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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 8-B
FOR REGISTRATION OF SECURITIES OF
CERTAIN SUCCESSOR ISSUERS
FILED PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
THOUSAND TRAILS, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 75-2138671
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(State or Other Jurisdiction of Incorporation) (IRS Employer
Identification No.)
2711 Lyndon B. Johnson Freeway, Suite 200
Dallas, Texas 75234
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(Address of Principal Executive Offices) (Zip Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of Class)
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(Title of Class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
Item 1. General Information.
(a) The Registrant was incorporated under the laws of the State of
Delaware on October 1, 1996.
(b) The Registrant's fiscal year ends on June 30.
Item 2. Transaction of Succession.
(a) At the time of succession, the common stock, par value $.01 per
share, of USTrails Inc., the predecessor of the Registrant ("USTrails"), was
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "USTrails Common Stock").
(b) On November 20, 1996, USTrails was merged with and into the
Registrant, with the Registrant as the surviving entity (the "Merger"). Shares
of the Registrant's common stock, par value $.01 per share (the "Common Stock")
were exchanged for the USTrails Common Stock pursuant to an Agreement and Plan
of Merger, dated as of October 1, 1996 (the "Merger Agreement"), between the
Registrant and USTrails. The exchange was registered pursuant to a Registration
Statement on Form S-4, Registration No. 333-13339, originally filed with the
Commission on October 3, 1996 (the "Registration Statement"). Pursuant to the
Merger Agreement, each outstanding share of USTrails Common Stock was converted
into one share of the Registrant's Common Stock. The information set forth under
the heading "PROPOSAL II: THE REINCORPORATION MERGER" in the Proxy
Statement/Prospectus (the "Proxy Statement/Prospectus") that constitutes a part
of the Registration Statement, a copy of which is set forth as Exhibit 99.1
hereto, is incorporated herein by reference.
Item 3. Securities to be Registered.
The total number of authorized shares of Common Stock of the Registrant
is 15,000,000, of which 7,383,276 are issued and outstanding as of the date
hereof.
Item 4. Description of the Registrant's Securities to Be Registered.
The information set forth under Item 3 hereof is incorporated herein by
reference. The information set forth under the heading "PROPOSAL II: THE
REINCORPORATION MERGER" in the Proxy Statement/Prospectus is incorporated herein
by reference.
Item 5. Financial Statements and Exhibits.
(a) Financial Statements. Because the capital structure and balance
sheet of the Registrant immediately after the succession were substantially the
same as those of USTrails, no financial statements are being filed with this
Form 8-B.
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(b) Exhibits.
Exhibit No. Description
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2.1 Agreement and Plan of Merger, dated as of October 1, 1996,
between the Registrant and USTrails Inc. (predecessor in
interest to the Registrant) (incorporated by reference to the
proxy statement/prospectus filed with the SEC on October 3, 1996
as part of the Registration Statement on Form S-4, Registration
Statement No. 333-13339 (the "Registration Statement")).
2.2 Plan of Reorganization of USTrails (which was formerly known as
NACO Finance Corporation), dated October 15, 1991, as
supplemented (incorporated by reference to Exhibit 2.1 to
USTrails' Annual Report on Form 10-K for the year ended June 30,
1992).
2.3 Offer to Purchase for Cash USTrails' 12% Secured Notes due 1998
and Additional Series 12% Secured Notes due 1998 by USTrails,
dated June 5, 1996 (the "Offer to Purchase") (incorporated by
reference to Exhibit 99.2 to USTrails' Current Report on Form 8-
K filed with the SEC on June 7, 1996).
2.4 Supplement to the Offer to Purchase, dated June 21, 1996
(incorporated by reference to Exhibit 2.5 to USTrails' Annual
Report on Form 10-K filed with the SEC for the year ended June
30, 1996).
2.5 Private Placement Memorandum by USTrails offering to exchange
USTrails' 12% Secured Notes due 1998 and Additional Series 12%
Secured Notes due 1998 to certain holders of such notes, dated
June 28, 1996 (the "Private Placement Memorandum") (incorporated
by reference to Exhibit 2.6 to USTrails' Annual Report on Form
10-K filed with the SEC for the year ended June 30, 1996).
2.6 Letter of Transmittal pertaining to the transmittal of USTrails'
12% Secured Notes Due 1998 and Additional Series 12% Secured
Notes Due 1998 by certain holders of such notes pursuant to the
exchange offer made by USTrails in the Private Placement
Memorandum (incorporated by reference to Exhibit 2.7 to
USTrails' Annual Report on Form 10-K filed with the SEC for the
year ended June 30, 1996).
2.7 Supplement to the Private Placement Memorandum, dated July 15,
1996 (incorporated by reference to USTrails' Annual Report on
Form 10-K filed with the SEC for the year ended June 30, 1996).
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference to the proxy statement/prospectus
filed with the SEC on October 3, 1996 as part of the
Registration Statement).
3.2 Amended and Restated By-Laws of the Registrant.
4.1 Form of certificate representing shares in the Registrant's
Common Stock
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(incorporated by reference to Exhibit 4.1 to the Registration
Statement).
4.2 Form of Reorganization Warrant Certificate to purchase shares of
Common Stock and schedule of substantially identical warrants
(incorporated by reference to Exhibit 4.7 to USTrails' Annual
Report on Form 10-K for the year ended June 30, 1992).
4.3 Letter Agreement, dated March 19, 1993, between USTrails and
Carl Marks Strategic Investments, LP (incorporated by reference
to Exhibit 4.18 to USTrails' Registration Statement No. 33-
571261 on Form S-2, originally filed with the SEC on January 15,
1993).
4.4 Form of Warrant Certificate to purchase shares of Common Stock
issued pursuant to the Exchange Agreement with certain holders
of indebtedness of Thousand Trails, Inc., a former subsidiary of
USTrails which has disappeared by merger into USTrails ("Old
Trails") (incorporated by reference to Exhibit 4.3 to USTrails'
Current Report on Form 8-K filed with the SEC on June 25, 1992)
and schedule of substantially identical warrants (incorporated
by reference to Exhibit 4.15 to USTrails' Annual Report on Form
10-K for the year ended June 30, 1992).
4.5 Warrant Agency Agreement, dated as of March 2, 1994, between
USTrails and Shawmut Bank Connecticut, National Association, as
Warrant Agent (incorporated by reference to Exhibit 4.4 to
USTrails' Current Report on Form 8-K filed with the SEC on April
11, 1994).
4.6 Registration Rights Agreement, dated as of December 31, 1991,
regarding USTrails' Secured Notes and other securities
(incorporated by reference to Exhibit 4.8 to USTrails' Annual
Report on Form 10-K for the year ended June 30, 1992).
4.7 Registration Rights Agreement, dated as of June 12, 1992,
regarding USTrails' Additional Series Secured Notes and the
shares of Common Stock issuable upon the exercise of certain
warrants (incorporated by reference to Exhibit 4.4 of USTrails'
Current Report on Form 8-K filed with the SEC on June 25, 1992).
4.8 Indemnification Agreement, dated as of January 14, 1993, between
USTrails and the selling security holders under Registration
Statement No. 33-571261 (incorporated by reference to Exhibit
10.44 to USTrails' Registration Statement No. 33-571261 on Form
S-2, originally filed with the SEC on January 15, 1993).
4.9 Indenture, dated as of July 17, 1996, among USTrails, Fleet
National Bank as Trustee, and certain other parties described
therein, pertaining to USTrails' Senior Subordinated Pay-In-Kind
Notes Due 2003 (the "Indenture") (incorporated by reference to
Exhibit 4.36 to USTrails' Annual Report on Form 10-K filed with
the SEC for the year ended June 30, 1996).
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4.10 First Supplemental Indenture, dated as of November 20, 1996, by
and among the Registrant, each subsidiary of the Registrant
named as a subsidiary guarantor therein and Fleet National Bank,
as Trustee.
4.11 Form of Senior Subordinated Pay-In-Kind Note Due 2003
(incorporated by reference to Exhibit 4.37 to USTrails' Annual
Report on Form 10-K filed with the SEC for the year ended June
30, 1996).
4.12 Registration Rights Agreement, dated as of July 17, 1996,
between USTrails and Fleet National Bank as Trustee
(incorporated by reference to Exhibit 4.38 to USTrails' Annual
Report on Form 10-K filed with the SEC for the year ended June
30, 1996).
10.1 Credit Agreement, dated as of December 31, 1991, between the
Company and NACO (incorporated by reference to Exhibit 10.27 to
the Company's Annual Report on Form 10-K for the year ended June
30, 1992).
10.2 First Amendment to Credit Agreement, dated as of May 20, 1993,
between the Company and NACO (incorporated by reference to
Exhibit 10.48 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1993).
10.3 Second Amendment to Credit Agreement, dated as of November 10,
1994, between the Company and NACO (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995).
10.4 Amended and Restated Promissory Note, dated as of November 10,
1994, pursuant to which the Company provides a $40,000,000
revolving credit facility to NACO (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995).
10.5 Amended and Restated Promissory Note, dated as of November 10,
1994, pursuant to which the Company provided a $10,765,000 term
loan to NACO (incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended June 30,
1995).
10.6 Guaranty, dated as of December 31, 1991, pursuant to which the
subsidiaries of NACO guaranteed certain amounts that NACO owes
the Company (incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement No. 33-73284 on Form S-2,
originally filed with the SEC on December 22, 1993).
10.7 Release From Guaranty, dated as of May 31, 1993, among certain
subsidiaries of the Company, the Company, and Shawmut Bank
Connecticut, National Association, as Trustee (incorporated by
reference to Exhibit 10.56 to the Company's Registration
Statement No. 33-571261 on Form S-2, originally filed with the
SEC on January 15, 1993).
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10.8 Release under Credit Agreement and Security Agreement, dated as
of May 31, 1993, among certain subsidiaries of USTrails,
USTrails, and Shawmut Bank Connecticut, National Association, as
Trustee (incorporated by reference to Exhibit 10.57 to USTrails'
Registration Statement No. 33-571261 on Form S-2, originally
filed with the SEC on January 15, 1993).
10.9 Security Agreement, dated as of December 31, 1991, pursuant to
which NACO granted to USTrails a security interest in
substantially all of its personal and real property including
the pledge of NACO's stock in its subsidiaries as required by
the credit agreement between USTrails and NACO (incorporated by
reference to Exhibit 10.31 to USTrails' Annual Report on Form
10-K for the year ended June 30, 1992).
10.10 First Supplement and Amendment to Security Agreement, dated as
of May 20, 1993, among NACO and certain of its subsidiaries,
RPI, USTrails, and Shawmut Bank Connecticut, National
Association, as Trustee (incorporated by reference to Exhibit
10.53 to USTrails' Registration Statement No. 33-571261 on Form
S-2, originally filed with the SEC on January 15, 1993).
10.11 Form of Mortgage from NACO and its subsidiaries to USTrails
pursuant to the credit agreement between USTrails and NACO
(incorporated by reference to Exhibit 10.32 to USTrails' Annual
Report on Form 10-K for the year ended June 30, 1992), and
schedule of documents substantially identical to the Form of
Mortgage (incorporated by reference to Exhibit 10.55 to
USTrails' Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993).
10.12 Form of First Amendment to Mortgage from NACO and its
subsidiaries to USTrails amending certain terms of a Mortgage
that previously granted a beneficial security interest in
certain property to USTrails pursuant to the credit agreement
between USTrails and NACO, and schedule of documents
substantially identical to the Form of First Amendment to
Mortgage (incorporated by reference to Exhibit 10.13 to
USTrails' Annual Report on Form 10-K for the year ended June 30,
1995).
10.13 Loan and Security Agreement, dated as of July 10, 1996, between
USTrails and Foothill Capital Corporation (incorporated by
reference to Exhibit 10.19 to USTrails' Annual Report on Form
10-K filed with the SEC for the year ended June 30, 1996).
10.14 Secured Promissory Note (Account Note), dated July 10, 1996,
between USTrails and Foothill Capital Corporation (incorporated
by reference to Exhibit 10.20 to USTrails' Annual Report on Form
10-K filed with the SEC for the year ended June 30, 1996).
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10.15 Secured Promissory Note (Term Note), dated July 10, 1996,
between USTrails and Foothill Capital Corporation (incorporated
by reference to Exhibit 10.21 to USTrails' Annual Report on Form
10-K filed with the SEC for the year ended June 30, 1996).
10.16 Form of Pledge and Security Agreement, dated as of July 10,
1996, between USTrails and Foothill Capital Corporation, and
schedule of documents substantially identical to the form of
Pledge and Security Agreement (incorporated by reference to
Exhibit 10.22 to USTrails' Annual Report on Form 10-K filed with
the SEC for the year ended June 30, 1996).
10.17 Form of Mortgage, dated as of July 10, 1996, to grant liens to
Foothill Capital Corporation to secure USTrails' obligations
under the Credit Agreement with Foothill, and schedule of
documents substantially identical to the form of Mortgage
(incorporated by reference to Exhibit 10.23 to USTrails' Annual
Report on Form 10-K filed with the SEC for the year ended June
30, 1996).
10.18 Form of Assignment of Indebtedness and Mortgage, dated as of
July 10, 1996, transferring the liens securing certain
indebtedness that NACO owes to USTrails to Foothill Capital
Corporation under the Credit Agreement with Foothill, and
schedule of documents substantially identical to the form of
Assignment of Indebtedness and Mortgage (incorporated by
reference to Exhibit 10.24 to USTrails' Annual Report on Form
10-K filed with the SEC for the year ended June 30, 1996).
10.19 Form of Subordination Agreement, dated as of July 10, 1996,
between USTrails and Foothill Capital Corporation, subordinating
the security interests under the credit agreement between
USTrails and NACO to the security interests under the Credit
Agreement with Foothill, and schedule of documents substantially
identical to the form of Subordination Agreement (incorporated
by reference to Exhibit 10.25 to USTrails' Annual Report on Form
10-K filed with the SEC for the year ended June 30, 1996).
10.20 USTrails' 1991 Employee Stock Incentive Plan (incorporated by
reference to Exhibit 10.40 to USTrails' Annual Report on Form
10-K for the year ended June 30, 1992).
10.21 USTrails' 1993 Stock Option and Restricted Stock Purchase Plan
(incorporated by reference to Exhibit 10.22 to USTrails'
Registration Statement No. 33-73284 on Form S-2, originally
filed with the SEC on December 22, 1993).
10.22 USTrails' 1993 Director Stock Option Plan (incorporated by
reference to Exhibit 10.23 to USTrails' Registration Statement
No. 33-73284 on Form S-2, originally filed with the SEC on
December 22, 1993).
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10.23 Amendment No. 1 to USTrails' 1991 Employee Stock Incentive Plan
(incorporated by reference to Exhibit 10.8 to USTrails'
Quarterly Report on Form 10-Q for the period ending September
30, 1996).
10.24 Amendment No. 1 to USTrails' 1993 Stock Option and Restricted
Stock Purchase Plan (incorporated by reference to Exhibit 10.9
to USTrails' Quarterly Report on Form 10-Q for the period ending
September 30, 1996).
10.25 Amendment No. 1 to USTrails' 1993 Director Stock Option Plan
(incorporated by reference to Exhibit 10.10 to USTrails'
Quarterly Report on Form 10-Q for the period ending September
30, 1996).
10.26 Stock Option Agreement, dated as of August 1, 1996 between
USTrails and William J. Shaw.
10.27 Assumption of Obligations, dated as of November 20, 1996, by the
Registrant, assuming the obligations of USTrails under the
USTrails Inc. 1991 Employee Stock Incentive Plan, as amended;
the USTrails Inc. 1993 Stock Option and Restricted Stock
Purchase Plan, as amended; the USTrails Inc. 1993 Director Stock
Option Plan, as amended; Warrant Certificates originally issued
on December 31, 1991, June 12, and March 2, 1994 to May 16,
1995; and the Stock Option Agreement, dated as of August 1,
1996, between USTrails and William J. Shaw.
10.28 Employment Agreement, dated as of May 11, 1995, between USTrails
and William J. Shaw, and related Standby Letter of Credit, dated
September 22, 1995, issued by The Bank of California, N.A., for
the benefit of Mr. Shaw, and Letter, dated September 20, 1995,
from The Wyatt Company, regarding Mr. Shaw's Employment
Agreement (incorporated by reference to Exhibit 10.25 to
USTrails' Annual Report on Form 10-K for the year ended June 30,
1995).
10.29 Letter dated June 29, 1996, from William J. Shaw to USTrails,
regarding Mr. Shaw's election to receive the Enterprise Bonus
payable under his Employment Agreement, and Letter, dated July
8, 1996, from Deloitte & Touche LLP, regarding the computation
of the amount of the Enterprise Bonus payable to Mr. Shaw under
his Employment Agreement (incorporated by reference to Exhibit
10.30 to USTrails' Annual Report on Form 10-K for the year ended
June 30, 1996).
10.30 Amended and Restated Employment Agreement, dated as of September
10, 1992, among NACO, Old Trails, RPI, and William F. Dawson
(incorporated by reference to Exhibit 10.49 to USTrails' Annual
Report on Form 10-K for the year ended June 30, 1993), and
Letter, dated December 1, 1995, from RPI to William F. Dawson,
regarding certain compensation arrangements (incorporated by
reference to Exhibit 10.4 to USTrails' Quarterly on Form 10-Q
for the quarter ended December 31, 1995).
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10.31 Amended and Restated Employment Agreement, dated as of December
2, 1992, among USTrails, NACO, Old Trails, and Walter B. Jaccard
(incorporated by reference to Exhibit 10.1 to USTrails'
Quarterly Report on Form 10-Q for the quarter ended December 31,
1992), and amendment dated November 15, 1994 (Incorporated by
reference to Exhibit 10.30 to USTrails' Annual Report on Form
10-K for the year ended June 30, 1995), and amendment dated
December 7, 1995 (incorporated by reference to Exhibit 10.1 to
USTrails' Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995).
10.32 Amended and Restated Employment Agreement, dated as of October
21, 1993, between USTrails and Harry J. White, Jr. (incorporated
by reference to Exhibit 99.3 to USTrails' Quarterly Report on
Form l0-Q for the quarter ended September 30, 1993), and
amendment dated December 7, 1995 (incorporated by reference to
Exhibit 10.2 to USTrails' Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
10.33 Employment Agreement, dated as of August 31, 1995, between
USTrails and R. Gerald Gelinas (incorporated by reference to
Exhibit 10.32 to USTrails' Annual Report on Form 10-K for the
year ended June 30, 1995).
10.34 Indemnification Agreement, dated as of February 18, 1992,
between USTrails and Andrew Boas (incorporated by reference to
Exhibit 10.23 to USTrails' Annual Report on Form 10-K for the
year ended June 30, 1992), and schedule of substantially
identical Indemnification Agreements (incorporated by reference
to Exhibit 10.33 to USTrails' Annual Report on Form 10-K for the
year ended June 30, 1995).
10.35 Indemnification Agreement, dated as of September 1, 1995,
between Old Trails and William J. Shaw, and schedule of
substantially identical Indemnification Agreements (incorporated
by reference to Exhibit 10.36 to USTrails' Annual Report on Form
10-K filed with the SEC for the year ended June 30, 1996).
10.36 Indemnification Agreement, dated as of September 1, 1995,
between NACO and William J. Shaw, and schedule of substantially
identical Indemnification Agreements (incorporated by reference
to Exhibit 10.37 to USTrails' Annual Report on Form 10-K filed
with the SEC for the year ended June 30, 1996).
10.37 Indemnification Agreement, dated as of May 8, 1991, between
USTrails and Donald W. Hair, and schedule of substantially
identical Indemnification Agreements (incorporated by reference
to Exhibit 10.38 to USTrails' Annual Report on Form 10-K filed
with the SEC for the year ended June 30, 1996).
10.38 Lease, dated February 24, 1994, as amended, between Carter-
Crowley Properties, Inc. as lessor, and USTrails as lessee,
relating to USTrails' offices in Dallas, Texas (incorporated by
reference to Exhibit 10.35 to USTrails' Annual Report on Form
10-K for the year ended June 30,1994).
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10.39 Lease, dated October 7, 1987, as amended, between Hardy Court
Shopping Center, Inc. as lessor, and NACO as lessee, relating to
NACO's offices in Gautier, Mississippi (incorporated by
reference to Exhibit 10.36 to USTrails' Annual Report on Form
10-K for the year ended June 30, 1994).
10.40 Grantor Trust Agreement, dated as of September 30, 1991, between
The Bank of California, N.A. and Old Trails (incorporated by
reference from Old Trails' Annual Report on Form 10-K for the
year ended June 30, 1992, File No. 0-9246).
10.41 Grantor Trust Agreement, dated as of September 30, 1991, between
The Bank of California, N.A. and NACO (incorporated by reference
to Exhibit 10.43 to USTrails' Annual Report on Form 10-K for the
year ended June 30, 1992).
10.42 Grantor Trust Agreement, dated May 8, 1991, between USTrails and
Texas Commerce Bank, N.A. (the "TCB Trust Agreement")
(incorporated by reference to Exhibit 10.41 to USTrails' Annual
Report on Form 10-K for the year ended June 30, 1992).
10.43 Supplement to Grantor Trust Agreement, dated as of November 20,
1996, by the Registrant in favor of Texas Commerce Bank, N.A.
supplementing the TCB Trust Agreement.
10.44 Supplement and Succession Agreement to Grantor Trust Agreement,
dated as of October 13, 1992, among The Bank of California,
N.A., Texas Commerce Bank, National Association, USTrails, and
certain beneficiaries under the Grantor Trust Agreement
(incorporated by reference to Exhibit 10.51 to USTrails'
Registration Statement No. 33-571261 on Form S-2, originally
filed with the SEC on January 15, 1993).
10.45 Trust Agreement, dated as of July 22, 1992, establishing
USTrails' Flexible Benefits Plan Trust Fund (incorporated by
reference to Exhibit 10.45 to USTrails' Annual Report on Form
10-K for the year ended June 30, 1992).
10.46 USTrails Inc. Employee Savings Trust, dated as of July 1, 1994,
between USTrails and its subsidiaries and The Bank of
California, N.A., as trustee (incorporated by reference to
Exhibit 10.42 to USTrails' Annual Report on Form 10-K for the
year ended June 30, 1994).
10.47 Tax Allocation Agreement, dated as of September 10, 1992,
between USTrails and RPI (incorporated by reference to Exhibit
99.6 to USTrails' Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993).
10.48 Tax Allocation Agreement, dated as of July 1, 1991, between
USTrails and NACO (incorporated by reference to Exhibit 10.44 to
USTrails' Annual Report on Form 10-K for the year ended June 30,
1994).
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10.49 Tax Allocation Agreement, dated as of October 29, 1993, between
USTrails and Wilderness Management (incorporated by reference to
Exhibit 10.46 to USTrails' Annual Report on Form 10-K for the
year ended June 30, 1994).
10.50 Sample form of current Membership Contract (incorporated by
reference to Exhibit 10.20 to USTrails' Annual Report on Form
10-K filed with the SEC for the year ended June 30, 1996).
10.51 Form of Subordination Agreement, dated as of July 10, 1996,
between USTrails and Foothill Capital Corporation, subordinating
the security interests under the credit agreement between
USTrails and NACO to the security interests under the Credit
Agreement with Foothill, and schedule of documents substantially
identical to the form of Subordination Agreement (incorporated
by reference to Exhibit 10.25 to USTrails' Annual Report on Form
10-K for the year ended June 30, 1996).
21.1 Subsidiaries of the Registrant.
99.1 Proxy Statement/Prospectus of USTrails, dated October 10, 1996,
delivered to shareholders of USTrails and included as part of
the Registration Statement on Form S-4, Registration Statement
No. 333-13339.
[SIGNATURE ON NEXT PAGE]
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereto duly authorized.
Dated: November 27, 1996 THOUSAND TRAILS, INC.
By: /s/ Walter B. Jaccard
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Name: Walter B. Jaccard
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Title: Vice President
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EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
THOUSAND TRAILS, INC.
ARTICLE I
OFFICES
1.1 Registered Office and Agent. Thousand Trails, Inc. (hereinafter the
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"Corporation"), a Delaware corporation, shall maintain a registered office
within the State of Delaware and shall have a registered agent whose business
office is identical with such registered office.
1.2 Other Offices. In addition to its registered office, the Corporation
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may have offices at such other place or places, within or without the State of
Delaware, as the board of directors of the Corporation (hereinafter the "Board
of Directors") may from time to time appoint or as the business of the
Corporation may require or make desirable.
ARTICLE II
STOCKHOLDERS' MEETINGS
2.1 Place of Meetings. Meetings of the stockholders may be held at any
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place within or without the State of Delaware as set forth in the notice thereof
or, in the event of a meeting held pursuant to waiver of notice, as set forth in
the waiver, or if no place is so specified, at the principal offices of the
Corporation.
2.2 Annual Meetings. The annual meeting of stockholders shall be held on
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a date and at a time following the end of the Corporation's fiscal year as may
be determined by the Board of Directors, for the purpose of electing directors
and transacting any and all business that may properly come before the meeting.
2.3 Special Meetings. Special meetings of the stockholders may be called
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at any time by the President, the Secretary or a majority of the directors.
Special meetings of the stockholders shall be called by the Corporation upon the
written request of the holders of fifty percent (50%) or more of all the shares
of capital stock of the Corporation entitled to vote in an election of
directors.
2.4 Notice of Meetings. Unless otherwise required by law or unless waived
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as contemplated in Section 5.2 or as provided in this Section 2.4, a written or
printed notice of each stockholders' meeting stating the place, date and time of
the meeting, and the purpose or purposes for which the meeting is called, shall
be given not less than ten (10) days nor more than sixty (60) days before the
date thereof, either personally or by postage prepaid mail, by or at the
direction of the President, a Vice President, the Secretary, or the director or
persons calling the meeting, to each stockholder of record entitled to vote at
such meeting. Attendance
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at the meeting, either in person or by proxy, for any purpose other than to
object to the transaction of business, shall constitute waiver of the
requirement of notice of the meeting.
2.5 Business for Stockholders' Meetings.
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(a) Business at Annual Meetings. Only business properly brought before
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an annual meeting of the stockholders may be transacted at such meeting. To
be properly brought before an annual meeting, business must be (i) brought
by or at the direction of the Board of Directors, or (ii) brought before
the meeting by a stockholder pursuant to written notice thereof, in
accordance with Section 2.5(c) hereof, and received by the Secretary not
fewer than sixty (60) nor more than ninety (90) days prior to the date
determined pursuant to Section 2.2 hereof for such annual meeting (or if
less than sixty (60) days notice of the date of the annual meeting is given
or made to the stockholders, not later than the tenth day following the day
on which the notice of the date of the annual meeting was mailed). Any
stockholder notice shall set forth (i) the name and address of the
stockholder proposing such business; (ii) a representation that the
stockholder is entitled to vote at such meeting and a statement of the
number of shares of the Corporation which are beneficially owned by the
stockholder; (iii) a representation that the stockholder intends to appear
in person or by proxy at the meeting to propose such business; and (iv) as
to each matter the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting, the language of
the proposal (if appropriate), and any material interest of the stockholder
in such business. No business shall be conducted at any annual meeting of
stockholders except in accordance with this Section 2.5(a). If the facts
warrant, the Board of Directors, or the chairman of an annual meeting of
stockholders, may declare that business was not properly brought before the
meeting in accordance with the provisions of this Section 2.5(a) and, if it
is so determined, any such business not properly brought before the meeting
shall not be transacted. The procedures set forth in this Section 2.5(a)
for business to be properly brought before an annual meeting by a
stockholder are in addition to, and not in lieu of, the requirements set
forth in Rule 14a-8, promulgated under Section 14 of the Securities
Exchange Act of 1934, or any successor provision.
(b) Business at Special Meetings. At any special meeting of the
----------------------------
stockholders, only such business as is specified in the notice of such
special meeting given by or at the direction of the person or persons
calling such meeting, in accordance with Section 2.3 hereof, shall come
before such meeting.
(c) Notice to Corporation. Any written notice required to be delivered
---------------------
by a stockholder to the Corporation pursuant to Section 2.3, 2.5(a) or
2.5(b) hereof must be given, either by personal delivery or by registered
or certified mail, postage prepaid, to the Secretary at the Corporation's
principal executive office.
2.6 Quorum. At all meetings of the stockholders, a majority of the
------
holders of the shares outstanding and entitled to vote, present in person or
represented by proxy, shall constitute a quorum. If a quorum is present, a
majority of the shares outstanding and entitled to vote which are present in
person or represented by proxy at any meeting shall determine any matter coming
before the meeting unless a different vote is required by statute, by the
Certificate of Incorporation or by these Bylaws. The stockholders at a meeting
at which a quorum is once present may continue to transact business at the
meeting or at any adjournment thereof, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
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2.7 Proxies. A stockholder entitled to vote may vote in person or by
-------
proxy executed in writing by the stockholder or by his attorney in fact. A
proxy shall not be valid after three (3) years from the date of its execution,
unless the person executing it specifies therein the length of time for which it
is to continue in force. If the validity of any proxy is questioned it must be
submitted to the secretary of the stockholders' meeting for examination or to a
proxy officer or committee appointed by the person presiding at the meeting.
The secretary of the meeting or, if appointed, the proxy officer or committee
shall determine the validity or invalidity of any proxy submitted and reference
by the secretary in the minutes of the meeting to the regularity of a proxy
shall constitute prima facie evidence of the facts stated in the minutes for the
purpose of establishing the presence of a quorum at such meeting and for all
other purposes.
2.8 Presiding Officer. The Chairman of the Board, the President, a Vice
-----------------
President or a director selected by the Board of Directors in that order, shall
serve as the chairman of every stockholders' meeting unless some other person is
elected to serve as chairman by a majority vote of the shares represented at the
meeting. The chairman shall appoint such persons as he deems required to assist
with the meeting.
2.9 Adjournments. When a quorum is once present to organize a meeting,
------------
any meeting of the stockholders may be adjourned by the holders of a majority of
the voting shares represented at the meeting to reconvene at a specific time and
place notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. It shall not be necessary to give notice of the reconvened meeting and
of the business to be transacted to all of the stockholders. At any such
reconvened meeting any business may be transacted which could have been
transacted at the meeting which was adjourned. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
2.10 Action of Stockholders Without a Meeting. Except as limited by the
----------------------------------------
Delaware General Corporation Law, any action required by the Delaware General
Corporation Law to be taken at a meeting of the stockholders, or any action
which may be taken at a meeting of the stockholders, may be taken without a
meeting without prior notice and without a vote if a consent or consents in
writing, setting forth the action so taken, shall be signed by holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all of the
shares entitled to vote thereon were presented and voted, and shall be delivered
to the Corporation to its registered office in Delaware, its principal place of
business or an officer or agent of the Corporation having custody of the minute
books of the Corporation. Such consent shall have the same force and effect as
a vote of the stockholders at a meeting called for the purpose of considering
the action authorized.
ARTICLE III
THE BOARD OF DIRECTORS
3.1 General Powers. The business and affairs of the Corporation shall be
--------------
managed by the Board of Directors. In addition to the powers and authority
expressly conferred upon it by these Bylaws, the Board of Directors may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by law, by any lawful agreement among stockholders of the Corporation or by
the Certificate of Incorporation directed or required to be exercised or done by
the stockholders.
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3.2 Number, Election and Term of Office. The number of directors of the
-----------------------------------
Corporation shall be as determined from time to time by resolution, duly
adopted, of either the stockholders or the Board of Directors. Absent such
resolution of the stockholders or Board of Directors, the number of directors of
the Corporation shall be six (6). In the event the number of directors is
decreased, such decrease shall not shorten the term of an incumbent director.
