As filed with the Securities and Exchange Commission on October 20, 2003
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 3)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or 240.14a-12
SILVERLEAF RESORTS, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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LOGO
SILVERLEAF RESORTS, INC.
1221 RIVER BEND DRIVE
SUITE 120
DALLAS, TEXAS 75247
NOTICE OF 2003 ANNUAL MEETING OF SHAREHOLDERS
Dear Shareholder:
The 2003 Annual Meeting of Shareholders of Silverleaf Resorts, Inc.
(the "Company") will be held at the Wyndham Anatole Hotel at 2201 Stemmons
Freeway, Dallas, Texas 75207 on Tuesday, December 16, 2003 at 9:00 a.m. to:
1. elect five Directors of the Company to serve until the Annual
Meeting of Shareholders in 2004 and until their successors are elected and
qualify;
2. approve an amendment to the Company's Articles of Incorporation and
Bylaws to eliminate the staggered Board of Directors and provide for annual
election of all Directors;
3. approve an amendment to the Company's Articles of Incorporation to
reduce the votes required to amend the Articles of Incorporation from two-thirds
of the shares of common stock outstanding to a majority of the shares of common
stock outstanding;
4. approve an amendment to the Company's Articles of Incorporation to
reduce the votes required to approve a merger, share exchange, consolidation,
dissolution, or sale of all or substantially all of the assets of the Company
from two-thirds of the shares of common stock outstanding to a majority of the
shares of common stock outstanding;
5. approve the 2003 Stock Option Plan;
6. ratify the appointment of BDO Seidman LLP as the Company's
independent public accountants for the year ending December 31, 2003; and
7. transact such other business as may properly be brought before the
2003 Annual Meeting or any adjournments or postponements thereof.
The Board of Directors has nominated five individuals for election to
serve as Directors. The Board of Directors recommends that you vote FOR these
nominees. The Board of Directors has approved the amendments to the Company's
Articles of Incorporation and recommends that you vote FOR the approval of the
amendments. The Compensation Committee of the Board of Directors has approved
the 2003 Stock Option Plan, and the Board of Directors recommends that you vote
FOR the approval of the 2003 Stock Option Plan. The Audit Committee has retained
BDO Seidman LLP as the independent public accountants of the Company and the
Board of Directors recommends that you vote FOR ratification of the appointment
of the independent public accountants. Only shareholders of record at the close
of business on November 3, 2003 are entitled to notice of and to vote at the
2003 Annual Meeting or any adjournments or postponements thereof. A complete
list of shareholders entitled to vote at the 2003 Annual Meeting will be
maintained in the Company's offices at 1221 River Bend Drive, Suite 120, Dallas,
Texas for ten days prior to the meeting.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE 2003 ANNUAL
MEETING. YOU ARE REQUESTED, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, TO
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
ENVELOPE. IF YOU ATTEND THE MEETING IN PERSON, YOU MAY REVOKE THE PROXY AND VOTE
THE SHARES.
By Order of the Board of Directors,
SANDRA G. CEARLEY
Secretary
Dallas, Texas
November 12, 2003]
2
SILVERLEAF RESORTS, INC.
PROXY STATEMENT
2003 ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Silverleaf Resorts, Inc. ("Silverleaf"
or the "Company") for use at the Annual Meeting of Shareholders to be held at
9:00 a.m. on December 16, 2003, at the Wyndham Anatole Hotel at 2201 Stemmons
Freeway, Dallas, Texas 75207 or at any adjournment or postponement thereof, (the
"2003 Annual Meeting").
The Company's principal executive offices are located at 1221 River
Bend Drive, Suite 120, Dallas, Texas 75247. A copy of the Company's 2002 Annual
Report to Shareholders and this Proxy Statement and accompanying proxy card will
be first mailed to shareholders on or about November 12, 2003.
VOTING PROCEDURES
A proxy card is enclosed for your use. You are solicited on behalf of
the Board of Directors to sign, date and return the proxy card in the
accompanying envelope, which is postage prepaid if mailed in the United States.
Concerning the election of directors, you may: (a) vote for each of the
director nominees; or (b) withhold authority to vote for one or more nominees
according to the way you mark your proxy card. With respect to the election of
directors, cumulative voting is not permitted. Concerning the approval of the
amendments to the Company's Articles of Incorporation and Bylaws and the 2003
Stock Option Plan and the ratification of BDO Seidman, LLP as the Company's
independent public accountants, by checking the appropriate box you may: (a)
vote "For" the item; (b) vote "Against" the item; or (c) "Abstain" from voting
on the item.
Shareholders may vote by either completing and returning the enclosed
proxy card prior to the 2003 Annual Meeting, voting in person at the 2003 Annual
Meeting or submitting a signed proxy card at the 2003 Annual Meeting.
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO SIGN AND RETURN
THE ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
You may revoke your proxy at any time before it is actually voted at
the 2003 Annual Meeting by delivering a written notice of revocation, signed by
the shareholder of record and specifying the number of shares to which it
relates, to the Secretary of the Company at 1221 River Bend Drive, Suite 120,
Dallas, Texas 75247 no later than 5:00 p.m. on December 12, 2003; by submitting
a later dated proxy; or by attending the 2003 Annual Meeting and voting in
person. Attendance at the 2003 Annual Meeting will not, by itself, constitute
revocation of the proxy. If your shares are held in the name of your broker, you
will have to make arrangements with your broker to revoke any previously
executed proxy. You may also be represented by another person present at the
2003 Annual Meeting by executing a form of proxy designating such person to act
on your behalf.
Each unrevoked proxy card properly signed and received prior to the
close of the 2003 Annual Meeting will be voted as indicated. Unless otherwise
specified on the proxy, the shares represented by a signed proxy card will be
voted FOR each of the items on the proxy card and will be voted in the
discretion of the persons named as proxies on any other business that may
properly come before the 2003 Annual Meeting.
If a proxy card indicates an abstention or a broker non-vote on a
particular matter, then the shares represented by such proxy will be counted for
quorum purposes, but will not be counted as a vote "For" or "Against" any
proposal. An abstention or a broker non-vote could have an effect on the outcome
of the voting on the Proposals that require the affirmative vote of a specified
portion of the Company's outstanding shares entitled to vote thereon.
The presence at the 2003 Annual Meeting, in person or by proxy, of a
majority of the shares of the Company's Common Stock ("Common Stock") issued and
outstanding on November 3, 2003, will constitute a quorum.
Votes cast at the 2003 Annual Meeting will be tabulated by the persons
appointed by the Company to act as inspectors of election for the 2003 Annual
Meeting.
The expense, if any, of soliciting proxies and the cost of preparing,
assembling and mailing material in connection with the solicitation of proxies
will be paid by the Company. In addition to the use of mails, certain directors,
officers or employees of the Company and its subsidiaries, who receive no
compensation for their services other than their regular salaries, may solicit
proxies. The
3
Company may request banks, brokers and other custodians, nominees and
fiduciaries to forward copies of the proxy materials to their principals and to
request authority for the execution of proxies.The Company may reimburse such
persons for their expenses incurred in doing so.
SHARES ENTITLED TO VOTE AND REQUIRED VOTE
Shareholders of record at the close of business on November 3, 2003 are
entitled to vote at the 2003 Annual Meeting. At that date, 36,826,906 shares of
Common Stock were outstanding. The number of holders of record was approximately
100. A majority of the shares outstanding must be present in person or
represented by proxy to constitute a quorum for the 2003 Annual Meeting. The
number of votes required to take or authorize each of the actions to be acted
upon at the 2003 Annual Meeting is set forth in the descriptions of the
Proposals below. Each share of Common Stock is entitled to one vote.
ANNUAL REPORT AND OTHER FINANCIAL INFORMATION
The Annual Report to shareholders on Form 10-K/A for the year ended
December 31, 2002 and the Company's quarterly reports to the Securities and
Exchange Commission on Form 10-Q for the quarters ended March 31, 2003 and June
30, 2003 accompany the proxy material being mailed to all shareholders. The
financial information reflected therein for the year ended December 31, 2002,
and the related notes thereto beginning on page F-1 of the Annual Report, as
well as the sections of the Annual Report entitled "Selected Financial
Information," "Management's Discussion and Analysis and Results of Operations,"
and "Quantitative and Qualitative Disclosures About Market Risk" beginning on
pages 41, 43, and 54 of the Annual Report, respectively, are incorporated in
their entirety into this proxy statement by this reference. The Condensed
Consolidated Statements of Income, the Condensed Consolidated Balance Sheet and
the Condensed Consolidated Statements of Cash Flows of the Company and its
subsidiaries beginning on pages 3, 4, and 6, respectively, of the Company's
quarterly reports to the Securities and Exchange Commission on Form 10-Q for the
quarters ended March 31, 2003 and June 30, 2003 are also incorporated herein by
reference.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Mr. Mead, a Director and Chief Executive Officer of the Company, has an
interest in the adoption of Proposals 2, 3 and 4. As more fully described under
the section entitled "Background and Purpose for Proposed Amendments to the
Company's Articles of Incorporation" below, Mr. Mead has agreed with a
non-affiliated third party to vote his shares of common stock in favor of the
amendments. Mr. Mead owns approximately 30.82% of the Company's outstanding
shares. The Board of Directors has unanimously approved the amendments to the
Company's Articles. Mr. Mead is a nominee for election as a Director of the
Company.
Certain of the executive officers of the Company, including the Named
Executive Officers, have been granted options to purchase shares of the
Company's common stock under the 2003 Stock Option Plan ("2003 Plan") which
shareholders are being asked to approve pursuant to Proposal 5 below. A complete
description of the 2003 Plan is set forth in Proposal 5. If the 2003 Plan is not
approved by shareholders, the options previously granted by the Board of
Directors under the 2003 Plan will terminate. There are insufficient shares of
common stock available under the Company's 1997 Stock Option Plan to replace the
options which would be terminated if the shareholders do not approve the 2003
Plan. The Board of Directors and the Company believe it is in the best interests
of the shareholders that it have sufficient options available to use for
compensating the current and future officers, directors and key employees
necessary for the Company's success.
4
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 September 30, 2003 by (i) those persons known to
the Company to be the beneficial owners of more than five percent of the
outstanding shares, (ii) each current director and the five executive officers
of the Company named under the table titled "Executive Compensation" and (iii)
all directors and executive officers as a group.
<Table>
<Caption>
SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER(a) POSITION OWNED CLASS(b)
- ----------------------------------------------------------- -------------------------------- ------------ ------------
Robert E. Mead(c) ......................................... Chairman of the Board and 11,349,417 30.82
Chief Executive Officer
Sharon K. Brayfield(c)(d) ................................. President and Director 251,517 *
David T. O'Connor(c)(e) ................................... Executive Vice 350,000 *
President -- Sales
Harry J. White, Jr.(c)(f) ................................. Chief Financial Officer and 69,500 *
Treasurer
Edward L. Lahart(c)(g) .................................... Executive Vice President - 37,650 *
Operations
J. Richard Budd (h)(i) .................................... Director 98,333 *
James B. Francis, Jr.(j)(k) ............................... Director 100,333 *
Herbert B. Hirsch(l)(i) ................................... Director 38,333
R. Janet Whitmore(m)(i) ................................... Director 117,133 *
All Directors and Executive Officers as a
Group (17 persons) ................................... 12,534,816 33.17
Grace Brothers, Ltd. and Grace Investments, Ltd(n) ... 11,571,425 31.42
</Table>
- ----------
* Less than 1%.
(a) Except as otherwise indicated, each beneficial owner has the sole power
to vote and to dispose of all shares of Common Stock owned by such
beneficial owner.
(b) Pursuant to the rules of the Securities and Exchange Commission, in
calculating percentage ownership, each person is deemed to beneficially
own the shares subject to options exercisable within sixty days, but
shares subject to options owned by others (even if exercisable within
sixty days) are not deemed 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 165,000 shares of stock which options are
either currently exercisable or which will become exercisable within
sixty days from the date hereof.
(e) Includes options to purchase 350,000 shares of stock which options are
either currently exercisable or which will become exercisable within
sixty days from the date hereof.
(f) Includes options to purchase 69,500 shares which options are either
currently exercisable or which will become exercisable within sixty
days from the date hereof.
(g) Includes options to purchase 37,650 shares which options are
exercisable within sixty days from the date hereof.
(h) The address of such person is 360 Lexington Ave, Third Floor, New York,
NY 10017.
(i) Includes options to purchase 38,333 shares which options are currently
exercisable or which will become exercisable within sixty days from the
date hereof.
(j) The address of such person is 2911 Turtle Creek Boulevard, Suite 925,
Dallas, Texas 75219.
(k) Includes options to purchase 98,333 shares which options are
exercisable within sixty days from the date hereof.
(l) The address of such person is 64 Hurdle Fence Drive, Avon, Connecticut
06001.
5
(m) The address of such person is 10305 Oaklyn Drive, Potomac, Maryland
20854.
(n) This information is based upon information provided by Grace Brothers,
Ltd. ("Grace") and Grace Investments, Ltd. ("Grace Investments") on
Schedule 13D dated May 15, 2002 and filed with the Securities and
Exchange Commission. Bradford T. Whitmore ("Whitmore") and Spurgeon
Corporation ("Spurgeon") are the general partners of Grace and Grace
Investments. Grace beneficially owns 7,577,219 shares, and Grace
Investments beneficially owns 3,994,206 shares. As general partners of
Grace and Grace Investments, Whitmore and Spurgeon may be deemed
beneficial owners of 11,571,425 shares, although they disclaim
beneficial ownership. Mr. Whitmore is the brother of R. Janet Whitmore,
a current director and nominee for re-election as director of the
Company. Mr. Whitmore was a member of an ad hoc committee of
noteholders who nominated two persons for election to the Board of
Directors pursuant to the terms of the exchange offer more fully
described below. Ms. Whitmore disclaims any beneficial interest in the
shares owned by Grace and Grace Investments.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and persons who
own more than 10% of a registered class of the Company's equity securities
("Insiders"), to file with the Commission initial reports of ownership and
reports of changes in ownership of Common Stock. Insiders are required by the
Commission's regulations to furnish to the Company copies of all Section 16(a)
reports filed by such persons.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company and written representations from the
Insiders, all Insiders, except Lelori Marconi complied with all applicable
Section 16(a) filing requirements. Mr. Marconi inadvertently did not file an
initial report on Form 3 when he was named as an Executive Officer of the
Company in October 2002; however, he filed an annual report on Form 5 on
February 14, 2003 reporting all holdings that should have been reported on Form
3.
6
PROPOSAL 1
ELECTION OF DIRECTORS
GENERAL INFORMATION -- ELECTION OF DIRECTORS
Pursuant to the Company's Articles of Incorporation, as amended (the
"Articles"), the Bylaws, as amended (the "Bylaws"), and resolutions adopted by
the Company's Board of Directors, the Company currently has five directors, who
each serve staggered terms based upon a classification system for Directors. The
Company's Articles currently provide for its Board of Directors to be divided
into three classes with one class of directors elected each year for a
three-year term or until his or her successor is elected and qualified. One
Class I Director and two Class II Directors were elected at the 1998 and 1999
Annual Meetings, respectively. Each Director was elected to a three-year term or
until his successor was elected and qualified. The Company was unable to conduct
Annual Meetings of Shareholders in 2001 and 2002 because it could not deliver to
its Shareholders audited financial statements for 2000 and 2001, respectively,
due to its liquidity crisis and inability to complete the audit for each of
those years until 2002. Therefore, the terms of the Class I and Class II
Directors will continue until the nominees are elected at the 2003 Annual
Meeting or until their successors are elected and qualified. The terms of the
Class III Directors will expire at the 2003 Annual Meeting. The Board of
Directors was reconstituted following the completion of the Company's debt
restructuring that is more fully described in the accompanying annual report on
SEC Form 10-K. Mr. Hirsch was appointed by the Board of Directors to serve as
the sole Class I Director. Ms. Whitmore and Mr. Francis were appointed the Class
II Directors, and Mr. Budd was appointed the Class III Director. Mr. Mead was
previously elected as a Class III Director and remained a Class III director.
