.6 million of notes would have been considered to
be delinquent had the Company not granted payment concessions to the customers.
The activity in the allowance for uncollectible notes is as follows for the
years ended December 31, 1998, 1999, and 2000 (in thousands):

In 2000, the Company substantially increased its provision for
uncollectible notes to provide for the poorer performance in the Company's notes
receivable portfolio, which resulted from a general downturn in the economy and
the elimination of certain programs that had been in place to remedy defaulted
loans. The additional provision for uncollectible notes in 2000 was
approximately $85 million.

F-14

7. INVENTORIES

Due to liquidity issues experienced, the Company reduced its future sales
plans for most resorts and discontinued its efforts to sell Crown intervals. As
a result, the Company recorded an inventory write-down of $15.5 million based
upon a lower of cost or market assessment, and wrote-off $3.1 million of unsold
Crown inventory intervals. These write-offs are included in Cost of Vacation
Interval Sales in 2000.

Inventories consist of the following at December 31, 1999 and 2000 (in
thousands):

Realization of inventories is dependent upon execution of management's
long-term sales plan for each resort, which extend for up to fifteen years. Such
sales plans depend upon management's ability to obtain financing to facilitate
the build-out of each resort and marketing of the Vacation Intervals over the
planned time period.

8. LAND, EQUIPMENT, BUILDINGS, AND UTILITIES

Land, equipment, buildings, and utilities consist of the following at
December 31, 1999 and 2000 (in thousands):

Depreciation and amortization expense for the years ended December 31,
1998, 1999, and 2000 was $3.4 million, $5.7 million, and $7.5 million,
respectively, which included amortization expense related to intangible assets
included in prepaid and other assets of $179,000, $311,000, and $308,000 in
1998, 1999, and 2000, respectively.

Due to liquidity concerns experienced, the Company discontinued plans to
develop certain properties. Consequently, the Company recorded an impairment of
$5.4 million to write-down land to estimated fair value and land held for sale
to estimated sales price less disposal costs. The Company also wrote-off
$922,000 of intangible assets associated with the discontinuance of sales
efforts related to Crown intervals. These impairments are included on the
consolidated statement of operations for the year ended December 31, 2000 as
impairment loss of long-lived assets.

9. INCOME TAXES

Income tax expense (benefit) consists of the following components for the
years ended December 31, 1998, 1999, and 2000 (in thousands):

F-15

A reconciliation of income tax expense on reported pretax income at
statutory rates to actual income tax expense for the years ended December 31,
1998, 1999, and 2000 is as follows (in thousands):

Deferred income tax assets and liabilities as of December 31, 1999 and 2000
are as follows (in thousands):

As of December 31, 2000, income taxes receivable of $12.5 million
represents income tax refunds subsequently received.

The Company reports substantially all Vacation Interval sales, which it
finances on the installment method for federal income tax purposes. Under the
installment method, the Company does not recognize income on sales of Vacation
Intervals until the down payment or installment payment on customer receivables
are received by the Company. Interest is imposed, however, on the amount of tax
attributable to the installment payments for the period beginning on the date of
sale and ending on the date the related tax is paid. If the Company is otherwise
not subject to tax in a particular year, no interest is imposed since the
interest is based on the amount of tax paid in that year. The consolidated
financial statements do not contain an accrual for any interest expense that
would be paid on the deferred taxes related to the installment method. The
amount of interest expense is not estimable as of December 31, 2000.

The Company has been subject to Alternative Minimum Tax ("AMT") as a result
of the deferred income, which results from the installment sales treatment of
Vacation Interval sales for regular tax purposes. The current AMT payable
balance was adjusted in 1997 to reflect the change in method of accounting for
installment sales under AMT granted by the Internal Revenue Service, effective
as of January 1, 1997. As a result, the Company's alternative minimum taxable
income for 1997 through 1999 was increased each year by approximately $9
million, which resulted in the Company paying substantial additional federal and
state taxes in those years. The Company's AMT loss for 2000 was decreased by
such amount. Subsequent to December 31, 2000, the Company applied for and
received refunds of $8.3 million as the result of the carryback of its 2000 AMT
loss to 1999 and 1998. The AMT liability creates a deferred tax asset which may,
subject to certain limitations, be used to offset any future tax liability from
regular federal income tax. This deferred tax asset has an unlimited carryover
period.