Except as provided herein and in Section 3.4, the directors shall be elected at
each annual meeting of the stockholders, or at a special meeting of stockholders
called for purposes that include the election of directors, in either case by
the affirmative vote of the holders of a majority of the shares represented at
the meeting. Each director, except in case of death, resignation, retirement,
disqualification, or removal, shall serve until the next succeeding meeting at
which directors are elected and thereafter until his successor shall have been
elected and has qualified.
3.3 Removal. The entire Board of Directors or any individual director may
-------
be removed from office with or without cause by the affirmative vote of the
holders of a majority of all of the shares entitled to vote at an election of
directors. Removal action may be taken at any stockholders' meeting with
respect to which notice of such purpose has been given, and a removed director's
successor may be elected at the same meeting to serve the unexpired term.
3.4 Vacancies. A vacancy occurring in the Board of Directors, including
---------
vacancies occurring by reason of an increase in the number of directors or by
reason of the resignation of a director may be filled for the unexpired term and
until his successor shall have been elected and qualified, by the affirmative
vote of a majority of the directors remaining in office though less than a
quorum of the Board of Directors.
3.5 Compensation. Directors may receive such compensation for their
------------
services as directors as may from time to time be fixed by vote of the Board of
Directors including, but not limited to a fixed fee and expenses of attendance
for attendance at each meeting. A director may also serve the Corporation in a
capacity other than that of director and receive compensation, as determined by
the Board of Directors, for services rendered in such other capacity.
3.6 Committees of the Board of Directors. The Board of Directors by
-------------------------------------
resolution adopted by a majority of the full Board of Directors may designate
from among its members an executive committee and one or more other standing or
ad hoc committees, each consisting of one or more directors. Except as
prohibited by law, each committee shall have the authority set forth in the
resolution establishing such committee.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
4.1 Regular Meetings. Regular meetings of the Board of Directors shall be
----------------
held immediately before or after the annual meeting of stockholders. In
addition, the Board of Directors may schedule other regular meetings to occur at
other times during the year.
4.2 Special Meetings. Special meetings of the Board of Directors may be
----------------
called by or at the request of the President, a Vice President or by any two
directors, with notice to each director pursuant to Section 4.4.
4.3 Place of Meetings. Directors may hold their meetings at any place
-----------------
within or without the State of Delaware as the Board of Directors may from time
to time establish for regular meetings or as set forth in the notice of special
meetings or, in the event of a meeting held pursuant to waiver of notice, as set
forth in the waiver.
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4.4 Notice of Meetings. No additional notice shall be required for any
------------------
scheduled regular meeting of the directors of the Corporation. Unless waived as
contemplated in Section 5.2, the President, the Secretary or any director shall
give notice to each director of each special meeting called in accordance with
Section 4.2 stating the time, place and purposes of the meeting. Such notice
shall be given by mailing a notice of the meeting at least five (5) business
days before the date of the meeting, or by telephone, telegram,
telecommunication, cablegram or personal delivery at least two (2) business days
before the date of the meeting. Notice shall be deemed to have been given by
telegram or cablegram at the time notice is filed with the transmitting agency.
Attendance by a director at a meeting shall constitute waiver of notice of such
meeting, except where a director attends a meeting for the express purpose of
objecting to the transaction of business because the meeting is not lawfully
called.
4.5 Quorum. At meetings of the Board of Directors, more than one-half
------
(1/2) of the directors then in office shall be necessary to constitute a quorum
for the transaction of business, unless a greater number is required by law, the
Certificate of Incorporation or these Bylaws. If a quorum shall not be present
at any meeting of directors, the directors present may adjourn the meeting from
time to time until a quorum shall be present, without notice of the time and
place that the meeting will be reconvened other than announcement at the
adjourned meeting.
4.6 Vote Required for Action. Except as otherwise provided in the
-------------------------
Certificate of Incorporation, these Bylaws or by law, the act of a majority of
the directors present at a meeting at which a quorum is present at the time
shall be the act of the Board of Directors.
4.7 Participation by Conference Telephone. Members of the Board of
-------------------------------------
Directors, or members of any committee designated by the Board of Directors, may
participate in a meeting of the Board or of such committee by means of
conference telephone or similar communications equipment through which all
persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this Section 4.7 shall constitute presence in person at such
meeting.
4.8 Action by Directors Without a Meeting. Any action required or
-------------------------------------
permitted to be taken at any meeting of the Board of Directors or any action
which may be taken at a meeting of a committee of directors may be taken without
a meeting if a written consent thereto shall be signed by all the directors, or
all the members of the committee, as the case may be, and if such written
consent is filed with the minutes of the proceedings of the Board of Directors
or the committee. Such consent shall have the same force and effect as a
unanimous vote of the Board of Directors or the committee.
4.9 Adjournments. A meeting of the Board of Directors, whether or not a
------------
quorum is present, may be adjourned by a majority of the directors present to
reconvene at a specific time and place. It shall not be necessary to give to
all of the directors notice of the reconvened meeting and of the business to be
transacted, other than by announcement at the meeting which was adjourned. At
any such reconvened meeting at which a quorum is present, any business may be
transacted which could have been transacted at the meeting which was adjourned.
ARTICLE V
NOTICE AND WAIVER
5.1 Procedure. Whenever these Bylaws require notice to be given to any
---------
stockholder or director, the notice shall be given as prescribed in Sections 2.4
or 4.4 for any stockholder or director, respectively. Whenever notice is given
to a stockholder or director by mail, the notice shall be sent first class mail
by depositing the same in a post office or letter box
5
<PAGE>
in a postage prepaid sealed envelope addressed to the stockholder or director at
his address as it appears on the books of the Corporation, and such notice shall
be deemed to have been given at the time the same is deposited in the United
States mail.
5.2 Waiver. Except as limited by the Delaware General Corporation Law,
------
whenever any notice is required to be given to any stockholder or director by
law, by the Certificate of Incorporation or by these Bylaws, a written waiver
signed by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice.
ARTICLE VI
OFFICERS
6.1 Number. The officers of the Corporation shall be a President, a
------
Secretary and a Treasurer, and such other officers as may be appointed by the
Board of Directors or by a duly appointed officer from time to time. The Board
of Directors shall have sole power and authority to appoint executive officers.
As used herein, the term "executive officer" shall mean the President, principal
financial officer, controller or principal accounting officer, any Vice
President in charge of a principal business unit, division or function or any
other officer who performs a policy-making function. The Board of Directors or
an officer designated by the Board of Directors may appoint such other officers
and assistant officers to hold office for such period, have such authority and
perform such duties as may be prescribed. The Board of Directors may delegate
to any other officer the power to appoint any subordinate officers and to
prescribe their respective terms of office, authority and duties. Any two or
more offices may be held by the same person, except the offices of President and
Secretary.
6.2 Election and Term. All officers shall be elected by the Board of
-----------------
Directors and shall serve at the will of the Board of Directors and until their
successors have been elected and have qualified or until their earlier death,
resignation, removal, retirement or disqualification.
6.3 Compensation. The compensation of all officers of the Corporation
------------
shall be fixed by the Board of Directors or by a committee or officer appointed
by the Board.
6.4 Removal. Any officer or agent elected or appointed by the Board of
-------
Directors may be removed by the Board of Directors, with or without cause,
whenever in its judgment the best interests of the Corporation will be served
thereby.
6.5 Chairman of the Board. If there shall be a Chairman of the Board, he
---------------------
shall be the chief executive officer of the Corporation and shall have general
supervision of the business of the Corporation. He shall see that all orders
and resolutions of the Board of Directors are carried into effect and shall call
to order meetings of the stockholders and of the Board of Directors, and shall
act as chairman of such meetings (unless another person is selected under
Section 2.8 to act as chairman). The Chairman of the Board shall have such
other powers and duties as may from time to time be prescribed by the Board of
Directors, upon written direction given to him pursuant to resolution duly
adopted by the Board of Directors.
6.6 President. The President shall be the chief operating officer of the
---------
Corporation and shall have supervision of the day to day business of the
Corporation. The President shall perform such other duties and have such other
powers as the Board of Directors may determine from time to time. The President
shall be authorized to appoint one or more Assistant Secretaries and one or more
Assistant Treasurers. In the absence or disability of the Chairman of the
Board, at the direction of the Chairman of the Board, or if the Board of
Directors chooses not to designate a Chairman of the Board, the President shall,
in addition to the duties and powers of the President as specified in these
Bylaws or otherwise, perform the
6
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duties and exercise the powers, whether such duties are specified in these
Bylaws or otherwise, of the Chairman of the Board.
6.7 Vice President. If there shall be a Vice President, he shall, in the
--------------
absence or disability of the President, or at the direction of the President,
perform the duties and exercise the powers, whether such duties and powers are
specified in these Bylaws or otherwise, of the President. If the Corporation
has more than one Vice President, the one designated by the Board of Directors
shall act in lieu of the President. Vice Presidents shall perform such other
duties and have such other powers as the Board of Directors may determine from
time to time.
6.8 Secretary. The Secretary shall keep accurate records of the acts and
---------
proceedings of all meetings of stockholders, directors and committees of
directors. He shall have authority to give all notices required by law or these
Bylaws. He shall be responsible for the custody of the corporate books,
records, contracts and other documents. The Secretary may affix the corporate
seal to any lawfully executed documents requiring it and shall sign such
instruments as may require his signature. The Secretary shall perform such
other duties and have such other additional powers as the Board of Directors may
determine from time to time.
6.9 Treasurer. The Treasurer shall be responsible for the custody of all
---------
funds and securities belonging to the Corporation and for the receipt, deposit
or disbursement of such funds and securities under the direction of the Board of
Directors. The Treasurer shall cause full and true accounts of all receipts and
disbursements to be maintained and shall make such reports of same as the Board
of Directors and President request. The Treasurer shall perform such other
duties and have such other powers as the Board of Directors may determine from
time to time.
6.10 Assistant Secretaries and Assistant Treasurers. The Assistant
----------------------------------------------
Secretary and Assistant Treasurer (or if there be more than one of either such
officer, the one so designated by the Board of Directors or by the President)
shall, in the absence or disability, or at the direction, of the Secretary or
the Treasurer, respectively, perform the duties and exercise the powers, whether
such duties and powers are specified in these Bylaws or otherwise, of those
offices. Each Assistant Secretary and Assistant Treasurer shall perform such
other duties and have such other powers as the Board of Directors may determine
from time to time, and each Assistant Secretary may affix the corporate seal to
all necessary documents and attest the signature of any officer of the
Corporation.
6.11 Bonds. The Board of Directors may by resolution require any or all
-----
of the officers, agents or employees of the Corporation to give bonds to the
Corporation, with sufficient surety or sureties, conditioned on the faithful
performance of the duties of their respective offices or positions, and to
comply with such other conditions as may from time to time be required by the
Board of Directors.
ARTICLE VII
DIVIDENDS
Subject to the provisions of the Certificate of Incorporation and the
Delaware General Corporation Law, distributions upon the stock of the
Corporation may be declared by the Board of Directors as and when they deem
expedient. Dividends may be paid in cash, in property, or in shares of the
Corporation.
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ARTICLE VIII
SHARES
8.1 Authorization and Issuance of Shares. The par value and the maximum
------------------------------------
number of shares of any class of the Corporation which may be issued and
outstanding shall be set forth from time to time in the Certificate of
Incorporation of the Corporation or, with respect to a class of preferred or
special stock, by a resolution adopted by the Board of Directors pursuant to the
Delaware General Corporation Law. The Board of Directors may increase or
decrease the number of issued and outstanding shares of any class of the
Corporation within the maximum authorized by the Certificate of Incorporation
and the minimum requirements of the Certificate of Incorporation or Delaware
law.
8.2 Share Certificates. The interest of each stockholder in the
------------------
Corporation shall be evidenced by a certificate or certificates representing
shares of the Corporation which shall be in such form as the Board of Directors
may from time to time adopt. Share certificates shall be consecutively
numbered, shall be in registered form, and shall indicate the date of issue and
all such information shall be entered on the Corporation's books. Each
certificate shall be signed by the Chairman or Vice-Chairman of the Board of
Directors or the President or a Vice President and by the Treasurer or Assistant
Treasurer or the Secretary or an Assistant Secretary; provided, however, that
-------- -------
the signatures of such officers may be facsimiles. In case any officer or
officers who shall have signed or whose facsimile signatures shall have been
placed upon a share certificate shall have ceased for any reason to be such
officer or officers of the Corporation before such certificate is issued, such
certificate may be issued by the Corporation with the same effect as if the
person or persons who signed such certificate or whose facsimile signatures
shall have been used thereon had not ceased to be such officer or officers.
8.3 Rights of Corporation with Respect to Registered Owners. Subject to
-------------------------------------------------------
the provisions of Article IX of the Certificate of Incorporation, prior to due
presentation for transfer of registration of its shares, the Corporation may
treat the registered owner of the shares as the person exclusively entitled to
vote such shares, to receive any dividend or other distribution with respect to
such shares, and for all other purposes; and the Corporation shall not be bound
to recognize any equitable or other claim to or interest in such shares on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by law.
8.4 Transfers of Shares. Subject to the provisions of Article IX of the
-------------------
Certificate of Incorporation, transfers of shares of the Corporation shall be
made in the share records of the Corporation only by the written direction of
the person named in the certificate or by his attorney (authorized by duly
executed power of attorney filed with the Secretary of the Corporation) or his
legal representative (who shall furnish proper evidence or authority to transfer
such shares), and upon surrender of the certificate or certificates for such
shares properly endorsed (or accompanied by a properly endorsed instrument of
transfer) and subject to such other reasonable conditions and requirements as
may be required by the Corporation, including, without limitation, the
provisions of Article IX of the Certificate of Incorporation. The Corporation
shall maintain at its principal place of business or registered office, or at
the office of its transfer agent, a record of the names and addresses of its
stockholders and the number of shares held by each.
8.5 Duty of Corporation to Register Transfer. Notwithstanding any of the
----------------------------------------
provisions of Section 8.4 of these Bylaws, the Corporation is under a duty to
register the transfer of its shares only if:
8
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(a) the share certificate is endorsed by the appropriate person or
persons;
(b) reasonable assurance is given that the endorsements are genuine and
effective;
(c) The Corporation has no duty to inquire into adverse claims or has
discharged any such duty;
(d) any applicable law relating to the collection of taxes has been
complied with;
(e) the transfer is in fact rightful or is to a bona fide purchaser;
(f) the transfer is in compliance with applicable provisions of state
and federal securities laws and of any restrictive legends relating to such
laws that appear on the share certificate; and
(g) the transfer is in compliance with the applicable provisions of
Article IX of the Certificate of Incorporation.
8.6 Lost, Stolen or Destroyed Certificates. Any person claiming a share
--------------------------------------
certificate to be lost, stolen or destroyed shall make an affidavit or
affirmation of the fact in such manner as the Board of Directors may require and
shall, if the Board of Directors so requires, give the Corporation a bond of
indemnity in form and amount, and with one or more sureties satisfactory to the
Board of Directors, as the Board of Directors may require, whereupon an
appropriate new certificate may be issued in lieu of the one alleged to have
been lost, stolen or destroyed.
8.7 Fixing of Record Date. For the purpose of determining stockholders
---------------------
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of stockholders for any other proper purpose, the Board
of Directors may fix in advance a date as the record date, such date to be not
more than 60 days (and, in the case of a stockholders' meeting, not less than 10
days) prior to the date on which the particular action, requiring such
determination of stockholders, is to be taken.
8.8 Record Date if None Fixed. If no record date is fixed as provided in
-------------------------
Section 8.7 of these Bylaws, then the record date for any determination of
stockholders which may be proper or required by law shall be: the date
preceding the date on which notice is given, in the case of a stockholders'
meeting; or the date on which the Board of Directors adopts a resolution
relating thereto, in the case of a dividend or any other action.
ARTICLE IX
MISCELLANEOUS
9.1 Inspection of Books and Records. The Board of Directors shall have
-------------------------------
the power to determine which accounts, books and records of the Corporation
shall be opened to the inspection of stockholders, except such as may by law be
specifically open to inspection, and shall have power to fix reasonable rules
and regulations not in conflict with the applicable law for the inspection of
accounts, books and records which by law or by determination of the Board of
Directors shall be open to inspection.
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9.2 Fiscal Year. The fiscal year of the Corporation shall begin July 1 of
-----------
each year and end June 30 of each succeeding year. The Board of Directors is
authorized to change the fiscal year of the Corporation from time to time as it
deems appropriate.
9.3 Seal. The corporate seal shall be in such form as the Board of
----
Directors may from time to time determine.
ARTICLE X
AMENDMENTS
10.1 Power to Amend Bylaws. The Board of Directors shall have power to
---------------------
alter, amend or repeal these Bylaws or adopt new Bylaws, but any Bylaws adopted
by the Board of Directors may be altered, amended or repealed, and new Bylaws
adopted, by the stockholders.
10.2 Conditions. Action taken by the stockholders with respect to Bylaws
----------
shall be taken by an affirmative vote of a majority of all shares entitled to
vote thereon, and action by the Board of Directors with respect to Bylaws shall
be taken by an affirmative vote of a majority of all of the directors then
holding office.
ARTICLE XI
INDEMNIFICATION
11.1 Proceedings Other than by or in the Right of the Corporation. The
------------------------------------------------------------
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except an
action by or in the right of the Corporation, by reason of the fact that he is
or was a director, officer or trustee of the Corporation, or is or was serving
at the request of the Corporation as a director, officer or trustee of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' and expert witness fees, costs of investigation,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with the action, suit or proceeding if he acted in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action. suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
11.2 Proceedings by or in the Right of the Corporation. The Corporation
-------------------------------------------------
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer or trustee of the Corporation, or is or was
serving at the request of the Corporation as a director, officer or trustee of
another corporation, partnership, joint venture, trust or other enterprise
against expenses, including attorneys' and expert fees and costs of
investigation actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit if he acted in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court
10
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in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances in
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
11.3 Success on the Merits. To the extent that a director, officer or
---------------------
trustee of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in SEction 11.1 or Section
11.2, or in defense of any claim, issue or matter therein, he must be
indemnified by the Corporation against expenses, including attorneys' fees and
costs of litigation, actually and reasonably incurred by him in connection
therewith.
11.4 Determination. Any indemnification under Section 11.1 or Section
-------------
11.2, unless ordered by a court, shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer or trustee is proper in the circumstances because he met the
applicable standard of conduct set forth in Section 11.1 or 11.2, as applicable
such determination shall be made
(a) by the stockholders; or
(b) by majority vote of directors who were not parties to such action,
suit or proceeding, even though less than a quorum; or
(c) if there are no such directors or if such directors shall so
direct, by independent legal counsel in a written opinion.
11.5 Expenses. The expenses (including attorneys' fees) of officers and
--------
directors incurred in defending a civil, criminal, administrative or
investigative action, suit or proceeding must be paid by the Corporation as they
are incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the
Corporation. The provisions of this Article xi do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
11.6 Other Rights. The indemnification and advancement of expenses
------------
authorized in this Article XI shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office; and continues for a person who has
ceased to be a director, officer or trustee and inures to the benefit of the
heirs, executors and administrators of such a person.
11.7 Other Arrangements.
------------------
(a) The Corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who is or was a director,
officer, employee, trustee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee, trustee or
agent of another corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him and liability and expenses
incurred by him in his capacity as a director, officer, employee, trustee or
agent or arising out of his status as such, whether or not the Corporation has
the authority to indemnify him against such liability and expenses.
11
<PAGE>
(b) the other financial arrangements made by the Corporation pursuant to
this section may include the following:
(i) the creation of a trust fund; or
(ii) the establishment of a program of self-insurance; or
(iii) the securing of its obligation of indemnification by granting a
security interest or other lien on any assets of the Corporation; or
(iv) the establishment of a letter of credit, guaranty or surety.
No other financial arrangement made pursuant to this Section 11.7(b) may
provide protection for a person adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, not to have met the standards set
forth in Section 11.1 or Section 11.2, as applicable, except with respect to
indemnification ordered by a court; provided that this Section 11.7(b) shall
only be applicable to the other financial arrangements contemplated by this
Section 11.7(b) and not to insurance.
(c) Any insurance or other financial arrangement made on behalf of a person
pursuant to this section may be provided by the Corporation or any other person
approved by the board of directors, even if all or part of the other person's
stock or other securities is owned by the Corporation.
(d) In the absence of fraud:
(i) the decision of the board of directors as to the propriety of the
terms and conditions of any insurance or other financial arrangement made
pursuant to this section and the choice of the person to provide the
insurance or other financial arrangement is conclusive; and
(ii) the insurance or other financial arrangement;
(a) shall not be void or voidable; and
(b) shall not subject any director approving it to personal
liability for his action, even if a director approving the insurance
or other financial arrangement is a beneficiary of the insurance or
other financial arrangement.
11.8 Agreement. The provisions of this Article XI shall be deemed to
---------
constitute an agreement between the Corporation and each of the persons entitled
to indemnification, advances of expenses or limitation of liability under this
Article XI. Any amendment to this Article XI that limits or otherwise adversely
affects the limitation of liability, rights of indemnification, advancement of
expenses, or other rights of any such persons under this Article XI shall, as to
such persons, apply only to actions, suits or proceedings based on actions,
events or omissions occurring after such amendment and after delivery of notice
of such amendment to the person or persons so affected. any person entitled to
limitation of liability, rights of indemnification, advancement of expenses, or
other rights under this Article XI shall, as to any action, suit or proceeding
based on actions, events or omissions occurring prior to the date of receipt of
such notice, be entitled to limitation of liability, rights of indemnification,
advancement of expenses, and other rights under this Article XI to the same
extent as if such provisions had continued as part of these Bylaws of the
Corporation without such amendment. The rights conferred by this Section 11.8
cannot be altered, amended or repealed in a manner effective as to any person
entitled to limitation of liability, rights of
12
<PAGE>
indemnification, advancement of expenses, or other rights under this Article XI
without the prior written consent of such person.
11.9 "Corporation." For purposes of this Article XI, the term "the
--------------
Corporation" shall include (except when the context requires otherwise) any
corporation, joint venture, trust, partnership or unincorporated business
association which is the successor to all or substantially all of the business
or assets of the Corporation, as a result of merger, consolidation, sale,
liquidation or otherwise, and any such successor shall be liable to the persons
indemnified under this Article XI on the same terms and conditions and to the
same extent as the Corporation.
11.10 Certain Persons Serving at Request of Corporation. For the purposes
-------------------------------------------------
of this Article XI, a person serving as a director, officer or trustee of a
subsidiary of the Corporation shall be deemed to be serving at the request of
the Corporation.
11.11 "Subsidiary." For the purposes of this Article XI a "subsidiary"
-------------
shall mean any corporation, joint venture, trust, partnership, unincorporated
business association or other enterprise of which more than 50% of the
outstanding capital stock having voting power to elect a majority of the board
of directors or similar body of such enterprise is owned by the Corporation
(irrespective of whether or not, at the time capital stock of any other class or
series of such enterprise shall or might have voting power upon the occurrence
of any contingency) or which the Corporation otherwise controls or a non-profit
corporation which receives its principal financial support from the Corporation
or its subsidiaries at the time of the action, event or omission giving rise to
the action, suit or proceeding in respect of which indemnification or advances
are mandated or authorized under this Article xi.
11.12 Severability. Each of the subsections of this Article XI, and each
------------
of the clauses set forth therein, shall be deemed separate and independent, and
should any part of any such subsection or clause thereof be declared invalid or
unenforceable by any court of competent jurisdiction such invalidity or
unenforceability shall in no way render invalid or unenforceable any other part
thereof or any other separate subsection or clause thereof of this Article XI
which is not declared invalid or unenforceable.
13
<PAGE>
EXHIBIT 4.10
FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of November 20, 1996 (the
"Supplement"), by and among THOUSAND TRAILS, INC., a Delaware corporation
formerly called New Thousand Trails, Inc. (the "Successor"), each Subsidiary of
the Successor named herein (the "Subsidiary Guarantors"), and FLEET NATIONAL
BANK, as Trustee (the "Trustee") under the Indenture, dated as of July 17, 1996
(the "Indenture"), of USTRAILS INC., a Nevada corporation (the "Issuer").
RECITALS OF THE SUCCESSOR
The Issuer, the Subsidiary Guarantors named therein and the Trustee have
heretofore entered into the Indenture to provide for the issuance of the
Issuer's Senior Subordinated Pay-In-Kind Notes Due 2003 (the "Notes").
Pursuant to an Agreement and Plan of Merger, dated as of October 1, 1996,
between the Issuer and the Successor, the Issuer has been merged into the
Successor (the "Merger") at the effective time of the Merger on the date hereof
(the "Effective Time").
All things necessary to make the Notes issued under the Indenture (as
hereby supplemented) the valid obligations of the Successor and to make the
Indenture (as hereby supplemented) and the other Note Documents valid agreements
of the Successor, in accordance with their respective terms, have been done.
NOW, THEREFORE, THIS SUPPLEMENT WITNESSETH:
In order to comply with the requirements of the Indenture, the Successor
and the Subsidiary Guarantors covenant and agree with the Trustee for the equal
and proportionate benefit of the Holders of the Notes as follows:
ARTICLE ONE
ASSUMPTION BY THE SUCCESSOR
Section 101. The Successor hereby represents and warrants to the Trustee
-----------
and to the Holders of the Notes as follows:
(a) The Successor is a corporation organized and existing under the
laws of Delaware.
(b) Immediately prior to the effective time of the Merger, the
Successor was a wholly-owned Subsidiary of the Issuer.
(c) At the effective time of the Merger on the date hereof, the Issuer
has been merged into the Successor, which is the continuing entity in the
Merger.
(d) Immediately after giving effect to the Merger, no Default or Event
of Default exists or has occurred and is continuing.
1
<PAGE>
(e) Immediately after giving effect to the Merger, on a pro forma
--- -----
basis, the Consolidated Net Worth of the Successor is at least equal to the
Consolidated Net Worth of the Issuer immediately prior to the Merger
(exclusive of any amounts paid or payable in respect of dissenters'
rights).
(f) The Subsidiary Guarantors constitute all of the Subsidiaries of the
Successor required to guarantee the Notes as provided in the Indenture.
Section 102. The Successor hereby covenants and agrees that it will duly
-----------
and punctually pay or cause to be paid the principal of, and interest on, each
of the Notes at the place or places, at the respective times and in the manner
provided in the Notes and duly and punctually perform and observe all of the
covenants and conditions to be performed or observed by the Issuer under the
Indenture and the other Note Documents.
Section 103. The Successor shall succeed to and be substituted for the
-----------
Issuer under the Indenture and the other Note Documents, with the same effect as
if it had been named as the Issuer therein.
Section 104. Notes authenticated and delivered on and after the date
-----------
hereof shall bear the following notation which may be stamped or typewritten
thereon:
"On November __, 1996, USTrails Inc., a Nevada corporation, was
merged into Thousand Trails, Inc., a Delaware corporation formerly
called New Thousand Trails, Inc., which has assumed the due and
punctual payment of the principal of and interest on the Senior
Subordinated Pay-In-Kind Notes Due 2003 and the performance of every
covenant of the Indenture and the other Note Documents on the part of
USTrails Inc."
If the Successor shall so determine, new Notes so modified as to conform to
the Indenture as hereby supplemented, in form satisfactory to the Trustee, may
at any time hereafter be prepared and executed by the Successor and
authenticated and delivered by the Trustee in exchange for Notes then
Outstanding, and thereafter the notation hereby provided shall no longer be
required. Anything herein or in the Indenture or the other Note Documents to
the contrary notwithstanding, the failure to affix the notation herein provided
to any Note or to exchange any Note for a new Note modified as herein provided
shall not affect any of the rights of the Holder of such Note.
Section 105. Each of the Subsidiary Guarantors hereby consents to the
-----------
Merger and confirms its obligations under the Subsidiary Guarantee from and
after the effective time of Merger.
ARTICLE TWO
MISCELLANEOUS
Section 201. Except as otherwise expressly provided or unless the context
-----------
otherwise requires, all terms used herein which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
Section 202. This Supplement shall be effective at the Effective Time.
-----------
Section 203. The recitals contained herein shall be taken as the
-----------
statements of the Successor, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Supplement.
2
<PAGE>
Section 204. This Supplement shall be governed by and construed in
-----------
accordance with the laws of the jurisdiction which govern the Indenture and its
construction.
Section 205. This Supplement may be executed in any number of
-----------
counterparts, each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.
Section 206. Except as changed hereby, the terms, provisions, and
-----------
conditions of the Indenture and the other Note Documents shall continue in full
force and effect after the effectiveness of the Merger.
[Signatures on next page]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and delivered all as of the day and year first above written.
THOUSAND TRAILS, INC., a Delaware corporation
[Corporate Seal]
By /s/ William J. Shaw
--------------------------------------
William J. Shaw
President and Chief Executive Officer
Attest:
/s/ Walter B. Jaccard
- ---------------------------
Walter B. Jaccard,
General Counsel and
Secretary
FLEET NATIONAL BANK, as Trustee
[Corporate Seal]
By /s/ Phillip G. Kane
-------------------------------------
Phillip G. Kane
Vice President
Attest:
/s/
- --------------------------
Title
---------------------
THOUSAND TRAILS (CANADA) INC., a
British Columbia corporation
TT OFFSHORE, LTD., a Virginia corporation
NATIONAL AMERICAN CORPORATION, a Nevada
corporation
LML RESORT CORPORATION, an Alabama corporation
RESORT LAND CORPORATION, an Arkansas corporation
LAKE TANSI VILLAGE, INC., a Delaware corporation
SHOREWOOD CORPORATION, a Georgia corporation
TANSI RESORT, INC., a Georgia corporation
INDIAN LAKES WILDERNESS PRESERVE CORPORATION, an
Indiana corporation
DIXIE RESORT CORPORATION, a Mississippi
corporation
RECREATION PROPERTIES, INC., a Mississippi
corporation
THE VILLAS OF HICKORY HILLS, INC., a Mississippi
corporation
4
<PAGE>
CARRIAGE MANOR CORPORATION, a North Carolina
corporation
LAKE ROYALE CORPORATION, a North Carolina
corporation
G L LAND DEVELOPMENT, INC., an Oklahoma
corporation
BEECH MOUNTAIN LAKES CORPORATION, a Pennsylvania
corporation
QUAIL HOLLOW VILLAGE, INC., a Pennsylvania
corporation
RECREATION LAND CORPORATION, a Pennsylvania
corporation
WOLF RUN MANOR CORP., a Pennsylvania corporation
CAROLINA LANDING CORPORATION, a South Carolina
corporation
FOXWOOD CORPORATION, a South Carolina corporation
THE KINSTON CORPORATION, a South Carolina
corporation
CHEROKEE LANDING CORPORATION, a Tennessee
corporation
CHIEF CREEK CORPORATION, a Tennessee corporation
NATCHEZ TRACE WILDERNESS PRESERVE CORPORATION, a
Tennessee corporation
QUAIL HOLLOW PLANTATION CORPORATION, a Tennessee
corporation
WESTERN FUN CORPORATION, a Texas corporation
WESTWIND MANOR CORPORATION, a Texas corporation
UST WILDERNESS MANAGEMENT CORPORATION, a Nevada
corporation
By /s/ William J. Shaw
-----------------------------------
William J. Shaw
President
Attest:
/s/ Walter B. Jaccard
- -------------------------
Walter B. Jaccard
Secretary
5
<PAGE>
EXHIBIT 10.26
USTRAILS INC.