If the amendments to the Company's Articles as described in Proposal 2
are approved by the Shareholders at the 2003 Annual Meeting, each Director will
serve for a term of one year. However, if the amendments are not approved, each
of the Directors elected by the Shareholders at the 2003 Annual Meeting will
continue to be the designated Class I, Class II and Class III Directors with
their respective terms staggered in order to comply with the current provisions
of the Articles. Each of the Directors will be elected to a term that would
correspond to the term that would have resulted had the 2001 and 2002 Annual
Meetings been conducted. Therefore, the Class I Director will serve until the
2004 Annual Meeting, the Class II Directors will serve until the 2005 Annual
Meeting, and the Class III Directors will serve until the 2006 Annual Meeting.
Each of the Company's current directors has been nominated by the Board
of Directors for election to serve as Director or until his or her respective
successor is elected or appointed. The nominees for election as a director are:
J. Richard Budd, III
James B. Francis, Jr.
Herbert B. Hirsch
Robert E. Mead
R. Janet Whitmore
For a description of the background and qualifications of each of the
nominees see "Directors and Executive Officers."
In the absence of instructions to the contrary, votes will be cast FOR
the election of each of the above nominees pursuant to the proxies solicited
hereby. In the event any of the nominees is unable or declines to serve as a
Director at the time of the 2003 Annual Meeting, the proxy will be voted for any
substitute nominee selected by the current Board of Directors. Management has no
reason to believe, at this time, that any of the nominees will be unable or will
decline to serve if elected. Each nominee has informed the Company that he or
she will serve if elected.
DIRECTOR COMPENSATION
In July 1997, the Company granted to Mr. Francis, as directors' fees,
options to purchase 40,000 shares of Common Stock at $16.00 per share. Such
options vested in three equal portions over a term of three years, with the
first vesting date occurring in May 1998, the second in May 1999, and the third
in May 2000. The options expire in June 2007. The Company granted to Mr. Francis
20,000 additional options in 1999 at an exercise price of $7.3125 per share
which also vested over a three-year period beginning in November 2000. During
2002, each Independent Director (Ms. Whitmore and Messrs. Budd, Francis and
Hirsch) was granted additional options to purchase 115,000 shares at $0.295 per
share. Such options vest in three equal portions over a term of three years
commencing in May 2003.
In addition to the option grants, each of the Independent Directors
receives an annual fee of $25,000, payable quarterly, plus $2,000 for each
meeting of the Board of Directors attended in person. Each of the Independent
Directors who serves on one or more committees of the Board of Directors
receives an additional annual fee of $5,000, also payable quarterly, for serving
on one committee
7
of the Board of Directors, plus an additional annual fee of $2,500 for each
additional committee membership. The Independent Directors are reimbursed for
expenses incurred in attending meetings of the Board of Directors. Officers of
the Company who are directors are not paid any directors' fees but are
reimbursed for expenses of attending meetings of the Board of Directors.
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
Board of Directors. The Board of Directors took action either during
regularly-scheduled or special meetings or by written consent nineteen times
during the year ended December 31, 2002. The Audit Committee took action either
during regularly-scheduled or special meetings or by written consent six times
in 2002. The Executive Committee took action either during regularly-scheduled
or special meetings or by written consent three times during 2002 before it was
abolished as a result of the reconstitution of the Board of Directors in May
2002. The Compensation Committee took action either during regularly-scheduled
or special meetings or by written consent eight times during 2002. The Accounts
and Acquisitions Committee took action either during regularly-scheduled
meetings or special meetings or by written consent seventeen times in 2002.
During 2002, all members of the Board of Directors attended at least
seventy-five percent of the Board meetings and Committee Meetings.
Executive Committee. The Board of Directors had an executive committee
(the "Executive Committee") until May 2002. The Executive Committee was
authorized in the intervals between meetings of the Board of Directors to
perform all of the rights and duties of the Board of Directors, except the power
to declare dividends or distributions on stock, approve any merger or share
exchange which does not require shareholder approval, amend the Bylaws, issue
stock other than as permitted by statute, recommend to the shareholders any
action that requires shareholder approval, or exercise rights delegated to the
Audit Committee or Compensation Committee. The members of the Executive
Committee were Ms. Brayfield and Messrs. Mead and Francis. In May 2002, the
Executive Committee was abolished and the full Board of Directors reserved for
itself all powers formerly delegated to the Executive Committee.
Audit Committee. The Board of Directors has established an audit
committee (the "Audit Committee"), which consists of two or more directors who
meet the independence requirements imposed by the New York Stock Exchange's
Audit Committee Policy. The Audit Committee makes recommendations concerning the
engagement of independent public accountants, reviews the plans and results of
the audit engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants and the adequacy of the Company's internal accounting controls,
considers the range of audit and non-audit fees, and reviews the Company's
periodic reports to the Securities and Exchange Commission. The current members
of the Audit Committee are Messrs. Budd and Hirsch and Ms. Whitmore. Mr. Francis
served on the Audit Committee until his resignation from that committee in July
2003.
Compensation Committee. The Board of Directors has established a
compensation committee (the "Compensation Committee"), which consists of two
directors who are non-employee directors within the meaning of Rule 16b-3 of the
Securities Exchange Act of 1934 (an "Independent Director") to determine
compensation for the Company's senior executive officers and to administer the
Company's 1997 Stock Option Plan and the 2002 Stock Option Plan. The current
members of the Compensation Committee are Ms. Whitmore and Messrs. Budd and
Hirsch. For the period ending December 31, 2002, the Compensation Committee made
all decisions regarding executive compensation and administration of the 1997
Stock Option Plan and 2002 Stock Option Plan. See "Executive Compensation --
Report of Compensation Committee."
Accounts and Acquisitions Committee. The Board of Directors has
established a financial accounts and acquisitions committee (the "Accounts and
Acquisitions Committee") to approve routine financial transactions such as the
opening of a bank account or the purchase, lease or disposition of assets with a
value not exceeding $100,000. The members of the Accounts and Acquisitions
Committee are Ms. Whitmore and Mr. Mead.
The Board of Directors of the Company does not have a nominating
committee or any other committee except as set forth above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE DIRECTORS NOMINATED IN
PROPOSAL 1.
PROPOSALS 2, 3 AND 4
BACKGROUND AND PURPOSE FOR PROPOSED
AMENDMENTS TO THE COMPANY'S ARTICLES OF INCORPORATION
The general purpose of Proposals 2, 3 and 4 is to modify certain
existing corporate governance matters by amending the Articles of the Company.
These changes are proposed in order to (a) require the annual election of all
directors (Proposal 2); (b) allow the
8
Articles to be amended based on a majority vote of shareholders, rather than a
two-thirds majority vote (Proposal 3); and (c) allow mergers and certain other
major corporate actions based on a majority vote rather than a two-thirds vote
(Proposal 4).
In February 2001, the Company disclosed significant liquidity issues,
which caused it to violate various financial covenants in its credit facilities
with its senior lenders. In negotiations with the senior lenders to restructure
the credit facilities and to enable the Company to continue in business, the
Company determined that the senior lenders would not accept the proposals to
make necessary amendments to the credit facilities, unless the Company was able
to (i) substantially reduce its payment obligations to the holders of the Old
Notes, (ii) convert a substantial portion of the debt represented by the Old
Notes into common stock, and (iii) substantially modify the Indenture which
secures the Old Notes by the consent of the holders. Therefore, the underlying
purpose of the Exchange Offer was to reorganize the Company's capital structure
in such a manner as to induce the senior lenders to restructure the credit
facilities. Prior to the consummation of the Exchange Offer in May 2002, there
were $66.7 million in Old Notes outstanding. The interest rate on the Old Notes
is 10 1/2%. Interest is paid on the Old Notes semi-annually on April 1 and
October 1 of each year until maturity. The Old Notes mature and all principal
and remaining accrued interest are due on April 1, 2008.
The Company's senior lenders agreed to amend the credit facilities if
at least 80% of the holders of the Old Notes agreed to exchange their Old Notes
for a combination of common stock (i.e., the Exchange Stock) and newly issued
subordinated notes (i.e., the Exchange Notes) paying interest at a much lower
rate than the Old Notes. As a part of the Exchange Offer, the interest rate
payable on the Exchange Notes was set at 6%. Interest on the Exchange Notes is
payable on April 1 and October 1 until maturity, which will occur on April 1,
2007. The Company negotiated all the terms and conditions of the Exchange Offer
with an ad hoc committee comprised of the principal holders of the Old Notes.
After the Exchange Offer, only $9.8 million in Old Notes remained
outstanding. On the effective date of the Exchange Offer in May 2002, the
Company issued 23.9 million shares of its common stock and $28.5 million in
principal amount of the new 6% Exchange Notes in exchange for the tender of
$56.9 million in principal amount of the Old Notes. At December 31, 2002, the
Company was current in all its obligations under both the Old Notes and the
Exchange Notes.
In connection with the Exchange Offer described above, Grace Brothers,
Ltd. and Grace Investments, Ltd. (collectively, "Grace") and Mr. Mead entered
into a letter agreement pursuant to which Mr. Mead agreed that, in his capacity
as a Director of the Company and as a shareholder, he would work to adopt the
amendments to the Company's Articles that are described in the following
Proposals 2, 3 and 4. Mr. Mead further agreed to vote all of the shares that he
owns or controls in favor of each of the proposals. In a filing with the SEC on
May 17, 2002, Grace disclosed that its intention was to effect these corporate
governance changes as well.
All of the shares owned by Grace were acquired when Grace converted its
Old Notes for Exchange Notes plus shares of common stock at the rate of $500 of
Exchange Notes plus 445 shares of the Company's common stock for each $1,000 of
the principal amount outstanding of the Old Notes tendered in the exchange. At
the conclusion of the Exchange Offer, Grace owned 31.42% of the outstanding
shares of the Company's common stock, and Mr. Mead owned approximately 19.69%.
Mr. Mead purchased an additional 4,099,317 shares which increased his ownership
interest to 30.82% of the outstanding shares.
The proposed amendments to the Company's articles discussed in
Proposals 2, 3 and 4 are not the result of any specific effort by any affiliate
or any third party to obtain control of the Company. Rather, these amendments
are a direct result of the Exchange Offer described above. Prior to the Exchange
Offer, Grace did not own any of the Company's common stock. While Grace had a
substantial investment of over $30 million in the Company's Old Notes, Grace was
previously only a creditor of the Company. As a result of the Exchange Offer,
Grace was forced to decide between two somewhat unappealing alternatives. These
alternatives were (1) reject the Exchange Offer and risk the Company going into
bankruptcy, or (2) accept the Exchange Offer and trade one-half of its claim
against the Company for over 31% of the Company's common stock. Ultimately,
Grace determined that it would agree to the Exchange Offer if certain of the
Company's corporate governance practices could be modified. These concerns
focused on the Company (1) abandoning staggered terms for its directors, (2)
allowing for a simple majority vote of the shareholders to amend the Company's
Articles, and (3) allowing for a simple majority vote of the shareholders to
approve mergers and certain other major corporate actions. Grace believed that
annual election of all directors would make the Company more responsive to its
shareholders. Grace also believed that simple majority voting on most corporate
matters would bring the Company's voting policies into line with a majority of
other public companies, particularly those that are incorporated in Delaware.
Because Mr. Mead had no objections to these proposals, and because Mr. Mead
wanted the Exchange Offer to be successful, he agreed to support the changes to
the Articles sought by Grace. The Board of Directors subsequently adopted
Grace's proposals, and they ultimately became Proposals 2, 3 and 4 discussed
more fully below. The Company, and its management, do not presently intend to
propose any other amendments to the Articles or bylaws in future proxy
solicitations.
The amendments, if adopted, will have the effect of removing certain
anti-takeover measures that the Company has previously had in place. A
classified Board of Directors with terms expiring over a three year period was
originally established by the Company to ensure the continuity of the Board of
Directors from year to year and, indirectly, the management of the Company. With
the provision
9
of a staggered board, a large shareholder or group of shareholders could elect
no more than one-third of the members of a classified board of directors each
year. Therefore, it would have required at least two annual meetings for any
large shareholder or shareholder group to take control of the Board of Directors
and remove current management. If the shareholders approve Proposal 2,
shareholders may be able to effect a change in the entire Board of Directors
with just one annual meeting. The Board of Directors believes that the
shareholders' ability to change the current composition of the Board of
Directors should they desire to do so might increase the value of the Company
because it would no longer be possible to entrench current management beyond the
next annual meeting of shareholders.
Proposals 3 and 4 amend the Articles to provide a lesser number of
votes required to take certain actions than is currently provided by the Texas
Business Corporation Act ("TBCA"). These provisions act as anti-takeover
measures because actions taken by shareholders to approve such things as a
merger of the Company with another company would require the vote of two-thirds
of the shares of common stock outstanding. It could be difficult to obtain the
approval of the holders of this number of the Company's shares outstanding. For
example, if the shareholders do not approve these amendments, any shareholders,
such as Grace, who controls almost one-third of the Company's outstanding shares
of common stock would have sufficient voting power to make it significantly more
difficult to obtain the shareholder vote necessary to approve changes to the
Company's Articles or strategic alliances, such as a merger, that the Board of
Directors might otherwise deem to be in the best interests of the shareholders
as a whole. If the amendments are approved, holders of a majority of the shares
outstanding could approve such actions. Thus the over-all effects of Proposals
2, 3 and 4 would be to facilitate mergers, or the other corporate actions
discussed in Proposal 4.
Mr. Mead and Grace have agreed to vote in favor of the amendments to
the Articles described in Proposals 2, 3 and 4. They have not entered into any
agreement to obtain control of the Company and the recommendation for the
adoption of the amendments should not be seen as any intention to do so. If the
amendments are approved, based upon their current holdings, Mr. Mead and Grace
will control sufficient voting power to approve all proposals submitted to the
shareholders of the Company should they act in concert in voting their shares.
Except for voting in favor of the amendments to the Company's Articles described
in Proposals 2, 3 and 4, there are no further agreements between Mr. Mead and
Grace with respect to the voting of the shares of the Company's common stock
controlled by each and each has disclaimed that they are acting in concert with
respect to voting their respective shares of the Company in future proxy
solicitations.
The Board of Directors has unanimously approved each amendment to the
Company's Articles and recommends that each be approved by the Company's
Shareholders at the 2003 Annual Meeting. The affirmative vote by holders of at
least two-thirds of the outstanding shares is required by the TBCA to approve
each of the following Proposals to amend the Articles.
A copy of the Company's proposed Third Amended and Restated Articles of
Incorporation which will be filed with the Texas Secretary of State's office
following the approval of Proposals 2, 3 and 4 is set forth at length in Annex
C.
PROPOSAL 2
AMENDMENT TO ELIMINATE THE CLASSIFICATION
AND STAGGERED TERMS OF THE BOARD OF DIRECTORS
The Articles and Bylaws provide for a staggered Board of Directors
consisting of three classes as nearly equal in size as possible. As the term of
each class expires, directors in that class are elected for a term of three
years and until their successors are duly elected and qualify. The classified
director provision could have the effect of making the removal of incumbent
directors more time-consuming and difficult, which could discourage a third
party from making a tender offer or otherwise attempting to obtain control of
the Company even though such an attempt might be beneficial to the Company and
its shareholders. At least two annual meetings of shareholders, instead of one,
would generally be required to effect a change in a majority of the Board of
Directors. Thus, the classified board provision could increase the likelihood
that incumbent directors will retain their positions. The Board of Directors
believes that it is in the best interests of the shareholders of the Company to
eliminate the staggered Board. If the amendment is approved, the five nominees
for election as Directors of the Company as set forth in Proposal 1 will each
serve only until the 2004 Annual Meeting and until their successors are elected
and qualify.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE
COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS TO ELIMINATE THE CLASSIFIED BOARD
OF DIRECTORS AS DESCRIBED IN PROPOSAL 2.