The net operating losses ("NOL") expire between 2007 through 2020.
Realization of the deferred tax assets arising from net operating losses is
dependent on generating sufficient taxable income prior to the expiration of the
loss carryforwards. Management currently does not believe that it will be able
to utilize its net operating losses as a result of normal operations. However,
sufficient temporary differences existed at December 31, 2000 to allow for
utilization of its NOL. At present, future NOL utilization is expected to be
limited to the temporary differences creating deferred tax liabilities. If
necessary, management could implement a strategy to accelerate income
recognition for federal income tax purposes to utilize the existing NOL. The
amount of the deferred tax asset considered realizable could be decreased if
estimates of future taxable income during the carryforward period are reduced.

If the Exchange Offer discussed in Note 3 is completed, it will result in
an ownership change within the meaning of Section 382(g) of the Internal Revenue
Code ("the Code"). As a result, a portion of the Company's NOL will become
subject to an annual limitation for taxable years beginning after the date of
the exchange ("change date"), and a portion of the taxable year which includes
the change date. The annual limitation will be equal to the value of the stock
of the Company

F-16

immediately before the ownership change, multiplied by the long-term tax-exempt
rate (i.e., the highest of the adjusted Federal long-term rates in effect for
any month in the 3-calendar-month period ending with the calendar month in which
the change date occurs). This annual limitation may be increased for any
recognized built-in gain to the extent allowed in Section 382(h) of the Code.
The ownership change may also limit the use of the Company's minimum tax credit,
described above, as provided in Section 383 of the Code.

The following are the expiration dates and the approximate net operating
loss carryforwards at December 31, 2000 (in thousands):

10. DEBT

Notes payable, capital lease obligations, and senior subordinated notes as
of December 31, 1999 and December 31, 2000 are as follows (in thousands):

At December 31, 2000, LIBOR rates were from 6.40% to 6.56%, and the Prime rate
was 9.50%.

F-17

During 2000, the Company recognized an extraordinary gain of $2.1 million,
net of income tax of $1.3 million, related to the early extinguishment of $8.3
million of 10 1/2% senior subordinated notes.

Effective August 18, 2000, the Company reached a definitive agreement with
a lender to increase its $30 million revolving loan agreement, due September
2006, to a $40 million five-year revolving loan agreement, due August 2005.
Effective October 16, 2000, the Company reached a definitive agreement with this
same lender to increase its $40 million revolving loan agreement to a $45
million revolving loan agreement.

Certain of the above debt agreements include restrictions on the Company's
ability to pay dividends based on minimum levels of net income and cash flow.
The debt agreements contain covenants including requirements that the Company
(i) preserve and maintain the collateral securing the loans; (ii) pay all taxes
and other obligations relating to the collateral; and (iii) refrain from selling
or transferring the collateral or permitting any encumbrances on the collateral.
The debt agreements also contain restrictive covenants which include (i)
restrictions on liens against and dispositions of collateral, (ii) restrictions
on distributions to affiliates and prepayments of loans from affiliates, (iii)
restrictions on changes in control and management of the Company, (iv)
restrictions on sales of substantially all of the assets of the Company, and (v)
restrictions on mergers, consolidations, or other reorganizations of the
Company. Under certain credit facilities, a sale of all or substantially all of
the assets of the Company, a merger, consolidation, or reorganization of the
Company, or other changes of control of the ownership of the Company, would
constitute an event of default and permit the lenders to accelerate the maturity
thereof.

Such credit facilities also contain operating covenants requiring the
Company to (i) maintain an aggregate minimum tangible net worth ranging from
$17.5 million to $110 million, minimum liquidity, including a debt to equity
ratio of not greater than 2.5 to 1 and a liquidity ratio of not less than 5%, an
interest coverage ratio of at least 2.0 to 1, a marketing expense ratio of no
more than 0.55 to 1, a consolidated cash flow to consolidated interest expense
ratio of at least 2.0 to 1, and total tangible capital funds greater than $200
million plus 75% of net income beginning October 1999; (ii) maintain its legal
existence and be in good standing in any jurisdiction where it conducts
business; (iii) remain in the active management of the Resorts; and (iv) refrain
from modifying or terminating certain timeshare documents. The credit facilities
also include customary events of default, including, without limitation (i)
failure to pay principal, interest, or fees when due, (ii) untruth of any
representation of warranty, (iii) failure to perform or timely observe
covenants, (iv) defaults under other indebtedness, and (v) bankruptcy.