STOCK OPTION AGREEMENT
This Stock Option Agreement ("AGREEMENT") is made and entered into as of
---------
the Date of Grant indicated below by and between USTrails Inc., a Nevada
corporation (the "COMPANY"), and the William J. Shaw ("OPTIONEE").
------- --------
A. Optionee is the President and Chief Executive Officer of the Company. In
order to retain and motivate Optionee subsequent to the consummation of the
restructuring of the outstanding debt represented by the Company's 12% Senior
Secured Notes Due 1998, and to align the interest of Optionee with the
stockholders of the Company by providing for a proprietary interest of Optionee
in the Company, all of which will substantially benefit the Company, the Special
Committee of the Board of Directors of the Company (the "BOARD") has approved
-----
the grant to Optionee of an option to purchase shares of the common stock, par
value $E.01 per share, of the Company (the "COMMON STOCK"), on the terms and
------------
conditions set forth herein.
B. In consideration of the foregoing recitals and the covenants set forth
herein, the parties hereto hereby agree as follows.
1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company hereby
---------------------------------------------
grants to Optionee, subject to stockholder approval (which stockholder approval
shall be within twelve months of the Date of Grant), and Optionee hereby
accepts, as of the Date of Grant, an option to purchase the number of shares of
Common Stock indicated below (the "OPTION SHARES") at the Exercise Price per
-------------
share indicated below, which option shall expire at 5:00 o'clock p.m. (local
time at the Company's principal executive office) on the Expiration Date
indicated below (unless earlier terminated pursuant to Section 2 hereof or, with
respect to the portion of the Option not constituting an Incentive Stock Option,
extended pursuant to Section 8(c) hereof), and shall be subject to all of the
terms and conditions set forth in this Agreement (the "OPTION").
------
DATE OF GRANT: August 1, 1996
NUMBER OF SHARES PURCHASABLE: 664,495
EXERCISE PRICE PER SHARE: $.69
EXPIRATION DATE: July 31, 2006
OPTIONS TO PURCHASE UP TO 144,927 OPTION SHARES ARE INTENDED TO QUALIFY AS AN
INCENTIVE STOCK OPTION (FOR PURPOSES HEREOF, SUCH PORTION OF THE OPTION IS
REFERRED TO AS THE "INCENTIVE STOCK OPTION") UNDER SECTIONE422 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED ("CODE"). THE COMPANY AND THE OPTIONEE HEREBY
ACKNOWLEDGE THAT THE EXERCISE PRICE REPRESENTS THE FAIR MARKET VALUE OF THE
COMMON STOCK ON THE DATE OF GRANT. THE OPTION SHALL BE EXERCISABLE, DURING HIS
LIFETIME, ONLY BY THE OPTIONEE. THE OPTIONS WITH RESPECT TO ALL OTHER OPTION
SHARES SHALL NOT BE AN INCENTIVE STOCK OPTION, BUT RATHER SHALL BE A
NONQUALIFIED OPTION.
1
<PAGE>
2. TERMINATION OF OPTION.
(a) TERMINATION OF EMPLOYMENT OR OTHER STATUS.
(i) Death or Disability. In the event that Optionee shall cease
-------------------
to be an employee of the Company (such event shall be referred to herein as
the "TERMINATION" of Optionee's "STATUS") by reason of the death or
----------- ------
Permanent Disability (as hereinafter defined) of Optionee, then the Option
shall, subject to Section 8(c), terminate upon the earlier of the
Expiration Date or the first anniversary of the date of such Termination of
Status. "PERMANENT DISABILITY" shall be deemed to have occurred if:
--------------------
(A) as result of the Optionee's incapacity due to physical
or mental illness, the Optionee shall have been
continuously absent from his duties for at least six
(6) consecutive months, and
(B) the Company shall have given the Optionee written
notice of the termination of the Optionee's employment
or other Status on account of the Optionee's
Disability, and
(C) thirty (30) days shall have elapsed after the giving of
such notice, and
(D) the Optionee shall not have resumed his duties on a
full time basis prior to the expiration of such thirty
(30) day period.
(ii) Termination by the Company. Except as provided below, if
--------------------------
Optionee's Status is terminated by the Company for any reason other than
death or Permanent Disability, then, subject to Section 8(c), the Option
shall terminate upon the earlier of the Expiration Date or the completion
of three (3) months after the date of such Termination. However, if the
Termination was for "cause," as defined below, the Option shall terminate
immediately upon such Termination. For purposes hereof, "cause" shall mean
termination of the Optionee's Status by the Company because of: (i) the
Optionee's conviction for or plea of nolo contendere to any felony or crime
involving moral turpitude, (ii) the Optionee's commission of an act of
personal dishonesty or breach of fiduciary duty involving personal profit
in connection with the Optionee's employment by the Company, (iii) the
Optionee's commission of an act involving intentional misconduct on the
part of the Optionee in the conduct of his duties, (iv) the Optionee's
willful failure to execute lawful policies of the Company, (v) chronic
alcoholism or any other form of addiction to drugs on the part of the
Optionee, or (vi) a material breach by the Optionee of any material
provision of any the Employment Agreement between Optionee and the Company
dated as of May 11, 1995, as amended, modified or supplemented from time to
time, or any other employment agreement to which he may from time to time
be a party.
(iii) Voluntary Resignation. If a Optionee's Status is terminated
---------------------
due to the Optionee's resignation (as determined by the Board), then, subject to
Section 8(c), the Option shall terminate upon the earlier of the Expiration Date
or the completion of three (3) months after the date of such Termination.
2
<PAGE>
(b) Other Events Causing Termination of Option. Notwithstanding
------------------------------------------
anything to the contrary in this Agreement, the Option shall terminate upon the
consummation of any of the following events, or, if later, the thirtieth day
following the first date upon which such event shall have been approved by both
the Board and the stockholders of the Company, or upon such later date as shall
be determined by the Board:
(i) the dissolution or liquidation of the Company; or
(ii) a sale of substantially all of the property and assets of
the Company, unless the terms of such sale shall provide otherwise.
3. ADJUSTMENTS. In the event that the outstanding securities of the class
------------
then subject to the Option are increased, decreased, or exchanged for or
converted into cash, property, and/or a different number or kind of securities,
or cash, property, and/or securities are distributed in respect of such
outstanding securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, restructuring, reclassification, spin-off,
spin-out, dividend (other than a regular cash dividend) or other distribution,
stock split, reverse stock split or the like, or in the event that substantially
all of the property and assets of the Company are sold, then, unless such event
shall cause the Option to terminate pursuant to Section 3(b) hereof, (A) a
committee of the Board of Directors of the Company comprised solely of two or
more directors who qualify as "outside directors" (as defined in Code Section
162(m)) and (B) a committee of the Board of Directors comprised solely of "non
employee directors" (as defined in Rule 16b-3 promulgated under the Securities
Exchange Act of 1934) or the full Board of Directors (the "COMMITTEES") shall
----------
make appropriate and proportionate adjustments in the number and type of shares
or other securities or cash or other property that may thereafter be acquired
upon the exercise of the Option; provided, however, that any such adjustments in
the Option shall be made without changing the aggregate Exercise Price of the
then unexercised portion of the Option.
4. EXERCISE. Subject to stockholder approval within twelve months of the
--------
Date of Grant and subject also to Section 8 hereof, the Option shall be
exercisable, in full or in part, at any time and from time to time after the
date the Option is so approved by the stockholders of the Company and prior to
the Expiration Date (unless earlier terminated pursuant to Section 2, but
subject to Section 8(c)). The Option shall be exercisable during Optionee's
lifetime only by Optionee, and after Optionee's death only by the person or
entity entitled to do so under Optionee's last will and testament or applicable
intestate law. The Option may only be exercised by the delivery to the Company
of a written notice of such exercise, which notice shall specify the number of
Option Shares to be purchased (the "PURCHASED SHARES") and the aggregate
----------------
Exercise Price for such shares (the "EXERCISE NOTICE"), together with payment in
---------------
full of such aggregate Exercise Price in cash or by check payable to the
Company; provided, however, that payment of such aggregate Exercise Price may
instead be made, in whole or in part:
(i) with the prior approval of the Committees, by the delivery to the
Company of a promissory note in a form and amount satisfactory to the Board,
provided that the principal amount of such note shall not exceed the excess of
such aggregate Exercise Price over and above the aggregate par value of the
Purchased Shares; or
(ii) with prior approval of the Committees, by the delivery to the
Company of a certificate or certificates representing shares of Common Stock,
duly endorsed or accompanied by a duly executed stock powers, which delivery
effectively transfers to the Company good and valid title to such shares, free
and clear of any pledge, commitment, lien, claim or other encumbrance (such
shares to be valued on the basis of the aggregate Fair Market Value thereof on
the date of such exercise), provided that the Company is not then
3
<PAGE>
prohibited by the terms of any contractual obligation or legal restriction from
purchasing or acquiring such shares of Common Stock.
5. PAYMENT OF WITHHOLDING TAXES.
----------------------------
(a) If the Company is obligated to withhold an amount on account of
any federal, state, or local tax, including, but not limited to, any income tax,
F.I.C.A. tax, disability insurance tax, or other employment tax, imposed for any
reason, including, without limitation, upon the exercise of the Option or
subsequent disposition of the underlying stock, then the Optionee, upon the
occurrence of the taxable event and providing the optionee is still an employee
of the Company, shall pay the applicable withholding liability (the "WITHHOLDING
-----------
LIABILITY") to the Company in cash or by check payable to the Company; provided,
- ---------
however, that, in the discretion of the Committees, Optionee may, pursuant to an
irrevocable election of Optionee (a "WITHHOLDING ELECTION") made on or prior to
--------------------
the date of such exercise, instead pay all or any part of the Withholding
Liability by the delivery to the Company of a stock certificate or certificates
representing shares of Common Stock, duly endorsed or accompanied by a duly
executed stock powers, which delivery effectively transfers to the Company good
and valid title to such shares, free and clear of any pledge, commitment, lien,
claim, or other encumbrance (such shares to be valued on the basis of the
aggregate Fair Market Value thereof on the date of such exercise), provided that
the Company is not then prohibited by the terms of any contractual obligation or
legal restriction from purchasing or acquiring such shares of Common Stock. For
purposes hereof, "FAIR MARKET VALUE" shall mean the average of the closing bid
-----------------
and asked quotation for the Common Stock as quoted through the NASD OTC Bulletin
Board and National Quotation Bureau's pink sheets or, if quoted thereon, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotations System.
(b) The Committees, in their sole discretion, may (1) impose such
additional conditions under Section 4 and Section 5 as may be required to comply
with Section 16 under the Exchange Act and the rules promulgated thereunder, and
(2) waive any of the restrictions in Section 4 and Section 5 in the event that
either (A) the transaction would not result in liability under section 16(b) of
the Exchange Act, or (B) the Optionee consents to liability thereunder and
consents to disgorge any profits relating thereto to the Company.
(c) The Committees shall have sole discretion to approve or disapprove
any Withholding Election and may adopt such rules and regulations as are
consistent with and necessary to implement the foregoing. The Committees may
permit Optionee to make a Withholding Election to pay withholding taxes in
excess of the minimum amount required by law, provided that the amount of
withholding taxes so paid does not exceed the estimated total federal, state,
and local tax liability of Optionee attributable to such exercise.
6. STOCK EXCHANGE REQUIREMENTS; APPLICABLE LAWS.
--------------------------------------------
(a) Notwithstanding anything to the contrary in this Agreement, no
shares of stock purchased upon exercise of the Option, and no certificate
representing all or any part of such shares, shall be issued or delivered if
(a)esuch shares have not been admitted to listing or approved for quotation upon
official notice of issuance on each stock exchange or automated quotation system
upon which shares of that class are then listed, or (b) in the opinion of
counsel to the Company, such issuance or delivery would cause the Company to be
in violation of or to incur liability under any federal, state or other
securities law, or any requirement of any stock exchange listing agreement to
which the Company is a party or other rules or regulations of the National
Association of Securities Dealers, Inc. to which the Company is subject, or any
other requirement of law or of any administrative or regulatory body having
jurisdiction over the Company.
4
<PAGE>
(b) Optionee represents to the Company that Optionee is a bona fide
resident of the State of Texas (the "STATE"). Notwithstanding anything to the
-----
contrary herein, this Agreement shall not become effective until the making of
all applicable security filings under the laws of the state and the
effectiveness thereof. Optionee shall promptly notify the Company in writing if
the Optionee becomes a bonafide resident of any jurisdiction other than the
State.
7. NONTRANSFERABILITY. Neither the Option nor any interest therein may bE
------------------
sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred
in any manner other than by will or the laws of descent and distribution.
8. RESTRICTIONS. (a) Except as otherwise permitted under Section 16 of
------------
the Exchange Act (including any rules promulgated thereunder), Optionee may not,
if he is subject to liability under Section 16 of the Exchange Act, sell any
Option Share issued hereunder until the expiration of the six (6) month period
commencing on the Date of Grant, unless the same would either not result in
liability under said Section 16 or the Optionee consents to such liability and
consents to disgorge any profits relating thereto to the Company.
(b) Optionee may not exercise this Option if, and to the extent that,
Option Shares issued hereunder would constitute "Excess Common Stock" as defined
in Article Nine of the Restated Bylaws of the Company (or any successor
provision in the charter or bylaws of the Company or its successor in interest);
provided, however, that with respect to that portion of the Option constituting
the Incentive Stock Option, the restriction on exercise in this Section 8(b)
shall not apply during the 90 day period immediately prior to the Expiration
Date.
(c) If pursuant to any provision hereof the Option would terminate on a
date on which Optionee is prohibited from exercising all or a portion of the
Option pursuant to Section 8(b), the term of the Option shall be extended with
respect to that portion of the Option Shares which would constitute "Excess
Common Stock" and shall terminate on the date which is 90 days after the date
the Option may thereafter first be exercised with respect to such Option Shares
without limitation pursuant to Section 8(b); provided that that portion of the
Option constituting the Incentive Stock Option shall in any event expire on the
Expiration Date.
(d) Optionee acknowledges and agrees that the Option Shares issued
hereunder shall be subject to the restrictions set forth in Article Nine of the
Restated By-Laws of the Company (or any successor provision in the charter or
bylaws of the Company or its successor in interest) and each certificate
representing Option Shares will contain a legend substantially to the following
effect (or as may be required to give notice of any successor provision in the
charter or bylaws of the Company or its successor in interest):
TRANSFER OF THESE SHARES IS SUBJECT TO RESTRICTIONS DESIGNED TO AVOID
AN "OWNERSHIP CHANGE" WITHIN THE MEANING OF SECTION 382 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED. SUCH RESTRICTIONS ARE SET FORTH IN
ARTICLE NINE OF THE RESTATED BYLAWS OF THE COMPANY. THE HOLDER OF THIS
SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO BE BOUND BY SUCH RESTRICTIONS.
THE COMPANY WILL FURNISH TO THE RECORD HOLDER OF THIS CERTIFICATE UPON
REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS, A COPY OF SUCH
RESTRICTIONS.
(e) Optionee understands and acknowledges that the Option and Option Shares
have not been registered under the Securities ACt of 1933, as amended (the
"Securities Act"),
5
<PAGE>
or other applicable securities laws and represents that he is acquiring the
Option and will acquire the Option Shares for his own account for investment and
not with a view to any distribution thereof. Optionee acknowledges that, unless
issued pursuant to an effective registration statement, each certificate for
Option Shares will contain a legend substantially to the following effect:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY ONLY PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT OR PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, SUBJECT TO THE COMPANY'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO IT.
9. STOCKHOLDER RIGHTS. No person or entity shall be entitled to vote,
------------------
receive dividends, or be deemed for any purpose the holder of any Option Shares
until the Option shall have been duly exercised to purchase such Option Shares
in accordance with the provisions of this Agreement.
10. STATUS RIGHTS. No provision of this Agreement or of the Option
-------------
granted hereunder shall (a) confer upon Optionee any right to continue in his
Status with the Company, (b) affect the right of the Company to Terminate the
Status of Optionee, with or without cause, or (c) confer upon Optionee any right
to participate in any employee benefit plan or other program of the Company.
11. NOTICES. Any notice to be given to the Company shall be personally
-------
delivered to or addressed to the Secretary of the Company, at its principal
office, and any notice to be given to the Optionee shall be addressed to him at
the address given beneath his signature hereto, or at such other address as the
Optionee may hereafter designate in writing to the Company. Any notice to the
Company is deemed given when received by the Company. Any notice to the
Optionee is deemed given when enclosed in a properly sealed envelope addressed
as aforesaid, and deposited, postage prepaid, in a post office or branch post
office regularly maintained by the United States.
12. SUCCESSOR AND ASSIGNS. This Agreement shall inure to the benefit of
---------------------
and be binding upon the parties hereto and the Optionee's beneficiaries, heirs,
executors, and administrators, and the Company's successors and assigns.
13. GOVERNING LAW. This Agreement and the Option granted hereunder shall
-------------
be governed by and construed and enforced in accordance with the laws of the
State of Nevada (except to the extent preempted by federal law).
[Signatures on next page]
6
<PAGE>
IN WITNESS WHEREOF, the Company and Optionee have duly executed this
Agreement effective as of the Date of Grant.
USTRAILS INC.
BY: /s/ Walter B. Jaccard
--------------------------------
Name: Walter B. Jaccard
Title: Vice President, General
Counsel and Secretary
/s/ William J. Shaw
----------------------------------
William J. Shaw, Optionee
----------------------------------
Social Security Number
----------------------------------
----------------------------------
----------------------------------
Address
7
<PAGE>
EXHIBIT 10.27
ASSUMPTION OF OBLIGATIONS
THIS ASSUMPTION OF OBLIGATIONS, dated as of November 20, 1996, by THOUSAND
TRAILS, INC., a Delaware corporation formerly called New Thousand Trails, Inc.
(the "Company").
RECITALS
--------
A. USTrails Inc., a Nevada corporation (the "Issuer"), has entered into the
following plans, instruments and agreements providing for the issuance or
delivery of shares of its common stock in accordance with and subject to the
terms and conditions set forth therein (collectively, the "Stock Plans and
Rights"):
(1) the USTrails Inc. 1991 Employee Stock Incentive Plan, as amended,
and the stock option agreements entered into pursuant thereto;
(2) the USTrails Inc. 1993 Stock Option and Restricted Stock
Purchase Plan, as amended, and the stock option agreements entered
into pursuant thereto;
(3) the USTrails Inc. 1993 Director Stock Option Plan, as amended,
and the stock option agreements entered into pursuant thereto;
(4) Warrant Certificates originally issued December 31, 1991 to
purchase an aggregate of 194,521 shares of the Issuer's common
stock;
(5) Warrant Certificates originally issued June 12, 1992 to
purchase an aggregate of 290,314 shares of the Issuer's common
stock;
(6) Warrant Certificates originally issued from March 2, 1994 to
May 16, 1995 to purchase an aggregate of 10,170 shares of the
Issuer's common stock; and
(7) the Stock Option Agreement, dated as of August 1, 1996,
between the Issuer and William J. Shaw.
B. Pursuant to an Agreement and Plan of Merger, dated as of October 1, 1996
(the "Merger Agreement"), between the Issuer and the Company, the Issuer will be
merged into the Company (the "Merger").
C. At the effective time of the Merger, each outstanding share of the
Issuer's common stock will be changed and converted into and will become one
share of common stock, $.01 par value, of the Company ("Company Stock").
1
<PAGE>
NOW, THEREFORE, in order to comply with the requirements of the Merger
Agreement, the Company agrees as follows:
Section 1: The Company expressly assumes: (a) the obligations of the
---------
Issuer to deliver such shares of stock, securities, or other assets as, in
accordance with the provisions of the Stock Plans and Rights, the holders of
rights thereunder may be entitled to receive subject to the terms and conditions
set forth in the Stock Plans and Rights; and (b) the other obligations of the
Issuer under the Stock Plans and Rights.
Section 2: The Company hereby confirms that at the effective time of the
---------
Merger the rights to purchase shares of the Issuer's common stock under the
Stock Plans and Rights shall become rights to purchase the same number of shares
of Company Stock with no other changes in the terms and conditions of such
rights, including exercise prices.
Section 3: This Assumption of Obligations shall be effective upon the
---------
effectiveness of the Merger.
Section 4: This Assumption of Obligations shall be governed by and
---------
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Assumption of Obligations to
be duly executed and its seal to be affixed hereunto and duly attested all as of
the day and year first above written.
THOUSAND TRAILS, INC., a Delaware corporation
[Corporate Seal]
By: /s/ William J. Shaw
------------------------------
William J. Shaw
Chief Executive Officer and President
Attest:
By: /s/ Walter B. Jaccard
-------------------------
Walter B. Jaccard
Vice President, General Counsel
and Secretary
2
<PAGE>
EXHIBIT 10.43
SUPPLEMENT TO GRANTOR TRUST AGREEMENT
THIS SUPPLEMENT TO GRANTOR TRUST AGREEMENT (this "Supplement") is made and
entered into as of the 20th day of November, 1996, by THOUSAND TRAILS, INC. (the
"Company"), a Delaware corporation, in favor of TEXAS COMMERCE BANK, NATIONAL
ASSOCIATION, as trustee (the "Trustee"), and the persons named from time to time
as beneficiaries under the Grantor Trust Agreement, dated as of May 8, 1991 (the
"Trust Agreement"), with the Trustee.
RECITALS
--------
A. USTrails Inc., formerly called NACO Finance Corporation (the
"Predecessor Corporation"), entered into the Trust Agreement to provide, among
other things, for the funding of its indemnification obligations (the "Subject
Obligations") to directors and officers under indemnification agreements, its
constituent instruments and law applicable to the Predecessor Corporation.
B. The Company is a successor by merger (the "Merger") to the Predecessor
Corporation, which Merger became effective as of the date hereof.
C. As a result of the Merger, the Company has succeeded to the Subject
Obligations as well as the obligations of the Predecessor Corporation under the
Trust Agreement.
D. From and after the effectiveness of the Merger, the Subject Obligations
will include the Company's indemnification obligations to directors and officers
under indemnification agreements, its constituent instruments and law applicable
to the Company (the "Successor Obligations"; the Subject Obligations and the
Successor Obligations being herein collectively called the "Obligations").
E. The Company desires to confirm the application of the Trust Agreement to
the Subject Obligations and the Successor Obligations, consistent with Section
145(h) of the Delaware General Corporation Law.
NOW, THEREFORE, the Company, intending to be legally bound, hereby agrees as
follows:
1. The Company, as successor to the Predecessor Corporation, hereby agrees
to all of the terms and conditions of the Trust Agreement, as supplemented
hereby.
2. From and after the date hereof, the term "Indemnification Obligations"
(as defined in the Trust Agreement) shall include the Obligations and, to the
extent the law of Delaware may be applicable to the Obligations, such law shall
govern the obligations of the Company under the Trust Agreement as supplemented
hereby.
1
<PAGE>
3. Nothing in this Supplement is intended to, or shall, adversely affect
the rights of the Beneficiaries under the Trust Agreement in respect of the
Subject Obligations or the application of the law of Nevada thereto in respect
of acts or omissions prior to the effectiveness of the Merger.
IN WITNESS WHEREOF, this Supplement has been executed and delivered as of
the date first above written.
THOUSAND TRAILS, INC.
By: /s/ William J. Shaw
------------------------------------------
Title: Chief Executive Officer and President
2
<PAGE>
ACKNOWLEDGMENT AND CONSENT
The undersigned, a beneficiary of the Trust Agreement referred to in the
Supplement to Grantor Trust Agreement attached hereto (the "Supplement"), hereby
acknowledges receipt of, and consents and agrees to, the Supplement.
Dated:
----------------------------- -----------------------------
Name:
------------------------
3
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THOUSAND TRAILS, INC.
A DELAWARE CORPORATION
Beech Mountain Lakes Corporation, a Pennsylvania corporation
Carolina Landing Corporation, a South Carolina corporation
Carriage Manor Corporation, a North Carolina corporation
Cherokee Landing Corporation, a Tennessee corporation
Chief Creek Corporation, a Tennessee corporation
Dixie Resort Corporation, a Mississippi corporation
Foxwood Corporation, a South Carolina corporation
GL Land Development, Inc., an Oklahoma corporation
LML Resort Corporation, an Alabama corporation
Lake Royale Corporation, a North Carolina corporation
Lake Tansi Village, Inc., a District of Columbia corporation
Natchez Trace Wilderness Preserve Corporation, a Tennessee corporation
National American Corporation, a Nevada corporation
Quail Hollow Plantation Corporation, a Tennessee corporation
Quail Hollow Village, Inc., a Pennsylvania corporation
Recreation Land Corporation, a Pennsylvania corporation
Recreation Properties, Inc., a Mississippi corporation
Resort Land Corporation, an Arkansas corporation
Shorewood Corporation, a Georgia corporation
Tansi Resort, Inc., a Tennessee corporation
The Kinston Corporation, a South Carolina corporation
The Villas of Hickory Hills, Inc., a Mississippi corporation
Thousand Trails (Canada) Inc., a British Columbia corporation
TT Offshore, Ltd., a Virginia corporation
UST Wilderness Management Corporation, a Nevada corporation
Western Fun Corporation, a Texas corporation
Westwind Manor Corporation, a Texas corporation
Wolf Run Manor Corporation, a Pennsylvania corporation
Yuba Investment Company, a California corporation
1
<PAGE>
EXHIBIT 99.1
USTRAILS INC.
2711 Lyndon B. Johnson Freeway, Suite 200
Dallas, Texas 75234
NOTICE OF ANNUAL MEETING OF THE STOCKHOLDERS
To Be Held November 19, 1996
To the Stockholders of USTrails Inc.:
The Company cordially invites you to attend the Annual Meeting of the
Stockholders of USTrails Inc., a Nevada corporation (the "Company"), at the
offices of the Company, 2711 Lyndon B. Johnson Freeway, Suite 200, Dallas,
Texas, on November 19, 1996, at 10:00 a.m., for the following purposes:
(1) To elect the directors of the Company, who will serve until the election
and qualification of their successors.
(2) To consider and act upon a proposal to approve the Agreement and Plan of
Merger, dated as of October 1, 1996, between the Company and New Thousand
Trails, Inc., a Delaware corporation and newly formed, wholly-owned
subsidiary of the Company ("New Trails"), pursuant to which the Company
will be merged into New Trails (the "Reincorporation Merger"). The
Reincorporation Merger is being proposed by the Board of Directors in
order:
(a) to help assure that the Company's substantial tax benefits in the form
of net operating loss carryforwards will continue to be available to
offset future taxable income by placing certain transfer restrictions
on the common stock of New Trails issued in the merger that are
intended to decrease the likelihood of a future "ownership change" for
federal income tax purposes; and
(b) to change the Company's state of incorporation from Nevada to Delaware
and to change its name to Thousand Trails, Inc.
(3) To consider and act upon a proposal to eliminate certain charter
restrictions on the issuance and repurchase of the Company's capital stock
imposed in connection with the issuance of the Company's 12% Secured Notes
Due 1998 that have now been retired.
(4) To consider and act upon a proposal to approve the Stock Option Agreement,
dated as of August 1, 1996, granting William J. Shaw, the Company's
Chairman of the Board, President and Chief Executive Officer, the option to
purchase 664,495 shares of the Company's common stock.
(5) To consider and act upon the ratification of Arthur Andersen LLP as the
Company's independent certified public accountants for the fiscal year
ending June 30, 1997.
(6) To transact such other business as may properly come before the meeting or
any adjournment thereof.
<PAGE>
The Board of Directors has established the close of business on October
7, 1996, as the record date for the determination of stockholders entitled to
notice of this meeting and to vote thereat and at any adjournment thereof.
By Order of the Board of Directors,
/s/ Walter B. Jaccard
----------------------------------------------
WALTER B. JACCARD
Vice President, General Counsel, and Secretary
Dallas, Texas
October 7, 1996
If you cannot be present at the Annual Meeting, PLEASE SIGN, DATE, AND RETURN
THE ACCOMPANYING PROXY CARD in the enclosed stamped and addressed envelope so
that proxyholders may vote your shares at the meeting. If you attend the
meeting in person, you may revoke your proxy and vote your shares in person.
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR STOCK AT THIS TIME. IF THE
REINCORPORATION MERGER IS CONSUMMATED, YOU WILL RECEIVE INSTRUCTIONS REGARDING
THE SURRENDER OF YOUR STOCK CERTIFICATES.
<PAGE>
USTRAILS INC. NEW THOUSAND TRAILS, INC.
---------------------------------------------------------
PROXY STATEMENT/PROSPECTUS
ANNUAL MEETING OF STOCKHOLDERS OF USTRAILS INC. TO BE HELD NOVEMBER 19, 1996
_________________________________
THE SECURITIES ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
SEE "SPECIAL CONSIDERATIONS RELATING TO REINCORPORATION MERGER" ON PAGE 1 FOR A
DISCUSSION OF CERTAIN FACTORS THAT STOCKHOLDERS SHOULD CONSIDER PRIOR TO
EXECUTING A PROXY OR CASTING A VOTE ON THE REINCORPORATION MERGER.
_________________________________
INTRODUCTION
This Proxy Statement/Prospectus is being furnished in connection with
the solicitation by the Board of Directors (the "Board of Directors") of
USTrails Inc., a Nevada corporation (the "Company"), of proxies on behalf of the
Company for use at the Annual Meeting of Stockholders of the Company and any
adjournment thereof (the "Annual Meeting"). The Annual Meeting will be held at
the principal executive offices of the Company at 2711 Lyndon B. Johnson
Freeway, Suite 200, Dallas, Texas, on November 19, 1996, at 10:00 a.m. The
telephone number of the Company's principal executive offices is (214) 243-2228.
The Company mailed this Proxy Statement/Prospectus and the accompanying proxy on
or about October 10, 1996.
Purposes of the Annual Meeting
At the Annual Meeting, the stockholders of the Company (the
"Stockholders") will vote upon the following matters:
(1) The election of the directors of the Company, who will serve until the
election and qualification of their successors.
(2) A proposal to approve the Agreement and Plan of Merger, dated as of
October 1, 1996 (the "Merger Agreement"), between the Company and New
Thousand Trails, Inc., a Delaware corporation and newly formed, wholly-
owned subsidiary of the Company ("New Trails"), pursuant to which the
Company will be merged into New Trails (the "Reincorporation Merger"). The
Reincorporation Merger is being proposed by the Board of Directors in
order:
(a) to help assure that the Company's substantial tax benefits in the
form of net operating loss carryforwards will continue to be
available to offset future taxable income by including certain
transfer restrictions, intended to decrease the likelihood of a
future
_______________________________________________________________________________
The date of this Proxy Statement/Prospectus is October 7, 1996
<PAGE>
"ownership change" for federal income tax purposes, on the common
stock, par value $.01 per share, of New Trails (the "New Common Stock")
issued in the Reincorporation Merger for the common stock, par value
$.01 per share, of the Company (the "Existing Common Stock"); and
(b) to change the Company's state of incorporation from Nevada to Delaware
and to change its name to Thousand Trails, Inc.
(3) A proposal to eliminate certain charter restrictions on the issuance and
repurchase of the Company's capital stock imposed in connection with the
issuance of the Company's 12% Secured Notes Due 1998 (the "Secured Notes")
that have now been retired (the "Charter Amendments").
(4) A proposal to approve the Stock Option Agreement, dated as of August 1,
1996 (the "Stock Option Agreement"), granting William J. Shaw, the
Company's Chairman of the Board, President and Chief Executive Officer, the
option to purchase 664,495 shares of Existing Common Stock.
(5) The ratification of Arthur Andersen LLP ("Arthur Andersen") as the
Company's independent certified public accountants for the fiscal year
ending June 30, 1997.
