Member Update – August 21, 2006

Last Tuesday, we told you that we were prepared to provide you with details on how we will be operating our Clubs during the reorganization process, including our plans for meeting Member travel requests from now through the holiday period. We added, however, that we had been asked by the Unsecured Creditors Committee (the “UCC”) to first give them an opportunity to review and comment on our plans before sharing them with the entire Membership. Having now done so, we’re pleased to provide you with the following summary of the approach we have adopted in order to operate as efficiently as possible—and to meet Member travel requests as fully and fairly as possible—while we pursue the company’s financial reorganization.

Our ability to successfully complete that reorganization, and thereby best preserve and maximize the value of your Member deposits, largely depends on how well we control costs and increase cash flow during the reorganization process. With that in mind, after thoroughly reviewing Member demand patterns and the costs associated with particular destinations and residences, we will be modifying our destination and residence offerings in a way that we think will best accommodate Members’ destination preferences while allowing us to serve Members during the reorganization process in a financially sustainable manner. In addition, we will be increasing the daily fees associated with those offerings.
Specifically, over the next few months we will be phasing out some low-volume, high-cost destination and residence offerings, continuing to offer those destinations and residences for which there is greatest Member demand while exiting others for which there is less Member demand.

We currently operate in a total of 28 destinations, and offer a total of 192 owned or managed residences in those destinations. Once the rationalization process is fully implemented later this year, we expect to be operating in about 23 destinations with a total of about 132 owned or managed residences. A current list of available destinations and residences has been posted on our Member website and will be updated as needed.

I want to emphasize that even after rationalizing our destinations and residences, we expect to be able to meet a substantial majority of Member demand for the destinations in which we continue to operate—if Members are willing to approach their travel plans with a reasonable degree of flexibility.

Reflecting the destination rationalization, and to ensure maximum fairness in the allocation of our available inventory, we will be conducting a new lottery for holiday-season retreats. Please note that only Members in good standing of their Club will be eligible to participate in the lottery or to travel with us, so if you wish to do so please be prepared to pay your Club dues and any other amounts payable when they are due.

Again, our destination rationalization will require some flexibility on the part of our Members, but we believe that under the present circumstances this approach is reasonable and fair, and will enable us to accommodate what we hope will be a substantial majority of our Members’ travel requests.

Other decisions we have made regarding how we will operate during the reorganization process include the following:

• Members whose Club dues are payable in September must make those payments if they wish to remain Members in good standing and to be able to book retreats with their Club. We have, however, modified the payment structure for September dues to provide for monthly payments during the reorganization. In order to travel, you will need to make your monthly payments on time, and also pay any unpaid amounts for prior charges incurred.
• We have increased daily fees for stays in all Club residences, effective with travel dates on or after September 1, 2006. Please contact your MSA for details. These increases are necessary during the reorganization process, and do not necessarily reflect the ultimate financial structure of Member contracts after the reorganization. We will communicate any proposed permanent alterations in Member Agreements as we develop our Plan of Reorganization.
• Daily fees and other costs incurred by Members during Club retreats will be charged to Member credit cards immediately upon their exit from those retreats, rather than being billed and paid later.
• Some Members have arrangements with their Club that have historically included complimentary daily housekeeping services and/or free ski, golf or other services. At least while the reorganization process is under way, we will not able to absorb that expense. We will, however, be more than happy to continue to provide daily housekeeping and/or to make ski, golf or other arrangements upon Member request and at Member expense.
• Members who sought to redeem their membership prior to July 23 but were unable to do so may continue to travel to Club destinations, if they wish to do so, but on a space-available basis and at full retail rates; or, alternatively, they may reactivate their Membership by bringing their dues current and stay with us at Member rates.

Please note that these are all measures we have adopted in consultation with the UCC and under which we will operate during the financial reorganization process. Whether they will continue to apply after the company completes that process and emerges from Chapter 11 has not yet been determined, and will not be determined until the company develops, and its creditors and the Court approve, a detailed Plan of Reorganization.

We have posted an FAQ on the Member Website that addresses some additional questions you may have. Now, as always, we appreciate your continuing patience and support.