Notes payable secured by customer notes receivable require that collections
from customers be remitted to the lenders upon receipt. During 2000, the Company
received credit card payments from customers that were not appropriately
remitted to the lenders. As of December 31, 2000, cumulative unremitted customer
credit card receipts were approximately $2.3 million. In addition, the Company
is required to calculate the appropriate "Borrowing Base" for each note payable
monthly. Such Borrowing Base determines whether the loans are collateralized in
accordance with the applicable loan agreements and whether additional amounts
can be borrowed. In preparing the monthly Borrowing Base reports for the
lenders, the Company has classified certain notes as eligible for Borrowing Base
that might be considered ineligible in accordance with the loan agreements. A
significant portion of the potentially ineligible notes relates to cancelled
notes from customers who have upgraded to a higher value product and notes that
have been subject to payment concessions.

The Company has developed programs under which customers may be granted
payment concessions in order to encourage delinquent customers to make
additional payments. The effect of these concessions is to extend the term of
the customer notes. Upon granting a concession, the Company considers the
customer account to be current. Under the Company's notes payable agreements,
customer notes that are less than 60 days past due are considered eligible as
Borrowing Base. As of December 31, 2000, a total of $30.5 million of customer
notes have been considered eligible for Borrowing Base purposes which would have
been considered ineligible had payment concessions and the related
reclassification as current not been granted. In addition, approximately $20.6
million of cancelled notes from customers who have upgraded to a different
product have been treated as eligible for Borrowing Base purposes.

As of March 12, 2002, the Company is currently in monetary default on its
senior subordinated notes. Interest of $3.5 million and $3.9 million was not
paid when due on April 1, 2001 and October 1, 2001, respectively. In addition,
principal was not paid when maturity was accelerated in May 2001. As of December
31, 2000, the Company is also in default with respect to its operating covenants
related to each of its revolving and inventory loan agreements. See Note 2.

Principal maturities of notes payable, capital lease obligations, and senior
subordinated notes, including acceleration of loans in default, are as follows
at December 31, 2000 (in thousands):

2001.............................................. $131,038
2002.............................................. 201,230
2003.............................................. 2,119
2004.............................................. 1,162
2005.............................................. 425
Thereafter........................................ 1,323
--------
Total................................... $337,297
========

F-18

Total interest expense for the years ended December 31, 1998, 1999, and 2000
was $7.0 million, $16.8 million, and $32.8 million, respectively. Interest of
$2.7 million, $2.7 million, and $2.0 million was capitalized during the years
ended December 31, 1998, 1999, and 2000, respectively.

During 2001, the Company identified differences between its recorded debt
balances and amounts reflected in lender statements. Upon investigation of this
matter, management determined that the Company failed to recognize certain
customer deposits and returned customer payments processed through lender lock
boxes on a timely basis. The Company could not identify the specific customers
involved, but concluded that the correcting adjustments should reduce interest
income, increase the provision for uncollectible notes, and increase the
recorded debt balances. The effect of these adjustments on previously issued
financial statements is discussed in Note 19.

As of December 31, 2000, approximately $351.6 million of customer notes
receivable and $19.5 million of interval inventory were pledged as collateral.

11. COMMITMENTS AND CONTINGENCIES

In 2000, operating, general and administrative expense includes $3.5
million related to lawsuit settlements, of which $1.5 million is included in
accounts payable and accrued expenses as of December 31, 2000, and was
subsequently paid.

The homeowners associations of three condominium projects that a former
subsidiary of the Company constructed in Missouri filed separate actions of
unspecified amounts against the Company alleging construction defects and breach
of management agreements. During 2000, the Company incurred $1.3 million to
correct a portion of the problems alleged by the plaintiffs. At this time, the
Company cannot predict the final outcome of these claims and cannot estimate the
additional costs it could incur.