10
PROPOSAL 3
AMENDMENT TO THE COMPANY'S ARTICLES TO
DECREASE VOTE REQUIRED TO APPROVE AMENDMENTS
The TBCA requires that any amendment to the Company's Articles be
approved by the affirmative vote of the holders of at least two-thirds of the
outstanding shares entitled to vote on such amendment, unless the Articles
specify the number of shares required; provided that the number specified may
not be less than a majority of the outstanding shares of any class entitled to
vote. The purpose of Proposal 3 is to reduce the vote necessary to approve an
amendment to the Company's Articles to a simple majority of the outstanding
shares entitled to vote on such matters.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE
COMPANY'S ARTICLES TO DECREASE THE NUMBER OF VOTES NECESSARY TO APPROVE
AMENDMENTS OF THE ARTICLES FROM TWO-THIRDS OF THE SHARES OF COMMON STOCK
OUTSTANDING TO A MAJORITY OF THE SHARES OF COMMON STOCK OUTSTANDING.
PROPOSAL 4
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO DECREASE
VOTE REQUIRED TO APPROVE MERGER, SHARE EXCHANGE, CONSOLIDATION,
DISSOLUTION OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS
The TBCA generally requires that the affirmative vote of holders of
two-thirds of the Company's outstanding shares would be required to approve a
merger, share exchange, consolidation, dissolution or sale of all or
substantially all of the Company's assets. However, the TBCA also provides that
the Articles may provide that such matters be approved by the affirmative vote
of the holders of a specified portion, but not less than a majority, of the
shares entitled to vote on the matter, rather than the affirmative vote
otherwise required by the TBCA. The purpose of Proposal 4 is to reduce the vote
necessary to approve such actions to the affirmative vote of a simple majority
of the outstanding shares entitled to vote on such matters. The Board of
Directors believes that the amendment is necessary to eliminate the possibility
that a group of minority shareholders acting in concert could block an action
that would be in the best interests of a majority of the Company's shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE
COMPANY'S ARTICLES TO DECREASE THE NUMBER OF VOTES NECESSARY TO APPROVE VARIOUS
ACTIONS FROM TWO-THIRDS OF THE SHARES OF COMMON STOCK OUTSTANDING TO A MAJORITY
OF THE SHARES OF COMMON STOCK OUTSTANDING.
PROPOSAL 5
APPROVAL OF 2003 STOCK OPTION PLAN
Effective August 1, 2003, the Compensation Committee of the Board of
Directors adopted the Silverleaf Resorts, Inc. 2003 Stock Option Plan (the "2003
Plan") subject to shareholder approval. The Board of Directors ratified the 2003
Plan the same day. Pursuant to the proposed plan, the number of shares of the
Company's common stock that has been reserved for issuance under the 2003 Plan
is 2,209,614. Options to purchase 2,209,614 shares were conditionally granted on
August 4, 2003 to key executive officers of the Company. If the shareholders do
not approve the 2003 Plan, the options granted under the 2003 Plan will
terminate. Attached hereto as "Annex B" is a copy of the 2003 Plan. The
following description of the 2003 Plan is subject in its entirety to the full
text of the 2003 Plan.
DESCRIPTION OF THE 2003 PLAN
The purpose of the 2003 Plan is to replace the Silverleaf Resorts, Inc.
2002 Stock Option Plan (the "2002 Plan") that terminated on July 30, 2003
because the Company was unable to submit it to a vote of the shareholders of the
Company for approval by that date. Options to purchase 1,807,210 shares which
had been granted to the key executive officers of the Company under the 2002
Plan terminated on that date as well. The 2003 Plan is identical to the 2002
Plan, and options granted under the 2003 Plan to key executive officers have an
identical exercise price as those previously granted to such officers under the
2002 Plan.
The primary goal of the 2003 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
11
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 2003 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 Company currently has five directors; sixteen officers,
including Mr. Mead, who are each deemed an executive officer of the Company; and
approximately thirty other key employees who may be eligible to receive options
granted under the 2003 Plan. The number of each group could significantly vary
over time.
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 2003 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.
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 2003 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 2003 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
2003 Plan and shall be available for future grants to other optionees. An option
shall also terminate upon a "change of control" of the Company. A change of
control would occur upon the sale of all or substantially all of the assets of
the Company or upon any merger, consolidation or similar transaction in which
the Company is not the surviving corporation. Upon a change of control, the
Company shall pay to each optionee an amount equal to the difference between the
fair market price per share on the date immediately prior to the change of
control and the exercise price.
If the 2003 Plan is approved by the shareholders at the 2003 Annual
Meeting, the 2003 Plan will terminate on August 1, 2013 (the "Termination
Date"), the tenth anniversary of the day the 2003 Plan was adopted by the
Compensation Committee of the Board of
12
Directors of the Company. 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. However, if the 2003 Plan is not approved by the
Company's shareholders before August 1, 2004, the 2003 Plan will terminate.
Under the 2003 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 2003 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 2003 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 2003 Plan
regarding eligibility.
On August 4, 2003, the Compensation Committee approved the conditional
grant of options from the 2003 Plan to certain of the executive officers of the
Company, including certain of the Named Executive Officers. The options were
granted subject to the approval of the shareholders at the 2003 Annual Meeting
and will terminate if shareholders do not approve the 2003 Plan prior to August
1, 2004. Each of the options granted may be exercised at an exercise price of
$0.315 per share. The fair market value of the Company's common stock on the
date of the grant was $0.27 per share. Each of the options will vest and will be
exercisable to the extent of one-third of the total number of options granted on
August 4 of 2004, 2005 and 2006. The options will terminate on August 3, 2013 if
not exercised by the optionee prior to that date. As of September 30, 2003, the
last sales price at which the Company's common stock was traded was $.0.35 per
share as reported by Electronic Quotation Service of Pink Sheets LLC.
The table below sets forth information concerning the grants of the options
Ito the Company's executive officers, including the Named Executive Officers, in
August 2003.
OPTIONS GRANTED UNDER 2003 PLAN
<Table>
<Caption>
NUMBER OF DOLLAR
NAME AND POSITION OPTIONS GRANTED VALUE(a)
- ----------------------------------------------- --------------- --------
Robert E. Mead ................................ -- --
Chairman and Chief Executive Officer
Sharon K. Brayfield ........................... 368,269 --
President
David T. O'Connor ............................. 368,269 --
Executive Vice President - Sales and Marketing
Harry J. White, Jr ............................ 368,269 --
Chief Financial Officer and Treasurer
Edward L. Lahart .............................. 368,269 --
Executive Vice President - Operations
Executive Officers as a Group (9 individuals) . 2,175,479 --
Non-Executive Director Group .................. -- --
Non-Executive Officer Group ................... -- --
</Table>
- ----------
(a) The options granted under the 2003 Plan have not yet vested and,
therefore, have no current value. Additionally, based on the current
market value per share on September 30, 2003, were the options to vest,
they would have only a de minimis value in that the exercise price per
share is substantially equivalent to the fair market value.
In the absence of instructions to the contrary, votes will be cast FOR
the approval of the 2003 Plan. A majority of the shares present and voting at
the 2003 Meeting must be cast in favor of the adoption of the 2003 Plan in order
for the proposal to be adopted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 2003
STOCK OPTION PLAN AS DESCRIBED IN PROPOSAL 5.
13
PROPOSAL 6
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
Appointment of BDO Seidman LLP ("BDO")
The Board of Directors, upon recommendation of the Audit Committee, has
appointed BDO as the Company's independent public accountants for the year
ending December 31, 2003. A representative of BDO will be present at the 2003
Annual Meeting and will be given an opportunity to make a statement and to
respond to appropriate questions. This appointment is being submitted for
ratification at the 2003 Annual Meeting. If the appointment is not ratified, the
appointment will be reconsidered by the Board of Directors, although the Board
of Directors will not be required to appoint different independent auditors for
the Company. Reconsideration by the Board of Directors could result in a delay
of the appointment of independent auditors due to the difficulty and expense of
the selection process.
In the absence of instructions to the contrary, votes will be cast FOR
the ratification of BDO as the Company's independent public accountants for the
year ending December 31, 2003. A majority of the shares present and voting at
the 2003 Meeting must be cast in favor of the ratification of BDO as the
Company's independent public accountants in order for the proposal to be
adopted.
Dismissal of Prior Independent Auditors
On June 19, 2002, the Company dismissed Deloitte & Touche LLP
("Deloitte") as the Company's independent auditors. Deloitte's dismissal was
recommended by the Company's Audit Committee and approved by the Company's Board
of Directors. Effective June 19, 2002 the Company appointed BDO Seidman LLP
("BDO") to serve as the Company's new independent auditors. The Company reported
this change in independent public accountants in a current report on Form 8-K
filed with the SEC on June 26, 2002.
Deloitte's report on the Company's consolidated financial statements
for the year ended December 31, 1999 did not contain an adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles. Deloitte's report on the Company's consolidated
financial statements for the year ended December 31, 2000 contained a disclaimer
of opinion because of the possible material effects of the uncertainty related
to 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 which raised substantial doubt about the Company's ability
to continue as a going concern.
In connection with the Company's audits for the years ended December
31, 1999 and 2000 and subsequently through the date of its dismissal, the
Company had no disagreements with Deloitte on any matter of accounting principle
or practice, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Deloitte, would have
caused it to make reference to the subject matter of the disagreement in its
report on the consolidated financial statements of the Company.
Deloitte advised the Company in a letter dated March 12, 2002 to the
Company's Board of Directors that, in connection with Deloitte's audit of the
Company's consolidated financial statements for the year ended December 31,
2000, Deloitte had noted certain matters involving the Company's internal
controls and its operations that Deloitte considered to be reportable conditions
and a material weakness under standards established by the American Institute of
Certified Public Accountants. Reportable conditions involve matters coming to
the auditor's attention relating to significant deficiencies in the design or
operation of an entity's internal control that, in the auditor's judgment, could
adversely affect the entity's ability to record, process, summarize, and report
financial data consistent with the assertions of management in the financial
statements. A material weakness is a 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 error or fraud in
amounts that would be material in relation to the consolidated 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.
Audit Fees
The aggregate fees billed, or expected to be billed, to the Company by
BDO Seidman, LLP, for professional services rendered for the audit of the
Company's financial statements for fiscal year ended December 31, 2002 and for
the reviews of the financial statements included in the Company's quarterly
Reports on Form 10-Q, including travel and out-of-pocket expenses for that year
are $ 425,000.
14
Financial Information Systems Design and Implementation Fees
There were no professional services rendered by BDO Seidman LLP in the
fiscal year ended December 31, 2002 relating to financial information systems
design and implementation. BDO Seidman provides no consulting services to the
Company.
All Other Fees
Other than audit fees for the fiscal year ended December 31, 2002 and
related costs and expenses, the aggregate fees billed to the Company by BDO
Seidman LLP for fiscal 2002, none of which were financial information system
design and implementation fees, were $936,720. These other fees consisted of:
(a) aggregate fees of $686,720 billed to the Company by BDO Seidman LLP for
professional services rendered for the audit of the Company's financial
statements for the fiscal year ended December 31, 2001 and for the reviews of
the financial statements included in the Company's quarterly reports on Form
10-Q, including travel and out-of-pocket expenses related to that year; and (b)
aggregate fees of $250,000 billed, or expected to be billed, to the Company by
BDO Seidman LLP for professional services rendered for the audit of the
Company's financial statements for the fiscal year ended December 31, 2000,
including travel and out-of-pocket expenses related to that year. The Audit
Committee determined that the services performed by BDO Seidman LLP other than
audit services are compatible with BDO Seidman LLP maintaining its independence.
BDO Seidman LLP was not employed to provide any internal audit or accounting
record-keeping services.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF BDO SEIDMAN, LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE YEAR ENDING DECEMBER 31, 2003 AS DESCRIBED IN PROPOSAL 6.
15
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each
person who is a director or executive officer of the Company.
<Table>
<Caption>
NAME AGE POSITION
- ----------------------- --- --------------------------------------------------
Robert E. Mead 57 Chairman of the Board and Chief Executive Officer
Sharon K. Brayfield 42 President
Joe W. Conner 46 Chief Operating Officer
David T. O'Connor 61 Executive Vice President -- Sales
Harry J. White, Jr 49 Chief Financial Officer
Edward L. Lahart 39 Executive Vice President -- Operations
Lelori ("Buzz") Marconi 51 Executive Vice President -- Marketing
Darla Cordova 39 Vice President -- Employee and Marketing Services
Herman Jay Hankamer 63 Vice President -- Resort Development
Michael D. Jones 37 Vice President -- Information Systems
Robert G. Levy 54 Vice President -- Resort Operations
Anthony C. Luis 56 Vice President -- Owner Based Marketing and Sales
Sandra G. Cearley 42 Secretary
J. Richard Budd, III 51 Director
James B. Francis, Jr 55 Director
Herbert B. Hirsch 66 Director
R. Janet Whitmore 49 Director
</Table>
Robert E. Mead founded the Company, has served as its Chairman of the
Board since its inception, and has served as its Chief Executive Officer since
May 1990. Mr. Mead began his career in hotel and motel management and also
operated his own construction company. Mr. Mead has served as a Trustee member
of the American Resort Developers Association ("ARDA") and has over 22 years of
experience in the timeshare industry, with special expertise in the areas of
consumer finance, hospitality management and real estate development. Mr. Mead
serves on the Accounts and Acquisitions Committee.
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.
Joe W. Conner was the Chief Financial Officer of Silverleaf from 1997
to 1998. Mr. Conner rejoined Silverleaf in April 2003. From July 2001 to April
2003, Mr. Conner was the Chief Financial Officer of ACE Cash Express, the
largest owner and franchiser of check cashing stores in the U.S. Prior to
joining Silverleaf in 1997, Mr. Conner was the Chief Financial Officer of the
Jacobsen Division of Textron, Inc. Mr. Conner is a certified public accountant.
David T. O'Connor has over 24 years of experience in real estate and
timeshare sales and has worked periodically with Mr. Mead over the past 18
years. Mr. O'Connor has served as the Company's Executive Vice President --
Sales since 1997 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.
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. From January 1995, Mr. White served as Vice President and Chief
Financial Officer of Thousand Trails, Inc. Prior to that time he was a senior
manager with Deloitte & Touche LLP.
Edward L. Lahart has served as Executive Vice President -- Operations
since October 2002. Prior to that he served as Vice President - Corporate
Operations since June 1998 and in various capacities in the Credit and
Collections Department from 1989 to 1998.
Lelori ("Buzz") Marconi was elected as Executive Vice President --
Marketing in October 2002. Prior to that, he served as Vice President --
Marketing Operations since August 2001 and as Call Center Director from 1997 to
August 2001.
Darla Cordova, was elected as Vice President -- Employee and Marketing
Services in May 2001. Prior to that time, Ms. Cordova served as Controller -
Sales and Marketing.
16
Herman Jay Hankamer has served as Vice President -- Resort Development
since September 2002. Prior to that time, Mr. Hankamer was Director of
Construction since July 1999.
Michael D. Jones was elected Vice President -- Information Services in
May 1999. Prior to that time, Mr. Jones served in various positions with the
Company, including Network Manager, Payroll Manager and Director of Information
Services.
Robert G. Levy was appointed Vice President -- Resort Operations in
March 1997 and administers the Company's Management Agreement with the
Silverleaf Club. Since 1990, Mr. Levy has held a variety of managerial positions
with the Silverleaf Club including Project Manager, General Manager, Texas
Regional Manager, and Director of Operations. Prior thereto, Mr. Levy spent 18
years in hotel, motel, and resort management, and was associated with the
Sheraton, Ramada Inn, and Holiday Inn hotel chains.