(6) To transact such other business as may properly come before the meeting or
any adjournment thereof.
Recommendations of the Board of Directors
The Board of Directors recommends that you vote to:
(1) Elect as directors the nominees named in this Proxy Statement/Prospectus
and the accompanying proxy;
(2) Approve the Reincorporation Merger and the Merger Agreement;
(3) Approve the Charter Amendments;
(4) Approve the Stock Option Agreement; and
(5) Ratify Arthur Andersen as the Company's independent certified public
accountants.
Matters of Special Importance
Stockholders are being asked to vote at the Annual Meeting upon two matters of
special importance: (i) the approval of the Reincorporation Merger intended
principally to institute certain transfer restrictions on the Company's common
stock and (ii) the approval of the Stock Option Agreement for William J. Shaw,
the Company's Chairman of the Board, President and Chief Executive Officer. A
summary of these matters and their intended benefits for the Company is set
forth below.
The Reincorporation Merger. One of the principal purposes of the
Reincorporation Merger is to help assure that the Company's substantial net
operating loss carryforwards ("NOLs"), which totaled $54.5 million at June 30,
1996, will continue to be available to offset future taxable income. Section
382 of the Internal Revenue Code of 1986, as amended (the "Code"), limits the
use of NOLs and other tax benefits by a company that has undergone an "ownership
change." The Reincorporation Merger is intended to decrease the likelihood of
an "ownership change" with respect to the Company by placing certain transfer
restrictions on all of the capital stock of the Company. See "Proposal II: The
Reincorporation Merger - Transfer Restrictions."
ii
<PAGE>
In July 1996 the Company consummated the restructuring of the debt represented
by its Secured Notes. The outstanding Secured Notes were retired by means of a
cash tender offer pursuant to which the Company purchased $10,070,000 in
aggregate principal amount of Secured Notes for $780 per $1,000 in principal
amount and a private exchange offer pursuant to which the Company exchanged
$81,790,000 in aggregate principal amount of Secured Notes for $400 in cash,
$492 in principal amount of the Company's newly issued Senior Subordinated Pay-
In-Kind Notes Due 2003 (the "PIK Notes") and 45 shares of Existing Common Stock
per $1,000 principal amount of Secured Notes. In the exchange offer, 3,680,550
shares of Existing Common Stock were issued to the exchanging noteholders (the
"Exchanging Noteholders") in the aggregate, representing approximately 49.8% of
the currently outstanding Existing Common Stock. Simultaneously with the
consummation of the tender offer and exchange offer, all remaining outstanding
Secured Notes were redeemed. In connection with the retirement of the Secured
Notes, the Company entered into a new senior secured credit facility (the
"Credit Agreement"). Collectively, such transactions are referred to as the
"Restructuring."
The Company estimates that the issuance of Existing Common Stock in the
Restructuring, together with other transfers of Existing Common Stock, resulted
in an aggregate increase in the ownership of its capital stock by "5 percent
shareholders" (within the meaning of Section 382 of the Code) over the three-
year period ended on the effective date of the Restructuring of as much as
42.5%, which is less than the 50% increase in ownership that constitutes an
"ownership change" under Section 382. Because of this substantial increase in
ownership, Exchanging Noteholders voluntarily submitted the Existing Common
Stock held by them at the time of the Restructuring to transfer restrictions
designed to minimize the likelihood of a future "ownership change." The Board
of Directors also amended the Company's Bylaws to submit all Existing Common
Stock issued after the date the Bylaw was adopted, including the Existing Common
Stock issued in the Restructuring, to such transfer restrictions. As a result,
approximately 85% of the Existing Common Stock is now subject to transfer
restrictions. Nonetheless, the Restructuring greatly increased the possibility
that an "ownership change" could be triggered through the regular trading of the
Existing Common Stock that is not subject to transfer restrictions.
The likelihood of an "ownership change" can be further decreased by the
Reincorporation Merger. Transfer restrictions, intended as a result of the
Reincorporation Merger to apply to all Stockholders, will be included in the
Restated Certificate of Incorporation of New Trails and certain legends will be
placed on the stock certificates representing the New Common Stock (collectively
the "Transfer Restrictions") to be issued in the Reincorporation Merger. The
Transfer Restrictions are substantially similar to the transfer restrictions
adopted in connection with the Restructuring, except that the Transfer
Restrictions have been extended to last until substantially all of the NOLs are
utilized or expire (subject to earlier termination by the Board of Directors).
Additionally, the Reincorporation Merger will change the Company's jurisdiction
of incorporation to Delaware, allowing it to benefit from Delaware's well-
developed corporate law; the Company's name will be changed to "Thousand Trails,
Inc.," reflecting the Company's acquisition by merger of the operations of one
of its principal operating subsidiaries in connection with the Restructuring
(the "Name Change"); and, if approved by the Stockholders, the Restated
Certificate of Incorporation of New Trails will exclude restrictions, imposed in
connection with the issuance of the Secured Notes, on the issuance of non-voting
stock and supermajority voting provisions in connection with the acquisition of
shares of the Company's capital stock in certain circumstances. See "Proposal
III: Charter Amendments."
The Reincorporation Merger will be effected pursuant to the Merger Agreement,
attached as Annex A. Upon consummation of the Reincorporation Merger, New
Trails will be substantially identical to the Company. The principal executive
offices of New Trails will be the Company's principal executive offices. The
directors and officers of the Company immediately prior to the Reincorporation
Merger will be the directors and officers of New Trails, and the Restated
Certificate of Incorporation of New Trails, attached as Annex B (the "Delaware
Certificate"), will be substantially identical to the Company's Amended and
Restated Articles of Incorporation (the "Nevada Articles") immediately prior to
the Reincorporation Merger, except for the Transfer Restrictions, the Name
Change and, subject to Stockholder approval, the Charter Amendments. The Bylaws
of New Trails, attached as Annex C (the "Delaware Bylaws"), will be
substantially identical to the Company's Amended and Restated Bylaws (the
"Nevada Bylaws"). However, the indemnification provisions in the Nevada
Articles will be included in the Delaware Bylaws, with certain changes intended
to conform to Delaware law. Each of Annex A, Annex B and Annex C are hereby
incorporated into this Proxy Statement/Prospectus by reference. Immediately
following the Reincorporation Merger, New Trails will have the same consolidated
assets, liabilities and stockholders' equity (deficit) as the Company
immediately prior to the Reincorporation Merger. The authorized equity capital
of New Trails following the Reincorporation Merger will be the same as the
authorized equity capital of the Company immediately prior to the
Reincorporation Merger.
iii
<PAGE>
As a result of the Reincorporation Merger, each share of Existing Common Stock
outstanding immediately prior to the Reincorporation Merger will be converted
into the right to receive an equal number of shares of New Common Stock, and
each warrant or other right to purchase or receive Existing Common Stock
outstanding immediately prior to the Reincorporation Merger will become entitled
to purchase or receive an equal number of shares of New Common Stock. The
relative powers, designations, preferences, rights and qualifications of the New
Common Stock will be substantially identical in all material respects to the
relative powers, designations, preferences, rights and qualifications of the
Existing Common Stock, except as described in this Proxy Statement/Prospectus.
As of September 27, 1996, directors and executive officers of the Company as a
group beneficially owned 2,962,102 shares of Existing Common Stock (exclusive of
presently exercisable warrants and stock options), which represent 40.1% of the
aggregate number of votes entitled to be cast at the meeting. See "Security
Ownership - Security Ownership of Management." The approval of the
Reincorporation Merger requires the affirmative vote of holders of a majority of
the Existing Common Stock issued and outstanding.
Consummation of the Reincorporation Merger is subject to Stockholder approval
and receipt of all material orders, consents or approvals, governmental or
otherwise, that may be required or advisable. The Company and New Trails
believe that no material federal or state regulatory approvals are necessary
other than registrations in connection with securities laws.
Under the Nevada General Corporation Law (the "Nevada GCL"), Stockholders will
have the right to dissent and obtain the fair value of their shares with respect
to the Reincorporation Merger. HOWEVER, IT IS A CONDITION TO CONSUMMATION OF
THE REINCORPORATION MERGER THAT HOLDERS OF NO MORE THAN 1% OF THE EXISTING
COMMON STOCK ASSERT THE RIGHT TO DISSENT. See "Proposal II: The Reincorporation
Merger - Right to Dissent."
The material federal income tax consequences to the holders of Existing Common
Stock who receive New Common Stock in exchange for their shares of Existing
Common Stock pursuant to the Merger Agreement are discussed at "Proposal II:
The Reincorporation Merger - Federal Income Tax Consequences." All holders of
Existing Common Stock should consult their own tax advisors regarding the tax
consequences of the Reincorporation Merger with respect to their individual tax
situations, and the tax consequences related to the holding and future
disposition of New Common Stock received pursuant to the Reincorporation Merger.
The Existing Common Stock does not trade every day, and the trading volume is
often small. On September 27, 1996, the closing bid quotation per share of
Existing Common Stock was $1.00. The foregoing quotation is as quoted through
the NASD OTC Bulletin Board and the National Quotation Bureau's Pink Sheets.
Such quotations reflect inter-dealer prices, without retail mark-up or mark-down
or commission, and may not necessarily represent actual transactions.
Stock Option Agreement. Mr. Shaw's employment agreement with the Company
provided him the right to a one-time bonus based on the increase in the overall
enterprise value of the Company (including the value of its debt and equity).
The bonus would have been adversely affected by the consummation of the
Restructuring. In these circumstances, prior to consummation of the
iv
<PAGE>
Restructuring Mr. Shaw elected to receive his bonus, the bonus amount was fixed,
and the vested portion was paid to him. Additionally, in order to retain Mr.
Shaw's services and provide an incentive to him, the Special Committee of the
Board of Directors at a meeting of the full Board of Directors authorized a
grant to Mr. Shaw, in the event the Restructuring was consummated and subject to
stockholder approval, of options to purchase 9% of the Existing Common Stock
outstanding after the Restructuring.
After the Restructuring, Mr. Shaw was granted, subject to Stockholder approval,
the option to purchase 664,495 shares of Existing Common Stock at $0.69 per
share. Such exercise price is the average closing bid quotation for the
Existing Common Stock as quoted through the NASD OTC Bulletin Board and National
Quotation Bureau's Pink Sheets for the ten business days immediately following
the effective date of the Restructuring. If approved, the option will be
immediately exercisable for a period of ten years while Mr. Shaw is in the
employ of the Company, subject to certain exceptions. The exercise of the
options, however, will generally be subject to restrictions so as to reduce the
likelihood of an "ownership change" within the meaning of Section 382 of the
Code as a result of the exercise of the option. A copy of the Stock Option
Agreement is attached as Annex D, which is hereby incorporated into this Proxy
Statement/Prospectus by reference.
Further Information. The foregoing is a brief summary of certain information
contained elsewhere in this Prospectus/Proxy Statement. The foregoing is not
intended to be complete and is qualified in its entirety by reference to the
more detailed information contained elsewhere in this Prospectus/Proxy Statement
and the annexes hereto, including, without limitation, the Merger Agreement, the
Delaware Certificate and Delaware Bylaws, and the Stock Option Agreement.
Registration Statement
New Trails has filed a Registration Statement on Form S-4 under the Securities
Act of 1933, as amended (the "Securities Act"), covering up to 7,383,276 shares
of New Common Stock to be issued to the Stockholders in exchange for their
Existing Common Stock pursuant to the Reincorporation Merger (the "Registration
Statement"). This Proxy Statement/Prospectus constitutes the prospectus of New
Trails relating to the New Common Stock and is filed as part of the Registration
Statement. Following the Reincorporation Merger, New Trails, as the successor
to the Company, will be a reporting company under Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith will file reports and other information with the Securities and
Exchange Commission (the "Commission").
v
<PAGE>
AVAILABLE INFORMATION
The Company is (and, following the Reincorporation Merger, New Trails will be)
subject to the informational requirements of the Exchange Act and in accordance
therewith files (and New Trails will file) reports, proxy statements and other
information with the Commission. The public may inspect and copy at prescribed
rates such reports, proxy statements and other information that the Company
(and, following the Reincorporation Merger, New Trails) has filed with the
Commission at the public reference facilities that the Commission maintains at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the
Commission's regional offices located at Room 3190, Northwest Atrium Center, 500
West Madison Street, Chicago, Illinois 60661 and 7 World Trade Center, 13th
Floor, New York, New York 10048. In addition, the public may obtain such
reports, proxy statements and other information from the Public Reference
Section of the Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a site accessible to the public
by computer on the World Wide Web, at http://www.sec.gov, that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission, including the Company (and,
following the Reincorporation Merger, New Trails).
This Proxy Statement/Prospectus does not contain all of the information in the
Registration Statement and exhibits thereto. Statements in this Proxy
Statement/Prospectus as to the contents of any contract, agreement or other
document are summaries only and are not necessarily complete. For complete
information as to these matters, stockholders should refer to the applicable
exhibit to the Registration Statement. The Registration Statement and the
exhibits thereto filed by New Trails with the Commission may be inspected at the
public reference facilities of the Commission listed above.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR NEW TRAILS. THIS PROXY STATEMENT/PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY
SECURITIES, OR SOLICITATION OF A PROXY, IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR NEW TRAILS OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
vi
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INTRODUCTION.......................................................................... i
Purposes of the Annual Meeting...................................................... i
Recommendations of the Board of Directors........................................... ii
Matters of Special Importance....................................................... ii
Registration Statement.............................................................. v
AVAILABLE INFORMATION................................................................. vi
SPECIAL CONSIDERATIONS RELATING TO REINCORPORATION MERGER............................. 1
Market Considerations............................................................... 1
Continuation of Net Operating Loss Carryforwards.................................... 1
Limitations on the Company's Ability to Use Tax Benefits............................ 1
RECORD DATE AND VOTING................................................................ 2
SECURITY OWNERSHIP.................................................................... 3
Security Ownership of Certain Beneficial Owners..................................... 3
Security Ownership of Management.................................................... 6
PROPOSAL I: THE ELECTION OF DIRECTORS................................................. 7
BOARD OF DIRECTORS.................................................................... 8
EXECUTIVE OFFICERS.................................................................... 10
EXECUTIVE COMPENSATION................................................................ 11
Summary Compensation Table.......................................................... 11
Employment Contracts................................................................ 12
Stock Option Plans.................................................................. 12
Option/SAR Grants in Last Fiscal Year............................................... 14
Aggregate Option Exercises in Fiscal 1996 and Fiscal Year End Optional Values....... 15
Long Term Incentive Plans........................................................... 15
Compensation of Directors........................................................... 15
Report of the Compensation Committee................................................ 16
Performance Graph................................................................... 18
Indemnification..................................................................... 19
PROPOSAL II: THE REINCORPORATION MERGER............................................... 20
Transfer Restrictions............................................................... 20
Reincorporation in Delaware......................................................... 26
Certain Consequences of the Reincorporation Merger.................................. 26
Federal Income Tax Consequences..................................................... 27
Description of New Common Stock..................................................... 29
Material Differences Between the Charters and Bylaws of the Company and New Trails.. 30
Material Differences between the Corporation Laws of Delaware and Nevada............ 30
Conversion of Securities in the Reincorporation Merger.............................. 33
Conditions to Consummation of the Reincorporation Merger............................ 33
</TABLE>
vii
<PAGE>
<TABLE>
<S> <C>
Pro Forma and Comparative Financial Statements.................................... 33
Right to Dissent.................................................................. 33
Exchange of Certificates.......................................................... 34
PROPOSAL III: CHARTER AMENDMENTS.................................................... 36
PROPOSAL IV: STOCK OPTION AGREEMENT................................................. 38
Terms of the Stock Option Agreement............................................... 38
Market Value...................................................................... 39
Federal Tax Treatment............................................................. 39
PROPOSAL V: INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS................................ 41
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE............................. 42
CERTAIN TRANSACTIONS................................................................ 42
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING............................................ 43
INCORPORATION BY REFERENCE.......................................................... 43
FORM 10-K........................................................................... 43
LEGAL MATTERS....................................................................... 43
ANNEX A - Agreement and Plan of Merger.............................................. A-1
ANNEX B - Restated Certificate of Incorporation of Thousand Trails, Inc............. B-1
ANNEX C - Bylaws of Thousand Trails, Inc............................................ C-1
ANNEX D - Stock Option Agreement.................................................... D-1
ANNEX E - Nevada Revised Statutes 92A.300 to 92A.500................................ E-1
</TABLE>
viii
<PAGE>
SPECIAL CONSIDERATIONS RELATING TO REINCORPORATION MERGER
In addition to the other matters affecting the Reincorporation Merger set
forth in this Proxy Statement/Prospectus, Stockholders should consider the
following factors prior to executing the proxy card or voting with respect to
Proposal II: The Reincorporation Merger.
Market Considerations
Following the Reincorporation Merger, the New Common Stock will be subject to
the Transfer Restrictions, which do not currently apply to approximately 15% of
the shares of the Existing Common Stock. There can be no assurance that the
market price of the New Common Stock will be comparable to the market price of
the Existing Common Stock, or that the market price of the New Common Stock will
not be adversely affected by the Transfer Restrictions. The Transfer
Restrictions (i) may have the effect of impeding the attempt of a person or
entity to acquire a significant or controlling interest in New Trails, (ii) may
render it more difficult to effect a merger or similar transaction even if such
transaction is favored by a majority of the independent stockholders and (iii)
may serve to make a change in management more difficult. The purpose of the
Transfer Restrictions is to preserve tax benefits, however, not to insulate the
Company or management from change. The Company believes that the tax benefits
of the Transfer Restrictions outweigh any anti-takeover effect that they may
have. See "Proposal II: The Reincorporation Merger - Transfer Restrictions -
Risk of Ownership Change."
Continuation of Net Operating Loss Carryforwards
Notwithstanding the adoption of the Transfer Restrictions, New Trails may be
unable to, or may elect not to, prevent every transaction that could cause an
"ownership change" for federal income tax purposes. In addition, the Transfer
Restrictions will not apply to the exercise of outstanding warrants or options
to purchase Existing Common Stock and may not apply to exercises of a portion of
the options under the Stock Option Agreement that occur at the end of its term.
Further, while the Company believes that the Transfer Restrictions will be
enforceable as to all of the New Common Stock, there can be no assurance that a
court would so determine. Moreover, while the Company believes that the
remedial provisions in the Transfer Restrictions are generally sufficient, it is
possible that the relevant tax authorities will take the position that the
Transfer Restrictions do not provide adequate remedies for tax purposes with
respect to every transaction that the Transfer Restrictions purport to prevent.
Further, there can be no assurance a court would enforce every remedial
provision set forth in the Transfer Restrictions if the binding nature of such
provision were challenged. Therefore, even with the Transfer Restrictions in
place, it is possible that transactions could occur that would limit the
Company's ability to utilize the NOLs. See "Proposal II: The Reincorporation
Merger - Transfer Restrictions - Risk of Ownership Change." There can be no
assurance that legislation will not be adopted that would limit New Trails'
ability to utilize the NOLs in future periods. However, the Company is not
aware of any proposed legislation for changes in the tax laws that could impact
the ability of New Trails to utilize the NOLs as described below.
Limitations on the Company's Ability to Use Tax Benefits
The extent of the actual future utilization of the NOLs is subject to inherent
uncertainty inasmuch as the utilization depends on the amount of otherwise-
taxable income against which the Company will be able to utilize the NOLs in
future years. Accordingly, even though the Reincorporation Merger will reduce
the risk that an "ownership change" will occur that could limit the Company's
ability to use the NOLs, there can be no assurance that the Company will have
sufficient taxable income in future years to actually use the NOLs before they
would otherwise expire. If the Reincorporation Merger is consummated, the
Transfer Restrictions will remain in effect for at least fifteen years (unless
earlier terminated by the Board of Directors). See "Proposal II: The
Reincorporation Merger - Transfer Restrictions - Risk of Ownership Change."
1
<PAGE>
RECORD DATE AND VOTING
The Board of Directors established the close of business on October 7, 1996,
as the record date for the determination of Stockholders entitled to notice of
the Annual Meeting and to vote thereat and at any adjournment thereof. On that
date, the Company had issued and outstanding 7,383,276 shares of Existing Common
Stock. The Company did not have any other shares of capital stock outstanding.
Each Stockholder will be entitled to one vote per share of Existing Common
Stock in connection with each matter to be voted upon at the Annual Meeting.
The presence, in person or by proxy, of the holders of a majority of the
shares of Existing Common Stock issued and outstanding will constitute a quorum
at the meeting. Shares represented at the meeting in person or by proxy but not
voted will nevertheless be counted for purposes of determining the presence of a
quorum. Assuming that a quorum is present or represented at the meeting, (i)
the election of six directors requires the affirmative vote of the holders of a
majority of the Existing Common Stock present or represented at the meeting,
(ii) the approval of the Reincorporation Merger requires the affirmative vote of
holders of a majority of the Existing Common Stock issued and outstanding, (iii)
the approval of the Charter Amendments requires the affirmative vote of holders
of 66-2/3% of the Existing Common Stock issued and outstanding, (iv) the
approval of the Stock Option Agreement requires the affirmative vote of holders
of a majority of the Existing Common Stock present or represented at the meeting
and (v) the ratification of Arthur Andersen requires the affirmative vote of
holders of a majority of the Existing Common Stock present or represented at the
meeting.
With respect to the election of directors, votes may be cast for a nominee or
withheld. Instructions on the accompanying proxy to withhold authority to vote
for one or more of the nominees will result in such nominees receiving fewer
votes. However, the number of votes otherwise received by such nominees will
not be reduced by such action. Under the rules of the New York and American
Stock Exchanges, if a broker forwards the Proxy Statement/Prospectus and the
accompanying material to its customers before the Annual Meeting, the broker may
vote the customer's shares on the proposals to elect directors and ratify the
Company's independent public accountants if the broker does not receive voting
instructions from the customers prior to the Annual Meeting. However, under
such rules, in the absence of such instructions from their customers, brokers
will have no authority to vote on the Reincorporation Merger, the Charter
Amendments or the Stock Option Agreement. As a consequence, an abstention or
failure to give timely instructions with respect to the Reincorporation Merger,
the Charter Amendments or the Stock Option Agreement will have the same effect
as voting against such matter.
Proxyholders will vote the shares of Existing Common Stock represented by
valid proxies at the meeting in accordance with the directions given. If a
Stockholder signs and returns a proxy card without giving any directions, the
proxyholders will vote the shares FOR the election of the six nominees for
director named in this Proxy Statement/Prospectus, FOR the approval of the
Reincorporation Merger, FOR the approval of the Charter Amendments, FOR the
approval of the Stock Option Agreement and FOR the ratification of Arthur
Andersen. The Board of Directors does not intend to present, and has no
information that others will present, any other business at the Annual Meeting.
However, in their discretion, the proxyholders are authorized to (a) vote upon
such other matters presented at the meeting that the Board of Directors did not
know would be presented a reasonable time before this solicitation, (b) vote to
approve the minutes of the last annual meeting of stockholders (which approval
will not amount to ratification of the action taken at that meeting), (c) vote
for the election of such substitute nominees for director as the Board of
Directors may propose if any nominee set forth herein is unavailable to stand
for election as a result of unforeseen circumstances and (d) vote upon matters
incident to the conduct of the meeting.
A Stockholder has the unconditional right to revoke such Stockholder's proxy
at any time prior to the voting thereof by (i) submitting a later dated proxy to
the Secretary of the Company or someone else who attends the Annual Meeting,
(ii) attending the Annual Meeting and delivering a written notice of revocation
of the proxy to the Secretary of the Company present thereat or (iii) delivering
a written notice of revocation of the proxy to the principal executive offices
of the Company, which the Company receives on or before November 18, 1996.
2
<PAGE>
The Company will bear the cost of soliciting the accompanying proxies. The
directors, officers and other employees of the Company may solicit proxies by
mail, personal interview, telephone or facsimile transmission. They will
receive no additional compensation therefor. The Company will reimburse banks,
brokerage firms, and other custodians, nominees, and fiduciaries for the
reasonable expenses that they incur when forwarding this proxy statement and the
accompanying proxy.
SECURITY OWNERSHIP
Security Ownership of Certain Beneficial Owners
The following tables sets forth the persons and groups who beneficially own
more than 5% of the Existing Common Stock as of September 27, 1996. The Company
compiled this information from its stock records, the Schedules 13D filed with
the Company and other information available to the Company. Unless otherwise
indicated, these persons possess sole voting and investment power with respect
to the shares that they beneficially own.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING SHARES
- ----------------------------------------- ---------------------- ---------------------
<S> <C> <C>
Andrew M. Boas 3,056,623/1/ 40.3%
c/o Carl Marks Management Co., L.P.
135 East 57th Street
New York, New York 10022
Carl Marks Management Co., L.P. 2,837,826/1/ 37.4%
135 East 57th Street
New York, New York 10022
Carl Marks Strategic Investments, L.P. 2,326,900/1/ 30.7%
c/o Carl Marks Management Co., L.P.
135 East 57th Street
New York, New York 10022
Carl Marks Strategic Investments II, L.P. 510,926/1/ 6.9%
c/o Carl Marks Management Co., L.P.
135 East 57th Street
New York, New York 10022
Peter M. Collery 1,308,498/2/ 17.7%
c/o Siegler & Collery & Co.
712 Fifth Avenue
New York, New York 10019
Robert C. Ruocco 3,027,916/1/ 40.0%
c/o Carl Marks Management Co., L.P.
135 East 57th Street
New York, New York 10022
SC Fundamental, Inc. 946,508/2/ 12.8%
712 Fifth Avenue
New York, New York 10019
SC Fundamental Value BVI, Inc. 361,990/2/ 4.9%
712 Fifth Avenue
New York, New York 10019
Gary N. Siegler 1,308,498/2/ 17.7%
c/o Siegler & Collery & Co.
712 Fifth Avenue
New York, New York 10019
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
The SC Fundamental Value Fund, L.P. 946,508/2/ 12.8%
712 Fifth Avenue
New York, New York 10019
Martin J. Whitman 3,355,294/1/ 44.3%
c/o Carl Marks Management Co., L.P.
135 East 57th Street
New York, New York 10022
</TABLE>
- ----------
/1/ The ownership of these shares of Existing Common Stock includes multiple
beneficial ownership of the same shares. Carl Marks Strategic Investments,
L.P. ("CM Strategic") owns 2,132,379 shares and is deemed to own an
additional 194,521 shares because it owns warrants to acquire 194,521
shares at a price of $4.24 per share. Carl Marks Management Co., L.P. ("CM
Management") is the general partner of CM Strategic. CM Management,
therefore, beneficially owns all of the shares of Existing Common Stock
that CM Strategic beneficially owns. Carl Marks Strategic Investments II,
L.P. ("CM Strategic II") owns 510,926 shares of Existing Common Stock. CM
Management is the general partner of CM Strategic II and, therefore,
beneficially owns all of the shares of Existing Common Stock that CM
Strategic II beneficially owns. Messrs. Boas, Ruocco, and Whitman are each
a general partner of CM Management. Messrs. Boas, Ruocco, and Whitman,
therefore, beneficially own all of the shares of Existing Common Stock that
CM Management beneficially owns. In addition, Carl Marks Offshore
Management, Inc., an investment management company, manages a fund which in
the aggregate own 58,550 shares of Existing Common Stock and exercises
investment discretion over advisory accounts that own 131,090 shares of
Existing Common Stock. Messrs. Boas, Ruocco and Whitman are executive
officers of such investment management company and therefore beneficially
own such shares. In addition, Mr. Boas (i) owns 11,569 shares of Existing
Common Stock, (ii) is deemed to own an additional 15,000 shares because he
owns options to acquire 5,000 shares at a price of $2.75 per share, 5,000
shares at a price of $0.80 per share and 5,000 shares at a price of $0.79
per share and (iii) beneficially owns 2,588 shares because he is a co-
trustee of a trust that owns these shares. In addition, Mr. Ruocco owns 450
shares of Existing Common Stock. In addition, Mr. Whitman (i) owns 4,785
shares of Existing Common Stock, (ii) beneficially owns 85,776 shares that
are owned by Martin J. Whitman & Co., Inc. ("MJ Whitman") as he is a
principal stockholder of MJ Whitman and (iii) beneficially owns 237,267
shares because he is affiliated with the investment advisor to a registered
investment company that owns these shares. CM Strategic, CM Strategic II,
CM Management, and Messrs. Boas, Ruocco, and Whitman disclaim the existence
of a group. The reported voting and investment power of these shares is as
follows: (i) CM Strategic - sole voting and investment power over 2,326,900
shares, CM Strategic II - sole voting and investment power over 510,926
shares, (ii) CM Management - sole voting and investment power over
2,837,826 shares, (iii) Mr. Boas - sole voting and investment power over
26,569 shares and shared voting and investment power over 3,030,054 shares,
(iv) Mr. Ruocco - sole voting and investment power over 450 shares and
shared voting and investment power over 3,027,466 shares, and (v) Mr.
Whitman - sole voting and investment power of 327,828 shares and shared
voting and investment power over 3,027,466 shares.
4
<PAGE>
The following table shows the beneficial ownership of the shares of Existing
Common Stock described in this footnote:
<TABLE>
<CAPTION>
CM CM CM MR. MR. MR.
STRATEGIC STRATEGIC II MANAGEMENT BOAS RUOCCO WHITMAN
------------ --------------- ---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Shares Owned by CM 2,132,379 2,132,379 2,132,379 2,132,379 2,132,379
Strategic
Warrants Owned by CM 194,521 194,521 194,521 194,521 194,521
Strategic
Shares owned by CM 510,926 510,926 510,926 510,926 510,926
Strategic II
Shares over which an 189,640 189,640 189,640
investment management
company affiliated with
Messrs. Boas, Ruocco and
Whitman Possesses
Investment Discretion
Shares Owned by Mr. Boas 11,569
Options Owned by Mr. Boas 15,000
Shares Held in Trust Over 2,588
Which Mr. Boas is a
Co-Trustee
Share owned by Mr. Ruocco 450
Shares owned by Mr. Whitman 4,785
Shares Owned by MJ Whitman 85,776
in which Mr. Whitman is a
Principal Stockholder
Shares Owned by a 237,267
Registered Investment
Company Whose Investment
Advisor is Affiliated
with Mr. Whitman
TOTAL 2,326,900 510,926 2,837,826 3,056,623 3,027,916 3,355,294
========= ============ ========= ========= ========= =========
Percentage of Outstanding 30.7% 6.9% 37.4% 40.3% 40.0% 44.3%
Shares
</TABLE>
/2/ The ownership of these shares of Existing Common Stock includes multiple
beneficial ownership of the same shares. SC Fundamental Value Fund, L.P., a
Delaware limited partnership (the "Fund") owns 946,508 shares. SC
Fundamental Inc., a Delaware corporation ("SC Fundamental") is the general
partner of the Fund and, therefore, beneficially owns all of the shares of
the Common Stock that the Fund owns. SC Fundamental Value BVI, Inc., a
Delaware corporation ("BVI") owns 361,990 shares. Gary N. Siegler is a
controlling stockholder and the president and a director of SC and BVI.
Peter M. Collery is also a controlling stockholder and a vice-president and
director of SC and BVI. Messrs. Siegler and Collery are in a position to
directly and indirectly determine the investment and voting decisions made
by SC and BVI and, therefore, are deemed to beneficially own all of the
shares of Existing Common Stock that the Fund and BVI own.