In October 2001, a class action was filed against the Company by plaintiffs
who purchased Vacation Intervals from the Company. The plaintiffs allege that
the Company failed to deliver them complete copies of the contracts for the
purchase of Vacation Intervals as they did not receive a complete legal
description of the resort. The plaintiffs further claim that the Company
violated various provisions of the Texas Deceptive Trade Practices Act with
respect to maintenance fees charged by the Company to its Vacation Interval
owners. The petition alleges actual damages of $34.5 million plus consequential
damages of an unspecified amount, as well as all attorneys' fees, expenses, and
costs. The Company intends to vigorously defend against the claims and believes
it has several defenses. The Company was only recently served with the
plaintiffs' complaint and has not yet fully assessed the claims.

In February 2002, a class action was filed against the Company by a couple
who purchased a Vacation Interval from the Company. The plaintiffs allege that
the Company violated the Texas Government Code by charging a document
preparation fee in regard to instruments affecting title to real estate, and
that such fee constituted a partial prepayment that should have been credited
against their note. The petition seeks recovery of the $275 document preparation
fee, $825 of treble damages, and injunctions preventing the Company from
engaging in such practices. The Company was only recently served with the
plaintiffs' complaint and has not yet fully assessed the claims.

The Company is currently subject to other litigation arising in the normal
course of its business. From time to time, such litigation includes claims
regarding employment, tort, contract, truth-in-lending, the marketing and sale
of Vacation Intervals, and other consumer protection matters. Litigation has
been initiated from time to time by persons seeking individual recoveries for
themselves, as well as, in some instances, persons seeking recoveries on behalf
of an alleged class. In the judgment of the Company, none of these lawsuits or
claims against the Company, either individually or in the aggregate, is likely
to have a material adverse effect on the Company, its business, results of
operations, or financial condition.

The Company has entered into noncancelable operating leases covering office
and storage facilities and equipment, which will expire at various dates through
2009. The total rental expense incurred during the years ended December 31,
1998, 1999, and 2000 was $4.8 million, $8.0 million, and $10.2 million,
respectively. The Company has also acquired equipment by entering into capital
leases. The future minimum annual commitments for the noncancelable lease
agreements are as follows at December 31, 2000 (in thousands):

F-19

Equipment acquired under capital leases consists of the following at
December 31, 1999 and 2000 (in thousands):

Periodically, the Company enters into employment agreements with certain
executive officers, which provide for minimum annual base salaries and other
fringe benefits as determined by the Board of Directors of the Company. Certain
of these agreements provide for bonuses based on the Company's operating
results. The agreements are for varying terms of up to three years and typically
can be terminated by either party upon 30 days notice, subject to severance
provisions.

Certain employment agreements provide that such person will not directly or
indirectly compete with the Company in any county in which it conducts its
business or markets its products for a period of two years following the
termination of the agreement. These agreements also provide that such persons
will not influence any employee or independent contractor to terminate its
relationship with the Company or disclose any confidential information of the
Company.

As of December 31, 2000, the Company had construction commitments of
approximately $13.3 million.

12. EQUITY

Effective April 3, 1998, the Company completed the sale of 2,000,000 shares
of Company common stock at a price of $24.375 per share. On the same date, the
majority shareholder of the Company sold 875,000 additional shares of Company
common stock to the public. Also effective April 3, 1998, the Company completed
the placement of $75 million aggregate principal amount of 10 1/2% senior
subordinated notes due 2008 ("Senior Subordinated Notes"). The Senior
Subordinated Notes are general unsecured obligations of the Company, ranking
subordinate in right of payment to all senior indebtedness of the Company,
including indebtedness under the Company's revolving credit facilities. The
Company received proceeds from these two offerings in an aggregate net amount of
$118.9 million. Costs incurred in connection with the offerings were
approximately $4.4 million. The Company utilized the proceeds primarily for the
repayment of notes payable and capital lease obligations, and its construction
and acquisition programs.