Anthony C. Luis was appointed Vice President -- Owner Based Marketing
and Sales in October 2002. Prior to that time, Mr. Luis served in various
positions in the marketing department since 1998.
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.
J. Richard Budd, III was elected as a director of the Company in May
2002 following his nomination by an ad hoc committee of noteholders pursuant to
the terms of the Exchange Offer. Since January 2001, Mr. Budd has been a partner
in the restructuring advisory firm of Marotta Gund Budd & Dzera, LLC. From 1998
until 2001, Mr. Budd served as an independent advisor to troubled companies and
to creditors of troubled companies. From 1996 to 1998 Mr. Budd was Senior Vice
President of Metallurg, Inc., an international specialty metals producer. Mr.
Budd is also a director of APW, Ltd. Mr. Budd serves on the Audit Committee and
the Compensation Committee.
James B. Francis, Jr. was elected as a Director of the Company in July
1997. 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. Since 1996, Mr. Francis has served as president of Francis
Enterprises, Inc., a governmental and public affairs consulting company. Mr.
Francis served on the Audit Committee until July 23, 2003, when his resignation
from the Audit Committee was accepted by the Board of Directors.
Herbert B. Hirsch was elected as a director of the Company in May 2002
under the terms of the Exchange Offer. From 1988 to January 2002, Mr. Hirsch
served as Senior Vice President and Chief Financial Officer of Mego Financial
Corp., a developer and operator of timeshare resort properties. Mr. Hirsch
serves on the Audit Committee and the Compensation Committee.
R. Janet Whitmore was elected a director of the Company in May 2002
following her nomination by an ad hoc committee of noteholders pursuant to the
terms of the Exchange Offer. Ms. Whitmore has provided consulting services to
Divi Resorts, a resort and timeshare sales and marketing company in the
Caribbean, since 2000. From 1976 to 2000, Ms. Whitmore was employed by Mobil
Corporation in various engineering and financial positions, including Controller
of Global Petrochemicals and Chief Financial Analyst. Ms. Whitmore serves on the
Audit Committee, the Compensation Committee and the Accounts and Acquisitions
Committee. Ms. Whitmore is the sister of Bradford T. Whitmore, a principal of
Grace and Grace Investments, a major shareholder of the Company. See footnote
"n" to the table under the heading "Security Ownership of Certain Beneficial
Owners and Management" on page 5 above.
17
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual base salary and other annual
compensation earned in 2000, 2001 and 2002 by the Company's Chief Executive
Officer and each of the other four most highly compensated executive officers
whose cash compensation (salary and bonus) exceeded $100,000 (the "Named
Executive Officers").
<Table>
<Caption>
LONG-TERM
ANNUAL COMPENSATION ($) COMPENSATION
# OF
OTHER SECURITIES
NAME AND PRINCIPAL ANNUAL UNDERLYING
POSITION YEAR SALARY (a) BONUS COMPENSATION (b) OPTIONS/SARS
- ------------------------- ---- ---------------- ---------------- ---------------- ----------------
Robert E. Mead, 2000 $ 499,857 -- -- --
Chief Executive Officer 2001 $ 500,000 -- -- --
2002 $ 500,000 -- -- --
Sharon K. Brayfield, 2000 $ 435,000 $ 74,729 -- 20,000
President 2001 $ 435,000 $ 6,525 -- --
2002 $ 435,000 -- -- --
David T. O'Connor, 2000 -- $ 101,916 $ 1,016,895 --
Executive Vice 2001 -- $ 40,940 $ 722,874 --
President - Sales 2002 -- $ 23,351 $ 677,332 --
Harry J. White, Jr 2000 $ 220,000 $ 22,994 -- 10,000
Chief Financial 2001 $ 225,000 -- -- --
Officer and Treasurer 2002 $ 250,000 $ 50,000 -- --
Edward L. Lahart 2000 $ 90,000 $ 57,889 -- 10,000
Executive Vice 2001 $ 100,000 $ 55,862 -- --
President - Operations 2002 $ 143,959 $ 65,219 -- --
</Table>
- ----------
(a) The amounts shown are before elective contributions by the Named
Executive Officers in the form of salary reductions under the Company's
Section 125 Flexible Benefit Plan. Such plan is available to all
employees, including the Named Executive Officers.
(b) Except as otherwise noted, these amounts represent additional
compensation based on sales of Vacation Intervals and other sales
related criteria. See "Executive Compensation -- Employment and
Noncompetition Agreements" for a discussion of other annual
compensation.
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. The employment agreement expired on January 1,
2003, and Mr. Mead has continued to be employed under the same terms.
Effective April 15, 2002, Ms. Brayfield entered into a two-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. In July 2003, the employment agreement with Ms.
Brayfield was extended to April 2006.
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 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. The employment agreement expired on January 1, 2003, and Mr. O'Connor
has continued to be employed under the same terms.
18
Effective June 29, 1998, Mr. White entered into an employment agreement
with the Company which provides for an annual base salary, currently $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. Each of
the agreements also provides that such employees will not (i) influence any
employee or independent contractor to terminate its relationship with the
Company or (ii) disclose any confidential information of the Company at any
time.
EMPLOYEE BENEFIT PLANS
1997 Stock Option Plan
The Company adopted the 1997 Stock Option Plan (the "1997 Plan") in May
1997 to attract and retain directors, officers, and key employees of the
Company. The 1997 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 1997 Plan to 1,600,000 and to modify the number of outside
directors who, as members of the Compensation Committee, may administer the 1997
Plan. The following is a summary of the provisions of the 1997 Plan. This
summary does not purport to be a complete statement of the provisions of the
1997 Plan and is qualified in its entirety by the full text of the 1997 Plan.
The purpose of the 1997 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 1997 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 1997 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 1997 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, 2002, the Compensation Committee and the Board of
Directors made all decisions concerning administration of the 1997 Plan. See
"Executive Compensation -- Report of Compensation Committee."
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
19
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 1997 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 1997 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
1997 Plan and shall be available for future grants to other optionees.
The 1997 Plan will terminate on May 15, 2007 (the "Termination Date"),
the tenth anniversary of the day the 1997 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 1997 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 1997 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 1997 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 1997 Plan
regarding eligibility.
2002 STOCK OPTION PLAN
On August 1, 2003, the Compensation Committee adopted the Silverleaf
Resorts, Inc. 2003 Stock Option Plan (the "2003 Plan"), subject to shareholder
approval at the 2003 annual meeting. For a complete description of the 2003
Plan, see "Proposal 5 - Approval of 2003 Stock Option Plan."
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 2002
No options were granted under the 1997 Plan or the 2002 Plan during the
year ended December 31, 2002 to any of the Named Executive Officers. No options
were exercised during 2002 by any of the Named Executive Officers.
Options Exercises and Year-End Value Table.
<Table>
<Caption>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS/SARS AT MONEY OPTIONS/SARS AT FISCAL
SHARES FISCAL YEAR-END(#)(a) YEAR-END($)(a)
ACQUIRED ------------------------------ ------------------------------
ON
EXERCISE VALUE
NAME (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- ----------- ------------- ------------- ------------- -------------
Robert E. Mead ......... -- -- -- -- -- --
Sharon K. Brayfield .... -- -- 153,750 16,250 -- --
David T. O'Connor ...... -- -- 337,500 12,500 -- --
Harry J. White, Jr ..... -- -- 62,500 7,500 -- --
Edward L. Lahart ....... -- -- 33,750 6,250 -- --
</Table>
- ----------
(a) The Unexercised Options of the Named Executive Officers were not
in-the-money at fiscal year end; therefore, the options had no value as
of December 31, 2002.
20
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 401(k) Plan allows eligible employees to
defer receipt of up to 15% of their compensation and contribute such amounts to
various investment funds. The employee contributions vest immediately. Other
than normal costs of administration, the Company has no obligation to make any
payments under the 401(k) Plan.
REPORT ON EXECUTIVE COMPENSATION
Compensation Committee Interlocks and Insider Participation
There are no "interlocks" (as defined by the rules of the Commission)
with respect to any members of the Compensation Committee. During 2002, the
make-up of the Compensation Committee was changed following the election of Ms.
Whitmore and Messrs. Budd and Hirsch to the Board of Directors. The Compensation
Committee now consists of three members, Ms. Whitmore, who chairs the committee,
and Messrs. Budd and Hirsch. Each is a non-employee, independent director. For
the period ending December 31, 2002, all decisions concerning executive
compensation and administration of the Company's 1997 Stock Option Plan and the
2002 Stock Option Plan were made by the Compensation Committee. Additionally,
the Committee also reviews and makes recommendations to the Board of Directors
for the approval of all material employee benefit plans, benefit and
compensation structures for directors, and oversees the criteria for performance
based compensation. In acting upon these matters, the Committee considers, among
other information, recommendations from the Chief Executive Officer and the
President of the Company. The Board of Directors has final approval authority
over all matters considered by the Compensation Committee other than the
administration of and the issuance of stock option grants under the Company's
1997 Stock Option Plan and the 2002 Stock Option Plan.
Report of Compensation Committee
Incorporation by Reference. The report of the Compensation Committee
shall not be deemed incorporated by reference by a general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933 (the "Securities Act") or under the Exchange Act, except
to the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
General Compensation Policies
The Company's compensation program for executive officers is designed
to attract, motivate, and retain qualified individuals having the skills,
experience, and leadership necessary to manage the Company's present and future
business in a manner consistent with the interests of the shareholders.
Accordingly, the Company strives to provide compensation opportunities,
including current compensation and short and long-term incentive awards, that
are externally competitive and internally equitable. In order to attract
executives having the skills necessary to build and manage a large business
organization, the Company attempts to establish compensation opportunities at
levels that are competitive with companies in the Company's industry and in
related industries with whom the Company believes it must compete for executive
talent. The Company strives to establish short and long-term compensation
opportunities that create compatibility between the interests of the Company's
executives and the interests of the Company's shareholders.
Executive Compensation Components
The Company's compensation program for its executive officers consists
of three principal components: (i) a base annual salary; (ii) a
performance-based annual cash bonus; and (iii) stock options. The Company
believes that the cash bonus and stock option
21
components of the Company's executive compensation provide short and long-term
incentives that align the interests of the Company's executive officers with the
interests of its shareholders.
The Committee strives to set base salaries and bonus compensation at
levels necessary to attract and retain executive officers with skill and
experience needed by the Company in light of its current and anticipated
business activities. For the most recent fiscal year, the base salary and
maximum cash bonus opportunity for certain of the Company's executive officers
(including certain of the Named Executive Officers) were documented in an
employment agreement that was negotiated with that executive. See "Executive
Officers - Employment Agreements."
Factors considered during 2002 in setting compensation were primarily
subjective, such as the perceptions of the individual's performance, any planned
change in functional responsibility, and other factors which evidenced
contributions to the Company's long-term sales growth and profit objectives.
Primarily important in determining bonuses paid by the Company during 2002 was
the Company's debt restructuring and the extreme amount of work that was
required of certain key executives in accomplishing that restructuring. Even
though the Company's sales of vacation ownership intervals decreased during the
period from prior years, the Company felt it was important to the retention of
such officers to reward them for the personal sacrifices that each made to
complete the restructuring. A comparison with an identified industry peer group
was not considered in setting executive officer compensation.
Ms. Brayfield entered into a new employment agreement with the Company
in April 2002 prior to the time that the current members of the Compensation
Committee were elected. Pursuant to the agreement, Ms. Brayfield was paid an
annual base salary of $435,000. The agreement does not require the Company to
pay any incentive-based compensation, but provides the Board of Directors the
discretion to determine whether or not to pay a bonus or similar compensation.
During 2002, Mr. O'Connor received no base salary but was compensated
solely upon incentive-based formulas related to the Company's sales revenues.
Mr. O'Connor received compensation equal to 1.0% of sales generated through the
Company's internal sales efforts and 0.6% of the Company's net sales generated
by the Company's outside sales force. Mr. O'Connor's compensation is based upon
a three year employment agreement which expired on January 1, 2003.
Because there were no formal compensation policies for laterally hired
executives in place during 2002, the Compensation Committee determined the
compensation levels of newly hired executive officers based generally on their
qualifications and prior experience and their perceived value to the Company.
In addition to the incentive compensation formulas used to remunerate
certain key executive officers, all executive officers are eligible for
consideration for discretionary bonuses. These bonuses are optional and based
solely on performance of the individual and his or her contribution towards
achieving corporate objectives.
The Company established the 1997 Plan and the 2002 Plan to enable
executive officers, other key employees, Independent Directors and others to
participate in the ownership of the Company. Both the 1997 Plan and the 2002
Plan were designed to attract, maintain, and provide incentives to participants.
The 2002 Plan terminated on July 30, 2003 and was replaced by the 2003 Plan on
August 1, 2003. As of June 19, 2003, options for 1,570,000 shares were
outstanding under the 1997 Plan. On January 2, 2003, there were 1,807,210
options granted under the 2002 Plan which terminated on July 30, 2003 because
the 2002 Plan had not been approved by shareholders of the Company by that date.
The options issued under the 2002 Plan were replaced with options granted under
the 2003 Plan in the same amount and at the same exercise price. These options
were granted to individuals based primarily upon the desirability of providing
additional incentives to work to increase share value and the potential for the
individuals' contributions to affect the Company's performance.
A final component of total compensation for executive officers is
Company benefits and perquisites generally consisting of the furnishing of
company vehicles for certain of the Named Executive Officers and customary group
life and health benefits. During 2002 Ms. Brayfield and Messrs O'Connor and
White were furnished company vehicles.
Compensation of the CEO during 2002. Mr. Mead's base salary of $500,000
per year was not modified in 2002. This amount was established in May 1997 and
has never been raised. Mr. Mead received no incentive-based compensation during
2002, and none was provided for in his employment agreement which terminated on
December 31, 2002.
During 2002, the Company's total sales decreased from approximately
$143 million for the year ended December 31, 2001 to approximately $126 million
for the year ended December 31, 2002, a decrease of approximately 12%. However,
due to one-time gains from the sale of notes receivable and early extinguishment
of debt during 2002, net income increased from a net loss of approximately $27
million during 2001 to net income of approximately $23 million for 2002. Mr.
Mead was instrumental in negotiating the restructuring of the Company's debt
during 2001 and 2002. Under the terms of Mr. Mead's employment agreement, he is
entitled to certain other fringe benefits which may be determined by the Board
of Directors. While the Company's operating results
22
for the period ending December 31, 2002 improved over those for the period
ending December 31, 2001, Mr. Mead was not awarded any options nor granted a
bonus for his 2002 performance as CEO of the Company.
Section 162(m) of the Internal Revenue Code generally limits the
corporate income tax deduction for compensation paid to the Named Executive
Officers that is in excess of $1 million unless such compensation is
"performance based compensation" or qualifies under other exceptions. The
compensation earned by the Named Executive Officers was not exempt from the
Section 162(m) limitation. The Committee may from time to time authorize other
awards that will give rise to a loss of deduction under Section 162(m) should it
determine that the payment of such compensation is in the best interests of the
Company.
By the Compensation Committee,
R. Janet Whitmore, Chairman
J. Richard Budd, III
Herbert B. Hirsch
STOCK PERFORMANCE GRAPH
The Stock Performance Graph below shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or under the Exchange Act,
except to the extent the Company specifically incorporates this information by
reference, and it shall not otherwise be deemed filed under such Acts.
Set forth below is a line graph comparing the total cumulative return
of the Company's Common Stock since initiation of trading of the Company's
Common Stock on June 6, 1997 to (a) the S&P 500 Index, a broad equity market
index and (b) the Russell 2000 Index, an index that measures the performance of
stocks with small to medium-small market capitalization. The comparisons in this
table are required by the Securities and Exchange Commission and are not
intended to forecast or be indicative of possible future performance of the
Common Stock.