5
<PAGE>
Security Ownership of Management
The following table set forth the number of shares of Existing Common Stock
that are beneficially owned, as of September 27, 1996, by each director and
executive officer of the Company and all directors and executive officers of the
Company as a group. The Company obtained this information from its directors
and executive officers. Unless otherwise indicated, these persons possess sole
voting and investment power with respect to the shares that they beneficially
own.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Name Beneficially Owned Outstanding Shares
- ----------------------------------------------- ------------------- --------------------
<S> <C> <C>
Andrew M. Boas 3,056,623/1/ 40.3%
William F. Dawson 28,333/2/ *
R. Gerald Gelinas 26,667/2/ *
Walter B. Jaccard 30,000/2/ *
William P. Kovacs 65,000/2/ *
Donald R. Leopold 5,000 *
H. Sean Mathis 15,000/2/ *
Douglas K. Nelson 15,000/2/ *
William J. Shaw 2,500/3/ *
Harry J. White, Jr. 62,500/2/ *
All directors and executive officers as a group 3,306,623/2/ 43.4%
(10 individuals)
</TABLE>
- ----------
*Less than 1%
1 See footnote 1 to the preceding table for a description of Mr. Boas'
beneficial ownership of Common Stock.
2 The shares of Existing Common Stock beneficially owned by the following
individuals include vested stock options (or options that will vest within
the next 60 days) for the number of shares following their names: Mr. Boas,
15,000; Mr. Dawson, 28,333; Mr. Gelinas, 6,667; Mr. Jaccard, 20,000; Mr.
Kovacs, 15,000; Mr. Leopold: 5,000; Mr. Mathis, 15,000; Mr. Nelson, 15,000;
Mr. White, 30,000; and all directors and executive officers as a group,
150,000.
3 The Company has, subject to Stockholder approval, granted options to purchase
664,495 shares to Mr. Shaw under the Stock Option Agreement which are not
reflected in this table. See "Proposal IV: Stock Option Agreement."
As of September 27, 1996, directors and executive officers of the Company as a
group beneficially owned 2,962,102 shares of Existing Common Stock (exclusive of
presently exercisable warrants and stock options) representing 40.1% of the
outstanding Existing Common Stock. Such persons have indicated that they intend
to vote all such shares for approval of the matters described herein. The
approval of the Reincorporation Merger requires the affirmative vote of holders
of a majority of the Existing Common Stock issued and outstanding. No such
persons will receive any benefits pursuant to any employee benefit or stock
option plan or any current employment agreement as a result of the
Reincorporation Merger. However, upon consummation of the Reincorporation
Merger, the shares of Existing Common Stock, as to which the Company is in any
event obligated to file a shelf registration statement, received by Mr. Boas and
his affiliates in the private exchange offer that was part of the Restructuring
will be exchanged for New Common Stock which will be registered under the
Securities Act pursuant to the Registration Statement. See "Proposal II: The
Reincorporation Merger - Description of New Common Stock" and "Certain
Transactions."
6
<PAGE>
PROPOSAL I: THE ELECTION OF DIRECTORS
The Stockholders will vote for the election of all six directors of the
Company, who will serve until the election and qualification of their
successors. If any nominee is unavailable for election as a result of
unforeseen circumstances, the proxyholders will vote for the election of such
substitute nominee as the Board of Directors may propose.
Each of the nominees is a current director of the Company. Each nominee has
furnished to the Company the following information with respect to his principal
occupation or employment, principal business, and directorships of public
companies:
<TABLE>
<CAPTION>
Offices and Positions Director Board Committee
Name Age with the Company Since Memberships
- --------------------- ---------- ------------------------------ ------------------- ------------------------
<S> <C> <C> <C> <C>
Andrew M. Boas 41 None December Audit, Marketing and
1991 Nominating
William P. Kovacs 50 None December Audit, Compensation and
1991 Special
Donald R. Leopold 46 None December Compensation and Marketing
1995
H. Sean Mathis 49 None December Audit, Compensation,
1991 Nominating and Special
Douglas K. Nelson 53 None December Marketing, Nominating and
1991 Special
William J. Shaw 53 Chairman of the Board, May None
Chief Executive Officer, 1995
and President
</TABLE>
Andrew M. Boas became a director of the Company in December 1991 upon
the Company's emergence from its proceedings under Chapter 11 of the Bankruptcy
Code. Since November 1986, Mr. Boas has been a general partner of CM Management,
an advisory and management firm that is the general partner of investment
partnerships and managed accounts specializing in investments in troubled
companies. Since May 1994, he has also been President of Carl Marks Offshore
Management, Inc. Mr. Boas also has been (i) a Managing Director of Carl Marks &
Co., Inc., a broker-dealer firm, since December 1977, (ii) a director of CMCO
Inc., an investment banking firm, since March 1988, (iii) a director of Sport
and Health, LLC, an operator of fitness centers, since October 1993 and (iv) a
director of Vertientes Camaguey Sugar Company, a holding company, since November
1994. Mr. Boas also served as: a director of American Corp. Limited, an
Australian company that invests in the securities of companies located in the
United States, from January 1988 to February 1992; a director of Smith Newcourt,
Carl Marks, Inc., a broker-dealer firm, from March 1988 to June 1990; a director
of Herman's Sporting Goods, Inc., from March 1993 to March 1996; and a director
of Pratt & Lambert United, Inc., a manufacturer of consumer and industrial
coatings, from August 1994 to January 1996.
William P. Kovacs became a director of the Company in December 1991 upon
the Company's emergence from its Chapter 11 proceedings and served as a director
until December 3, 1992. From December 3, 1992 to December 2, 1993, Mr. Kovacs
served as an advisory director of the Company at the pleasure of the Board of
Directors. As an advisory director, Mr. Kovacs attended and participated in
meetings of the Board of Directors and committees thereof, but did not vote on
matters presented. Since December 2, 1993, Mr. Kovacs has served as a director
of the Company. From October 1989 to August 1995, Mr. Kovacs was a Vice
President and Assistant Secretary of Kemper Financial Services, Inc., the
investment management subsidiary of Kemper Corp. From June 1981 to September
1989, Mr. Kovacs held various legal positions with the Principal Financial
Group, Des Moines, Iowa. Mr. Kovacs also was a director of United Gas Holding
Company from February 1991 to July 1993, and an officer of 625 Liberty Avenue
Holding Corporation from November 1993 to August 1995.
7
<PAGE>
Donald R. Leopold became a director of the Company in December 1995. Since
September 1991, Mr. Leopold has been a senior partner of Sherbrooke Associates,
Inc., a marketing, strategic planning and organization development consulting
firm. From May 1994 to September 1995, Sherbrooke Associates, Inc. performed
consulting services for the Company with respect to its marketing and sales
operations, and Mr. Leopold was primarily responsible for the consulting work
performed for the Company. From 1984 to September 1991, Mr. Leopold was
President of Game Plan, Inc., a management consulting firm. He is also a
director of Jullian's Entertainment Corporation.
H. Sean Mathis became a director of the Company in December 1991 in connection
with the Company's emergence from its Chapter 11 proceedings. Mr. Mathis is
Chairman and a director of Universal Gym Equipment Inc. a privately owned
company. He is also Chairman of the Board of Allis Chalmers, Inc., an
industrial manufacturer, whose main asset is a net operating loss carryforward.
From 1991 to 1993, Mr. Mathis was President of RCL, the predecessor firm of
Allied Digital Technologies Corp., a manufacturing company, and from 1993 to the
present served as a director. From 1993 to 1995 Mr. Mathis was President and a
director of RCL Capital Corporation, which was merged into DISC Graphics in
November 1995. From 1988 to October 1993, Mr. Mathis was a director and Chief
Operating Officer of Ameriscribe Corporation, a national provider of
reprographic and related facilities management services whose stock was traded
on the New York Stock Exchange. From August 1992 to May 1994, Mr. Mathis acted
as the Federal Court Appointed Trustee for International Wire News Service
Liquidation Corp., formerly United Press International ("UPI"). From November
1991 through July 1992, Mr. Mathis was Vice Chairman and a director of UPI (then
a news syndication service.) In August 1991, as a part of a restructuring
program, UPI filed for protection under the federal bankruptcy laws. He is also
a director of Canadian's Corp., a specialty retailer.
Douglas K. Nelson became a director of the Company in December 1991 in
connection with the Company's emergence from its Chapter 11 proceedings. From
February 1970 through March 1976, Mr. Nelson was an associate with McKinsey and
Co., Inc., a management consulting firm. Since April 1976, Mr. Nelson has been
President of Strategic Directions, a management consulting firm which focuses on
business in the areas of leisure, sports, and entertainment.
William J. Shaw joined the Company in May 1995 as its President, Chief
Executive Officer and a director. In July 1995, Mr. Shaw became Chairman of the
Board of Directors, and President and Chief Executive Officer of the Company's
two principal operating subsidiaries, Thousand Trails Inc. ("Trails") (until it
was merged into the Company in July 1996) and National American Corporation
("NACO"). From February 1989 to October 1993, Mr. Shaw was a director and the
President and Chief Executive Officer of Ameriscribe Management Services
Corporation, a national provider of reprographic and related facilities
management services. Ameriscribe Management Services Corporation was sold to
Pitney Bowes in November 1993. From 1983 to January 1989, Mr. Shaw was
President and Chief Executive Officer of Grandy's, a Dallas-based chain of fast
service restaurants.
BOARD OF DIRECTORS
Meetings. During the fiscal year ended June 30, 1996, the Board of Directors
held 14 regularly scheduled meetings and special meetings. Each director
attended at least 75% or more of all meetings of: (i) the Board of Directors
held during the periods for which he was a director, and (ii) the committee to
which he was assigned during the periods that he served, other than Mr. Leopold,
who attended 50% of such meetings.
Audit Committee. The Board of Directors has an Audit Committee (the "Audit
Committee"), presently composed of Messrs. Boas, Kovacs and Mathis. Pursuant to
its charter, the Audit Committee (i) reviews the Company's systems of internal
accounting controls and financial reporting, (ii) reviews the Company's internal
audit function, (iii) approves the selection of the Company's independent
certified public accountants, and (iv) reviews the reports that the Company's
independent certified public accountants render on the Company's financial
statements and other matters. The Audit Committee also performs such other
duties and functions as it or the Board of Directors deem appropriate. During
the fiscal year ended June 30, 1996, the Audit Committee held four meetings.
8
<PAGE>
Compensation Committee Interlocks And Insider Participation. The Board of
Directors has a Compensation Committee (the "Compensation Committee"), presently
composed of Messrs. Kovacs, Leopold and Mathis. The Compensation Committee
recommends to the Board of Directors (i) the base salaries and bonuses of the
officers of the Company and (ii) the awards that the Company should make under
its stock plans. During the fiscal year ended June 30, 1996, the Compensation
Committee held three meetings. Mr. Boas served as a member of the Compensation
Committee with Messrs. Leopold and Mathis until January 1996 and with Mr. Shaw,
the President and Chief Executive Officer of the Company, from January 1996
until September 1996. As described under "Security Ownership," Mr. Boas is
deemed to own beneficially 40.3% of the Existing Common Stock. Mr. Boas and
certain of his affiliates participated in the private exchange offer that was
part of the Restructuring approved by the Special Committee. Mr. Boas'
affiliates CM Strategic and CM Strategic II exchanged $18,806,000 principal
amount of Secured Notes for $7,522,400 in cash, $9,252,552 principal amount of
PIK Notes and 846,270 shares of Existing Common Stock. Carl Marks Offshore
Management, Inc., of which Mr. Boas is an executive officer, exchanged
$3,053,000 principal amount of Secured Notes for $1,221,200 in cash, $1,502,000
principal amount of PIK Notes and 137,385 shares of Existing Common Stock. In
addition, Mr. Boas and certain trusts of which he is co-trustee exchanged
$187,000 principal amount of Secured Notes for $74,800 in cash, $92,000
principal amount of PIK Notes and 8,415 shares of Existing Common Stock. Such
persons also received accrued interest on their Secured Notes through the date
of the exchange. In connection with the Restructuring, which would have
adversely affected Mr. Shaw's bonus arrangements, Mr. Shaw was granted, subject
to Stockholder approval, an option to purchase 664,495 shares of Existing Common
Stock at $0.69 per share. Such shares constitute approximately 9% of the
Existing Common Stock outstanding after the Restructuring. The exercise price
of the option represents the average closing bid quotation for the Existing
Common Stock as quoted through the NASD OTC Bulletin Board and National
Quotation Bureau's Pink Sheets for the ten business days immediately following
the effective date of the Restructuring. The option was approved by the Special
Committee, at a meeting of the full Board of Directors. In connection with the
Restructuring, the Special Committee performed some of the functions usually
exercised by the Compensation Committee.
Marketing Committee. The Board of Directors has a Marketing Committee (the
"Marketing Committee") that reviews sales and marketing programs, direction, and
other issues with the Company's senior management. The Marketing Committee is
presently composed of Messrs. Boas, Leopold and Nelson. During the fiscal year
ended June 30, 1996, the Marketing Committee did not meet.
Nominating Committee. The Board of Directors has a Nominating Committee (the
"Nominating Committee"), presently composed of Messrs. Boas, Mathis and Nelson,
which recommends to the Board of Directors the individuals to be nominated for
director at the annual meeting of Stockholders. The Nominating Committee will
consider nominees for director recommended by any Stockholder. To make such a
recommendation with respect to directors to be elected at the 1997 annual
meeting, a Stockholder should contact the Company at its principal executive
offices on or before the deadline for submitting Stockholder proposals set forth
on the last page of this Proxy Statement/Prospectus. During the fiscal year
ended June 30, 1996, the Nominating Committee held one meeting.
Special Committee. The Board of Directors has a Special Committee of
independent directors that is authorized to review and make recommendations to
the full Board of Directors regarding recapitalization and reorganization
alternatives for the Company that resulted in the Restructuring. In addition,
in connection with the Restructuring, the Special Committee authorized the grant
to Mr. Shaw of an option to purchase Existing Common Stock as described under
"Compensation Committee Interlocks and Insider Participation" above. The
Special Committee is composed of Messrs. Kovacs, Mathis and Nelson. During the
fiscal year ended June 30, 1996, the Special Committee held six meetings.
9
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth the current executive officers of the Company.
Although each of the executive officers has an employment agreement with the
Company which will be assumed by New Trails, each of them also serves at the
pleasure of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Offices
- ------------------------------- --------- -------------------------------------------------------------
<S> <C> <C>
William J. Shaw 53 Chairman of the Board, President and Chief Executive
Officer
Harry J. White, Jr. 42 Vice President, Chief Financial Officer, Chief Accounting
Officer and Treasurer
R. Gerald Gelinas 50 Vice President, Sales and Marketing
Walter B. Jaccard 43 Vice President, General Counsel and Secretary
</TABLE>
William J. Shaw is also a director of the Company and his business experience
is described above.
Harry J. White, Jr. joined the Company as Vice President, Chief Financial
Officer and Chief Accounting Officer in June 1992. At that time, Mr. White also
became a Vice President and the Chief Financial Officer of NACO and Trails. In
September 1992, Mr. White became a director and the Chief Accounting Officer of
NACO and Trails. In June 1995, Mr. White became the Company's Treasurer. From
September 1988 through May 1992, Mr. White was the Chief Financial Officer of
Cosmo World Corporation and its subsidiaries. During this period, Cosmo World
Corporation was a holding company that owned Ben Hogan Company, a manufacturer
of golf equipment, Pebble Beach Company, the owner and operator of golf courses
and hotels in Pebble Beach, California, and other companies that owned
residential and golf course developments. Cosmo World of Nevada, Inc., a
subsidiary of Cosmo World Corporation, filed a Chapter 11 petition in December
1991. From June 1976 through August 1988, Mr. White practiced public accounting
with the firm of Deloitte Haskins & Sells, now known as Deloitte & Touche. Mr.
White is a Certified Public Accountant.
R. Gerald Gelinas joined the Company in September 1995 as Vice President,
Sales and Marketing for the Company, Trails, and NACO. From January 1988
through June 1995, Mr. Gelinas served as Senior Vice President, Marketing, for
Club Corporation of America ("CCA"), an owner and manager of country clubs and
golf courses. While with CCA, Mr. Gelinas also served as Chairman for two CCA
subsidiaries, Associate Clubs International ("ACI") and Associate Club
Publications ("ACPI"), from January 1992 through June 1995. ACI operates a fee-
based network which provides members with various services including access to
other CCA and non-CCA clubs, hotels, and resorts. ACPI produces and distributes
a bi-monthly magazine to CCA members. From May 1984 through September 1988, Mr.
Gelinas served as Senior Vice President, Marketing, for Ramada, Inc., which owns
and manages hotel facilities.
Walter B. Jaccard has been Vice President, General Counsel, and Secretary of
the Company since December 1992. Mr. Jaccard has been a director of Trails
(until its merger into the Company) and NACO since February 1992. He had
previously been Vice President and General Counsel of Trails since January 1987
and Secretary since January 1988. He served as Associate General Counsel from
1983 to 1986. Mr. Jaccard has also been Vice President and Assistant Secretary
of NACO since August 1989, and he served as a director of Trails and NACO from
May 1991 to June 1991.
10
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended June 30, 1996, 1995
and 1994, the cash compensation that the Company and its subsidiaries paid, as
well as other compensation paid for these years, to the Company's Chief
Executive Officer, to the three other executive officers of the Company on June
30, 1996, and to the most highly compensated officer of the Company's
subsidiaries, who is not considered an executive officer for reporting purposes.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
----------------------------------------------------- ------------------------- ----------------------
Other Annual Securities Underlying All Other
Name and Principal Salary Bonus Compensation Options/SARS Compensation ($)/2/
Position Year ($) ($) ($) (#)/1/ ($)/2/
- -------------------- ----- ----------- ----------- -------------------- ------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
William F. Dawson, 1996 169,750 40,000/3/ -0- 35,000 2,783
CEO of Resort Parks 1995 163,750 78,900 6,000/4/ -0- 4,316
International and Vice 1994 163,750 84,400 6,000/4/ -0- -0-
President of NACO
R. Gerald Gelinas, 1996 107,600/5/ 30,000 -0- 20,000 -0-
Vice President, 1995
Sales and Marketing 1994
Walter B. Jaccard, 1996 140,000 15,000 -0- 30,000 2,869
Vice President, 1995 140,000 -0- -0- -0- 1,290
General Counsel and 1994 140,000 -0- -0- -0- -0-
Secretary
William J. Shaw, 1996 250,000 -0- -0- -0- 952,927/6/
Chairman of the 1995 29,800/7/ -0- -0- -0- -0-
Board, President, and 1994
CEO
Harry J. White, Jr., 1996 124,032 30,000 -0- 40,000 3,127
Vice President, CFO, 1995 124,032 15,000 -0- -0- 36,454/8/
CAO and Treasurer 1994 124,032 30,000 -0- -0- -0-
</TABLE>
- ----------
1 Awards are grants of stock options pursuant to the Company's 1991 Employee
Plan and 1993 Employee Plan, including options granted in May 1996 at an
exercise price of $0.59 per share contingent upon the termination of an equal
number of existing options that were granted in fiscal 1993 at an exercise
price of $2.50 per share, as follows: Mr. Dawson, 25,000 shares; Mr. Jaccard,
15,000 shares; Mr. White 25,000 shares. The Company has, subject to
Stockholder approval, granted options to purchase 664,495 shares of Existing
Common Stock to Mr. Shaw under the Stock Option Agreement which are not
reflected in this table. See "Proposal IV: Stock Option Agreement."
2 Amounts include matching contributions by the Company under its 401(k) Plan
for fiscal 1996 and 1995, respectively, as follows: Mr. Dawson, $2,783 and
$4,316; Mr. Jaccard, $2,869 and $1,290; and Mr. White, $3,127 and $2,654. The
amounts do not include compensation payable to the named executive officers
under their employment agreement upon the termination of their employment if
their employment has not terminated because no amounts have been paid or
accrued therefor. See "Employment Contracts" below.
3 An additional bonus of $20,000 earned during fiscal 1995 was paid to Mr.
Dawson in August 1995.
4 Mr. Dawson was paid a car allowance of $500 per month.
11
<PAGE>
5 Mr. Gelinas became the Company's Vice President of Sales and Marketing in
September 1995.
6 Amount represents the vested portion of a one-time bonus, fully accrued at
June 30, 1996, that was paid to Mr. Shaw in July 1996 under the terms of his
employment agreement with the Company. An additional $317,662 will be payable
on May 11, 1997 provided Mr. Shaw is employed by the Company on that date.
7 Mr. Shaw became the Company's President and Chief Executive Officer on May
11, 1995.
8 During the year ended June 30, 1995, the Company reimbursed Mr. White $33,800
for moving expenses he incurred during his relocation to Dallas, Texas.
Employment Contracts
The Company has entered into an employment agreement dated as of May 11, 1995,
with Mr. Shaw. Under this employment agreement, Mr. Shaw's salary is not less
than $250,000 per year. If the Company terminates Mr. Shaw's employment, other
than for cause, the Company must pay Mr. Shaw a severance payment equal to one
year of his base salary.
Mr. Shaw's employment agreement provided that he would receive a one-time
bonus equal to between 4% and 6% of the amount by which the enterprise value of
the Company (including the value of its debt and equity securities) exceeded $75
million at the time he elected to receive the bonus. Prior to consummation of
the Restructuring, Mr. Shaw exercised his right to receive such bonus. Mr. Shaw
is entitled to a payment of $1,270,589, of which $952,927 has been paid. The
additional $317,662 will be payable on May 11, 1997, provided that Mr. Shaw is
employed by the Company on that date. The Company has obtained an irrevocable
standby letter of credit on which Mr. Shaw may draw all or part of this bonus if
the Company fails to pay the bonus after receiving a request from Mr. Shaw.
On September 14, 1995, the Company entered into an employment agreement with
Mr. Gelinas. Under this employment agreement, Mr. Gelinas' base salary is not
less than $130,000 per year, and he may receive a bonus each year at the
discretion of the Company's Chief Executive Officer. If the Company terminates
Mr. Gelinas' employment, other than for cause, the Company must pay Mr. Gelinas
a severance payment equal to one year of his base salary.
On September 10, 1992, NACO, Trails and Resort Parks International entered
into an employment agreement with Mr. Dawson. Under this employment agreement,
Mr. Dawson's base salary is not less than $169,750 per year, and he may receive
a bonus each year at the discretion of the Company's Chief Executive Officer.
If the Company terminates Mr. Dawson's employment, other than for cause, the
Company must pay Mr. Dawson a severance payment equal to six months of his base
salary.
On December 3, 1992, the Company entered into an employment agreement with Mr.
Jaccard. Under this employment agreement, Mr. Jaccard's base salary is not less
than $140,000 per year and he may receive a bonus each year at the discretion of
the Company's Chief Executive Officer. If the Company terminates Mr. Jaccard's
employment, other than for cause, the Company must pay Mr. Jaccard a severance
payment equal to one year of his base salary.
On October 21, 1993, the Company entered into an employment agreement with Mr.
White. Under this employment agreement, Mr. White's base salary is not less
than $124,032 per year, and he may receive a discretionary bonus of up to
$30,000 per year. If the Company terminates Mr. White's employment other than
for cause, the Company must pay Mr. White a severance payment equal to one year
of his base salary.
Stock Option Plans
1991 Employee Plan. In connection with its emergence from Chapter 11
proceedings under the United States Bankruptcy Code in 1991, the Company adopted
the 1991 Employee Stock Incentive Plan (as amended, the "1991 Employee Plan") to
enable the Company and its subsidiaries to attract, retain, and motivate their
officers, employees, and directors. Awards under the 1991 Employee Plan may
take various forms, including (i) shares of Existing Common Stock, (ii) options
12
<PAGE>
to acquire shares of Existing Common Stock ("Options"), (iii) securities
convertible into shares of Existing Common Stock, (iv) stock appreciation
rights, (v) phantom stock or (vi) performance units. Options granted under the
1991 Employee Plan may be (i) incentive stock options ("ISOs"), which have
certain tax benefits and restrictions, or (ii) non-qualified stock options
("Non-qualified Options"), which do not have any tax benefits and have few
restrictions.
The Compensation Committee or, in certain circumstances, the Board of
Directors may grant awards under the 1991 Employee Plan until December 30, 2001.
The recipient of an award duly granted on or prior to such date may thereafter
exercise or settle it in accordance with its terms, although the Company may not
issue any shares of Existing Common Stock pursuant to any award after December
30, 2011.
The Board of Directors may amend or terminate the 1991 Employee Plan at any
time and in any manner, provided that (i) an amendment or termination may not
affect an award previously granted without the recipient's consent and (ii) an
amendment will not be effective until the stockholders approve it if any
national securities exchange or securities association that lists any of the
Company's securities requires stockholder approval or if Rule 16b-3 requires
stockholder approval.
The Company reserved 291,780 shares of Existing Common Stock for issuance
under the 1991 Employee Plan. In September 1995, the Company granted key
employees ISOs covering 140,000 shares with an exercise price of $0.625 per
share, and in January 1996, the Company granted certain non-employee directors
Non-qualified Options to purchase 20,000 shares with an exercise price of $0.81
per share. As of June 30, 1996, 160,000 options were outstanding under the 1991
Employee Plan, and none had been exercised.
1993 Employee Plan. On December 2, 1993, the Company adopted the 1993 Stock
Option and Restricted Stock Purchase Plan (as amended, the "1993 Employee Plan")
in order to enable the Company and its subsidiaries to attract, retain, and
motivate their officers and employees. Awards under the 1993 Employee Plan are
restricted to (i) awards of the right to purchase shares of Existing Common
Stock ("Stock Awards"), or (ii) awards of Options, which may be either ISOs or
Non-Qualified Options. The purchase price for any Stock Awards and the exercise
price for any Non-Qualified Options may be less than the fair market value of
the Existing Common Stock on the date of grant. The exercise price of any ISOs
may not be less than the fair market value of the Existing Common Stock on the
date of grant.
The Compensation Committee or, in certain circumstances, the Board of
Directors may grant awards under the 1993 Employee Plan until October 20, 2003.
The termination of the 1993 Employee Plan, however, will not alter or impair any
rights or obligations under any award previously granted under the plan.
The Board of Directors may amend or terminate the 1993 Employee Plan at any
time and in any manner, provided that (i) an amendment or termination may not
affect an award previously granted without the recipient's consent, (ii) an
amendment will not be effective until the stockholders approve it if any
national securities exchange or securities association that lists any of the
Company's securities requires stockholder approval or if Rule 16b-3 requires
stockholder approval and (iii) the stockholders must approve any amendment
decreasing the minimum exercise price specified in the plan for any ISO granted
thereunder.
The Company reserved 285,919 shares of Existing Common Stock for issuance
under the 1993 Employee Plan. The 1993 Employee Plan, however, limits the
number of shares of Existing Common Stock with respect to which awards can be
made in any calendar year to any one participant to 200,000 shares. On May 1,
1996, the Company granted 95,000 options under the 1993 Employee Plan at an
exercise price of $0.59 per share, contingent upon the termination of an equal
number of options granted under the 1991 Employee Plan at an exercise price of
$2.50 per share. As of June 30, 1996, such options were fully vested and none
had been exercised. On September 12, 1996, the Company granted key employees
ISOs covering 225,000 shares with an exercise price of $0.80 per share, none of
which has vested.
13
<PAGE>
Director Plan. On December 2, 1993, the Company adopted the 1993 Director
Stock Option Plan, as amended (the "Director Plan"), which provides for the
grant of stock options to non-employee directors of the Company. The Company
reserved 50,000 shares of Existing Common Stock for issuance under the Director
Plan, all of which were issued as Non-qualified Options to the non-employee
directors of the Company, 25,000 in fiscal 1994 with an exercise price of $2.75
per share and 25,000 in fiscal 1995 with an exercise price of $0.79 per share.
As of June 30, 1996, these options were 100% vested and none of them had been
exercised.
The Director Plan is designed to be a "formula plan," pursuant to which each
non-employee director automatically received a grant of Non-qualified Options to
purchase 5,000 shares of Existing Common Stock on the day immediately after each
annual meeting of the stockholders at which directors were elected, beginning
with the annual meeting held in December 1993. The exercise price of each Non-
Qualified Option is required to equal the fair market value on the date of grant
of such Option as determined under the Director Plan. Generally, the Director
Plan specifies that such fair market value is the average trading price of the
Common Stock during the period beginning 45 days before the date of grant and
ending 15 days before the date of grant.
Option/SAR Grants in Last Fiscal Year
The following table sets forth certain information regarding options to
purchase Existing Common Stock granted in fiscal 1996 to the five individuals
named in the Summary Composition Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------- Potential Realizable Value at
Number of Securities Percentage of Exercise Assumed Annual Rates of Stock
underlying Total Options/ Price Price Appreciation
Option/SARs Granted SARs Granted to ($ per Expiration -------------------------------
Name (#) Employees in Share) Date 5% 10%
Fiscal Year ($) ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William J. Shaw/1/ 0 0 N/A N/A N/A N/A
William F. Dawson 10,000 4.3 0.625 9/13/05 10,181 16,211
25,000 10.6 0.59 4/30/06 24,026 38,258
R. Gerald Gelinas 20,000 8.5 0.625 9/13/05 20,361 32,422
Walter B. Jaccard 15,000 6.4 0.625 9/13/05 15,271 24,316
15,000 6.4 0.59 4/30/06 14,416 22,955
Harry J. White 15,000 6.4 0.625 9/13/05 15,271 24,316
25,000 10.6 0.59 4/30/06 24,026 38,258
</TABLE>
- ----------
1 The Company has, subject to Stockholder approval, granted options to purchase
664,495 shares of Existing Common Stock to Mr. Shaw under the Stock Option
Agreement at an exercise price of $0.69 per share for a term of ten years
(with certain exceptions), which options are not reflected in this table. See
"Proposal IV: Stock Option Agreement."
14
<PAGE>
Aggregate Option Exercises in Fiscal 1996 and Fiscal Year End Optional Values
The following table sets forth certain information concerning options to
purchase Existing Common Stock held by the five individuals named in the Summary
Compensation Table. No options were exercised by the named individuals in the
fiscal year ended June 30, 1996.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs at FY-End In-the-Money Options/SARs
Name (#)/1/ at FY-End ($)/1/
- ---------------- ------------------------------------- ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
--------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
William J. Shaw 0 0 0 0
William F. Dawson 25,000 10,000 2,450 630
R. Gerald Gelinas 0 20,000 0 1,260
Walter B. Jaccard 15,000 15,000 1,470 945
Harry J. White 25,000 15,000 2,450 945
</TABLE>
- ------------
/1/ The Company has, subject to Stockholder approval, granted options to
purchase 664,495 shares of Existing Common Stock to Mr. Shaw under the Stock
Option Agreement which are not reflected in this table. See "Proposal IV:
Stock Option Agreement."
Long Term Incentive Plans
As of June 30, 1996, the Company's long term incentive plans consisted of the
employment agreement with Mr. Shaw discussed above, and the Company's Employees
Savings Trust (the "401(k) Plan"), which was adopted July 1, 1994, for the
purpose of establishing a contributory employee savings plan exempt under
Section 401(k) of the Code. An eligible employee participating in the 401(k)
Plan may contribute up to 10% of his or her annual salary, subject to certain
limitations. In addition, the Company may make discretionary matching
contributions as determined annually by the Company. The Company made matching
contributions totaling approximately $205,000 for the year ended June 30, 1996,
and has committed to make matching contributions for the year ending June 30,
1997, in an amount equal to 45% of the voluntary contribution made by each
participant up to 4% of the participant's annual compensation (a maximum of 1.8%
of the participant's annual compensation). Employer contributions are subject
to a seven-year vesting schedule.