During 1997, the Company established a stock option plan (the "1997 Stock
Option Plan"). The 1997 Stock Option Plan provides for the award of nonqualified
stock options to directors, officers, and key employees, and the grant of
incentive stock options to salaried key employees. Nonqualified stock options
provide for the right to purchase common stock at a specified price which may be
less than or equal to fair market value on the date of grant (but not less than
par value). Nonqualified stock options may be granted for any term and upon such
conditions determined by the board of directors of the Company. The Company has
reserved 1,600,000 shares of common stock for issuance pursuant to the Company's
1997 Stock Option Plan.

Outstanding options have a graded vesting schedule, with equal installments
of shares vesting up through four years from the original grant date. These
options are exercisable at prices ranging from $3.59 to $25.50 per share and
expire 10 years from the date of grant.

Stock option transactions during 1998, 1999, and 2000 are summarized as
follows:

F-20

For stock options outstanding at December 31, 2000:

The Company has adopted the disclosure-only provisions of Statement of
Financial Standards No. 123, "Accounting for Stock- Based Compensation" ("SFAS
No. 123"). The Company applies the accounting methods of Accounting Principles
Board Opinion No. 25 ("APB No. 25") and related Interpretations in accounting
for its stock options. Accordingly, no compensation costs have been recognized
for stock options. Had compensation costs for the options been determined based
on the fair value at the grant date for the awards in 1998, 1999, and 2000
consistent with the provisions of SFAS No. 123, the Company's net income (loss)
and net income (loss) per share would approximate the pro forma amounts
indicated below (in thousands, except per share amounts):

The weighted average fair value per common stock option granted during 1998,
1999, and 2000 were $11.58, $5.19, and $2.58, respectively. The fair value of
the stock options granted are estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: expected volatility ranging from 41.6% to 64.5% for all grants,
risk-free interest rates which vary for each grant and range from 5.5% to 6.5%,
expected life of 7 years for all grants, and no distribution yield for all
grants.

Since May 2001, the Company's stock has traded for less than $1.00 per
share.

13. RELATED PARTY TRANSACTIONS

Each timeshare owners association has entered into a management agreement,
which authorizes the Management Clubs to manage the resorts. The Management
Clubs, in turn, have entered into management agreements with the Company,
whereby the Company manages the operations of the resorts. Pursuant to the
management agreements, the Company receives a management fee equal to the lesser
of 15% of gross revenues for Silverleaf Club and 10% to 15% of dues collected
for owners associations within Crown Club or the net income of each Management
Club; however, if the Company does not receive the aforementioned maximum fee,
such deficiency is deferred for payment in the succeeding year(s), subject again
to the net income limitation. The Silverleaf Club Management Agreement is
effective through March 2010, and will continue year-to-year thereafter unless
cancelled by either party. Crown Club consists of several individual Club
agreements that have terms of two to five years with a minimum of two renewal
options remaining. During the years ended December 31, 1998, 1999, and 2000, the
Company recorded management fees of $2.5 million, $2.8 million, and $462,000,
respectively, in management fee income.

The direct expenses of operating the resorts are paid by the Management
Clubs. To the extent the Management Clubs provide payroll, administrative, and
other services that directly benefit the Company, a separate allocation charge
is generated and paid by the Company to the Management Clubs. During the years
ended December 31, 1998, 1999, and 2000, the Company incurred $5.8 million,
$10.3 million, and $155,000, respectively, of expenses under these agreements.
As of January 1, 2000, certain employees were transferred from the Management
Clubs to the Company. Hence, the allocation of overhead from the Management
Clubs to the Company was substantially reduced in 2000. As a result of the
payroll changes implemented January 1, 2000, the Company allocated overhead to
the Management Clubs of $1.7 million during the year ended December 31, 2000.

F-21

The following schedule represents amounts due from (to) affiliates at
December 31, 1999 and 2000 (in thousands):

In December 2000, the Company wrote-off its receivable from Silverleaf Club
and incurred a charge of $7.5 million. At December 31, 2000, due to liquidity
concerns and the planned reduction in future sales, the Company anticipated that
future membership dues would not be sufficient to pay down the receivable.
Hence, the Company's Board of Directors approved the write-off of this amount.