The Company has chosen the Russell 2000 Index as an index of issuers
with similar market capitalization because the Company does not believe it can
reasonably identify a peer group or applicable published industry or
line-of-business index. Only a few other publicly held companies engage in the
Company's line of business -- the sale of vacation ownership intervals.
Prominent among this limited group are The Walt Disney Company, Hilton Hotels
Corporation and Marriott International Inc. which are (i) diversified, with far
less than 50% of their respective revenues attributable to vacation ownership
interval sales, and (ii) substantially larger than the Company in terms of
revenue, assets and market capitalization. There are a few other public
companies engaged principally in the Company's line of business. The Company,
therefore, concluded that there was not a sufficient body of reliable market
data for the Company to use as a comparison peer group. Because of the foregoing
factors, the Company elected to compare the performance of its stock to the S&P
500 Index and the Russell 2000 Index. The Company has used these indices in this
comparison since 1998.
The graph assumes $100 was invested on December 31, 1997 in stock of
the Company, the S&P 500 and the Russell 2000 and assumes dividends are
reinvested.
COMPARISON OF ANNUAL CUMULATIVE TOTAL RETURN OF COMPANY COMMON STOCK
WITH THE S&P 500 INDEX AND THE RUSSELL 2000 INDEX.
[GRAPHIC--CHART]
<Table>
<Caption>
MEASUREMENT PERIOD SILVERLEAF RUSSELL
(FISCAL YEAR COVERED) RESORTS INC. S&P 500 2000
- --------------------- ------------ ------------ ------------
12/31/97 100.00 100.00 100.00
12/31/98 38.01 128.58 97.45
12/31/99 29.08 155.64 118.17
12/31/00 10.24 141.46 114.60
12/31/01 .27 124.65 117.45
12/31/02 1.24 97.10 93.39
</Table>
23
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1997, Mr. Mead entered into a lease agreement with the Company
which granted him the exclusive right to use approximately 500 acres adjoining
one of the Company's resort properties for hunting purposes. This land is
subject to deed restrictions which prohibit the construction of new units, and
most of this land is located in a flood plain. The land will remain available to
Silverleaf Owners for hiking and nature trails. In exchange for these lease
rights, Mr. Mead agreed to pay the annual property taxes on this land. These
property taxes were approximately $7,000 for the year ended December 31, 2002.
This lease agreement has a ten-year term and may be renewed by Mr. Mead for four
additional ten-year terms.
The William H. Francis Trust (the "Trust"), a trust for which Mr.
Francis serves as trustee, is entitled to a 10% net profits interest from sales
of certain land in Mississippi. The net profits interest was granted to the
Trust pursuant to a Net Profits Agreement dated July 20, 1995 between the Trust
and a subsidiary of the Company which was dissolved after its assets and
liabilities, including the Net Profits Agreement, were acquired by the Company.
Originally, the Trust's net profits interest related to a total of 45 acres in
Mississippi held for investment purposes by the former subsidiary of the
Company. Pursuant to the Net Profits Agreement, Mr. Francis agreed to provide
governmental and public affairs consulting services to the Company during 1995
and 1996. The Net Profits Agreement provides that upon a sale of the 45 acre
tract in one or more parcels, 10% of the net profits would be paid to the Trust.
From time to time during the period between July 1995 and December 2002, the
Company has gradually sold off much of the 45 acre tract in parcels. During
2001, the Company sold parcels of this tract equaling approximately three acres
in the aggregate and accrued a liability of $17,286 to the Trust which was not
paid prior to December 31, 2002. At December 31, 2002, the Company still owned
approximately 11 remaining acres of this tract in Mississippi that is subject to
this net profits interest in favor of the Trust.
For information concerning employment agreements with certain officers
see "Employment and Noncompetition Agreements."
AUDIT COMMITTEE REPORT
Notwithstanding anything to the contrary set forth in any of the
Company's previous or future filings under the Securities Act of 1933, as
amended, or the Exchange Act of 1934, as amended, that might incorporate this
Proxy Statement or future filings made by the Company under those statutes, the
information contained in this Audit Committee Report, the Audit Committee
Charter, reference to the independence of the Audit Committee members and the
Stock Performance Graph contained herein are not deemed filed with the
Securities and Exchange Commission and shall not be deemed incorporated by
reference into any of those prior filings or into any future filings made by the
Company under those statutes.
Since May 1999, the Audit Committee has operated under the terms of a
written Charter (the "Charter"). A copy of the Charter is attached hereto as
"Annex A." The Charter provides that the Audit Committee will be composed of
independent members who have sufficient training and expertise in financial
reporting and management to ensure that the Company implements sound accounting
policies and procedures. The Charter also promotes the free exchange of
information among the Board, the Company's external independent auditor and its
internal auditor. Members of the Audit Committee must have a working familiarity
with basic finance and accounting practices, a background in accounting or a
related financial expertise in finance or accounting, or any other comparable
experience or background which results in the member's financial sophistication
and ability to fulfill financial oversight responsibilities. The Audit Committee
is currently evaluating the provisions of the Charter and anticipates that it
will amend the Charter during the current fiscal year to, among other things,
incorporate certain enhanced corporate governance concepts addressed by the
Sarbanes-Oxley Act of 2002, and the rules and regulations promulgated
thereunder.
Following the completion of the restructuring plan, the Audit Committee
was reconstituted in May 2002. The Committee continues to be composed solely of
independent directors. Mr. Budd and Ms. Whitmore were elected in May 2002 to
serve on the Audit Committee along with Mr. Francis who has served on the
Committee from his election to the Board of Directors in June 1997 until July
2003. Mr. Hirsch, the fourth independent member of the Board of Directors, was
appointed to the Audit Committee by the Board of Directors in January 2003.
On June 19, 2002, the Company dismissed Deloitte & Touche LLP
("Deloitte") as the Company's independent auditors. Deloitte's dismissal was
recommended by the Audit Committee and approved by the Board of Directors.
Effective June 19, 2002 the Audit Committee recommended, and the Board approved,
the appointment of BDO Seidman LLP ("BDO") to serve as the Company's new
independent auditors.
Deloitte's report on the Company's consolidated financial statements
for the year ended December 31, 1999 did not contain an adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles. Deloitte's report on the Company's consolidated
financial statements for the year ended December 31, 2000 contained a disclaimer
of opinion because of the possible material effects of the uncertainty related
to the Company's difficulties in meeting its loan agreement
24
covenants and financing needs, its losses from operations, and its negative cash
flows from operating activities which raise substantial doubt about the
Company's ability to continue as a going concern.
In connection with the Company's audits for the years ended December
31, 1999 and 2000 and subsequently through the date of its dismissal, the
Company had no disagreements with Deloitte on any matter of accounting principle
or practice, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Deloitte, would have
caused it to make reference to the subject matter of the disagreement in its
report on the consolidated financial statements of the Company.
Deloitte advised the Company in a letter dated March 12, 2002 to the
Company's Board of Directors that, in connection with Deloitte's audit of the
Company's consolidated financial statements for the year ended December 31,
2000, Deloitte had noted certain matters involving the Company's internal
controls and its operations that Deloitte considered to be reportable conditions
and a material weakness under standards established by the American Institute of
Certified Public Accountants. Reportable conditions involve matters coming to
the auditor's attention relating to significant deficiencies in the design or
operation of an entity's internal control that, in the auditor's judgment, could
adversely affect the entity's ability to record, process, summarize, and report
financial data consistent with the assertions of management in the financial
statements. A material weakness is a 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 error or fraud in
amounts that would be material in relation to the consolidated 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.
As part of its ongoing activities, the Audit Committee has:
o Reviewed and discussed with management, and the independent
auditors, the Company's audited consolidated financial
statements for the year ended December 31, 2002;
o Discussed with the independent auditors the matters required
to be discussed by Statement on Auditing Standards No. 61,
Communications with Audit Committees, as amended; and
o Received the written disclosures and the letter from the
independent auditors required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit
Committees, and has discussed with the independent auditors
their independence from the Company.
Based upon the Audit Committee's discussions with management and BDO,
the Audit Committee recommended to the Board of Directors that the audited
consolidated financial statements be included in the Company's Annual Report on
Form 10-K for filing with the Securities and Exchange Commission. The Audit
Committee also recommended in January 2003 that the Company appoint BDO as the
Company's independent auditors for the year ending December 31, 2000. BDO's
audit of the Company's financial statements for the year ended December 31, 2000
was deemed necessary because Deloitte, the Company's prior auditors, had
previously disclaimed an opinion on the financial statements of the Company for
the year ended December 31, 2000 due to uncertainties described in Deloitte's
independent auditors report dated March 12, 2002. In addition, the Audit
Committee recommended that the Board of Directors appoint BDO as the Company's
independent auditors for the year ending December 31, 2003, subject to the
ratification of this appointment by the shareholders of the Company.
By the Audit Committee,
J. Richard Budd, III, Chairman
James F. Francis, Jr.
Herbert B. Hirsch
R. Janet Whitmore
OTHER MATTERS AT MEETING
The Board of Directors does not know of any matters to be presented at
the 2003 Annual Meeting other than those mentioned in this Proxy Statement. If
any other matters are properly brought before the 2003 Annual Meeting, it is
intended that the proxies will be voted in accordance with the best judgment of
the person or persons voting such proxies.
UNDERTAKING TO PROVIDE COPY OF FORM 10-K
Additional copies of the Annual Report for the Company for 2002 as
filed with the Securities and Exchange Commission on Form 10-K, including
financial statements, but excluding exhibits, may be obtained without charge by
written request to the Corporate
25
Secretary of the Company. All such requests should be directed to Sandra G.
Cearley, Secretary, Silverleaf Resorts, Inc., 1221 River Bend Drive, Suite 120,
Dallas, Texas 75247.
SHAREHOLDER PROPOSALS FOR 2004 ANNUAL MEETING
Any shareholder who meets the requirements of the proxy rules under the
Exchange Act may submit to the Board of Directors proposals to be considered for
submission to the shareholders at the 2004 Annual Meeting of Shareholders. Any
such proposal must comply with the requirements of Rule 14a-8 under the Exchange
Act and be submitted in writing by notice delivered or mailed by first-class
United States mail, postage prepaid, to the Corporate Secretary, Silverleaf
Resorts, Inc., 1221 River Bend Drive, Suite 120, Dallas, Texas 75247 and must be
received no later than December 31, 2003. Shareholder proposals received after
that date will not be considered timely and will not be submitted for
consideration at the 2004 Annual Meeting of Shareholders. The chairman of the
meeting may refuse to acknowledge the introduction of any shareholder proposal
not made in compliance with the foregoing procedures.
INFORMATION INCORPORATED BY REFERENCE
The financial information reflected therein for the year ended December
31, 2002, and the related notes thereto beginning on page F-1 of the Annual
Report, as well as the sections of the Annual Report entitled "Selected
Financial Information," "Management's Discussion and Analysis and Results of
Operations," and "Quantitative and Qualitative Disclosures About Market Risk"
beginning on pages 41, 43, and 54 of the Annual Report, respectively, are
incorporated in their entirety into this proxy statement by this reference. The
Condensed Consolidated Statements of Income, the Condensed Consolidated Balance
Sheet and the Condensed Consolidated Statements of Cash Flows of the Company and
its subsidiaries beginning on pages 3, 4, and 6, respectively, of the Company's
quarterly reports to the Securities and Exchange Commission on Form 10-Q for the
quarters ended March 31, 2003 and June 30, 2003 are also incorporated herein by
reference.
By Order of the Board of Directors,
SANDRA G. CEARLEY
Secretary
Dallas, Texas
November 12, 2003
26
ANNEX A
SILVERLEAF RESORTS, INC.
AMENDED AND RESTATED
AUDIT COMMITTEE CHARTER
ARTICLE I
ORGANIZATION
1.1 The Board of Directors shall establish an Audit Committee composed
of independent members of the Board of Directors who have sufficient training
and expertise in financial reporting and management to ensure that the Company
has implemented sound accounting policies and procedures. The Audit Committee
shall also promote the free exchange of information among the Board, the
Company's independent auditor and its internal auditor.
1.2 The Audit Committee shall consist of a minimum of three independent
directors. Members shall be characterized as "independent directors" if they are
"free from any relationship that, in the opinion of the Board of Directors,
would interfere with the exercise of independent judgment as a committee
member." Directors who are affiliates of the Company, or officers or employees
of the Company or any of its subsidiaries, are not considered independent.
Former officers of the Company or any of its subsidiaries may be qualified to
serve as members of the Audit Committee despite continued pension or deferred
compensation from the Company if, in the opinion of the Board of Directors, such
person will exercise independent judgment and will materially assist the
function of the committee. Former officers may not comprise the majority of the
Audit Committee.
1.3 The members of the Audit Committee should have a working
familiarity with basic finance and accounting practices, a background in
accounting or a related financial expertise in finance or accounting, or any
other comparable experience or background which results in the individual's
financial sophistication and ability to fulfill financial oversight
responsibilities.
ARTICLE II
STATEMENT OF POLICY
2.1 The function of the Audit Committee shall be to assist the Board of
Directors in fulfilling its responsibilities to shareholders. The primary duties
and responsibilities of the Audit Committee are to:
A. Serve as an independent and objective body to monitor the
Company's financial reporting process and internal controls
system.
B. Review and appraise the audit efforts of the Company's
independent accountants and internal auditing department.
C. Provide an open avenue of communication among the independent
accountants, financial and senior management, the internal
auditing department, and the Board of Directors.
ARTICLE III
RESPONSIBILITIES
3.1 In fulfilling its responsibilities, the Audit Committee believes
its policies and procedures should remain flexible, in order to best react to
changing conditions and to ensure to the Board of Directors and shareholders
that the corporate accounting and reporting practices of the Company are in
accordance with all requirements and are of the highest quality.
3.2 In carrying out these responsibilities, the Audit Committee will be
responsible for the following:
A. CONTINUOUS ACTIVITIES--GENERAL
1. Provide an open avenue of communication between the
independent auditor, internal auditor, and the Board
of Directors.
2. Meet four times per year or more frequently as
circumstances require. The Committee may ask members
of management or others to attend meetings and
provide pertinent information as necessary.
3. Confirm and assure the independence of the
independent auditor and the objectivity of the
internal auditor.
A-1
4. Review with the independent auditor and the internal
auditor, the coordination of audit efforts to assure
completeness of coverage, reduction of redundant
efforts, and the effective use of audit resources.
5. Inquire of management, the independent auditor, and
the internal auditor about significant risks or
exposures and assess the steps management has to take
to minimize such risk to the Company.
6. Consider and review with the independent auditor and
the internal auditor:
(a) The adequacy of the Company's internal
controls.
(b) Related findings and recommendations of the
independent auditor and internal auditor
together with management's responses.
7. Consider and review with management, the internal
auditor and independent auditor:
(a) Significant findings during the year,
including the status of previous audit
recommendations.
(b) Any difficulties encountered in the course
of audit work including any restrictions on
the scope of activities or access to
required information.
(c) Any changes required in the planned scope of
the internal audit plan.
8. Meet periodically with the independent auditor, the
internal auditor and management to discuss any
matters that these groups believe should be discussed
with the Audit Committee.
9. Report periodically to the Board of Directors on
significant results of the foregoing activities.
10. Instruct the independent auditor that the Board of
Directors, as the shareholders' representative, is
the auditor's client.
B. CONTINUOUS ACTIVITIES--RE: REPORTING SPECIFIC POLICIES
1. Advise management and the independent auditor they
are expected to provide a timely analysis of
significant current financial reporting issues and
practices.
2. Provide that management and the independent auditor
discuss with the Audit Committee their qualitative
judgments about the appropriateness, not just the
acceptability, of accounting principles and financial
disclosure practices used or proposed to be adopted
by the Company and, particularly, about the degree of
aggressiveness or conservatism of its accounting
principles and underlying estimates.