Compensation of Directors
Directors who are not employees of the Company receive a retainer of $24,000
per year and $500 for each day that they attend a meeting of the Board of
Directors or a committee thereof. The Company also reimburses such directors
for their travel and lodging expenses when attending meetings. The following
table summarizes amounts paid to each member of the Board of Directors during
fiscal l996, excluding reimbursements of travel and lodging expenses.
<TABLE>
<CAPTION>
AMOUNT PAID FOR STOCK OPTIONS
NAME ANNUAL RETAINER MEETINGS GRANTED
- -------------------- ---------------- ----------------- ---------------
<S> <C> <C> <C>
Andrew M. Boas/1/ $24,000 $3,000 0
William P. Kovacs 24,000 3,000 5,000
Donald R. Leopold 24,000 1,000 5,000
H. Sean Mathis 24,000 3,000 5,000
Douglas K. Nelson 24,000 3,000 5,000
William J. Shaw/2/ 0 0 0
- ------------
</TABLE>
1 On September 12, 1996, the Compensation Committee granted options to
purchase 5,000 shares of Existing Common Stock to Mr. Boas.
2 Mr. Shaw did not receive additional compensation for serving as director of
the Company.
15
<PAGE>
Report of the Compensation Committee
The Company's executive compensation program is administered by the
Compensation Committee. The role of the Compensation Committee is to review and
approve salaries and other compensation of the principal officers of the
Company, including those individuals listed in the compensation tables in this
Proxy Statement/Prospectus. In connection with the Restructuring, the Special
Committee also performed part of the role of the Compensation Committee.
Overall Policy. The Compensation Committee's compensation policies are
intended to (i) provide incentives for certain executive officer performance
that results in continuing improvement in the Company's financial results and
(ii) align the interests of the Company's executives and the holders of its
securities by providing for payment of compensation based on increases in the
value of such securities.
Executive Officers. The annual compensation of the Company's executive
officers and the principal officers of the Company's operating subsidiaries
consists of a fixed base salary and a discretionary bonus. The Compensation
Committee has delegated to the Company's Chief Executive Officer the authority
to determine the salary and bonus of executive officers (other than himself) if
the aggregate annual compensation of such officer is less than $175,000.
Pursuant to such delegated authority, the base salaries of Mr. Jaccard and Mr.
White were continued at the same level as originally approved by the
Compensation Committee when Mr. Jaccard became the Company's General Counsel and
Mr. White joined the Company as Chief Financial Officer, both in 1992, and the
base salary of Mr. Gelinas was continued at the same level as originally
approved by the Compensation Committee when Mr. Gelinas joined the Company in
1995. The Compensation Committee increased Mr. Dawson's base salary from the
level originally approved by it in 1992 by the amount he previously received as
a car allowance and such car allowance was discontinued.
Mr. Jaccard and Mr. White receive discretionary annual bonuses based upon
achievement of the Company's overall objectives for the year. Mr. Jaccard and
Mr. White received bonuses in fiscal 1996 based primarily upon the successful
completion of the Restructuring, which was consummated in July 1996. Mr.
Gelinas receives a discretionary bonus based upon achievement of the Company's
overall marketing objectives for the year. Mr. Gelinas received a bonus in
fiscal 1996 based upon the successful achievement of such goals. Mr. Dawson
receives a discretionary annual bonus based upon the operating results of Resort
Parks International. For fiscal 1996, the criteria was modified to include a
component based upon growth in the business of Resort Parks International.
Because Resort Parks International was only partially successful in meeting its
growth objective in fiscal 1996, Mr. Dawson's bonus declined as compared with
fiscal 1995.
The Compensation Committee does not intend to increase the annual base
salaries of the executive officers of the Company and the principal officers of
its operating subsidiaries for fiscal 1997. However, such persons may receive a
discretionary bonus in fiscal 1997 based upon the achievement of certain
objectives.
1996 Stock Option Grants to Executive Officers. Stock options were granted in
September 1995 under the 1991 Employee Plan to the executive officers of the
Company and its principal operating subsidiaries to aid in the retention of
these individuals and to align their interest with those of the Stockholders.
These options vest in equal installments over the three years following the date
of grant and terminate upon leaving the employment of the Company or its
subsidiaries. The exercise price of such options equaled the market value of
the Existing Common Stock on the date of grant. In addition, as discussed
below, certain options previously granted to Messrs. Dawson, Jaccard and White
were canceled and reissued at market value on the date of reissuance.
Compensation of Chief Executive Officer. Mr. Shaw's employment agreement with
the Company provides that his annual base salary will not be less than $250,000
per year. The employment agreement was negotiated between Mr. Boas and Mr.
Shaw, and approved by the Compensation Committee and full Board of Directors.
For fiscal 1996, Mr. Shaw's base salary remained at $250,000, the level set when
the Company entered into the employment agreement with Mr. Shaw in May 1995.
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<PAGE>
Mr. Shaw's employment agreement also provided that he would receive a one-time
bonus equal to between 4% and 6% of the amount by which the enterprise value of
the Company (including the value of its debt and equity securities) exceeds $75
million at the time he elected to receive the bonus. This bonus was designed to
provide value to Mr. Shaw only with appreciation of the Company's enterprise
value. Before approving the agreement with Mr. Shaw, the Compensation Committee
obtained an opinion from an independent employment compensation consultant that
the bonus and the other compensation payable to Mr. Shaw under the employment
agreement was a reasonable compensatory arrangement for Mr. Shaw given the
Company's financial and operating condition and prospects at the time the
Company entered into the employment agreement with Mr. Shaw.
Prior to consummation of the Restructuring, the bonus had accrued to
$1,270,589 and was 75% vested. Consummation of the Restructuring would have
adversely affected the bonus arrangements with Mr. Shaw. In these
circumstances, in June 1996, Mr. Shaw elected to receive his bonus, which was
fixed at the accrued amount. In order to retain Mr. Shaw's services and to
provide an incentive to Mr. Shaw, the Special Committee, at a meeting of the
full Board of Directors in July 1996, authorized a grant, in the event the
Restructuring was consummated and subject to stockholder approval, of options to
purchase shares of Existing Common Stock representing 9% of the outstanding
Existing Common Stock immediately after the Restructuring at an exercise price
equal to the average closing bid quotation for the Existing Common Stock as
quoted through the NASD OTC Bulletin Board and National Quotation Bureau's Pink
Sheets for the ten business days immediately following the date the
Restructuring was consummated, but in any event no less than $0.50 per share or
more than $1.00 per share.
The vested portion of Mr. Shaw's bonus, equaling $952,927, was paid in July
1996. The additional $317,662 will be payable on May 11, 1997, provided that
Mr. Shaw is employed by the Company on that date. The Company has obtained an
irrevocable standby letter of credit on which Mr. Shaw may draw all or part of
this bonus if the Company fails to pay the bonus after receiving a request from
Mr. Shaw. In furtherance of its grant of the option, on September 12, 1996 the
Special Committee approved the form of the Stock Option Agreement pursuant to
which Mr. Shaw was granted, subject to Stockholder approval, the option to
purchase 664,495 shares of Existing Common Stock at $0.69 per share. Such
exercise price is the average closing bid quotation for the Existing Common
Stock as quoted through the NASD OTC Bulletin Board and National Quotation
Bureau's Pink Sheets for the ten business days immediately following the date
the Restructuring was consummated and, in the Special Committee's judgment,
reflects the fair market value of the Existing Common Stock as of the date the
Restructuring was consummated in view of the fact that the Existing Common Stock
is lightly traded.
Stock Options. In order to provide an incentive to the officers and employees
of the Company and its operating subsidiaries and align their interests with
those of the Stockholders, stock options were granted in fiscal 1993 under the
1991 Employee Plan to the executive officers of the Company, the principal
officers of its operating subsidiaries and other employees of the Company and
its subsidiaries. The exercise price of such options was $2.50 per share, which
exceeded the market price of the Existing Common Stock on the date of grant.
Therefore, these options provided value to the recipients only with significant
appreciation in the stock price of the Existing Common Stock. However, the
stock price of the Existing Common Stock had declined substantially and, in the
view of the Compensation Committee and the Board of Directors, the options
granted in 1993, which had fully vested, provided little incentive to the
employees of the Company.
Because the Compensation Committee and the Board of Directors had determined
that, given the operating performance of the Company, the ability of the Company
to provide an incentive through the cash component of compensation was limited,
stock options should assume an even greater role in the incentive compensation
arrangements of its employees. Therefore, the Compensation Committee and the
Board of Directors determined to issue additional stock options, at current
market prices. In September 1995, the Company granted options to purchase an
aggregate of 140,000 shares of Existing Common Stock at an exercise price of
$0.625 per share. Additionally, on May 1, 1996, the Company granted 95,000
options under the 1993 Employee Plan at an exercise price of $0.59 per share,
the market price of a share of Existing Common Stock on such date, contingent
upon the termination of an equal number of fully vested options granted under
the 1991 Employee Plan at an exercise price of $2.50 per share. The options
issued on May 1, 1996 have a ten year term from the date of grant and are fully
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<PAGE>
vested. The following table sets forth certain information concerning the
above-described transaction as it relates to the persons named in the Summary
Compensation Table.
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF SHARES MARKET PRICE AT EXERCISE PRICE AT ORIGINAL TERM
UNDERLYING REPRICED TIME OF REPRICING TIME OF REPRICING NEW EXERCISE PRICE REMAINING AT TIME
NAME OPTIONS ($) ($) ($) OF REPRICING
- ------------------------ --------------------- ------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C> <C>
William F. Dawson 25,000 0.59 2.50 .59 6.5 years
R. Gerald Gelinas /1/ N/A N/A N/A N/A N/A
Walter B. Jaccard 15,000 0.59 2.50 .59 6.5 years
William J. Shaw /1/ N/A N/A N/A N/A N/A
Harry J. White, Jr. 25,000 0.59 2.50 .59 6.5 years
</TABLE>
/1/ Mr. Gelinas and Mr. Shaw did not participate in the above-described
transaction.
Respectfully submitted,
Andrew M. Boas William P. Kovacs Donald R. Leopold
H. Sean Mathis Douglas K. Nelson William J. Shaw
Performance Graph
The following Performance Graph compares the Company's cumulative total
stockholder return on the Existing Common Stock for the period from January 1,
1992 (the day the Common Stock commenced trading in the over-the-counter market)
to June 30, 1996 with the cumulative total return of the NASDAQ market index
(which includes the Company) and a peer group of companies selected by the
Company for purposes of the comparison and described more fully below (the "Peer
Group"). Dividend reinvestment has been assumed and, with respect to companies
in the Peer Group, the returns of each such company have been weighted to
reflect relative stock market capitalization.
[PERFORMANCE GRAPH APPEARS HERE]
Peer Group. The Peer Group selected by the Company for the above Performance
Group is based on SIC Code 799 - Miscellaneous Amusement & Recreation Services -
that is presently comprised of the following companies: Alliance Gaming
Corporation, American Bingo & Gaming Corporation, American Wagering, Inc.,
Anchor Gaming, Argosy Gaming Co., Aztar Corp., Bally Entertainment Corporation,
18
<PAGE>
BoomTown, Inc., Boyd Gaming Corporation, Brassie Golf Corporation, Casino
America, Inc., Cedar Fair, LP, Century Casinos, Inc., Childrobics, Inc.,
Chartwell Leisure Inc., Cinema Ride, Inc., Circus Circus Enterprises, Inc.,
Crown Casino Corporation, Elsinore Corporation, Encore Marketing International,
Family Golf Centers, Inc., Gaming Corporation of America, Gaming World
International, Global Outdoors, Inc., Golf Enterprises, Inc., Grand Casinos,
Inc., Grand Gaming Corporation, Great American Recreation, Inc., Griffin Gaming
& Entertainment, Inc., Imax Corporation, International Lottery, Inc., Jackpot
Enterprises, Inc., Jillian's Entertainment Corporation, Lady Luck Gaming
Corporation, Lone Star Casino Corporation, Master Glazier's Karate, Inc., Mirage
Resorts, Inc., Mountasia Entertainment International, Multimedia Games, Inc. N-
Vision Inc., Players International, Inc., Pratt Hotel Corp., President Casinos,
Inc., Quintel Entertainment, Renaissance Entertainment Corporation, Rio Hotel
and Casino, Inc., S-K-I, Ltd., Sands Regent, Inc., Santa Fe Gaming Corp., Senior
Tour Players Development, Inc., Showboat, Inc., Sky Games International Ltd.,
Skylands Park Management, Skyline Multimedia Entertainment, Southshore
Corporation, Sports Club Company Inc., Stratosphere Corporation, Walt Disney
Company and UC Television Network. During the year ended June 30, 1996, the
following companies were added to the Peer Group: American Wagering Inc.,
Anchor Gaming, Argosy Gaming Co., Aztar Corp., Chartwell Leisure Multimedia
Games Inc., Quintel Entertainment, N-Vision Inc., Santa Fe Gaming Corporation.,
Skylands Park Management, Skyline Multimedia Entertainment, Southshore
Corporation, Sports Club Co., Inc. and UC Television Network. During the year
ended June 30, 1996, the following companies were deleted from the Peer Group:
Acres Gaming, Inc., Alpha Hospitality Corporation, Colorado Casino Resorts,
Inc., Irata, Inc., Laser Video Network Inc., Lone Star Casino Corporation,
National Gaming Corporation, and Sahara Gaming Corporation. The companies in
the Peer Group provide a broad range of amusement and recreation services in
several industries.
Indemnification
Under the Nevada Articles, the Company must indemnify its present and former
directors and officers for the damages and expenses that they incur in
connection with threatened or pending actions, suits, or proceedings arising
because of their status as directors and officers, provided that they acted in
good faith and in a manner that they reasonably believed to be in or not opposed
to the best interests of the Company (or with respect to any criminal action or
proceeding, provided that they had no reasonable cause to believe that their
conduct was unlawful). In connection with this indemnification obligation, the
Company has entered into indemnification agreements with its directors and
officers.
The Company must advance funds to these individuals to enable them to defend
any such threatened or pending action, suit or proceeding. The Company cannot
release such funds, however, until it receives an undertaking by or on behalf of
the requesting individual to repay the amount if a court of competent
jurisdiction ultimately determines that such individual is not entitled to
indemnification. In connection with this obligation, the Company and Trails
established trusts (the "Indemnification Trusts") that will reimburse their
present and former directors and officers for any indemnifiable damages and
expenses that they incur and that will advance to them defense funds. The
Company and Trails contributed $500,000 and $300,000, respectively, to the
Indemnification Trusts. Pursuant to the trust agreements, interest on the trust
estates will become part of the trust estates. The Indemnification Trusts will
terminate on the earlier of (i) the execution by a majority of the beneficiaries
of a written instrument terminating the trusts, (ii) the exhaustion of the
entire trust estates or (iii) the expiration of ten years from the establishment
of the trusts. The Indemnification Trusts may not terminate, however, if there
is pending or threatened litigation with respect to a claim by a beneficiary
against the Indemnification Trusts, until (i) a final judgment in such
proceeding, (ii) the execution and delivery of a statement by such beneficiary
that assertion of a threatened claim is unlikely or (iii) the expiration of all
applicable statutes of limitations. The Company possesses a residuary interest
in the trust estates upon termination of the Indemnification Trusts. NACO also
has indemnification obligations to its directors and officers. In connection
therewith, NACO contributed $200,000 to a trust. This trust will reimburse NACO
directors and certain officers for any indemnifiable damages and expenses that
they incur and will advance defense funds to them.
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<PAGE>
PROPOSAL II: THE REINCORPORATION MERGER
At the Annual Meeting, the Stockholders will be asked to approve the Merger
Agreement, a copy of which is attached hereto as Annex A, pursuant to which the
Company will be merged with and into New Trails, with New Trails being the
surviving corporation. The principal purposes of the Reincorporation Merger are
to implement the Transfer Restrictions and to change the Company's state of
incorporation to Delaware. These and the other effects of the merger are
described below.
The Merger Agreement must be approved by the holders of a majority of the
shares of Existing Common Stock issued and outstanding.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
Transfer Restrictions
The Transfer Restrictions to be implemented by the Reincorporation Merger are
intended to help assure that an "ownership change" as defined under the Code and
the Treasury Regulations promulgated thereunder (an "Ownership Change") that
could materially limit the availability of the Company's NOLs will not occur.
All of the Existing Common Stock issued to Exchanging Noteholders pursuant to
the Restructuring was subjected to transfer restrictions substantially similar
to the Transfer Restrictions, except that the current transfer restrictions
expire in July 1998. In addition, the Exchanging Noteholders voluntarily
subjected Existing Common Stock held by them at the time the Restructuring was
consummated to such transfer restrictions. As a result, approximately 85% of
the Existing Common Stock is subject to such transfer restrictions.
Nonetheless, there is a risk that, absent the Transfer Restrictions, an
Ownership Change could result if other persons acquire 5% or more of the
Existing Common Stock. A principal purpose of the Reincorporation Merger is to
extend the Transfer Restrictions to the approximately 15% of the Existing Common
Stock not already subject to transfer restrictions and to extend the duration of
the Transfer Restrictions to correspond to the period during which the Company
is entitled to use its NOLs.
The New Common Stock to be issued by New Trails in exchange for Existing
Common Stock will be issued after the adoption of the Transfer Restrictions,
which are set forth in Article IX of the Delaware Certificate, attached as Annex
B. Accordingly, the Transfer Restrictions are intended to apply to all shares
of New Common Stock, and all New Common Stock certificates will contain a legend
informing holders, transferees and purported transferees of the Transfer
Restrictions.
Preservation of Tax Benefits. The Transfer Restrictions are designed to
restrict direct and indirect transfers of the Existing Common Stock that could
result in the imposition of limitations on the use by the Company, for federal
income tax purposes, of the NOLs and other tax attributes that are and will be
available to the Company. The Company estimates that NOLs of approximately
$54.5 million will be available to offset taxable income recognized by the
Company in periods after June 30, 1996. Section 382 of the Code limits the use
of losses and other tax benefits by a company that has undergone an Ownership
Change. Generally, an Ownership Change occurs if one or more stockholders, each
of whom owns 5% or more in value of a company's capital stock, increase their
aggregate percentage ownership by more than 50 percentage points over the lowest
percentage of stock owned by such stockholders over the preceding three-year
period. For this purpose, all holders who each own less than 5% of a company's
capital stock are generally treated together as one or more 5% stockholders. In
addition, certain constructive ownership rules, which generally attribute
ownership of stock to the ultimate beneficial owner thereof without regard to
ownership by nominees, trusts, corporations, partnerships or other entities, or
to related individuals, are applied in determining the level of stock ownership
of a particular stockholder. Special rules can also result in the treatment of
options (including warrants) as exercised in certain circumstances. All
percentage determinations are based on the fair market value of a company's
capital stock.
If an Ownership Change were to occur, the amount of taxable income in any year
(or portion of a year) subsequent to the Ownership Change that could be offset
by NOLs or other carryovers existing (or "built-in") prior to such ownership
change could not exceed the product obtained by multiplying (i) the aggregate
value of the outstanding common stock immediately prior to the Ownership Change
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<PAGE>
(with certain adjustments) by (ii) the federal long-term tax exempt rate (5.8%
for ownership changes occurring during September 1996). Because the value of
the outstanding common stock, as well as the federal long-term tax-exempt rate,
fluctuate, it is impossible to predict with any accuracy the annual limitation
upon the amount of taxable income of the Company that could be offset by such
NOLs or other items if an Ownership Change were to occur. The Company would
incur a corporate-level tax (current maximum federal rate of 35%) on any taxable
income during a given year in excess of the Company's NOL limitation. While the
NOLs not used as a result of this limitation remain available to offset taxable
income for up to 15 years from the year when the NOLs were generated, an
Ownership Change, under certain circumstances, would significantly defer the
utilization of the NOLs, accelerate the payment of federal income tax, cause a
portion of the NOLs to expire prior to their use and reduce stockholders' equity
(or increase stockholders' deficit).
Consummation of the Restructuring increased the risk that the Company will
undergo an Ownership Change because of the significant change in ownership
attributable to the issuance of Existing Common Stock to Exchanging Noteholders.
Based on the most current facts of which the Company has been made aware, the
Company estimates that the issuance of Existing Common Stock in the
Restructuring, together with other transfers of Existing Common Stock, resulted
in an aggregate percentage increase in the ownership of its capital stock by "5
percent shareholders" (within the meaning of Section 382) over the three-year
period ended on the effective date of the Restructuring of as much as 42.5%.
Therefore, the possibility of triggering an Ownership Change of the Company
through the regular trading of Existing Common Stock is greatly increased during
the three-year period immediately following the Restructuring. Furthermore, the
Company believes that it is important to protect the NOLs from an Ownership
Change occurring in the future. As a result, the Transfer Restrictions
generally restrict the transfer of New Common Stock until the NOLs expire
completely in 2011.
Description of the Transfer Restrictions. The Transfer Restrictions generally
will restrict until 2011 (or earlier in certain events) any direct or indirect
transfer of New Common Stock that would (i) except as provided below, increase
to more than 4.75% the percentage ownership of New Common Stock of any person
who at any time during the preceding three-year period did not own more than
4.75% of the New Common Stock (or Existing Common Stock), (ii) except as
provided below, increase the percentage of New Common Stock owned by any person
that during the preceding three-year period owned more than 4.75% of the New
Common Stock, or by any group of persons treated as a "5% shareholder" (as
defined in the Code, but substituting "4.75%" for "5 percent" (hereafter
referred to as a "4.75% Shareholder") or (iii) cause an ownership change of New
Trails within the meaning of Section 382. The Company believes that, as of the
date hereof, the only stockholders that would be treated as beneficially owning
at least 4.75% of the New Common Stock after consummation of the Reincorporation
Merger are CM Strategic and SC Fundamental and certain of their respective
affiliates. The Company is not aware of any other stockholders that
beneficially own at least 4.75% of the Existing Common Stock.
Generally, the Transfer Restrictions contain several exceptions. For example,
the restrictions will not prevent a transfer if, in the determination of the
Board of Directors, the transfer will not result in an aggregate increase in the
ownership of its capital stock by 4.75% Shareholders over a three-year period
for purposes of Section 382. As an illustration, this exception would permit a
stockholder who owns less than 4.75% of the New Common Stock to transfer shares
of New Common Stock to any other stockholder who (after giving effect to the
transfer) owns 4.75% or less of the New Common Stock. Similarly, the Transfer
Restrictions would not apply to any transfer if, as a result of the transfer and
in the determination of the Board of Directors, the aggregate increase in the
ownership of the Company's capital stock by 4.75% Shareholders over a three-year
period does not exceed 35%. Also, the restrictions will not prevent a transfer
if the purported transferee obtains the approval of the Board of Directors,
which approval shall be granted or withheld in the sole and absolute discretion
of the Board of Directors, after considering all facts and circumstances
including but not limited to future events deemed by the Board of Directors to
be relevant. Finally, transfers will be prohibited only with respect to the
amount of the New Common Stock purportedly transferred in excess of the
threshold established in the Transfer Restrictions.
Illustrative Examples. The following examples may assist Stockholders in
determining the effect of the Transfer Restrictions on their ability to transfer
New Common Stock. These examples are for illustrative purposes only, and a
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Stockholder should consult with his or her tax advisor to determine the effect
of the Transfer Restrictions on any proposed transaction involving the New
Common Stock.
Example 1: Stockholder Who Is a 4.75% Shareholder. If a Stockholder is
already considered a 4.75% Shareholder, the Transfer Restrictions will as of
the Effective Date prohibit that Stockholder from acquiring any additional New
Common Stock or from selling any New Common Stock. However, any such
Stockholder will be allowed to sell New Common Stock if the net result (over
the last three years) is no net increase in ownership by 4.75% Shareholders,
e.g., the purchaser is a 4.75% Shareholder who owned no shares in the Company
as of three years ago. Similarly, any such Stockholder will be allowed to
purchase New Common Stock from a 4.75% Shareholder who owned no shares in the
Company as of three years before the date of purchase. Over time, it is
possible that the aggregate percentage increase in the ownership of the
Company's capital stock by 4.75% Shareholders over a three-year period would
reduce to a level that would allow such Stockholders to transfer New Common
Stock pursuant to an exception to the Transfer Restrictions. See "Effects
Change Over Time," below.
Example II: Stockholder Who Is Not a 4.75% Shareholder. A Stockholder who
is not a 4.75% Shareholder is considered part of a larger public group of one
or more Stockholders that each own less than 4.75% of the Existing Common
Stock. For example, all Exchanging Noteholders that did not own any Existing
Common Stock prior to the Restructuring and who each own less than 4.75% of
the Existing Common Stock are considered to constitute a public group. The
Transfer Restrictions will not prohibit any such Stockholder from purchasing
shares of New Common Stock from other members of the same or other public
groups, so long as the Stockholder owns an aggregate of less than 4.75% of the
New Common Stock. Similarly, the Transfer Restrictions will not prohibit any
such Stockholder from selling shares of New Common Stock to other members of
the same or other public groups, so long as the purchasing Stockholder does
not own after the purchase an aggregate of 4.75% or more of the New Common
Stock. On the other hand, a Stockholder who is not a 4.75% Shareholder would
normally not be permitted to purchase any New Common Stock from a Stockholder
that is already a 4.75% Shareholder, unless the net result (over the last
three years) is no net increase in ownership by 4.75% Shareholders, e.g., the
selling Stockholder is a 4.75% Shareholder who owned no shares in the Company
as of three years before the sale.
Effects Change over Time. The Transfer Restrictions will apply differently
over time. As described above, the Company believes that the aggregate
percentage increase in the ownership of its capital stock by 5 percent
shareholders (within the meaning of Section 382) over the three-year period
ending on the effective date of the Restructuring is as much as 42.5%.
Therefore, all transactions (other than the exercise of certain warrants and
options) that would increase the aggregate percentage increase owned by 4.75%
Shareholders will be restricted upon effectiveness of the Reincorporation
Merger. However, if from now to September 1, 1998, the only trading in New
Common Stock occurs within or between members of public groups, then at
September 1, 1998, the aggregate percentage increase in the ownership of the
Company's capital stock by 5 percent shareholders (within the meaning of Section
382) over the three-year period ending on such date is expected to be less than
35%, so that a transaction otherwise prohibited under the general rules of the
Transfer Restrictions would be permitted under the exception described above so
long as it did not result in an aggregate percentage increase in the ownership
of the Company's capital stock from the period September 2, 1995, through
September 1, 1998, of more than 35%.
Attribution of Ownership of New Common Stock; Options. The application of the
Transfer Restrictions to any particular Stockholder will depend on the
Stockholder's ownership of Company capital stock, determined after applying
numerous attribution rules, and will also depend on the history of trading of
the Company's capital stock. As a result, Stockholders are urged to consult
their tax advisors prior to any purchase or sale of New Common Stock.
Transfers included under the Transfer Restrictions include sales to persons
who would exceed the thresholds discussed above, or to persons whose ownership
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<PAGE>
of shares would by attribution cause another person to exceed such thresholds.
Numerous rules of attribution, aggregation and calculation prescribed under the
Code (and related regulations) will be applied in determining whether the 4.75%
threshold has been met and whether a group of less than 4.75% Stockholders will
be treated as a "public group" that is a 4.75% Shareholder. As a result of
these attribution rules, a change in the relationship between two or more
persons or entities, or a transfer of an interest other than the New Common
Stock, such as an interest in an entity that, directly or indirectly, owns the
New Common Stock may result in the New Common Stock owned by a Stockholder being
subject to the remedial provisions, as described below. The Transfer
Restrictions (or in some cases contractual provisions incorporating the Transfer
Restrictions) may also apply to proscribe the creation or transfer of certain
"options" (which are broadly defined) in respect of the New Common Stock to the
extent, generally, that exercise of the option would result in a proscribed
level of ownership.
Enforcement of Transfer Restrictions. The Delaware Certificate provides for
all certificates representing the New Common Stock, including New Common Stock
issued on a transfer thereof, to bear a legend summarizing the Transfer
Restrictions. Each certificate evidencing New Common Stock will bear a legend
in substantially the following form:
TRANSFER OF THESE SHARES IS SUBJECT TO RESTRICTIONS DESIGNED TO AVOID AN
"OWNERSHIP CHANGE" WITHIN THE MEANING OF SECTION 382 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. SUCH RESTRICTIONS ARE SET FORTH IN ARTICLE IX OF
THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION. ARTICLE IX GENERALLY
RESTRICTS UNTIL JUNE 30, 2011 (OR EARLIER IN CERTAIN EVENTS), DIRECT OR
INDIRECT TRANSFER OF THESE SHARES THAT WOULD WITHOUT THE APPROVAL OF THE BOARD
OF DIRECTORS (I) INCREASE TO MORE THAN 4.75% THE PERCENTAGE OWNERSHIP OF
COMMON STOCK, $.01 PAR VALUE, OF THE COMPANY ("COMMON STOCK") OF ANY PERSON
WHO AT ANY TIME DURING THE PRECEDING THREE-YEAR PERIOD DID NOT OWN MORE THAN
4.75% OF COMMON STOCK, (II) INCREASE THE PERCENTAGE OF COMMON STOCK OWNED BY
ANY PERSON THAT DURING THE PRECEDING THREE-YEAR PERIOD OWNED MORE THAN 4.75%
OF THE COMMON STOCK, OR BY ANY GROUP OF PERSONS TREATED AS A "5 PERCENT
SHAREHOLDER" (AS DEFINED IN THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE") BUT SUBSTITUTING "4.75%" FOR "5 PERCENT"), OR (III) CAUSE AN OWNERSHIP
CHANGE OF THE COMPANY WITHIN THE MEANING OF SECTION 382 OF THE CODE.
THE COMPANY HAS THE RIGHT, PRIOR TO AND AS A CONDITION TO REGISTERING ANY
TRANSFER OF THESE SHARES ON THE STOCK TRANSFER RECORDS, TO REQUEST INFORMATION
FROM THE PURPORTED TRANSFEREE REGARDING SUCH PURPORTED TRANSFEREE'S ACTUAL AND
CONSTRUCTIVE OWNERSHIP OF COMMON STOCK.
ANY DIRECT OR INDIRECT TRANSFER OF THESE SHARES ATTEMPTED IN VIOLATION OF
ARTICLE IX IS VOID AB INITIO AS TO THE PURPORTED TRANSFEREE, AND THE PURPORTED
TRANSFEREE WILL NOT BE RECOGNIZED AS THE OWNER OF SHARES OWNED IN VIOLATION OF
ARTICLE IX FOR ANY PURPOSE, INCLUDING FOR PURPOSES OF VOTING AND RECEIVING
DIVIDENDS OR OTHER DISTRIBUTIONS IN RESPECT OF COMMON STOCK, AND ANY SHARES
PURPORTEDLY ACQUIRED IN VIOLATION OF ARTICLE IX WILL BE TRANSFERRED TO A
TRUSTEE WHO WILL BE REQUIRED TO SELL THEM.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO BE BOUND BY
SUCH RESTRICTIONS. THE FOREGOING IS A SUMMARY ONLY OF CERTAIN PROVISIONS OF
ARTICLE IX. THE COMPANY WILL FURNISH TO THE RECORD HOLDER OF THIS
CERTIFICATE, UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS, A COMPLETE COPY OF SUCH RESTRICTIONS.
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The Board of Directors also intends to issue instructions to or make
arrangements with the transfer agent of the Company (the "Transfer Agent") to
implement the Transfer Restrictions. The Transfer Restrictions provide that the
Transfer Agent shall not record any transfer of the New Common Stock purportedly
transferred in excess of the threshold established in the Transfer Restrictions.