At December 31, 2000, the amount due to SPE primarily relates to upgrades of
sold notes receivable, which was subsequently paid. Upgrades represent sold
notes that are replaced by new notes when holders of said notes upgrade to a
more valuable Vacation Interval.

An affiliate of a director of the Company is entitled to a 10% net profits
interest from sales of certain land in Mississippi. During 2000, the affiliate
of the director was paid $49,637 under this agreement. As of December 31, 2000,
the Company owns approximately 14 acres of land that is subject to this net
profits interest.

In 1997, the Company entered into a ten-year lease agreement with the
principal shareholder for personal use of flood plain land adjacent to one of
the Company's resorts in exchange for an annual payment equal to the property
taxes attributable to the land. The lease has four renewal options of ten years
at the option of the lessee.

In August 1997, subject to an employment agreement with an officer, the
Company purchased a house for $531,000 and leased the house, with an option to
purchase, to the officer for 13 months at a rental rate equal to the Company's
expense for interest, insurance, and taxes, which was approximately $3,000 per
month. In September 1998, the officer exercised his option to purchase the house
at the end of the lease for $531,000. In March 2001, the Company forgave the
remaining $48,000 balance on a note due from the officer.

In 1998, the Company incurred and made payments of $736,000 to Recreational
Consultants, Inc., an entity of which an officer of the Company is the
principal. Recreational Consultants, Inc. generated tours of the Company's
resorts.

In June 1998, the Company entered an employment agreement, whereby the
Company paid $108,000 for an employee's condominium in Branson, Missouri, upon
his relocation to Dallas, Texas, and will pay $500,000 over a three-year period
as compensation for and in consideration of the exclusivity of his services.
Prior to becoming an employee in June 1998, the Company paid this employee's
former architectural firm $246,000 during 1998 for architectural services
rendered to the Company.

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash and cash equivalents, other receivables, amounts
due from or to affiliates, and accounts payable and accrued expenses
approximates fair value due to the relatively short-term nature of the financial
instruments. The carrying value of the notes receivable approximates fair value
because the weighted average interest rate on the portfolio of notes receivable
approximates current interest rates to be received on similar current notes
receivable. The carrying value of notes payable and capital lease obligations
approximates their fair value because the interest rates on these instruments
are adjustable or approximate current interest rates charged on similar current
borrowings.

The estimated fair value of the Company's $66.7 million Senior Subordinated
Notes at December 31, 2000 was approximately $39.0 million, based on the market
value of notes extinguished by the Company in December 2000. However, these
notes were not traded on a regular basis and were therefore subject to large
variances in offer prices. Accordingly, the estimated fair value may not be
indicative of the amount at which a transaction could be completed. Also, as
discussed in Note 3, the Company is in monetary default on its Senior
Subordinated Notes, and is attempting to complete an Exchange

F-22

Offer whereby exchanging holders of Old Notes will receive New Notes for one
half of the face amount of the Old Notes at a reduced interest rate, plus a
proportional share of common equity in the Company. If the exchange is
successful, the non-exchanged Old Notes will have reduced rights and will be
subordinate to the New Notes, which could diminish their estimated fair value.

Due to the uncertainties surrounding the Exchange Offer, considerable
judgment is required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.

15. ACQUISITIONS

In May 1998, the Company consummated an agreement with Crown Resort Co., LLC
("Crown") acquiring timeshare management rights and unsold Vacation Intervals at
seven resorts in Alabama, Mississippi, Pennsylvania, South Carolina, Tennessee,
and Texas for approximately $4.8 million. The acquisition was accounted for
under the purchase method of accounting.

In 1998, the Company acquired a golf course and undeveloped land near
Atlanta, Georgia, for approximately $4.2 million, undeveloped land near Kansas
City, Missouri, for approximately $1.5 million, and a tract of land in
Philadelphia, Pennsylvania, for approximately $1.9 million. These acquisitions
are accounted for under the purchase method of accounting.

In 1999, the Company acquired undeveloped land near The Villages Resort in
Tyler, Texas, for approximately $1.5 million, undeveloped land near Holiday
Hills Resort in Branson, Missouri, for approximately $500,000, and undeveloped
land near Fox River Resort in Sheridan, Illinois, for approximately $805,000.