3. Inquire as to the auditor's independent qualitative
judgments about the appropriateness, not just the
acceptability, of the accounting principles and the
clarity of the financial disclosure practices used or
proposed to be adopted by the Company.
4. Inquire as to the auditor's views about whether
management's choices of accounting are conservative,
moderate, or aggressive from the perspective of
income, asset, and liability recognition, and whether
those principles are common practices or are minority
practices.
5. Determine, as regards to new transactions or events,
the auditor's reasoning of the appropriateness of the
accounting principles and disclosure practices
adopted by management.
6. Assure that the auditor's reasoning is described in
determining the appropriateness of charges in
accounting principles and disclosure practices.
7. Inquire as to the auditor's views about how the
Company's choices of accounting principles and
disclosure practices may affect the shareholders.
A-2
C. SCHEDULED ACTIVITIES
1. Recommend the selection of the independent auditor
for approval by the Board of Directors and
ratification by the shareholders, approve the
compensation of the independent auditor, and review
and approve the discharge of the independent auditor.
2. Consider, in consultation with the independent
auditor, the internal auditor, and management, the
audit scope and plan of the independent auditor and
the internal auditor.
3. Review with management and the independent auditor
the results of annual audits and related comments
including:
(a) The independent auditor's audit of the
Company's financial statements, accompanying
footnotes and its report thereon.
(b) Any significant changes required in the
independent auditor's audit plans.
(c) Any difficulties or disputes with management
encountered during the course of the audit.
(d) Other matters related to the conduct of the
audit which are to be communicated to the
Audit Committee under Generally Accepted
Auditing Standards.
4. Review the reports filed by the Company with the
Securities and Exchange Commission.
5. Arrange for the independent auditor to be available
to the full Board of Directors at least annually to
help provide a basis for the board to recommend to
the shareholders the appointment of the auditor.
6. Assure that the auditor's reasoning is described in
accepting or questioning significant estimates by
management.
7. Review and update, if appropriate, the Audit
Committee's Charter annually.
D. "WHEN NECESSARY" ACTIVITIES
1. Review and approve requests for any management
consulting engagement to be performed by the
Company's independent auditor and be advised of any
other study undertaken at the request of management
that is beyond the scope of the audit engagement
letter.
2. Review periodically with general counsel legal and
regulatory matters that may have a material impact on
the Company's financial statements, compliance
policies and programs.
3. Conduct or authorize investigations into any matters
within the Audit Committee's scope of
responsibilities. The Audit Committee shall be
empowered to retain independent counsel and other
professionals to assist in the conduct of any
investigation.
Amended and Restated by the Audit Committee effective as of February
22, 2000.
A-3
ANNEX B
2003 STOCK OPTION PLAN
FOR
SILVERLEAF RESORTS, INC.
This 2003 Stock Option Plan (the "Plan") is established by Silverleaf
Resorts, Inc. (the "Company"), a Texas corporation, and adopted by the Company
as of the 1st day of August, 2003.
ARTICLE I
GENERAL PROVISIONS
SECTION 1.1 PURPOSE OF THE PLAN. The Company desires to afford certain
of its 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.
SECTION 1.2 SEPARATE INDUCEMENT. The stock options ("Options") offered
pursuant to the Plan are a matter of separate inducement and are not in lieu of
any salary or other compensation for the services of any director, officer or
key employee.
SECTION 1.3 TYPES OF OPTIONS. The Options granted under the Plan are
intended to be either incentive stock options ("Incentive Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or options that do not meet the requirements for Incentive Options
("Non-Qualified Options"), but the Company makes no warranty as to the
qualification of any Option as an Incentive Option.
SECTION 1.4 SHAREHOLDER APPROVAL. The Plan shall terminate if the
shareholders of the Company have not approved the Plan within twelve (12) months
of the date the Plan was adopted by the Company.
ARTICLE II
AMOUNT OF STOCK SUBJECT TO THE PLAN
SECTION 2.1 AGGREGATE NUMBER OF SHARES. The total number of shares of
common stock of the Company which may be purchased pursuant to the exercise of
Options granted under the Plan shall not exceed, in the aggregate, 2,209,614
shares of the authorized common stock, $0.01 par value per share, of the Company
(the "Shares").
SECTION 2.2 SOURCE OF SHARES. Shares which may be acquired under the
Plan may be either authorized but unissued Shares, Shares of issued stock held
in the Company's treasury, or both, at the discretion of the Company. If and to
the extent that Options granted under the Plan expire or terminate without
having been exercised, new Options may be granted with respect to the Shares
covered by such expired or terminated Options, provided that the grant and the
terms of such new Options shall in all respects comply with the provisions of
the Plan.
ARTICLE III
EFFECTIVE DATE AND TERM OF THE PLAN
SECTION 3.1 EFFECTIVE DATE. The Plan shall become effective on the date
(the "Effective Date") on which it is adopted by the board of directors of the
Company (the "Board of Directors"); provided, however, that if the Plan is not
approved by the shareholders of the Company within twelve (12) months before or
after the Effective Date, the Plan and any Options granted thereunder shall
terminate.
SECTION 3.2 DURATION OF PLAN AND GRANTING OF OPTIONS. The Company may,
from time to time during the period beginning on the Effective Date and ending
on the earlier of such date as is 10 years after the Effective Date or is 10
years after the Plan is approved by the Shareholders (the "Termination Date"),
grant to persons eligible to participate in the Plan Options under the terms of
the Plan. Options granted prior to the Termination Date may extend beyond that
date, in accordance with the terms thereof.
SECTION 3.3 PARENT AND SUBSIDIARY DEFINED. As used in the Plan, the
terms "subsidiary corporation" and "parent corporation" shall have the meanings
ascribed to such terms, respectively, in Sections 424(f) and 424(e) of the Code.
B-1
SECTION 3.4 PARTICIPANT DEFINED. An employee, officer or director to
whom Options are granted hereunder may be referred to herein as a "Participant."
ARTICLE IV
ADMINISTRATION
SECTION 4.1 COMPENSATION COMMITTEE. The Board of Directors shall
designate a Compensation Committee (the "Committee"), which shall consist of no
fewer than two directors, to administer the Plan. At least two members of the
Committee shall be "non-employee directors" within the meaning of Rule 16b-3 (or
any successor rule or regulation) promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
SECTION 4.2 QUORUM AND MAJORITY. A majority of the members of the
Committee shall constitute a quorum, and the act of a majority of the members of
the Committee shall be the act of the Committee.
SECTION 4.3 REMOVAL AND VACANCIES. Any member of the Committee may be
removed at any time either with or without cause by resolution adopted by the
Board of Directors, and any vacancy on the Committee may at any time be filled
by resolution adopted by the Board of Directors.
SECTION 4.4 ACTIONS BY BOARD. Any or all powers and functions of the
Committee may at any time and from time to time be exercised by the Board of
Directors. Any reference in the Plan to the Committee shall be deemed also to
refer to the Board of Directors, to the extent that the Board of Directors is
exercising any of the powers and functions of the Committee.
SECTION 4.5 AUTHORITY OF COMMITTEE. Subject to the express provisions
of the Plan, the Committee shall have the authority, in its discretion, to:
(a) determine the directors, officers and employees to whom
Options shall be granted, the time when such Options shall be granted,
the number of Shares which shall be subject to each Option, the
purchase price or exercise price of each Share which shall be subject
to each Option, the period(s) during which such Options shall be
exercisable (whether in whole or in part), and the other terms and
provisions of the respective Options (which need not be identical);
(b) construe the Plan and Options granted thereunder;
(c) prescribe, amend and rescind rules and regulations
relating to the administration of the Plan; and
(d) make all other determinations necessary or advisable for
administering the Plan.
SECTION 4.6 NONCOMPETITION. Without limiting the foregoing, the
Committee also shall have the authority to require, in its discretion, as a
condition of the granting of any Option, that the Participant agree that in the
event of termination of directorship, office or employment of such Participant,
other than as a result of dismissal without cause, such Participant will not,
for a period to be fixed at the time of the grant of the Option, enter into any
employment or participate directly or indirectly in any business or enterprise
which is competitive with the business of the Company or any subsidiary
corporation or parent corporation of the Company, or enter into any employment
in which such employee will be called upon to utilize special knowledge obtained
through directorship, office or employment with the Company or any subsidiary
corporation or parent corporation thereof.
SECTION 4.7 DISCRETION OF COMMITTEE. The determination of the Committee
on matters referred to in this Article IV shall be conclusive.
SECTION 4.8 CONSULTANTS. The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
Plan and may rely upon any opinion received from any such counsel or consultant
and any computation received from any such consultant or agent. Expenses
incurred by the Committee in the engagement of such counsel, consultant or agent
shall be paid by the Company.
SECTION 4.9 NO LIABILITY FOR GOOD FAITH DECISIONS. No member or former
member of the Committee or of the Board of Directors shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option.
B-2
ARTICLE V
ELIGIBILITY
SECTION 5.1 NON-QUALIFIED PARTICIPANTS. Non-Qualified Options may be
granted only to directors, officers and other salaried key employees of the
Company, or of any subsidiary corporation or parent corporation of the Company
now existing or hereafter formed or acquired, except as hereinafter provided.
SECTION 5.2 INCENTIVE OPTION PARTICIPANTS. An Incentive Option may be
granted only to salaried key employees of the Company or any subsidiary
corporation or parent corporation of the Company now existing or hereafter
formed or acquired, and not to any director or officer who is not also an
employee.
SECTION 5.3 RETIRED EMPLOYEES. Any person who shall have retired from
active employment by the Company, although such person shall have entered into a
consulting contract with the Company, shall not be eligible to receive an
Option.
ARTICLE VI
LIMITATION ON EXERCISE OF INCENTIVE OPTIONS
SECTION 6.1 EXCESSIVE INCENTIVE OPTIONS. 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 (under all stock options plans of the Company
and any parent corporation or subsidiary corporation of the Company) exceeds
$100,000.00, such Options shall be treated as Non-Qualified Options.
SECTION 6.2 DEFINITIONS FOR LIMITATION. For purposes of the limitation
set forth in Section 6.1:
(a) the fair market value of Shares is determined as of
the time the Option is granted;
(b) the limitation will be applied by taking into account
Options in the order in which they were granted; and
(c) Incentive Options granted before 1987 shall not be
taken into account.
ARTICLE VII
OPTIONS: PRICE AND PAYMENT
SECTION 7.1 PURCHASE PRICE OF NON-QUALIFIED OPTIONS. The purchase price
for each Share purchasable under any Non-Qualified Option granted hereunder
shall be such amount as the Committee shall deem appropriate, but not less than
the par value thereof, if any.
SECTION 7.2 PURCHASE PRICE OF INCENTIVE OPTIONS. The purchase price for
each Share purchasable under any Incentive Option granted hereunder shall be
such amount as the Committee shall, in its best judgment, determine to be not
less than one hundred percent (100%) of the fair market value per Share on the
date the Option is granted; provided, however, that in the case of an Incentive
Option granted to a Participant who, at the time such Incentive Option is
granted, owns stock of the Company or any subsidiary corporation or parent
corporation of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any
subsidiary corporation or parent corporation of the Company, the purchase price
for each Share shall be such amount as the Committee shall, in its best
judgment, determine to be not less than one hundred ten percent (110%) of the
fair market value per Share at the date the Option is granted. For purposes of
determining such ownership, the attribution rules of Section 424(d) of the Code
shall apply.
SECTION 7.3 FAIR MARKET VALUE OF SHARES.
(a) NATIONAL EXCHANGE: If the Shares are listed on a national
securities exchange in the United States on any date on which the fair
market value per Share is to be determined, the fair market value per
Share shall be deemed to be the average of the high and low quotations
at which such Shares are sold on such national securities exchange on
such date. If the Shares are listed on a national securities exchange
in the United States on such date but the Shares are not traded on such
date, or such national securities exchange is not open for business on
such date, the fair market value per Share shall be determined as of
the closest preceding date on which such exchange shall have been open
for business and the Shares were traded. If the Shares are listed on
more than one national securities exchange in the United States on the
date any such Option is granted, the Committee shall, in good faith,
determine which national securities exchange shall be used for the
purpose of determining the fair market value per Share.
B-3
(b) PUBLIC MARKET: If a public market exists for the Shares
on any date on which the fair market value per Share is to be
determined but the Shares are not listed on a national securities
exchange in the United States, the fair market value per Share shall be
deemed to be the mean between the closing bid and asked quotations in
the over-the-counter market for the Shares on such date. If there are
no bid and asked quotations for the Shares on such date, the fair
market value per Share shall be deemed to be the mean between the
closing bid and asked quotations in the over-the-counter market for the
Shares on the closest date preceding such date for which such
quotations are available.
(c) NO PUBLIC MARKET: If no public market exists for the
Shares on any date on which the fair market value per Share is to be
determined, the Committee shall, in its sole discretion and best, good
faith judgment, determine the fair market value of a Share.
(d) COMMITTEE'S DECISION IS CONCLUSIVE: For purposes of this
Plan, the determination by the Committee of the fair market value of a
Share shall be conclusive.
SECTION 7.4 PAYMENT UPON EXERCISE. Upon the exercise of an Option, the
Company shall cause the purchased Shares to be issued only when it shall have
received the full purchase price for the Shares in cash or by certified check;
provided, however, that in lieu of cash or certified check the Participant may,
if and to the extent the terms of the Option so provide and to the extent
permitted by applicable law, exercise an Option in whole or in part, by
delivering to the Company shares of common stock of the Company (in proper form
for transfer and accompanied by all requisite stock transfer tax stamps or cash
in lieu thereof) owned by such Participant having a fair market value equal to
the purchase price of the Shares as to which the Option is being exercised. The
fair market value of the stock so delivered shall be determined as of the date
immediately preceding the date on which the Option is exercised, or as may be
required in order to comply with or to conform to the requirements of any
applicable laws or regulations.
SECTION 7.5 USE OF PROCEEDS. The cash proceeds of the sale of Shares
subject to Options are to be added to the general funds of the Company and used
for its general corporate purposes as the Board of Directors shall determine.
ARTICLE VIII
TERM OF OPTIONS AND LIMITATIONS ON THE RIGHT OF EXERCISE
SECTION 8.1 TERM OF OPTIONS. Any Option shall be exercisable at such
times, in such amounts and during such period or periods as the Committee shall
determine at the date of the grant of such Option; provided, however, that an
Incentive Option shall not be exercisable after the expiration of ten (10) years
from the date such Option is granted; and provided further that, in the case of
an Incentive Option granted to a Participant who, at the time such Option is
granted, owns stock of the Company or any subsidiary corporation or parent
corporation of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any
subsidiary corporation or parent corporation of the Company, such Option shall
not be exercisable after the expiration of five (5) years from the date such
Option is granted. For purposes of determining such ownership, the attribution
rules of Section 424(d) of the Code, shall apply.
SECTION 8.2 ACCELERATION OF TERMS. Subject to the provisions of Section
8.10 and Section 12.2, the Committee shall have the right to accelerate, in
whole or in part, from time to time, conditionally or unconditionally, rights to
exercise any Option.
SECTION 8.3 EXPIRATION OF OPTIONS. To the extent that an Option is not
exercised within the period of exerciseability specified therein, it shall
expire as to the then unexercised part.
SECTION 8.4 NO FRACTIONAL SHARES. In no event shall an Option granted
hereunder be exercisable for a fraction of a Share.
SECTION 8.5 EXERCISE OF OPTIONS. Any Option shall be exercised by the
Participant holding such Option as to all or part of the Shares covered by such
Option by giving 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 (15) days from the date such notice is given, for the payment of the
purchase price against delivery of the Shares being purchased. Subject to the
terms of Sections 8.8, 11.5, and 12.1 of this Plan, the Company shall cause
certificates for the Shares so purchased to be delivered to the Participant at
the principal business office of the Company, against payment of the full
purchase price, on the date specified in the notice of exercise.