Holly Felder Etlin
Chief Restructuring Officer

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FAQ re: Member Update of August 21, 2006

Does the announced rationalization of destination offerings represent a change from Tanner & Haley’s recent promise to meet “substantially all travel commitments”?

No. We were and are committed to providing our Members with a broad range of destinations, residences and services, and to meeting our travel commitments to our Members to the greatest extent possible. At the same time, our ability to successfully navigate the financial reorganization process requires us to manage our business during that process in a way that makes economic and operational sense.

With that in mind, after thoroughly reviewing Member demand patterns, the costs associated with particular destinations and residences, and other factors, we have developed and implemented some modifications to our destination offerings that we think will best accommodate our Members’ travel preferences while allowing us to serve Members in a financially sustainable manner.

We will do our very best to accommodate any Members whose scheduled vacations are affected by this destination rationalization and to provide them with satisfactory alternatives.

Does the company stand by its commitment to provide a wide range of destinations?

Yes. After the rationalization process is fully implemented later this year, we expect to be operating in about 23 destinations, with a total of about 132 residences in those destinations. We are currently operating in 28 destinations with an active inventory of 192 owned and managed homes.

Is this the first time you have rationalized your destinations?

No. From time to time over the past eight years, the company has added or eliminated destinations, or has trimmed the number of properties in some destinations and increased the number of properties in other destinations, based upon Member demand patterns, to enhance the efficiency of its operations.

Will you be using a lottery approach every holiday season?

Not necessarily. The lottery approach we’ve developed for this year’s holiday season has been designed to best serve our Members during the reorganization process. Whether such an approach will be needed after the completion of that process has not yet been determined.

What if I cannot get the specific property that I want?

Now, as always, it may be necessary for Members to be somewhat flexible in the accommodations they are willing to accept.

When will the new daily fee structure take effect?

It will take effect beginning with travel dates on or after September 1, 2006. Please note that in order to travel with your Club you must have current billing information on file with the company.

If I don’t like this new program, can I cancel my pending reservations?

Yes, you may do so, as long as you notify your MSA in writing by September 8, 2006. After that date, normal Club policies regarding cancellation will apply.

Is “Members First” no longer an official company mantra?

To the extent that “Members First” means doing whatever it takes to keep a Member happy even if we lose money in doing so, it is not. Nevertheless, we remain committed to continuing to provide our Members with a wide choice of destinations and residences as well as outstanding service.

Has the company taken other steps to reduce its operating costs?

Yes. Since late 2005, the company has taken a much more cost-conscious approach to running its business, and in a first round of non-Member-related cost cuts earlier this year it reduced its operational overhead by 40 percent. Since then the company has looked for ways to further reduce its operating costs—including ways of operating its destinations and residences based on a highest-quality-with-lowest-cost approach.

Could my Club shut down? Will I lose more money if I pay dues and fees now?

Our plan is designed to keep our Clubs viable during the Chapter 11 process, protect and preserve vacation usage throughout the holidays, and reorganize and exit Chapter 11 as soon as possible. We also have Court authority to borrow the funds we need to operate and pay for restructuring costs. While we will continue to look for ways to cut costs while still providing first-class service, our vitality depends almost entirely on continued Club usage by Members and their acceptance of the associated rates and fees. If Members do not support their Club and help it generate cash flow based on the interim approach we have adopted, we could find it necessary to cut back further or, in a worst-case scenario, even shut down. But even under that extreme scenario, if we fail to provide you with the nights you confirm and pay for under this interim program during the reorganization process, you would be entitled to a full refund as an administrative expense priority in the company’s bankruptcy case—ahead of other Member/creditor claims for moneys paid prior to the company’s Chapter 11 filing. (You would not, however, be entitled to other damages or claims relating to the cancelled vacation, just to the return of your post-bankruptcy money.)

When can we expect a new comprehensive business plan?

We will be developing a Plan of Reorganization in consultation with the Unsecured Creditors Committee in the months ahead. The Plan will include details on our revised business model, as well as the revised Membership Agreements that Members will be asked to approve.