16. SUBSIDIARY GUARANTEES

All subsidiaries of the Company, except SF1, have guaranteed the $66.7
million of Senior Subordinated Notes. The separate financial statements and
other disclosures concerning each guaranteeing subsidiary (each, a "Guarantor
Subsidiary") are not presented herein because management determined that such
information is not material to investors. The guarantee of each Guarantor
Subsidiary is full and unconditional and joint and several, and each Guarantor
Subsidiary is a wholly owned subsidiary of the Company, and together comprise
all direct and indirect subsidiaries of the Company. As discussed in Notes 2 and
10, the Company is in monetary default related to the $66.7 million Senior
Subordinated Notes. During 1998 and 2000, the Company liquidated several
subsidiaries with nominal operations.

Combined summarized operating results of the Guarantor Subsidiaries for the
years ended December 31, 1998, 1999, and 2000, are as follows (in thousands):

Combined summarized balance sheet information of the Guarantor Subsidiaries
as of December 31, 1999 and 2000, is as follows (in thousands):

F-23

17. 401(k) PLAN

Effective January 1, 1999, the Company established the Silverleaf Resorts,
Inc. 401(k) plan (the "Plan"), a qualified defined contribution retirement plan,
covering employees 21 years of age or older who have completed one year of
service. The Plan allows eligible employees to defer receipt of up to 15% of
their compensation and contribute such amounts to various investment funds. The
employee contributions vest immediately. The Company is not required by the Plan
to match employee contributions, however, it may do so on a discretionary basis.
The Company incurred nominal administrative costs related to maintaining the
Plan and made no contributions to the Plan during the years ended December 31,
1999 and 2000.

18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial data for 1999 and 2000, which give effect to
the restatement discussed in Note 19, is as follows (in thousands, except per
share amounts):

Significant adjustments in the fourth quarter of 2000 -

Due to liquidity concerns experienced in the fourth quarter of 2000, the
Company reduced its sales plan for future years, discontinued plans to develop
certain properties, and discontinued its efforts to sell Crown intervals and to
upgrade existing Crown Club members to Silverleaf Club. As a result, the Company
incurred one-time charges of $15.5 million to write-down inventories based on a
lower of cost or market assessment, $5.4 million to record the impairment of
land and land held for sale, $3.1 million to write-off unsold Crown inventory
intervals, and $922,000 to write-off Crown intangible assets established in
connection with the acquisition of Crown in May 1998. The Company recorded an
additional provision for uncollectible notes in the fourth quarter of
approximately $46 million. In the fourth quarter of 2000, the Company also
wrote-off its receivable from Silverleaf Club and incurred a charge of $7.5
million.

19. RESTATEMENT

Subsequent to the issuance of its annual and interim financial statements
for the year ended December 31, 1999, and the quarterly periods in the nine
month period ended September 30, 2000, the Company's management determined that
accounting treatment that had been originally afforded to certain types of
transactions was inappropriate. The specific matters for which adjustments have
been made are described below:

Revision to Downgrade Policy - It was determined that the Company's
reporting classification for downgrade transactions was inappropriate.
Previously, the Company had inappropriately classified the difference between
the traded Vacation Interval and the newly assumed Vacation Interval of lower
value as a reduction to Vacation Interval sales. The decreased sales price from
the original Vacation Interval to the downgraded Vacation Interval represents a
write-off of an uncollectible note. Hence, the Company increased Vacation
Interval sales and equal amounts were charged to the provision for uncollectible
notes as shown below for the period restated.

Provision for Uncollectible Notes - During 2000, the Company substantially
reduced two programs that were previously used to remedy defaulted notes
receivable. Additionally, there was a deterioration of the U.S. economy that
came to public awareness in late 2000. In connection with the Company's analysis
of the adequacy of its allowance for uncollectible notes for the year ended
December 31, 2000, it was determined that a significant increase to the
provision for uncollectible notes

F-24

was warranted. Based on these results, the Company reexamined the adequacy of
its reserve in prior periods. It was determined that the performance of the
notes receivable portfolio began to deteriorate in the second quarter of 2000.
Accordingly, the Company increased its allowance for uncollectible notes and the
related provision for uncollectible notes for the quarters ended June 30, 2000
and September 30, 2000, as shown below.