SECTION 8.6 NONTRANSFERABILITY OF OPTIONS. No Option shall be
transferable, whether by operation of law or otherwise, other than by will or
the laws of descent and distribution, and any Option shall be exercisable,
during the lifetime of the Participant, only by such Participant.
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SECTION 8.7 EXERCISE BY PARTICIPANT'S ESTATE. If an Option shall be
exercised by the legal representative of a deceased Participant, or by a person
who acquired an Option by bequest or inheritance or by reason of the death of
any Participant, written notice of such exercise shall be accompanied by a
certified copy of letters testamentary or equivalent proof of the right of such
legal representative or other person to exercise such Option.
SECTION 8.8 PURCHASE FOR INVESTMENT. Except as hereafter provided, a
Participant shall, upon any exercise of an Option, execute and deliver to the
Company a written statement, in form satisfactory to the Company, in which such
Participant represents and warrants that such Participant is purchasing or
acquiring the Shares acquired thereunder for such Participant's own account, for
investment only and not with a view to the resale or distribution thereof, and
agrees that any subsequent offer for sale or sale or distribution of any of such
Shares shall be made only pursuant to either (a) a Registration Statement on an
appropriate form under the Securities Act of 1933, as amended (the "Securities
Act"), which Registration Statement has become effective and is current with
regard to the Shares being offered or sold, or (b) a specific exemption from the
registration requirements of the Securities Act, but in claiming such exemption
the holder shall, if so requested by the Company, prior to any offer for sale or
sale of such Shares, obtain a prior favorable written opinion, in form and
substance satisfactory to the Company, from counsel for or approved by the
Company, as to the applicability of such exemption thereto. The foregoing
restriction shall not apply to (i) issuances by the Company so long as the
Shares being issued are registered under the Securities Act and a prospectus in
respect thereof is current or (ii) reofferings of Shares by affiliates of the
Company (as defined in Rule 405 or any successor rule or regulation promulgated
under the Securities Act) if the Shares being reoffered are registered under the
Securities Act and a prospectus in respect thereof is current.
SECTION 8.9 RESTRICTIONS ON TRANSFER OF STOCK. The Company may endorse
such legend or legends upon the certificates for Shares issued upon exercise of
an Option and may issue such "stop transfer" instructions to its transfer agent
in respect of such Shares as, in its discretion, it determines to be necessary
or appropriate to (i) prevent a violation of, or to perfect an exemption from,
the registration requirements of the Securities Act, (ii) implement the
provisions of the Plan and any agreement between the Company and the Participant
with respect to such Shares, or (iii) permit the Company to determine the
occurrence of a disqualifying disposition, within the meaning of Section 421(b)
of the Code, of Shares transferred upon exercise of an Incentive Option granted
under the Plan. No Shares acquired by a Participant pursuant to a Option shall
be sold or otherwise disposed of within a period of six (6) months following the
date of acquisition of such Shares, unless either the grant of the Option is
approved by the Board of Directors, or a committee of the Board of Directors
that is composed solely of two or more non-employee directors as defined in Rule
16b-3 of the Exchange Act, or the grant of the Option is approved or ratified,
in compliance with Section 14 of the Exchange Act, by either: the affirmative
votes of the holders of a majority of the securities of the Company present, or
represented, and entitled to vote at a meeting duly held in accordance with the
applicable laws of the state or other jurisdiction in which the Company is
incorporated, or the written consent of the holders of a majority of the
securities of the Company entitled to vote, provided that such ratification
occurs no later than the date of the next annual meeting of the shareholders.
SECTION 8.10 SHAREHOLDER APPROVAL. Notwithstanding the provisions of
Section 8.2 and 10.3 hereof, no option granted hereunder may be exercised and no
Optionee will have any right to receive payment upon termination of the Options
granted hereunder, unless the Plan has been approved by the Shareholders of the
Company.
ARTICLE IX
TERMINATION OF DIRECTORSHIP, OFFICE OR EMPLOYMENT
SECTION 9.1 EXPIRATION OF OPTIONS UPON TERMINATION. Upon termination of
the directorship, office or employment of any Participant with the Company and
all subsidiary corporations and parent corporations of the Company, any Option
previously granted to the Participant, unless otherwise specified by the
Committee in the Option, shall, to the extent not theretofore exercised,
terminate and become null and void, provided that:
(a) if the Participant shall die while serving as a director,
officer or while in the employ of such corporation or during either the
three (3) month or one (1) year period, whichever is applicable,
specified in clause (b) below and at a time when such Participant was
entitled to exercise an Option as herein provided, the legal
representative of such Participant, or such person who acquired such
Option by bequest or inheritance or by reason of the death of the
Participant, may, not later than one (1) year from the date of death,
exercise such Option, to the extent not theretofore exercised, in
respect of any or all of such number of Shares as specified by the
Committee in such Option; and
(b) if the directorship, office or employment of any
Participant to whom such Option shall have been granted shall terminate
by reason of the Participant's retirement (at such age or upon such
conditions as shall be specified by the Committee), disability (as
described in Section 22(e)(3) of the Code) or dismissal by the employer
other than for cause (as defined below), and while such Participant is
entitled to exercise such Option as herein provided, such Participant
shall have the right to exercise such Option, to the extent not
theretofore exercised, in respect of any or all of such number of
Shares as specified by the Committee in such Option, at any time up to
and including (i) three (3) months after the date of such termination
of directorship, office or
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employment in the case of termination by reason of retirement or
dismissal other than for cause and (ii) one (1) year after the date of
termination of directorship, office or employment in the case of
termination by reason of disability.
SECTION 9.2 NATURAL EXPIRATION OF OPTION. In no event, however, shall
any person be entitled to exercise any Option after the expiration of the period
of exerciseability of such Option as specified therein.
SECTION 9.3 VOLUNTARY OR FOR CAUSE TERMINATION. If a Participant
voluntarily terminates his directorship, office or employment, or is discharged
for cause, any Option granted hereunder shall, unless otherwise specified by the
Committee in the Option, forthwith terminate with respect to any unexercised
portion thereof.
SECTION 9.4 "FOR CAUSE" DEFINED. For the purposes of the Plan, the term
"for cause" shall mean (i) with respect to an employee who is a party to a
written agreement with, or, alternatively, participates in a compensation or
benefit plan of the Company or a subsidiary corporation or parent corporation of
the Company, which agreement or plan contains a definition of "for cause" or
"cause" (or words of like import) for purposes of termination of employment
thereunder by the Company or such subsidiary corporation or parent corporation
of the Company, "for cause" or "cause" as defined in the most recent of such
agreements or plans, or (ii) in all other cases, as determined by the Board of
Directors, in its sole discretion, (a) the willful commission by a Participant
of a criminal or other act that causes or probably will cause substantial
economic damage to the Company or a subsidiary corporation or parent corporation
of the Company or substantial injury to the business reputation of the Company
or a subsidiary corporation or parent corporation of the Company; (b) the
commission by a Participant of an act of fraud in the performance of such
Participant's duties on behalf of the Company or a subsidiary corporation or
parent corporation of the Company; (c) the continuing willful failure of a
Participant to perform the duties of such Participant to the Company or a
subsidiary corporation or parent corporation of the Company (other than such
failure resulting from the Participant's incapacity due to physical or mental
illness) after written notice thereof (specifying the particulars thereof in
reasonable detail) and a reasonable opportunity to be heard and cure such
failure are given to the Participant by the Board of Directors; or (d) the order
of a court of competent jurisdiction requiring the termination of the
Participant's employment, directorship or office. For purposes of the Plan, no
act, or failure to act, on the Participant's part shall be considered "willful"
unless done or omitted to be done by the Participant not in good faith and
without reasonable belief that the Participant's action or omission was in the
best interest of the Company or a subsidiary corporation or parent corporation
of the Company.
SECTION 9.5 EMPLOYMENT DEFINED. For the purposes of the Plan, an
employment relationship shall be deemed to exist between an individual and a
corporation if, at the time of the determination, the individual was an
"employee" of such corporation for purposes of Section 422(a) of the Code. If an
individual is on maternity, military, or sick leave or other bona fide leave of
absence, such individual shall be considered an "employee" for purposes of the
exercise of an Option and shall be entitled to exercise such Option during such
leave if the period of such leave does not exceed ninety (90) days, or, if
longer, so long as the individual's right to reemployment with his employer is
guaranteed either by statute or by contract. If the period of leave exceeds
ninety (90) days, the employment relationship shall be deemed to have terminated
on the ninety-first (91) day of such leave, unless the individual's right to
reemployment is guaranteed by statute or contract.
SECTION 9.6 TRANSFER OF EMPLOYMENT. A termination of employment shall
not be deemed to occur by reason of (i) the transfer of a Participant from
employment by the Company to employment by a subsidiary corporation or a parent
corporation of the Company or (ii) the transfer of a Participant from employment
by a subsidiary corporation or a parent corporation of the Company to employment
by the Company or by another subsidiary corporation or parent corporation of the
Company.
SECTION 9.7 RIGHT TO TERMINATE EMPLOYMENT. The Plan shall not impose
any obligation on the Company or on any subsidiary corporation or parent
corporation thereof to continue the employment of any Participant; and it shall
not impose any obligation on the part of any Participant to remain in the employ
of the Company or of any subsidiary corporation or parent corporation thereof.
ARTICLE X
ADJUSTMENT OF SHARES; EFFECT OF CERTAIN TRANSACTIONS
SECTION 10.1 ADJUSTMENTS TO CAPITAL STRUCTURE. In the event of any
change in the outstanding Shares through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, split-up, split-off, spin-off,
combination or exchange of shares, or other like change in capital structure of
the Company, an adjustment shall be made to each outstanding Option such that
each such Option shall thereafter be exercisable for such securities, cash
and/or other property as would have been received in respect of the Shares
subject to such Option had such Option been exercised in full immediately prior
to such change, and such an adjustment shall be made successively each time any
such change shall occur. The term "Shares" after any such change shall refer to
the securities, cash and/or property then receivable upon exercise of an Option.
In addition, in the event of any such change, the Committee shall make any
further adjustment as may be appropriate to the maximum number of Shares subject
to the Plan, the maximum number of Shares, if any, for which Options may be
granted to any one employee, and the number of Shares and price per Share
subject to outstanding Options as shall be equitable to prevent dilution or
enlargement of rights under such Options, and the determination of the Committee
as to these matters shall be
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conclusive. Notwithstanding the foregoing, (i) each such adjustment with respect
to an Incentive Option shall comply with the rules of Section 424(a) of the
Code, and (ii) in no event shall any adjustment be made which would render any
Incentive Option granted hereunder other than an "incentive stock option" for
purposes of Section 422 of the Code.
SECTION 10.2 CHANGE IN CONTROL DEFINED. For purposes of the Plan, a
"change in control" of the Company occurs upon the sale of all or substantially
all of the assets of the Company or upon any merger, consolidation or similar
transaction in which the Company is not the surviving corporation.
SECTION 10.3 EXPIRATION UPON CHANGE IN CONTROL. In the event of a
change in control of the Company (defined above), each Option outstanding
hereunder, the grant of which was approved by the Board of Directors, or a
committee of the Board of Directors that is composed solely of two or more
non-employee directors as defined in Rule 16b-3 of the Exchange Act, or by the
affirmative vote or written consent of the holders of the majority of the
securities of the Company, shall terminate as of the date of the change of
control, and such holder shall receive from the Company, with respect to each
Share subject to such Option, an amount of cash equal to the excess of the fair
market value of such Share immediately prior to the occurrence of such
transaction over the exercise price per Share of such Option. Notwithstanding
anything to the contrary herein, all of the provisions of this Section shall be
subject to the provisions of Section 8.10.
ARTICLE XI
ISSUANCE OF CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES
SECTION 11.1 CERTIFICATES; BOOK ENTRY TRANSFER. Upon any exercise of an
Option and payment of the purchase price, a certificate or certificates for the
Shares as to which the Option has been exercised shall be issued by the Company
in the name of the person exercising the Option and shall be delivered to or
upon the order of such person or persons. At the direction of the Optionee and
in lieu of a certificate or certificates, the Company shall issue the Shares by
book-entry transfer to an eligible institution for the account of the Optionee;
provided, however, that Shares that are endorsed with any legend restricting
transfer thereof, may not be issued through book-entry transfer.
SECTION 11.2 ENDORSEMENTS. The Company may endorse such legend or
legends upon the certificates for Shares issued upon exercise of an Option
granted hereunder and may issue such "stop transfer" instructions to its
transfer agent in respect of such Shares as, in its discretion, it determines to
be necessary or appropriate to (i) prevent a violation of, or to perfect an
exemption from, the registration requirements of the Securities Act, (ii)
implement the provisions of the Plan and any agreement between the Company and
the optionee with respect to such Shares, or (iii) permit the Company to
determine the occurrence of a disqualifying disposition, within the meaning of
Section 421(b) of the Code, of Shares transferred upon exercise of an Incentive
Option granted under the Plan.
SECTION 11.3 TAXES AND FEES. The Company shall pay all issue or
transfer taxes with respect to the issuance or transfer of Shares, as well as
all fees and expenses incurred by the Company in connection with such issuance
or transfer.
SECTION 11.4 SHARES FULLY PAID. All Shares issued as provided herein
shall be fully paid and non-assessable to the extent permitted by law.
SECTION 11.5 WITHHOLDING TAXES. The Company may require an employee
exercising a Non-Qualified Option granted hereunder, or disposing of Shares
acquired pursuant to the exercise of an Incentive Option in a disqualifying
disposition (within the meaning of Section 421(b) of the Code), to reimburse the
corporation that employs such employee for any taxes required by any government
to be withheld or otherwise deducted or paid by such corporation in respect of
the issuance or disposition of such Shares. In lieu thereof, the employer
corporation shall have the right to withhold the amount of such taxes from any
other sums due or to become due from such corporation to the employee upon such
terms and conditions as the Committee shall prescribe. The employer corporation
may, in its discretion, hold the stock certificate to which such employee is
entitled upon the exercise of an Option as security for the payment of such
withholding tax liability, until cash sufficient to pay that liability has been
accumulated.
ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.1 LISTING OF SHARES AND RELATED MATTERS. If at any time the
Board of Directors shall determine in its discretion that the listing,
registration or qualification of the Shares covered by the Plan upon any
national securities exchange or under any state or federal law, or the consent
or approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the sale or purchase of Shares under the
Plan, no Shares shall be issued unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained, or
otherwise provided for, free of any conditions not acceptable to the Board of
Directors.
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SECTION 12.2 AMENDMENT OF THE PLAN. The Board of Directors or the
Committee may, from time to time, amend the Plan, provided that, notwithstanding
anything to the contrary herein, no amendment shall be made, without the
approval of the shareholders of the Company, that will (i) increase the total
number of Shares reserved for Options under the Plan (other than an increase
resulting from an adjustment provided for in Article X), (ii) reduce the
exercise price of any Incentive Option granted hereunder below the price
required by Article VII, or (iii) modify the provisions of the Plan relating to
eligibility. The Board of Directors or the Committee shall be authorized to
amend the Plan and the Options granted thereunder to permit the Incentive
Options granted thereunder to qualify as "incentive stock options" within the
meaning of Section 422 of the Code. The rights and obligations under any Option
granted before amendment of the Plan or any unexercised portion of such Option
shall not be adversely affected by amendment of the Plan or the Option without
the consent of the holder of the Option.
SECTION 12.3 TERMINATION OR SUSPENSION OF THE PLAN. The Board of
Directors or the Committee may at any time and for any or no reason suspend or
terminate the Plan. The Plan, unless sooner terminated under Article III or by
action of the Board of Directors, shall terminate at the close of business on
the Termination Date. An Option may not be granted while the Plan is suspended
or after it is terminated. Options granted while the Plan is in effect shall not
be altered or impaired by suspension or termination of the Plan, except upon the
consent of the person to whom the Option was granted. The power of the Committee
under Article IV to construe and administer any Options granted prior to the
termination or suspension of the Plan shall continue after such termination or
during such suspension.