The Transfer Agent also has the right, prior to and as a condition to
registering any transfers of the New Common Stock on the stock transfer records,
to request an affidavit from the purported transferee of the New Common Stock
regarding such purported transferee's actual and constructive ownership of the
New Common Stock. If, after requesting such an affidavit, the Transfer Agent
does not receive an affidavit or the affidavit evidences that the transfer would
violate the Transfer Restrictions, the Transfer Agent is required to notify New
Trails and not enter the transfer in the stock transfer records. These
provisions may result in the delay or refusal of certain requested transfers of
the New Common Stock.
It is the intention of the Transfer Restrictions that any direct or indirect
transfer of New Common Stock attempted in violation of the restrictions would be
void ab initio as to the purported transferee, and the purported transferee
would not be recognized as the owner of the shares owned in violation of the
restrictions for any purpose, including for purposes of voting and receiving
dividends or other distributions in respect of such New Common Stock, or in the
case of options subject to the Transfer Restrictions, receiving New Common Stock
in respect of their exercise. New Common Stock purportedly acquired in
violation of the Transfer Restrictions is referred to as "Excess Common Stock."
Excess Common Stock is automatically transferred to a trustee effective as of
the close of business on the business day prior to the date of the violative
transfer. As soon as practicable following the receipt of notice from New
Trails that Excess Common Stock was transferred to the trustee, the trustee is
required to sell such Excess Common Stock in an arms-length transaction that
would not constitute a violation under the Transfer Restrictions. The net
proceeds of the sale, after deduction, of all costs incurred by New Trails, the
Transfer Agent, and the trustee, will be distributed first to the purported
transferee in an amount equal to the lesser of such proceeds or the cost
incurred by the stockholder to acquire such Excess Common Stock, and the balance
of the proceeds, if any, will be distributed to a charitable beneficiary
together with any other distributions with respect to such Excess Common Stock
received by the trustee. If the Excess Common Stock is sold by the purported
transferee, such person will be treated as having sold the Excess Common Stock
as an agent for the trustee, and shall be required to remit all proceeds to the
trustee (less, in certain cases, an amount equal to the amount such person
otherwise would have been entitled to retain had the trustee sold such shares).
Pending such sale, any dividends or other distributions paid prior to discovery
by New Trails that the Excess Common Stock has been transferred to the trustee
are treated as held by the purported transferee as agent for the trustee and
must be paid to the trustee upon demand, and any dividends or other
distributions declared but unpaid after such time shall be paid to the trustee.
Votes cast by a purported transferee with respect to Excess Common Stock prior
to the discovery by New Trails that the Excess Common Stock was transferred to
the trustee will be rescinded as void and recast in accordance with the desire
of the trustee acting for the benefit of the charitable beneficiary. The
trustee shall have all rights of ownership of the Excess Common Stock.
Special provisions apply where the violative transfer involves a transfer by a
4.75% Shareholder, which are designed to continue to treat such 4.75%
Shareholders as owning the shares transferred. In such case, New Trails must
attempt to locate the person or public group that purchased the Excess Common
Stock, and if such person or public group can be located, the Excess Common
Stock will be required to be returned (together with any distributions received
thereon) to the transferor, and the transferor will be required to return the
purchase price, together with all other losses, damages, costs and expenses
incurred by that purchaser, to the purchaser. If New Trails is unable to locate
the purchaser within 90 days, New Trails is required (to the extent permitted
under its debt instruments) to purchase New Common Stock in a manner that would
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reduce the ownership of the person or public group whose ownership increased as
a result of the prohibited transfer and to hold such New Common Stock on behalf
of the 4.75% Shareholder that transferred the Excess Common Stock in violation
of the Transfer Restrictions. In such case, the 4.75% Shareholder will be
treated as the owner of the Excess Common Stock for all purposes, and amounts
incurred by New Trails to finance the purchase of such Excess Common Stock will
be treated as a loan to such stockholder, with interest at the "applicable
federal rate" under Section 1274(d) of the Code.
If the violative transaction results from indirect ownership of New Common
Stock, the Transfer Restrictions provide a mechanism that is intended to
invalidate the ownership of the New Common Stock actually owned by the
violating stockholder and any persons within such stockholder's control group.
Only if such provisions will not be effective to prevent a violation of the
Transfer Restrictions will ownership of New Common Stock by other persons be
invalidated under the Transfer Restrictions.
Risk of Ownership Change. Notwithstanding the Transfer Restrictions, there
remains a risk that certain transfers of New Common Stock not restricted by the
Transfer Restrictions (or, although otherwise restricted, permitted by the Board
of Directors) and/or certain changes in relationships among stockholders or
other events could cause an Ownership Change. Changes in the relationships of
holders of New Common Stock could cause changes in ownership of New Common Stock
through the application of the attribution rules discussed above, and therefore
could also trigger an Ownership Change causing a loss of NOLs. Purchases by
stockholders of the Existing Common Stock and other events that occur prior to
the consummation of the Reincorporation Merger can affect the percentage shift
in ownership as determined for purposes of Section 382, and any such acquisition
could increase the likelihood that New Trails will experience an Ownership
Change if such shift causes the ownership of 5 percent shareholders (within the
meaning of Section 382 of the Code) of New Trails to increase. There also can
be no assurance, in the event transfers in violation of the Transfer
Restrictions are attempted, that the Internal Revenue Service will not assert
that such transfers have federal income tax significance notwithstanding the
Transfer Restrictions. In addition, the Transfer Restrictions will not apply to
the exercise of outstanding warrants and options to purchase Existing Common
Stock and may not apply to certain exercises of a portion of the options under
the Stock Option Agreement that occur at the end of its term.
The Board of Directors of New Trails will have the discretion to approve a
transfer of stock that would otherwise violate the Transfer Restrictions upon
the prior written request of a stockholder to the Board of Directors. In
addition, the Board of Directors will have the power to waive any of the
Transfer Restrictions in any instance where it determines that a waiver would be
in the best interests of the Company notwithstanding the effect of such waiver
on the NOLs or other tax attributes. If the Board of Directors permits a
transfer that would otherwise violate the Transfer Restrictions, that transfer
or later transfers may result in an Ownership Change that would limit the use of
the tax attributes of the Company. The Board of Directors intends to consider
any such attempted transfer individually and determine at the time whether it is
in the best interests of the Company, after consideration of any factors that
the Board deems relevant (including possible future events), to permit such
transfer notwithstanding that an Ownership Change of the Company may occur.
The Board of Directors will also have the power to accelerate or extend the
expiration date of the Transfer Restrictions, modify the definitions of any
terms set forth therein or conform certain provisions to make them consistent
with any future changes in federal tax law, in the event of a change in law or
regulation or if it otherwise believes such action is in the best interests of
the Company, provided the Board of Directors determines in writing that such
action is necessary or desirable to preserve the NOLs or other tax attributes or
that continuation of the Transfer Restrictions is no longer reasonably necessary
for the preservation of the NOLs or other tax attributes. In addition, the
Board of Directors will have the power to adopt Bylaws, regulations and
procedures, not inconsistent with the Transfer Restrictions, for purposes of
determining whether any acquisition of New Common Stock would jeopardize the
ability of the Company to preserve and use the NOLs or other tax attributes and
for the orderly application, administration and implementation of the Transfer
Restrictions. The Board of Directors will also have the exclusive power and
authority to administer, interpret and make calculations under the Transfer
Restrictions, which actions shall be final and binding on all parties if made in
good faith.
As a result of the foregoing, the Transfer Restrictions serve to reduce, but
do not eliminate, the risk that Section 382 will cause the limitations described
above on the use of NOLs or other tax attributes of the Company. The Transfer
Restrictions (i) may have the effect of impeding the attempt of a person or
entity to acquire a significant or controlling interest in New Trails, (ii) may
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render it more difficult to effect a merger or similar transaction even if such
transaction is favored by a majority of the independent stockholders and (iii)
may serve to make a change in management more difficult. In addition to the
Transfer Restrictions, New Trails will be subject to certain other provisions,
that may have the effect of discouraging a takeover or similar transaction,
including the authority, vested in the Board of Directors, to issue up to 1.5
million shares of preferred stock and to fix the preferences and rights thereof
without Stockholder approval. Management does not presently intend to adopt any
anti-takeover measures, and the Company believes that the tax benefits of the
Transfer Restrictions outweigh the negative aspects of any anti-takeover effects
they may have.
Reincorporation in Delaware
At the effective time of the Reincorporation Merger, New Trails will be
governed by the Delaware General Corporation Law (the "Delaware GCL") and by the
Delaware Certificate attached as Annex B and the new Bylaws (the "Delaware
Bylaws") attached as Annex C. With certain exceptions, the Delaware GCL is
substantially similar to the Nevada GCL. Material differences in stockholder
rights and the powers of management under the Delaware GCL and the Nevada GCL
are discussed below under "Material Differences Between the Corporation Laws of
Delaware and Nevada." Except for the imposition of the Transfer Restrictions,
the Name Change, changes required to conform to applicable Delaware law and, if
approved by the Stockholders, the Charter Amendments, the Delaware Certificate
and Delaware Bylaws will be substantially similar to the Nevada Articles and the
Nevada Bylaws. See "Material Differences Between the Charters and Bylaws of the
Company and New Trails," below.
The Board of Directors believes reincorporation in Delaware will allow it to
more effectively perform its duties. Although the Nevada GCL is similar to the
Delaware GCL, there is a lack of predictability under Nevada law resulting from
the limited body of case law interpreting the Nevada GCL. The Delaware GCL and
the court decisions construing it, on the other hand, are widely regarded as the
most extensive and well-defined body of corporate law in the United States.
This body of case law is based in part on Delaware's long-established policy of
encouraging companies to incorporate in that state. In furtherance of that
policy, Delaware has been a leader in adopting comprehensive, modern and
flexible corporate laws which are periodically updated and revised to meet
changing business needs. As a result, many major corporations have initially
chosen Delaware for their corporate domicile or have subsequently reincorporated
in Delaware in a manner similar to that proposed by the Company. Delaware's
courts have also developed considerable expertise in dealing with corporate
issues, and a substantial body of case law has developed construing Delaware law
and establishing public policies with respect to corporate legal issues. Thus,
for example, relative to other states, Delaware provides greater guidance to
directors in the context of dealing with major transactions, along with more
general corporate matters. The Board of Directors believes that the overall
effect of the reincorporation will be to enhance its ability to consider all
appropriate courses of action with respect to significant transactions for the
benefit of all stockholders. Moreover, the Board believes that enhanced
certainty with respect to the duties of directors is a significant benefit to
the Company and its stockholders and could be an important factor in attracting
and retaining quality persons to serve on the Board of Directors.
The Name Change is being effected to change the corporate name under which the
business of the Company is conducted to Thousand Trails, Inc., the name under
which one of the two principal subsidiaries of the Company conducted business
until it was merged into the Company as part of the Restructuring. As a result,
the Company assumed direct operation of such subsidiary's campgrounds under the
assumed name of "Thousand Trails." The Board of Directors believes that the
Name Change is appropriate to allow the Company to take advantage of the
recognition and good will of the Company's campground members associated with
the name "Thousand Trails."
Certain Consequences of the Reincorporation Merger
In connection with the Reincorporation Merger, the Company's corporate name
will be changed from USTrails, Inc. to Thousand Trails, Inc. The
Reincorporation Merger will not result in any other change in the business,
management, assets, liabilities or net worth of the Company. The Company will
continue to maintain its principal executive offices in Dallas, Texas. The
capitalization, consolidated financial condition and results of operations of
New Trails immediately after consummation of the Reincorporation Merger will be
the same as those of the Company immediately prior to the consummation of the
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Reincorporation Merger. Consummation of the Reincorporation Merger is subject
to Stockholder approval. Upon satisfaction of that condition, and the
satisfaction or waiver of the other conditions precedent to the Reincorporation
Merger, the Reincorporation Merger will be consummated as follows:
Effective Date. The Reincorporation Merger will take effect at the later of
the date on which a certificate of Ownership and Merger is filed with the
Secretary of State of Delaware and Articles of Merger are filed with the
Secretary of State of Nevada (the "Effective Date"), which filing is anticipated
to be made as soon as practicable after the approval of the Merger Agreement by
the Stockholders, and fulfillment or waiver of the other conditions to the
Reincorporation Merger. On the Effective Date, the separate corporate existence
of the Company will cease, and stockholders of the Company will become
stockholders of New Trails governed by the Delaware GCL, the Delaware
Certificate and the Delaware Bylaws.
Management after the Reincorporation Merger. On the Effective Date, the Board
of Directors of New Trails will consist of those persons then serving as
directors of the Company. The directors will continue to hold office as
directors of New Trails for the same term for which they would otherwise serve
as directors of the Company. The individuals serving as executive officers of
the Company will serve as executive officers of New Trails.
Warrants; Stock Option Plans; Stock Option Agreement. The Company has
outstanding warrants to purchase 495,005 shares of Existing Common Stock (the
"Warrants"). Each Warrant outstanding immediately prior to the Reincorporation
Merger will become entitled to purchase the same number of shares of New Common
Stock upon the same terms and conditions as in effect immediately prior to the
Effective Date. The Company's stock option plans will not be changed in any
material respect by the Reincorporation Merger. Each option to purchase shares
of Existing Common Stock outstanding immediately prior to the Reincorporation
Merger pursuant to the 1991 Employee Plan, 1993 Employee Plan and the 1993
Director Plan (collectively, the "Plans") will become entitled to purchase the
same number of shares of the New Common Stock upon the same terms and conditions
as in effect immediately prior to the Effective Date. The Company currently has
effective registration statements under the Securities Act under which shares of
Existing Common Stock are issuable upon the exercise of the stock options. The
Company intends to file amendments to such registration statements to continue
the registration of these shares. If the Stock Option Agreement is approved at
the Annual Meeting, the options to purchase shares of Existing Common Stock
thereunder will be converted into options to purchase an equal number of shares
of New Common Stock on the same terms and conditions after the Effective Date.
Indebtedness of the Company. All indebtedness of the Company outstanding on
the Effective Date will be assumed by New Trails in connection with the
Reincorporation Merger. No indebtedness of the Company will be accelerated as a
result of the proposed transaction.
Amendment, Deferral or Termination of the Merger Agreement. The Merger
Agreement provides that the Boards of Directors of the Company and New Trails
may amend the Merger Agreement prior to or after approval of the Reincorporation
Merger by the Stockholders but not later than the Effective Date. However, no
such amendment may be made that is not approved by the Stockholders if such
approval is required by applicable law. The Merger Agreement also provides that
the Board of Directors may terminate and abandon the Reincorporation Merger or
defer its consummation for a reasonable periods, notwithstanding Stockholder
approval, if in the opinion of the Board of Directors, such action would be in
the best interests of the Company.
Federal Income Tax Consequences
The following is a discussion of the material federal income tax consequences
under the Code to the holders of Existing Common Stock of the Company who
receive New Common Stock of New Trails in exchange for their shares of Existing
Common Stock pursuant to the Reincorporation Merger. The discussion below does
not cover all possible federal income tax consequences applicable to holders who
are dealers in securities, who acquired their Existing Common Stock through
stock option or stock purchase programs or other employee plans, or who are
nonresident alien individuals or foreign entities. Furthermore, the following
discussion is solely with respect to federal income tax matters and does not
consider state, local or foreign tax consequences.
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As the following discussion is intended as a general summary only, all holders
of Existing Common Stock should consult their own tax advisors regarding (i) the
federal income tax consequences of the Reincorporation Merger with respect to
their individual tax situations, and (ii) the tax consequences related to the
holding and future disposition of the New Common Stock received pursuant to the
Reincorporation Merger. Tax advisors should also be consulted with regard to
the tax consequences of the Reincorporation Merger arising under the laws of any
state, local or foreign jurisdiction. The Company has not requested a ruling
from the Internal Revenue Service (the "Service") in connection with the
Reincorporation Merger.
Federal Income Tax Consequences to Holders of Existing Common Stock. For
federal income tax purposes, the Reincorporation Merger should be treated as a
reorganization as defined in Section 368(a)(1)(F) of the Code, pursuant to which
the Stockholders will exchange their shares of Existing Common Stock for newly-
issued shares of New Common Stock. No gain or loss will be recognized by the
Stockholders with respect to the receipt of New Common Stock in exchange for
such Existing Common Stock. The aggregate tax basis of the New Common Stock
received by a Stockholder who exchanges all of his Existing Common Stock
pursuant to the Merger Agreement will be the same as the aggregate tax basis of
such Existing Common Stock surrendered pursuant to the Merger Agreement. The
holding period of the New Common Stock received by each Stockholder will include
the period for which the Existing Common Stock surrendered in exchange therefor
was considered to be held, provided that the Existing Common Stock so
surrendered was held as a capital asset by the Stockholder.
A holder of Existing Common Stock who exercises dissenters rights with respect
to such Existing Common Stock and receives payment for such shares in cash
ordinarily will recognize capital gain or loss on the disposition of the stock
measured by the difference between the amount of cash received for the
dissenting shares and such holder's basis in the dissenting shares, with the
characterization as short-term or long-term gain or loss dependent upon the
holder's holding period for the shares. However, different tax consequences,
including treatment of the payment as ordinary income and the equivalent of a
dividend distribution, could apply depending on the holder's particular
circumstances, such as whether he is deemed under any applicable attribution
rules to own Existing Common Stock held by related parties. Accordingly,
Stockholders should consult their tax advisors as to the income tax consequences
of exercising dissenters rights under their particular circumstances.
Federal Income Tax Consequences to the Company and New Trails. Neither the
Company nor New Trails will recognize gain or loss as a result of the
Reincorporation Merger. The basis to New Trails in the assets of the Company
received pursuant to the Merger Agreement will equal the basis of those assets
in the hands of the Company immediately prior to the Reincorporation Merger.
The holding period for the transferred assets in the hands of New Trails will
include the period during which the assets were held by the Company.
As of June 30, 1996, the Company had available about $54.5 million in NOLs for
federal income tax purposes. Generally, all tax attributes held by the Company
will carry over to New Trails. However, Section 382 provides that, following an
"ownership change" with respect to a "loss corporation" such as the Company, the
amount of post-ownership change annual taxable income of the loss corporation
that can be offset by the loss corporation's pre-ownership change NOL carryovers
generally cannot exceed an amount equal to the value of the equity of the loss
corporation immediately before the ownership change (subject to various
adjustments) multiplied by a prescribed long-term tax exempt rate announced
monthly by the Service (5.8% for ownership changes occurring during September
1996) (the "Annual Limitation"). If it were to apply, the Annual Limitation
could reduce significantly the value of the Company's NOL carryforwards.
In order to reduce the risk of a subsequent ownership change, the Restated
Certificate of Incorporation contains provisions restricting certain transfers
of Common Stock that would trigger an ownership change for these purposes. See
"Proposal II: The Reincorporation Merger - Transfer Restrictions."
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Exchange of Warrants. In the Reincorporation Merger, holders of warrants to
purchase Existing Common Stock will be considered to have exchanged their
warrants for federal income tax purposes for similar warrants to purchase New
Common Stock. The exchange of warrants will be taxable to the holders of the
warrants, and each holder of a warrant will be required to recognize gain or
loss based on the difference between (i) such holder's federal income tax basis
in the warrants and (ii) the value of the warrants to purchase New Common Stock
received by such holder. Any such gain will be long-term capital gain if the
warrants have been held for at least one year.
Exchange of Options. Employees or directors of the Company to whom the
Company has granted options to acquire Existing Common Stock will be considered
exchanged for federal income tax purposes for replacement options to acquire New
Common Stock on the same terms, without recognizing gain or loss.
This discussion addresses the federal income tax consequences of the
Reincorporation Merger to the Stockholders generally, and does not discuss the
tax consequences of each Stockholder, which could differ depending on the
Stockholder's individual circumstances. As a result, all Stockholders should
consult their own tax advisors regarding the tax consequences of the
Reincorporation Merger to their particular situations.
Description of New Common Stock
The authorized capital stock of New Trails is 15,000,000 shares of common
stock, par value $.01 per share, and 1,500,000 shares of preferred stock, par
value $.01 per share. As of October 7, 1996, the Company had 7,383,276 shares
of Existing Common Stock issued and outstanding. In addition, as of such date
the Company had outstanding Warrants to purchase 495,005 shares of Existing
Common Stock and options under the Plans to purchase 535,000 shares of Existing
Common Stock (including options granted September 12, 1996). Subject to
Stockholder approval, options to purchase an additional 664,495 shares of
Existing Common Stock will be outstanding under the Stock Option Agreement. The
Warrants, options and Stock Option Agreement are each subject to certain
antidilution provisions. The Delaware Certificate authorizes the Board of
Directors to establish the designations, powers, preferences and rights of the
preferred stock without further stockholder approval. In the exercise of this
authority, the Board of Directors could establish preferences and rights for the
preferred stock prior and superior to the rights of the New Common Stock, and it
is possible that dividend preferences for the preferred stock could
substantially reduce the amount of any future surplus available for payments on
the New Common Stock. In addition, if the preferred stock were made convertible
into New Common Stock, dilution of the interests of holders of the New Common
Stock may result.
Holders of New Common Stock are entitled to one vote for each share held of
record on any matter submitted to a vote at a meeting of the stockholders.
Directors are elected by a majority of the votes cast at the election.
Generally, any matter submitted for the approval of the stockholders must
receive the affirmative vote of the holders of a majority of all the shares
represented at a meeting at which a quorum is present. Approval of any
amendment to the Delaware Certificate or any merger or consolidation (with
certain limited exceptions) or dissolution of New Trails, or any sale, lease, or
exchange of all or substantially all of the assets of New Trails, however,
requires the affirmative vote of holders of shares representing a majority of
the votes entitled to be cast.
The Delaware Bylaws contain, as do the Nevada Bylaws, a provision establishing
an advance notice procedure for stockholders to bring business before the annual
meeting of stockholders. Generally, notice of business proposed to be brought
before the meeting must be given in writing in the form provided in the Delaware
Bylaws to the Secretary of the Company not less than 60 or more than 90 days
prior to the date of the annual meeting of stockholders, but if less than 60
days notice of the date of the annual meeting is given to the stockholders,
notice of proposed business must be given not later than the tenth day following
the day on which the notice of the date of the annual meeting is mailed. At a
special meeting of stockholders, only such business as is specified in the
notice of such special meeting given by or at the direction of the person or
persons calling such meeting is permitted to come before the meeting. The
limitations on procedures to bring business before the annual meeting of
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stockholders do not restrict a stockholder's right to include proposals in proxy
material pursuant to rules promulgated under the Exchange Act. The purpose of
requiring advance notice is to afford the Board of Directors an opportunity to
consider the merits of the business proposed to be brought before the meeting
and, to the extent deemed necessary or desirable by the Board of Directors, to
inform stockholders about those matters.
The Delaware Certificate does not contain a provision permitting cumulative
voting for the election of directors. The holders of more than 50% of the New
Common Stock voting upon the election of directors, therefore, may be able to
elect all of the directors to be elected at a meeting of the stockholders of New
Trails. The directors of New Trails are elected annually and serve until their
successors are elected and qualified.
Holders of shares of New Common Stock are entitled to receive dividends when,
as, and if the Board of Directors declares such dividends from funds legally
available for that purpose. Since inception, the Company has not paid any
dividends. Moreover, under the terms of the indenture pursuant to which the
Company's PIK Notes were issued (the "PIK Indenture") and the Credit Agreement,
both of which will be assumed by New Trails pursuant to the Merger Agreement,
the Company may not pay any dividends (other than stock dividends) on the
Existing Common Stock, nor purchase, redeem or otherwise acquire or retire for
value any Existing Common Stock, until the obligations thereunder are repaid.
Upon liquidation, the holders of New Common Stock are entitled to share on a
pro rata basis in the net assets of New Trails after payment of any and all
amounts due to creditors and holders of any preferred stock. The holders of New
Common Stock have no preemptive, redemption or conversion rights.
Upon completion of the Reincorporation Merger, New Common Stock will be
tradable without further registration under the Securities Act, except for
shares owned by "affiliates" of the Company prior to the Reincorporation Merger,
which will be subject to volume and certain other limitations imposed by Rule
145 and certain other rules under the Securities Act. Holders of the Existing
Common Stock have publicly traded the Existing Common Stock in the over-the-
counter market under the symbol USTQ since 1992. Trading in the Existing Common
Stock is light, and an established public trading market for the stock may not
exist. In addition, secondary trading in Existing Common Stock is prohibited or
restricted in many states. However, the Company has either registered or
obtained exemptions to permit secondary trading in the States of Illinois, New
York, Utah and Washington. Moreover, other jurisdictions may have statutory
exemptions that permit certain institutions to trade the Existing Common Stock.
Stockholders are advised to consult their legal counsel should they desire to
enter into a transaction involving the New Common Stock in any jurisdiction
other than Illinois, New York, Utah, or Washington.
Material Differences Between the Charters and Bylaws of the Company and New
Trails
Except for the Transfer Restrictions, the Name Change, changes conforming to
applicable Delaware law and, if approved by the Stockholders, the Charter
Amendments, the provisions of the Delaware Certificate and the Delaware Bylaws
will be substantially similar to the provisions of the Nevada Articles and the
Nevada Bylaws. The indemnification provisions of the Nevada Articles, with
limited changes responsive to the Delaware GCL, have been included in the
Delaware Bylaws rather than the Delaware Certificate to facilitate their
amendment should applicable Delaware law change in the future.
Material Differences between the Corporation Laws of Delaware and Nevada
In many respects, the Nevada GCL is substantially similar to the Delaware GCL.
Although it is impractical to note all of the differences between the
corporation statutes of Delaware and Nevada, the most significant differences,
in the judgment of the management of the Company, are summarized below. The
summary is not intended to be complete and reference should made to the Delaware
GCL and the Nevada GCL.
Removal of Directors. The Company does not, and New Trails will not, have a
classified Board of Directors. Under the Nevada GCL, any one or all of the
directors of a corporation without a classified board may be removed by the
holders of not less than two-thirds of the voting power of a corporation's
stock. Under the Delaware GCL, any one or all of the directors of a corporation
without a classified board of directors may be removed, with or without cause,
by the holders of a majority of shares then entitled to vote in an election of
directors.
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Indemnification of Officers and Directors and Advancement of Expenses.
Delaware and Nevada have substantially similar provisions permitting a
corporation to indemnify its officers, directors, employees and agents, except
Nevada permits broader indemnification in connection with stockholder derivative
lawsuits.
The Delaware GCL and Nevada GCL both provide that expenses incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of the action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to repay the amount
if it is ultimately determined that he is not entitled to be indemnified by the
corporation. The Delaware GCL and Nevada GCL also provide that the right to
indemnification provided by the respective statutory provisions are not
exclusive of other rights under other agreements to indemnification or
advancement of expenses, provided that applicable standards of the statutes are
met.
The Nevada Articles provide that the Company must indemnify the directors and
officers of the Company to the extent permitted under the Nevada GCL. Thus,
upon satisfaction of the applicable standard, the Company has no discretion to
decide whether or not to indemnify a director or officer. In addition, the
Nevada Articles provide that expenses must be advanced upon receipt of an
undertaking in appropriate circumstance and, similarly, upon receiving an
appropriate undertaking, the Company has no discretion to decide whether or not
to advance expenses. The indemnification provisions of the Nevada Articles,
with limited changes responsive to the Delaware GCL, have been included in the
Delaware Bylaws rather than the Delaware Certificate. Thus, whereas amendment
of the indemnification provisions of the Nevada Articles require the consent of
the Stockholders, the indemnification provisions of the Delaware Bylaws may be
amended by the Board of Directors without the approval of the stockholders of
New Trails, although the stockholders of New Trails also have authority to amend
the Delaware Bylaws.
Additionally, the Company has established the Indemnification Trusts to fund
the Company's indemnification obligations. The Company will seek to amend the
Indemnification Trusts to the extent necessary to reflect the change to the
Delaware GCL.
Limitation on Personal Liability of Directors and Officers. Delaware
corporations are permitted to adopt charter provisions eliminating the liability
of a director to a corporation and its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that such liability does not
arise from certain proscribed conduct, including breach of the duty of loyalty,
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law or liability to the corporation based on unlawful
dividends or distributions or improper personal benefit. The Nevada GCL has a
similar provision. However, the Nevada provision applies to both directors and
officers and, while the Delaware provision excepts from limitation on liability
a breach of the duty of loyalty, the Nevada counterpart does not. Thus, the
Nevada provision permits a corporation to limit directors and officers from
personal liability arising from a breach of the duty of loyalty, except where
such a breach would also be a breach of a standard for which liability may not
be limited.
The Delaware Certificate, like the Nevada Articles, contains a provision
limiting the personal liability of directors. However, unlike the Delaware
Certificate, the Nevada Articles also limit the liability of officers. Under
the laws of either state, the charter provision will not have any effect on the
availability of equitable remedies such as an injunction or recision based upon
a breach of the duty of care, or on liabilities which arise under certain
federal statutes such as the securities laws.
Dividends. The Company is prohibited from paying dividends under the PIK
Indenture and the Credit Agreement, and neither the Company nor New Trails
currently intends to pay dividends or make any other distributions on its
capital stock. Nevertheless, the difference between the Delaware GCL and the
Nevada GCL with respect to amounts available for dividends or other
distributions could affect future dividends or other distributions, if any are
declared. Under the Delaware GCL, unless otherwise provided in the certificate
of incorporation, a corporation may declare and pay dividends out of surplus or,
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if no surplus exists, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year (provided that the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets). In addition, the Delaware GCL provides, with limited
exceptions, that a corporation may redeem or repurchase its shares only out of
surplus. The Nevada GCL provides that no distribution (including dividends on,
or redemption or repurchases of, shares of capital stock) may be made if after
giving effect to such distribution, the corporation would not be able to pay its
debts as they become due in the usual course of business, or the corporation's
total assets would be less than the sum of its total liabilities plus the amount
that would be needed at the time of a liquidation to satisfy the preferential
rights of preferred stockholders.
Restrictions on Business Combinations/Corporation Control. Both the Delaware
GCL and the Nevada GCL contain provisions restricting the ability of a
corporation to engage in business combinations with an interested stockholder.
On the Effective Date, New Trails will not be subject to the provisions of
Section 203 of the Delaware GCL by reason of its terms. In general, Section 203
provides that a Delaware corporation may not for a period of three years after a
person becomes an "interested stockholder" (defined generally as a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of a corporation's outstanding voting stock) engage in any of a
broad range of business combinations with a person of affiliate or associate of
such person who is such "interested stockholder" unless: (a) the transaction
resulting in a person's becoming an interested stockholder, or the business
combination, is approved by the board of directors of the corporation before the
person becomes an interested stockholder, (b) the interested stockholder
acquires 85% or more of the outstanding voting stock of the corporation in the
same transaction that makes it an interested stockholder or (c) on or after the
date the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by the holders of at least
66-2/3% of the corporation's outstanding voting stock at an annual or special
meeting of stockholders, excluding shares owned by the interested stockholder.
"Business combination" as defined in Section 203, may include the issuance by a
corporation of its capital stock. Stockholders that beneficially receive 15% or
more of the New Common Stock pursuant to the Merger Agreement will not be
subject to the provisions of Section 203 should they become applicable to New
Trails, and as a consequence business combinations with such Stockholders will
not be limited by Section 203. Certain of such Stockholders also hold a
substantial amount of the Company's outstanding PIK Notes. See "Security
Ownership" and "Certain Transactions." The Company has no current intention of
effecting any transaction that would be subject to Section 203 were it
applicable.
Under the provisions of Nevada GCL, to which the Company is subject, except
under certain circumstances which vary from the exceptions under the Delaware
GCL, business combinations with interested stockholders are not permitted for a
period of three years following the date such stockholder became an interested
stockholder and thereafter only if certain conditions are met. Restrictions
also apply with respect to business combinations after such three-year period.