Delayed Cancellation of Rescinded Sales - The Company identified an
accumulation of rescinded Vacation Interval sales that had not been
appropriately cancelled. To correct the delayed cancellation of such sales, the
Company adjusted Vacation Interval sales and the direct costs associated with
these sales as shown below for the periods restated.

Deferral of Sales within the Rescission Period - It was determined that the
Company was immediately recognizing certain Vacation Interval sales rather than
appropriately deferring such sales until the customer's legal right of
rescission period had elapsed. Consequently, the Company adjusted Vacation
Interval sales and the direct costs associated with these sales as shown below
for the periods restated.

Incorrect Application of Membership Dues Payments - It was discovered that
membership dues payments had been inappropriately applied as principal payments
on customer notes receivable. This misapplication resulted in the Company
recognizing Vacation Interval sales on accounts without a 10% down payment. To
appropriately defer Vacation Interval sales without a 10% down payment, the
Company deferred Vacation Interval sales previously recognized in the quarter
ended September 30, 2000, as shown below.

Interest Income Related to Loan Amortization - In the fourth quarter of
2000, the Company determined that an over-application of principal related to
certain customer accounts had occurred in 2000. To properly account for interest
income during 2000, the Company recorded an adjustment to interest income for
the quarters ended March 31, 2000, June 30, 2000 and September 30, 2000, as
shown below, with offsetting increases to customer notes receivable.

Revision to Sampler Revenue Recognition Policy - In connection with the
adoption of SAB No. 101, the Company determined that it had inappropriately
accounted for customer payments associated with the sampler program as revenue
in advance of fulfilling the Company's obligations or expiration of the sampler
terms. As a result, the Company has modified its method of accounting for
sampler sales to properly match revenues to the fulfillment of its obligations,
which resulted in the adjustment of sampler sales and the direct costs
associated with these sales as shown below for the periods restated.

Reconciliation of Lender Debt - It was discovered that the Company had not
been appropriately reconciling debt balances and lender lock box activity
related to pledged notes receivable. As a result, the Company failed to
recognize certain customer deposits and returned customer payments processed
through the lender lock boxes on a timely basis. The Company could not identify
the specific customers involved, and determined that it would not pursue
recovery of any amounts previously credited to customers in error. As a result,
management concluded that the correcting adjustment should reduce interest
income, increase the provision for uncollectible notes, and increase the
recorded debt balances. Consequently, adjustments were made to reconcile lender
debt as shown below for the periods restated.

Litigation Costs - The Company was notified by its insurance carrier that
remediation work performed by the Company related to certain condominiums
subject to litigation would not be covered by insurance. Prior to that time, the
Company had incorrectly deferred these remediation costs under the premise that
such costs would be recovered. The Company has written-off the deferred
remediation costs as shown below for the periods restated.

Revision to Prepaid Customer Lists Policy - It was determined that the
Company's accounting treatment for costs of acquiring marketing customer lists
to be used in the leads accumulation process was inappropriate. Previously, the
Company had capitalized and amortized these costs over their estimated useful
lives. Subsequently, it was determined that these costs should be charged to
expense as incurred. As a result, the Company charged such costs to sales and
marketing expense for the quarters ended June 30, 2000 and September 30, 2000,
as shown below.

Cash Flows From Operating Activities - On the consolidated statements of
cash flows, customer notes receivable activity is now properly classified as an
operating activity rather than an investing activity as previously reported.

A summary of the effects of these adjustments on the Company's statements
of operations is as follows (in thousands):

F-25

F-26

A summary of the significant effects of the restatement on the Company's
consolidated financial statements for the years ended December 31, 1998 and 1999
and as of December 31, 1999 is as follows (in thousands):

(a)-not previously presented separately

The restatement also resulted in a decrease in retained earnings of
$624,000 as of January 1, 1998.

A summary of the significant effects of the restatement on the Company's
unaudited consolidated financial statements for each of the fiscal 1999
quarters, and the fiscal 2000 quarters ended March 31, 2000, June 30, 2000, and
September 30, 2000 is as follows (in thousands):

F-27

INDEX TO EXHIBITS