SECTION 12.4 GOVERNING LAW. The Plan, such Options as may be granted
thereunder and all related matters shall be governed by, and construed and
enforced in accordance with, the laws of the State of Texas from time to time
obtaining.
SECTION 12.5 PARTIAL INVALIDITY. The invalidity or illegality of any
provision herein shall not be deemed to affect the validity of any other
provision.
SECTION 12.6 SUCCESSORS. This Plan shall be binding on the Company, its
successors and assigns.
ADOPTED this 1st day of August, 2003.
SILVERLEAF RESORTS, INC.
By: /s/ ROBERT E. MEAD
---------------------------------------
Robert E. Mead, Chief Executive Officer
ATTESTED BY: /s/ SANDRA CEARLEY
------------------------------
Sandra Cearley, Secretary
B-8
ANNEX C
THIRD AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
SILVERLEAF RESORTS, INC.
Silverleaf Resorts, Inc., a Texas corporation (the "Corporation"),
pursuant to the provisions of Article 4.07 of the Texas Business Corporation Act
(the "Act"), hereby adopts these Third Amended and Restated Articles of
Incorporation of the Corporation which accurately copy the Articles of
Incorporation of the Corporation and all amendments thereto that are in effect
to date and as further amended hereby as hereinafter set forth and which contain
no other change in any provision thereof.
ARTICLE I
The name of the Corporation is Silverleaf Resorts, Inc.
ARTICLE II
The Articles of Incorporation of the Corporation are amended by these
Third Amended and Restated Articles of Incorporation as follows:
A. Current ARTICLE SEVEN is amended to read as set forth in ARTICLE
SEVEN below so as to delete the division of the directors into three classes and
to provide for the annual election of each of the directors.
B. ARTICLE NINE is added to provide that a majority of shareholders may
approve certain actions by the Corporation.
C. ARTICLE TEN is added to provide that a majority of shareholders may
amend these Articles in the future.
ARTICLE III
Each such amendment was duly adopted by the shareholders of the
Corporation on the ___ day of July, 2003 in conformity with the Act.
ARTICLE IV
The number of shares of the Corporation outstanding at the time of such
adoption was 36,826,906 shares of Common Stock, and the number of shares
entitled to vote on the amendments to the Second Amended and Restated Articles
of Incorporation was 36,826,906 shares of Common Stock. Holders representing
____ shares of the Corporation's Common Stock voted in favor of the amendments
to the Second Amended and Restated Articles of Incorporation, and holders
representing ___ shares voted against the amendments.
ARTICLE V
The Articles of Incorporation of the Corporation and all amendments
thereto pursuant to that certain Second Amended and Restated Articles of
Incorporation are hereby superseded by the following Third Amended and Restated
Articles of Incorporation, which accurately copy the entire text thereof and as
amended as set forth above:
THIRD AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
SILVERLEAF RESORTS, INC.
ARTICLE ONE
The name of the corporation ("Corporation") is Silverleaf Resorts, Inc.
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ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose for which the corporation is organized is to transact any
or all lawful business for which corporations may be incorporated under the Act.
ARTICLE FOUR
A. The aggregate number of shares that the Corporation shall have
authority to issue is One Hundred Ten Million (110,000,000) shares. Such shares
shall be issued in two (2) classes of stock to be designated "Common Stock" and
"Preferred Stock." The number of shares of Common Stock authorized is One
Hundred Million (100,000,000) shares having a par value of $0.01 per share. The
number of shares of Preferred Stock authorized is Ten Million (10,000,000)
shares having a par value of $0.01 per share.
B. The designations and the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the shares of each class of capital stock of the
Corporation are as follows:
(1) PREFERRED STOCK. The Preferred Stock may be authorized for issuance
from time to time by the Board of Directors in one or more separately designated
series. The designation of each such series, the number of shares to be included
in each such series, and the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends and terms and conditions of
redemption shall be as set forth in resolutions adopted by the Board of
Directors and included in a statement filed as required by law from time to time
prior to the issuance of any shares of such series. Subject to the express
limitations, if any, of any series of Preferred Stock of which shares are
outstanding at the time, the Board of Directors is authorized, by the adoption
of resolutions, to increase or decrease (but not below the number of shares of
Preferred Stock of such series then outstanding) the number of shares of
Preferred Stock of such series and to alter the designation of or, classify or
reclassify, any unissued shares of Preferred Stock of any series from time to
time, by setting or changing the preferences, conversion or other rights, voting
powers restrictions, limitations as to dividends or other distributions
qualifications or terms and conditions of redemption of such series.
(2) COMMON STOCK. Subject to all rights of Preferred Stock, as
expressly provided herein, by law or by the Board of Directors pursuant to this
Article Four, the Common Stock of the Corporation shall have all rights and
privileges afforded to capital stock by applicable law in the absence of any
express grant of rights or privileges in the Corporation's charter, including,
but not limited to, the following rights and privileges:
(a) The holders of shares of Common Stock shall have the right
to vote for the election of directors and on all other matters requiring
stockholder action, each share of Common Stock being entitled to one vote. No
holder of Common Stock shall have the right to cumulate his votes at any
election for directors of the Corporation.
(b) Dividends may be declared and paid or set apart for
payment upon shares of Common Stock out of any assets or funds of the
Corporation legally available for the payment of dividends.
(c) Upon the voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of shares of Common Stock in accordance with
their respective rights and interests.
ARTICLE FIVE
The Corporation will not commence business until it has received for
the issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00) consisting of money, labor done, or property actually received.
ARTICLE SIX
The street address of the registered office of the Corporation is 1221
River Bend Drive, Suite 120, Dallas, Texas 75247 and the name of the registered
agent at such address is Sandra Cearley.
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ARTICLE SEVEN
The business and affairs of the Corporation shall be managed by a Board
of Directors which may exercise all of the powers of the Corporation except
those conferred on or reserved to the stockholders by law. The number of
Directors is currently five (5), which number may be increased or decreased
pursuant to the Bylaws of the Corporation but in no event shall be less than the
minimum number required by the Act. The names and addresses of the persons
serving as the current directors of the Corporation are:
J. Richard Budd, III 360 Lexington Ave.
Third Floor
New York, NY 10017
James B. Francis, Jr. 2911 Turtle Creek Boulevard
Suite 925
Dallas, Texas 75219
Herbert B. Hirsch 64 Hurdle Fence Drive
Avon, Connecticut 06001
Robert E. Mead 1221 River Bend Drive
Suite 120
Dallas, Texas 75247
R. Janet Whitmore 10305 Oaklyn Drive
Potomac, Maryland 20854
The following provisions shall apply to the directors of the
Corporation:
A. Each director shall serve for a term beginning on the date of such
director's election and ending on the date of the next Annual Meeting of
Shareholders following the date of such director's election and until his or her
successor is elected and qualified.
B. In the event of any increase or decrease in the authorized number of
directors, each director then serving shall nevertheless continue as director
until the expiration of such director's term or such director's prior death,
retirement, resignation or removal.
C. Anything in this Article Seven to the contrary notwithstanding, each
director shall serve until such director's successor is elected and qualified,
or until such director's earlier death, retirement resignation or removal.
D. A director may be removed from office with or without cause only by
the affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote at a meeting duly called for that purpose.
ARTICLE EIGHT
The following provisions are hereby adopted for the purposes of
defining, limiting and regulating the powers of the Corporation and of the
directors and stockholders:
A. The Board of Directors shall have power from time to time and in its
sole discretion: (a) to determine in accordance with sound accounting practice
what constitutes annual or other net profit, earnings, surplus or net assets in
excess of capital; (b) to fix and vary from time to time the amount to be
reserved as working capital, or determine that retained earnings or surplus
shall remain in the hands of the Corporation; (c) to set apart out of any funds
of the Corporation such reserve or reserves in such amount or amounts and for
such proper purposes as it shall determine and to abolish or redesignate any
such reserve or any part thereof; (d) to borrow or raise money upon any terms
for any Corporate purposes; (e) to distribute and pay distributions or dividends
in stock, cash or other securities or property, out of surplus or any other
funds or amounts legally available therefore, at such times and to the
stockholders of record on such dates as it may from time to time, determine; and
(f) to determine whether and to what extent and at what times and places and
under what conditions and regulations the books, accounts and documents of the
Corporation or any of them shall be open to the inspections of stockholders,
except as otherwise provided by statute or by the Bylaws of the Corporation,
and, except as so provided no stockholder shall have the right to inspect any
book, account or document of the Corporation unless authorized so to do by
resolution of the Board of Directors.
C-3
B. The liability of the directors and officers of the Corporation to
the Corporation or its stockholders for money damages shall be limited to the
fullest extent permitted under Texas law, including the Act now or hereafter in
force, and the directors and officers of the Corporation shall have no liability
whatsoever to the Corporation or its stockholders for money damages except to
the extent which such liability cannot be limited or restricted under Texas law
now or hereafter in force. Neither the amendment nor repeal of the foregoing
sentence of this Section B of Article Eight nor the adoption nor amendment of
any other provision of the Articles or Bylaws of the Corporation inconsistent
with the foregoing sentence shall apply to or affect in any manner the
applicability of the foregoing sentence with respect to any act or omission of
any director or officer occurring prior to any such amendment, repeal or
adoption.
C. The Corporation shall indemnify, in the manner and to the fullest
extent permitted by law, any person who is or was a party to or is threatened to
be made a party to, any threatened pending or completed action, suit or
proceeding, whether or not by or in the right of the Corporation and whether
civil, criminal, administrative, investigative or otherwise, by reason of the
fact that such person is or was a director or officer of the Corporation or that
such person, while an officer or director of the Corporation, is or was serving
at the request of the Corporation as a director, officer, partner or trustee of
another corporation, partnership, trust, employee benefit plan or other
enterprise. To the fullest extent permitted by law, the indemnification provided
herein shall include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement and any such expenses may be paid by the Corporation
in advance of the final disposition of any such action, suit or proceeding. Upon
authorization by the Board of Directors, the Corporation may indemnify employees
and/or agents of the Corporation to the same extent provided herein for
directors and officers. Any repeal or modification of any of the foregoing
sentences of this Section C of Article Eight shall be prospective in operation
and effect only, and shall not adversely affect any right to indemnification or
advancement of expenses hereunder existing at the time of any such repeal or
modification.
D. No holders of shares of stock of the Corporation of any class shall
have preemptive rights or preferential right to purchase, subscribe for or
otherwise acquire any shares of stock of the Corporation of any class now or
hereafter authorized or any securities convertible into or exchangeable for
shares of stock of the Corporation of any class now or hereafter authorized or
any warrants, options or other instrument evidencing rights to purchase,
subscribe for or otherwise acquire shares of stock of the Corporation of any
class now or hereafter authorized, other than such preferential rights, if any,
as the Board of Directors in its sole discretion may determine, and at such
price as the Board of Directors in its sole discretion may fix.
E. The Board of Directors shall have the power, in its sole discretion
and without limitation, to authorize the issuance at any time and from time to
time shares of stock of the Corporation with or without par value, of any class
now or hereafter authorized and of securities convertible into or exchangeable
for shares of the stock of the Corporation, with or without par value, of any
class now or hereafter authorized, for such consideration (irrespective of the
value or amount of such consideration) and in such manner and by such means as
said Board of Directors may deem advisable.
F. The Board of Directors shall have the power, in its sole discretion
and without limitation to classify or reclassify any unissued shares of stock,
whether now or hereafter authorized, by setting, altering or eliminating in any
one or more respects, from time to time before the issuance of such shares, any
feature of such shares, including but not limited to the designation,
preferences, conversion or other rights, voting powers, qualifications, and
terms and conditions of redemption of, and limitations as to dividends and any
restrictions on, such shares.
The enumeration and definition of particular powers of the Board of
Directors included in the foregoing shall in no way be limited or restricted by
reference to or inference from the terms of any other clause of this or any
other Article of the Corporation's articles of incorporation, or construed as or
deemed by inference or otherwise in any manner to exclude or limit any powers
conferred upon the Board of Directors under the Laws of the State of Texas now
or hereafter in force.
ARTICLE NINE
A. The Corporation may sell, lease, convey, exchange, transfer, or
otherwise dispose of all or substantially all of its assets if the Board of
Directors approves the principal terms and the holders of a majority of the
outstanding shares entitled to vote approve the principal terms by vote or
written consent.
B. Any merger, share exchange, consolidation or dissolution of the
Corporation shall require the affirmative vote or written consent of the holders
of a majority of the outstanding shares entitled to vote at a meeting duly
called for that purpose.
ARTICLE TEN
These Articles may be amended by the vote or written consent of the
holders of a majority of the outstanding shares entitled to vote.
C-4
IN WITNESS WHEREOF, and in accordance with Article 4.07D of the Act,
the undersigned has executed these Third Amended and Restated Articles of
Incorporation as of the _____ day of _______, 2003.
By:
--------------------------------
Robert E. Mead,
Chief Executive Officer
C-5
SILVERLEAF RESORTS, INC.
PROXY FOR 2003 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Silverleaf Resorts, Inc., a Texas
corporation, hereby acknowledges receipt of the Notice of 2003 Annual Meeting of
Shareholders and Proxy Statement and hereby appoints James B. Francis, Jr. and
R. Janet Whitmore as proxies, each with the power to appoint his or her
substitute, and hereby authorizes them to represent and to vote, as designated
on the reverse side, all the shares of the Common Stock of Silverleaf Resorts,
Inc. held of record by the undersigned on November 3, 2003 at the 2003 Annual
Meeting of Shareholders to be held on December 16, 2003 or at any adjournment or
postponement thereof.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction is made, this
proxy will be voted FOR Proposals 1 through 6 and in accordance with the
recommendations of the Board of Directors on any other matters that may properly
come before the meeting.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 THROUGH 6.
Please mark your
votes as indicated [X]
in this sample
1. ELECTION OF DIRECTORS
<Table>
[ ] For the nominees listed to the right NOMINEES: J. RICHARD BUDD, III
JAMES B. FRANCIS, JR.
HERBERT B. HIRSCH
ROBERT E. MEAD
R. JANET WHITMORE
[ ] WITHHOLD AUTHORITY
to vote for the nominees listed to the right --------------------------------------
For all nominees except as noted above
</Table>
2. APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION AND
BYLAWS TO ELIMINATE THE STAGGERED BOARD OF DIRECTORS AND TO PROVIDE FOR
THE ANNUAL ELECTION OF ALL DIRECTORS.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO
REDUCE THE VOTES REQUIRED TO AMEND THE ARTICLES OF INCORPORATION FROM
TWO-THIRDS OF THE SHARES OF COMMON STOCK OUTSTANDING TO A MAJORITY OF THE
SHARES OF COMMON STOCK OUTSTANDING.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO
REDUCE THE VOTES REQUIRED TO APPROVE A MERGER, SHARE EXCHANGE,
CONSOLIDATION, DISSOLUTION, OR SALE OF ALL OR SUBSTANTIALLY ALL OF THE
ASSETS OF THE COMPANY FROM TWO-THIRDS OF THE SHARES OF COMMON STOCK
OUTSTANDING TO A MAJORITY OF THE SHARES OF COMMON STOCK OUTSTANDING.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. APPROVAL OF THE 2003 STOCK OPTION PLAN.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. RATIFICATION OF THE APPOINTMENT OF BDO SEIDMAN LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 2003.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
7. THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Signature
---------------------------------------
Signature
---------------------------------------
Date
--------------------------------------------
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor, administrator,
trustee or guardian, please give title as such. If a corporation, please sign in
full corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized name by authorized person.