April 02, 2001
ITEM 5. OTHER EVENTS
(a) Summary of Certain Events Occurring since the Filing of the Company's Current Report on Form 8-K Dated February
27, 2001.
On February 27, 2001, Silverleaf Resorts, Inc. ("Company" or "Silverleaf") filed a Current
Report on Form 8-K addressing liquidity and going concern issues. Specifically, the Company disclosed that negotiations
for expansion and extension of certain credit facilities with a principal lender as well as negotiations with other
financing sources had proven unsuccessful and that the Company did not then have sufficient financing in place
to sustain its operations at existing levels. Consequently, the Company announced that it was reducing its sales
and marketing operations in an attempt to conserve cash and downsize its business to a sustainable level. The Company
also disclosed that it would explore funding alternatives with its principal lenders and prospective investors
to provide adequate capital resources for a reduced level of operations. The Company further disclosed in its February
27, 2001 Form 8-K that uncertainties associated with the Company's proposed downsizing and related curtailment
of sales and marketing operations would delay completion of the audit of its financial statements for the year
ended December 31, 2000. On March 1, 2001, the Company announced that it had engaged UBS Warburg LLC ("UBS
Warburg") as its exclusive financial advisor to assist with the Company's downsizing and financial restructuring
and to review other strategic alternatives.
In connection with its planned downsizing, the Company has to date reduced the total number of its employees from
approximately 2,653 to 2,118. The approximately 535 employees affected by this reduction in workforce were located
at the Company's facilities in the states of Texas, Missouri, Georgia, Illinois and Massachusetts. Additionally,
the Company has closed one of its five marketing call centers, slowed most new construction at its resorts, and
reduced general and administrative expenses in all departments. Silverleaf also presently plans to close a second
marketing call center during April or May 2001. The Company does not expect implementation of its downsizing plans
to adversely impact the continued use of its resorts and related amenities by Silverleaf vacation interval owners.
Since the downsizing was announced, the Company's three principal secured lenders have continued to advance funds
on a week to week interim basis under the Company's existing loan agreements with these three lenders. A fourth
secured lender whose credit facility was due to mature has not advanced additional funds but has agreed to extend
the maturity date of its facility through February 2002. Silverleaf and its financial advisor, UBS Warburg are
continuing to negotiate with the Company's existing secured lenders and the holders of Silverleaf's 10.5% Senior
Subordinated Notes due 2008 ("Subordinated Notes"). Silverleaf has asked each of its three principal
secured lenders for an expansion and extension of the Company's existing credit facilities and for a waiver or
forbearance agreement involving defaults occurring under these existing credit facilities. Although no definitive
agreements to modify Silverleaf's credit facilities have been reached with these three principal lenders, negotiations
are proceeding and the lenders have continued to fund on a weekly basis. The Company's lenders have not yet agreed
to enter into waivers or forbearance agreements regarding defaults. Additionally, the Company is exploring alternative
sources of financing and considering other options and strategic alliances in consultation with representatives
of its financial advisor. The Company's ability to secure either adequate additional financing or viable strategic
alliances may be dependant in part upon the willingness of the holders of the Subordinated Notes to restructure
the Company's indebtedness to them. There can be no assurances that the Company will be successful in its negotiations
with its existing lenders or that it will be able to obtain financing from new sources or that viable strategic
alliances will be available to the Company. If the Company is unsuccessful in obtaining additional sources of funding
from either new or existing lenders or in identifying viable strategic alliances, the Company will not have sufficient
working capital for its operations. In this event, the Company may need to seek protection from its creditors under
applicable laws in order to continue its operations.
The Company has received a notice of default dated March 23, 2001 from one of its principal secured lenders notifying
the Company that the lender has declared various events of default as a result of the Company's noncompliance with
certain covenants contained in loan agreements with that lender. The events of default are not defaults in payments
due to the lender. The lender has not waived the noticed events of default, nor has it yet exercised any remedies
available to the lender, which remedies include the acceleration of the maturity of the principal and interest
outstanding under each agreement. Discussions with this principal lender are presently continuing. The events of
default noticed by this lender could prompt other senior lenders to declare an event of default under agreements
with the Company, which actions would have a material adverse effect on the Company. To date, the Company has not
received a notice of default from any of its other lenders but the Company believes it is in breach of various
covenants under its existing loan agreements with its other lenders.
As a result of the above referenced notice of default from a principal lender, the Company has delivered a Payment
Blockage Notice advising the Trustee of the Subordinated Notes that the Company is not permitted by the terms of
the Indenture securing the Subordinated Notes to make an April 1, 2001 interest payment due on the Subordinated
Notes. Under the terms of the Indenture, the Company will not be permitted to make any payments on the Subordinated
Notes until such time as the events of default noticed by the secured lender are cured by Silverleaf or waived
by the secured lender, or if the secured lender does not accelerate the maturity of the debt, for a period of 179
days from the date of the notice of default. The failure of the Company to make an interest payment on or before
the expiration of an automatic 30 day cure period after April 1, 2001 will constitute an event of default under
the Subordinated Notes.
The Company is still in the process of assessing the impact of (i) the Company's ongoing downsizing of its operations,
(ii) the Company's inability to date to obtain definitive agreements for adequate credit facilities to sustain
its downsized operations, and (iii) certain other factors, on its annual financial statements and related disclosures
for the year ended December 31, 2000. The outcome of this assessment could significantly impact the Company's results
of operations for the year ended December 31, 2000. Accordingly, Company management has not finalized its accounting
records and financial statements for the year ended December 31, 2000, and the completion of the audit of the Company's
financial statements will be delayed. The Company anticipates that it will record a substantial non-cash charge
related to various items on its year end balance sheet which will result in a loss for the fourth quarter and for
the year ended December 31, 2000. Therefore, information previously disclosed with regard to Silverleaf's 2000
projected annual results and its projected 2001 outlook should not be relied upon.
(b) Notification of Late Filing of Annual Report on Form 10-K; Postponement of Shareholder's Meeting.
On April 2, 2001, the Company filed a Notification of Late Filing on Form 12b-25 concerning its Annual Report on
Form 10-K for the period ended December 31, 2000. The Company's annual meeting of shareholders which was anticipated
to be held in May 2001 will be delayed until the Company's financial results are finalized, the audit of its financial
statements can be completed, its Annual Report on Form 10-K filed, and compliance can be achieved under applicable
proxy solicitation rules and regulations.
The preceding Current Report on Form 8-K contains forward looking statements, which include the Company's present
plans and other forecasts and statements of future expectations. Although the Company believes these statements
are based on reasonable assumptions, actual results may differ materially from those expressed in any of the Company's
forward looking statements due to, among other things, factors related to the Company's current liquidity situation,
actions that the Company's lenders may take as a result of the Company's violations of debt related covenants and
conditions, the Company's ability to promptly obtain sufficient additional funding and credit facilities to continue
as a going concern, the success of the Company's restructuring efforts and other factors identified in the Company's
filings with the Securities and Exchange Commission, including those set forth in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999 and in the Company's Current Reports on Forms 8-K filed in 2001.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned hereunto duly authorized.
Silverleaf Resorts, Inc.
By: /s/ HARRY J. WHITE JR.
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Name: Harry J. White Jr.
Title: Chief Financial Officer
Date: April 2, 2001
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