The Nevada GCL defines an interested stockholder, generally, as a person who
owns 10% or more of the outstanding shares of the corporation's voting stock.
Stockholders that as of September 27, 1996 beneficially owned 10% or more of the
Existing Common Stock are not subject to such restrictions because the Board of
Directors approved their acquisition of Existing Common Stock prior to the time
they became interested stockholders. See "Security Ownership" and "Certain
Transactions."
Additionally, the Nevada GCL provides that if a corporation has more than 100
stockholders of record in Nevada, which the Company does not, the exercise of
voting rights with respect to "control shares" of an "issuing corporation" held
by an "acquiring person" is generally disallowed unless such voting rights are
conferred by a majority vote of the disinterested stockholders. "Control
shares" are the voting shares of an issuing corporation acquired in connection
with the acquisition of a "controlling interest." "Controlling interest" is
defined in terms of threshold levels of voting share ownership, which
thresholds, whenever each may be crossed, trigger applications of the voting bar
with respect to the shares newly acquired.
The Nevada GCL, unlike the Delaware GCL, also expressly permits directors to
consider interests other than those of the stockholders of the corporation,
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including the interests of employees, suppliers, creditors, customers, the
national and state economies, and the interests of the community to resist a
change or potential change in control of the corporation.
Conversion of Securities in the Reincorporation Merger
Each share of Existing Common Stock outstanding immediately prior to the
Reincorporation Merger will be converted, by reason of the Reincorporation
Merger, pursuant to the Merger Agreement and without any action by the holder
thereof, into the right to receive one share of New Common Stock. The relative
powers, designations, preferences, rights and qualifications of the New Common
Stock, as in effect immediately prior to the Reincorporation Merger, will be
substantially equivalent in all material respects to the Existing Common Stock
so converted, except that the New Common Stock will be subject to the Transfer
Restrictions. See "Description of New Common Stock" above.
Conditions to Consummation of the Reincorporation Merger
Consummation of the Reincorporation Merger is subject to Stockholder approval
and receipt of all material orders, consents or approvals, governmental or
otherwise, that may be required or advisable. The Company and New Trails
believe that no material federal or state regulatory approvals are necessary
other than registrations in connection with securities laws. Consummation is
also conditioned upon the right to dissent being asserted with respect to no
more than 1% of the Existing Common Stock. The Merger Agreement provides that
the Company and New Trails may, in their discretion, waive any conditions
without further Stockholder approval.
Pro Forma and Comparative Financial Statements
Pro forma and comparative financial information regarding New Trails and its
consolidated subsidiaries giving effect to the Reincorporation Merger have not
been included herein because immediately following the consummation of the
Reincorporation Merger, the consolidated financial statements of New Trails will
be the same as the consolidated financial statements of the Company immediately
prior to the Reincorporation Merger. Similarly, no selected historical pro
forma and other financial data have been included because the Reincorporation
Merger will have no effect on the Company's historical financial statements.
Right to Dissent
Under the Nevada GCL, in connection with the Reincorporation Merger, a
Stockholder will be entitled to dissent from the Reincorporation Merger and
obtain payment of the fair value of his shares under Nevada Revised Statutes
92A.300 to 92A.500, inclusive (the "Nevada Statute"). A copy of the Nevada
Statute is set forth in Annex E. The statutory right to obtain fair value is
subject to strict compliance by a Stockholder with the procedures set forth in
the Nevada Statute and described below. Failure to follow any of these
procedures may result in a termination or waiver of the right to dissent and
obtain payment of the fair value of the stockholder's shares of Existing Common
Stock. It is a condition to the consummation of the Reincorporation Merger that
holders of no more than 1% of the Existing Common Stock assert the right to
dissent.
A Stockholder of record may assert dissenters rights as to fewer than all
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the Company in writing of the
name and address of each person on whose behalf he asserts dissenters rights.
The rights of a partial dissenter are determined as if the shares as to which he
dissents and his other shares were registered in the names of different
stockholders. A beneficial stockholder of Existing Common Stock may assert
dissenters rights as to shares held on his behalf only if he submits to the
Company the written consent of the stockholder of record to the dissent not
later than the time the beneficial stockholder asserts dissenters rights and he
does so with respect to all shares of which he is the beneficial stockholder or
over which he has the power to direct the vote. A "beneficial stockholder"
means a person who is a beneficial owner of shares held in a voting trust or by
a nominee as the stockholder of record.
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A Stockholder who wishes to assert dissenters rights must deliver to the
Company, before the Annual Meeting, written notice of his intent to demand
payment for his shares of Existing Common Stock if the Reincorporation Merger is
effectuated and must not vote his shares of Existing Common Stock in favor of
the Reincorporation Merger. A Stockholder who does not satisfy such
requirements is not entitled to payment for his shares under the Nevada Statute.
If the Reincorporation Merger is approved at the Annual Meeting, New Trails
will, no later than 10 days after the Effective Date, deliver a written
dissenters notice to all Stockholders who satisfied the requirements to assert
those rights. The dissenters notice will (i) state where the demand for payment
must be sent, (ii) where and when certificates for shares must be deposited,
(iii) supply a form for demanding payment that includes the date of the first
announcement of the terms of the Reincorporation Merger and requiring the person
asserting dissenters rights to certify whether or not he acquired beneficial
ownership of the shares before that date and (iv) set a date by which New Trails
must receive the demand for payment, which will not be less than 30 nor more
than 60 days after the date the notice is delivered.
A Stockholder to whom a dissenters notice is sent must demand payment, certify
whether he acquired beneficial ownership of the shares before the date set forth
in the dissenters notice for this certification and deposit his certificates in
accordance with the terms of the notice. A Stockholder who does not demand
payment or deposit his certificates where required by the date set forth in the
dissenters notice is not entitled to payment for his shares under the Nevada
Statute.
Within 30 days after receipt of a demand for payment, New Trails will pay each
dissenter who complied with the Nevada Statute the amount New Trails estimates
to be the fair value of his shares, plus accrued interest from the Effective
Date at the average rate paid by New Trails on its principal bank loans, or if
it has no bank loans, at a rate that is fair and equitable under all of the
circumstances. The payment must be accompanied by the financial statements of
New Trails and a statement of the estimate of fair value of the shares, together
with an explanation of how the interest was calculated. The dissenter may
notify New Trails in writing of his own estimate of the fair value of his shares
and the amount of interest due, and demand payment of his estimate less any
payment received from New Trails if he believes that the amount paid is less
than the fair value of his shares or that the interest due is incorrectly
calculated.
New Trails may elect to withhold payment from a dissenter unless he was the
beneficial owner of the shares before the date set forth in the dissenters
notice as the date of first announcement of the Reincorporation Merger. To the
extent New Trails elects to withhold payment, after the Effective Date it will
estimate the fair value of the shares plus accrued interest and shall offer to
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. New Trails will send with its offer a statement of its estimate
of the fair value of the shares and an explanation of how the interest was
calculated. The dissenter may reject the offer and demand payment of the fair
value of his shares and interest due if he believes that the amount offered is
less than the fair value or that the interest due is incorrectly calculated.
If a demand for payment remains unsettled, New Trails will commence a
proceeding in the district court of the county in Nevada where the Company's
registered office was located within 60 days after receiving the demand and
petition the court to determine the fair value of the shares and accrued
interest. If New Trails does not commence the proceeding within the 60 day
period, it will pay each dissenter whose demand remains unsettled the amount
demanded.
Exchange of Certificates
As soon as practicable after the Effective Date, New Trails will furnish a
letter of transmittal to stockholders for use in exchanging their stock
certificates (each a "Letter of Transmittal"), which will contain instructions
with respect to the surrender of Existing Common Stock certificates and the
distribution of New Common Stock certificates. The Company's stockholders
should not send in certificates until they receive the Letter of Transmittal.
The Company's stockholders who fail to exchange their Existing Common Stock
certificates on or after the Effective Date by surrendering such certificates,
together with a properly completed Letter of Transmittal, to the agent
designated by the Company and New Trails (the "Exchange Agent") will not receive
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their New Common Stock until such time as their Existing Common Stock
certificates are later surrendered to the Exchange Agent for transfer,
accompanied by such instruments of transfer and supporting evidence as New
Trails may reasonably require. Any dividends declared or distributions made on
shares of New Common Stock which such holders have a right to receive will be
retained by New Trails until such holders surrender their Existing Common Stock
certificates in exchange for New Common Stock certificates or until paid to a
public official pursuant to applicable abandoned property, escheat or similar
laws. No interest will accrue or be payable with respect to any dividends or
distributions retained on unissued New Common Stock certificates.
On the Effective Date, holders of certificates representing Existing Common
Stock will cease to have any rights with respect to such shares, and each such
certificate will be deemed for all corporate purposes to evidence only the right
to receive shares of New Common Stock for which such shares may be exchanged.
The stock transfer books of the Company will be closed at the close of business
on the business day immediately preceding the Effective Date, and the holders of
record of Existing Common Stock as of the Effective Date will be the
stockholders entitled to exchange their shares of Existing Common Stock for
shares of New Common Stock as provided in the Merger Agreement. No transfer or
assignment of any shares of Existing Common Stock will take place after the
Effective Date until the certificates for such shares are exchanged pursuant to
the Merger Agreement. In the event of a transfer of ownership of any such
shares which is not registered in the stock transfer records of the Company, no
shares of New Common Stock exchangeable for such shares will be issued to the
transferee until the certificate or certificates representing such transferred
shares are delivered to the Exchange Agent, together with all documents required
to evidence and effect such transfer. In addition, it will be a condition to
the issuance of any certificate for any shares of New Common Stock in a name
other than the name in which the surrendered Existing Common Stock is registered
that the person requesting the issuance of such certificate either pay to the
Exchange Agent any transfer or other taxes required by reason of the issuance of
a certificate of New Common Stock in a name other than the registered holder of
the certificate surrendered, or establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable.
In no event will the Exchange Agent, the Company or New Trails be liable to
any holder of Existing Common Stock for shares of New Common Stock, or dividends
or distributions thereon, delivered in good faith to a public official pursuant
to any applicable abandoned property, escheat or similar law. All shares of New
Common Stock issued upon the surrender of shares of Existing Common Stock shall
be deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Existing Common Stock.
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PROPOSAL III: CHARTER AMENDMENTS
At the Annual Meeting, the Stockholders are being asked to approve the Charter
Amendments. The Charter Amendments are intended to eliminate certain provisions
that were imposed in connection with the Company's reorganization under Chapter
11 of the United States Bankruptcy Code in 1991 and the issuance of the Secured
Notes which have now been retired. The Board of Directors believes that the
Charter Amendments will provide additional flexibility to pursue business and
financial opportunities in the future, although no transactions that would be
affected by the existing provisions are currently contemplated. Subject to
Stockholder approval, the Charter Amendments will be reflected in the Delaware
Certificate of New Trails or, if the Reincorporation Merger is not approved, the
Charter Amendments will be effected by an amendment to the Nevada Articles.
The Charter Amendments must be approved by the affirmative vote of holders of
66-2/3% of the issued and outstanding Existing Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
Limitations on Rights of Capital Stock
The Nevada Articles prohibit the issuance of non-voting capital stock, or,
prior to July 15, 1998, preferred stock with voting rights other than as
required by the Nevada GCL or any right to preferential payment in the event of
a voluntary or involuntary liquidation, dissolution or winding up of the Company
which exceeds the cash or the value of property actually received (as determined
in good faith by the Board of Directors) in consideration of the issuance of
such shares of preferred stock. The Board of Directors is currently authorized
to establish the other designations, powers, preferences and rights of preferred
stock without a stockholder vote.
Elimination of these restrictions would permit the Board of Directors to issue
preferred stock, without any additional authorization by the stockholders, with
such voting rights designated by the Board of Directors. Elimination of these
restrictions would also permit the Company to issue non-voting common stock, but
only if authorized by an additional charter amendment approved by a majority of
the outstanding capital stock entitled to vote thereon.
The Company has no current plans to issue any additional shares of capital
stock that would be affected by the provisions eliminated by the Charter
Amendments. However, the Board of Directors believes that it is in the best
interests of the Company to provide flexibility to respond to the capital needs
of the Company as they arise and therefore to remove restrictions that have
served their function and are no longer necessary.
SUPERMAJORITY VOTING PROVISIONS
The Nevada Articles require the affirmative vote of 66-2/3% of the issued and
outstanding shares of Existing Common Stock (A) to authorize (i) a purchase of
any equity security of the Company by the Company or any subsidiary of the
Company, (ii) a tender offer or request or invitation for tenders for any equity
security of the Company made by the Company or any subsidiary of the Company; or
(iii) a merger, consolidation, reclassification, recapitalization,
reorganization or similar corporate transaction of the Company or between the
Company or any subsidiary of the Company and any affiliate of the Company
(except for any such transaction consummated in connection with a bankruptcy or
reorganization under Title 11 of the United States Code), in each case if such
transaction constitutes or is part of a series of transactions which constitute
a "Rule 13e-3 transaction," as defined in the Exchange Act, with certain
exceptions or (B) a merger or consolidation transaction to which the Company is
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a party and as a result of which stockholders of the Company do not have the
right immediately after the consummation of such transaction to remain as
stockholders of the surviving corporation. Additionally, with certain
exceptions, the authorization and approval of two-thirds of the members of the
whole Board of Directors is required prior to the issuance or sale of any shares
of capital stock of the Company for consideration less than the fair market
value of such shares at the time of issuance. The affirmative vote of 66-2/3%
of the issued and outstanding shares of Existing Common Stock is also required
to authorize amendments to these provisions (and the above described provision)
of the Nevada Articles. If approved by the Stockholders, these supermajority
voting provisions would be eliminated and the vote required to effect such
actions would be the vote required under the Delaware GCL, generally a majority
of the stock entitled to vote or a majority of the Board of Directors.
The Company does not currently intend to enter into any transactions that
would have been subject to the supermajority voting requirements proposed to be
eliminated by the Charter Amendments. However, the Board of Directors believes
that these supermajority voting provisions could reduce the Company's
flexibility in structuring transactions or responding to business opportunities
in the future. The elimination of the supermajority provisions may increase the
effective control of the Company's principal stockholders with respect to such
matters. See "Security Ownership - Security Ownership of Certain Beneficial
Owners."
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PROPOSAL IV: STOCK OPTION AGREEMENT
At the Annual Meeting, the Stockholders will be asked to approve the Stock
Option Agreement. Consummation of the Restructuring would have adversely
affected the compensation arrangements entered into between the Company and Mr.
Shaw at the time Mr. Shaw joined the Company in May 1995. These arrangements
provided him with a one-time bonus which had accrued to $1,270,589 prior to the
Restructuring and was then 75% vested. In these circumstances, Mr. Shaw elected
to receive his bonus, the bonus amount was fixed at the accrued amount, the
vested portion was paid to him, and in order to retain Mr. Shaw's services and
to provide an incentive to Mr. Shaw, the Special Committee of the Board of
Directors, at a meeting of the full Board of Directors, authorized a grant, in
the event the Restructuring was consummated and subject to stockholder approval,
of options to purchase shares of Existing Common Stock representing 9% of the
outstanding Existing Common Stock immediately after the Restructuring. The
exercise price authorized for the options was the average closing bid quotation
for the Existing Common Stock as quoted through the NASD OTC Bulletin Board and
National Quotation Bureau's Pink Sheets for the ten business days immediately
following the date the Restructuring was consummated, but in any event no less
than $0.50 per share or more than $1.00 per share.
The Stock Option Agreement must be approved by the affirmative vote of holders
of a majority of the issued and outstanding shares of Existing Common Stock
represented in person or by proxy.
The Board Of Directors Recommends A Vote For This Proposal.
Terms of the Stock Option Agreement
On September 12, 1996, the Special Committee of the Board of Directors
approved the form of Stock Option Agreement, in the form set forth as Annex D,
which evidences the grant to Mr. Shaw, subject to Stockholder approval within 12
months of the August 1, 1996 date of grant, of the option to purchase 664,495
shares of Existing Common Stock at $0.69 per share. Such exercise price is the
average closing bid quotation for the Existing Common Stock as quoted through
the NASD OTC Bulletin Board and National Quotation Bureau's Pink Sheets for the
ten business days immediately following the date the Restructuring was
consummated and, in the judgment of the Special Committee and the Board of
Directors, reflects the fair market value of the Existing Common Stock as of the
date the Restructuring was consummated in view of the fact that the Existing
Common Stock is lightly traded. Options to purchase 144,927 shares of Existing
Common Stock are intended to be eligible for treatment as incentive stock
options under Section 422 of the Code ("ISOs") and the remaining options are
non-qualified options for such purposes. The Company intends to file a
Registration Statement on Form S-8 with respect to the shares issuable under the
Stock Option Agreement.
Subject to Stockholder approval, the options granted to Mr. Shaw will be
exercisable immediately, in full or in part, for a term of ten years, while Mr.
Shaw is in the employ of the Company and for a 90-day period thereafter except
in the event of the termination of Mr. Shaw's employment due to death or
permanent disability, in which case the options will be exercisable for one year
thereafter, or for "cause," in which case the options will terminate
immediately. However, Mr. Shaw will not be permitted to exercise the options
if, and to the extent that, such exercise would cause an increase in the amount
of Ownership Change. In the event options would otherwise expire at a time Mr.
Shaw is not permitted to exercise all or a portion of the options because to do
so would increase the amount of Ownership Change (the "Exercise Restriction"),
generally the term of the options will be extended with respect to that portion
of the options which would cause an increase in order to ensure that Mr. Shaw
will have at least a 90-day period after such limitations cease within which to
exercise such options. However, solely with respect to that portion of the
options intended to be incentive stock options, the Exercise Restrictions will
not apply during the last 90 days of the ten year term, and, if unexercised at
the end of such ten year term, such options will expire. Neither the options,
nor any interest therein, may be assigned or transferred except by will or the
laws of descent and distribution.
The exercise price is payable in cash, except that with the prior approval of
the committees administering the Stock Option Agreement, the exercise price may
instead be paid in whole or in part by the delivery to the Company of a
certificate or certificates representing shares of Existing Common Stock,
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provided that the Company is not then prohibited by the terms of any contractual
obligation or legal restriction from purchasing or acquiring such shares of
Existing Common Stock.
Market Value
On September 27, 1996, the closing bid quotation per share of Existing Common
Stock was $1.00, and the aggregate market value of the Existing Common Stock
underlying the options, based upon such quotation, was $664,495. The foregoing
Existing Common Stock bid quotation is as quoted through the NASD OTC Bulletin
Board and the National Quotation Bureau's Pink Sheets. Such quotation reflects
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.
Federal Tax Treatment
The following is a brief discussion of the federal income tax treatment that
will generally apply with respect to the options granted pursuant to the Stock
Option Agreement. This discussion is based upon the federal income tax laws in
effect on the date hereof.
ISOs. Generally, Mr. Shaw will not be taxed and the Company will not be
entitled to a deduction on the grant or the exercise of ISOs. An exception
exists if Mr. Shaw disposes of the shares acquired upon the exercise of the ISOs
within: (i) one year after the date that the Company issues the shares pursuant
to the exercise of such ISOs or (ii) two years after the date that the Company
granted the ISOs. In such a case, Mr. Shaw will recognize ordinary income in an
amount equal to the excess of the lesser of the amount realized on the date of
sale or the fair market value on the date of exercise over the exercise price,
with any remaining gain being capital gain. The Company will then be entitled
to a deduction in an amount equal to the amount of ordinary income that Mr. Shaw
recognizes.
If Mr. Shaw does not sell the shares received upon the exercise of the ISOs
within the above described time limits, Mr. Shaw will not recognize any ordinary
income upon any subsequent sale of the shares. Mr. Shaw will instead recognize
capital gain or loss in an amount equal to the difference between the amount
realized on the sale and the exercise price, provided that the shares constitute
capital assets to Mr. Shaw. The Company will not be entitled to any deduction
in this event.
Exercise of ISOs may result in alternative minimum tax liability for Mr. Shaw.
Non-Qualified Options. Generally, the grant of non-qualified options will not
be a taxable event to Mr. Shaw. Upon exercise of the non-qualified options, Mr.
Shaw will generally recognize ordinary income in an amount equal to the excess
of the then fair market value of the shares acquired upon exercise over the
exercise price. The Company will generally be entitled to a deduction equal to
such amount. Upon the later disposition of the shares, appreciation or
depreciation after the date of exercise will be a capital gain or loss,
respectively, provided that the shares constitute capital assets to Mr. Shaw.
Use of Shares as Consideration. Special rules will apply if Mr. Shaw pays the
exercise or purchase price by delivering previously owned shares or other
property or by reducing the number of shares otherwise issuable pursuant to any
options. The surrender or withholding of such shares or other property may
cause Mr. Shaw to recognize gain with respect thereto. Such gain will be
taxable as ordinary income if the shares surrendered or withheld were acquired
upon the exercise of ISOs and the surrender occurs within one year after the
exercise or two years after the date of grant of the ISOs. In addition, Mr.
Shaw will recognize income with respect to the withheld shares equal to the
difference between the then fair market value of the shares and the exercise
price or basis thereof.
Deduction Limit. Under Section 162(m) of the Code, income tax deductions of
publicly-traded companies may be limited to the extent total compensation
(including base salary, annual bonus, stock option exercises and non-qualified
benefits) 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,
stockholders. In particular, stock options will satisfy the performance-based
exception if the awards are made by a qualifying compensation committee, the
plan sets the maximum number of shares that can be granted to any particular
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employee within a specified period and the compensation is based solely on an
increase in the stock price after the grant date (i.e. the option exercise price
is equal to or greater than the fair market value of the stock subject to the
award on the grant date). The Stock Option Agreement is intended to conform to
the performance-based exception under Section 162(m).
Withholding Requirements. In connection with the options granted pursuant to
the Stock Option Agreement, the Company must withhold federal taxes with respect
to any ordinary income that Mr. Shaw recognizes in connection with such options.
The Company may also have to withhold state and local taxes with respect
thereto. Mr. Shaw must pay such withholding liability to the Company. With the
prior consent of the committees administering the Stock Option Agreement, Mr.
Shaw may be allowed to deliver to the Company shares of Existing Common Stock in
the amount of such withholding liability.
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PROPOSAL V:
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Audit Committee and the Board of Directors have selected Arthur Andersen
as the Company's independent certified public accountants for the fiscal year
ending June 30, 1997, subject to the Stockholders ratifying such selection at
the Annual Meeting. Arthur Andersen previously audited the accounts of the
Company for fiscal 1996, 1995, 1994, and 1993, and for the twelve months ended
June 30, 1992. Representatives of Arthur Andersen will be present at the Annual
Meeting and may make a statement thereat if they desire. These representatives
will also be available to respond to appropriate questions from the
Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
Audit services of Arthur Andersen for fiscal 1996 included the examination of
the consolidated financial statements of the Company and its subsidiaries and
services related to filings with the Commission. The Audit Committee meets with
Arthur Andersen on an annual basis at which time the Audit Committee reviews
both audit and non-audit services performed by Arthur Andersen for the preceding
year as well as the fees charged by Arthur Andersen for such services. Non-
audit services are approved by the Audit Committee, which considers, among other
things, the possible effect of the performance of such services on the auditor's
independence.
41
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who beneficially own more than 10% of the shares
of Existing Common Stock to file with the Commission initial reports of Common
Stock ownership and reports of changes in ownership therein. Directors,
executive officers, and greater than 10% shareholders are required by Commission
regulation to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely upon of a review of the copies
of such reports furnished to the Company and written representations that no
other reports were required during the year ended June 30, 1996, the Company
believes that all Section 16(a) filing requirements applicable to its directors,
executive officers, and greater than 10% shareholders were complied with except
the initial report with respect to Mr. Leopold which was filed late. Under the
Section 16(a) rules, transactions which are exempt by SEC rule from Section
16(b), (i.e., transactions which are not matchable "purchases" or "sales" under
the short-swing profit rule) may be reported on a deferred basis. For example,
grants of stock options may be reported at year-end. The year-end reports
covering grants of options to Messrs. Jaccard, Kovacs, Leopold, Mathis, Nelson
and White were filed late.
CERTAIN TRANSACTIONS
Under the terms of the Restructuring, the Company offered certain holders of
the Secured Notes the opportunity to exchange the Secured Notes held by them in
a private exchange offer for, in each case per $1,000 in principal amount of
Secured Notes, $400 in cash, $492 in principal amount of newly issued PIK Notes
and 45 shares of Existing Common Stock, plus accrued interest. See
"Introduction - Matters of Special Importance." The Restructuring was proposed
by the Company after discussions with a committee of holders of Secured Notes
(the "Steering Committee"), CM Strategic and the Company's financial advisors.
The Special Committee of the Board of Directors was advised by an investment
banking firm that the Restructuring was fair from a financial point of view to
the holders of Existing Common Stock.
Certain significant stockholders of the Company participated in the exchange
offer. Mr. Boas, also a director of the Company, Robert C. Ruocco and Martin J.
Whitman are general partners of CM Management. CM Management is the general
partner of each of CM Strategic and CM Strategic II. Messrs. Boas, Ruocco and
Whitman, CM Management, CM Strategic and CM Strategic II are each deemed to
beneficially own greater than 5% of the Existing Common Stock. See "Security
Ownership - Security Ownership of Certain Beneficial Owners." CM Strategic
exchanged $12,979,000 in principal amount of Secured Notes and CM Strategic II
exchanged $5,827,000 in principal amount of Secured Notes. In addition, Messrs.
Boas, Ruocco and Whitman are executive officers of an investment management
company which (i) manages multiple funds that exchanged $1,680,000 in principal
amount of Secured Notes and (ii) exercises investment discretion over advisory
accounts that exchanged $1,373,000 in principal amount of Secured Notes. In
addition, (i) Mr. Boas and certain trusts of which he is co-trustee exchanged
$187,000 in principal amount of Secured Notes; (ii) Mr. Ruocco exchanged $10,000
in principal amount of Secured Notes, (iii) a registered investment company
whose investment advisor is affiliated with Mr. Whitman exchanged $2,891,000 in
principal amount of Secured Notes; and (iv) Mr. Whitman and MJ Whitman & Co., in
which Mr. Whitman is a principal stockholder, exchanged $1,177,000 in principal
amount of Secured Notes. In the aggregate, these persons exchanged $26,124,000
principal amount of Secured Notes for $10,449,600 in cash, $12,853,000 principal
amount of PIK Notes and 1,175,580 shares of Existing Common Stock, plus accrued
interest.
SC Fundamental was a member of the Steering Committee. Peter M. Collery and
Gary N. Siegler are controlling stockholders, directors and executive officers
of SC Fundamental and BVI. SC Fundamental is the general partner of the Fund.
Messrs. Collery and Siegler, SC Fundamental and the Fund are each deemed to
beneficially own greater than 5% of the Existing Common Stock. See "Security
Ownership - Security Ownership of Certain Beneficial Owners." The Fund
exchanged an aggregate of $14,491,000 in principal amount of Secured Notes. In
addition, SC Fundamental Value Fund BVI Ltd., a foreign company of which BVI is
the managing partner of the investment manager and which is principally engaged
in the business of investing in securities, exchanged an aggregate of $5,172,000
in principal amount of Secured Notes, and SC Fundamental Value Fund LP BVI Ltd.,
a company engaged in the business of investing in securities and which has its
42
<PAGE>
principal place of business in the Cayman Islands, exchanged an aggregate of
$1,270,000 in principal amount of Secured Notes. In the aggregate, these
persons exchanged $19,663,000 principal amount of Secured Notes for $7,865,200
in cash, $9,674,000 principal amount of PIK Notes and 884,835 shares of Existing
Common Stock, plus accrued interest.
The Company agreed at the time of the Restructuring to file a shelf
registration statement with respect to the resale by the Exchanging Noteholders
of the Existing Common Stock and PIK Notes received by the Exchanging
Noteholders in the Restructuring.
For consulting services with respect to the Company's marketing and sales
operations from May 1994 to September 1995, Sherbrooke Associates, Inc. was paid
$894,600 by the Company. Mr. Leopold is a senior partner of such consulting
firm but was not a director of the Company while such services were being
performed.
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING
The Company's 1997 Annual Meeting is scheduled to be held on November 20,
1997. To be considered for inclusion in the Company's proxy statement for that
meeting, stockholder proposals should have been received at the Company's
principal executive offices no later than May 13, 1997.
INCORPORATION BY REFERENCE
With respect to the Registration Statement and any past or future filings with
the Commission into which this Proxy Statement/Prospectus is incorporated by
reference, the material under the headings "Report Of The Compensation
Committee" and "Performance Graph" shall nevertheless not be deemed as filed or
so incorporated.
FORM 10-K
The Company is sending to each Stockholder a copy of its Annual Report on Form
10-K for the fiscal year ended June 30, 1996, which the Company has filed with
the Commission. Upon request, the Company will send to any Stockholder an
additional copy of the Annual Report on Form 10-K. In addition, the Company
will furnish to any Stockholder copies of any exhibits thereto if such
Stockholder reimburses the Company for its costs in furnishing such exhibits.
LEGAL MATTERS
The validity of the shares of New Common Stock to be issued in the
Reincorporation Merger will be passed upon for the Company by Gibson, Dunn &
Crutcher LLP, Dallas, Texas.
By Order of the Board of Directors
/s/ Walter B. Jaccard
--------------------------------------
Walter B. Jaccard
Vice President, General Counsel and
Secretary
Dallas, Texas
October 7, 1996
43
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of
October 1, 1996, is between USTrails Inc., a Nevada corporation (the "Company"),
with its principal place of business at 2711 Lyndon B. Johnson Freeway, Suite
200, Dallas, Texas, 75234, and New Thousand Trails, Inc., a Delaware corporation
(the "Subsidiary," and together with the Company, the "Constituent
Corporations"), with its principal place of business at 2711 Lyndon B. Johnson
Freeway, Suite 200, Dallas, Texas 75234.
WHEREAS, the respective boards of directors of the Constituent
Corporations deem it advisable and to the advantage of the Constituent
Corporations that the Company merge with and into the Subsidiary upon the terms
and conditions provided herein;
NOW, THEREFORE, in consideration of the foregoing and the agreements
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE 1.
THE MERGER
----------
1.1. The Merger. At the Effective Time (as hereafter defined), the Company
----------
shall merge with and into the Subsidiary (the "Merger") and the Subsidiary shall
be the surviving corporation (the "Surviving Corporation") and the separate
existence of the Company shall cease.
1.2. SUCCESSION. At the Effective Time, the Surviving Corporation shall
----------
possess all the rights, privileges, powers, immunities and franchises, and shall
be subject to all the restrictions, disabilities and duties of the Constituent
Corporations, and all the property, real, personal and mixed of the Constituent
Corporations, and all debts due to any of the Constituent Corporations shall be
vested in the Surviving Corporation without the necessity for any separate
transfer. The Surviving Corporation shall thereafter be responsible and liable
for all debts, liabilities and duties of the Constituent Corporations, and
neither the rights of creditors nor any liens on the property of the Constituent
Corporations shall be impaired by the Merger.
1.3. COMMON STOCK OF THE COMPANY AND THE SUBSIDIARY. Subject to Section 1.4,
----------------------------------------------
at the Effective Time, by virtue of the Merger and without any further action on
the part of the Constituent Corporations or their stockholders, (i) each share
of common stock, $.01 par value, of the Company ("Company Common Stock") issued
and outstanding immediately prior to the Effective Time shall be changed and
converted into and become one fully paid and nonassessable share of the common
stock; $.01 par value, of the Subsidiary ("Subsidiary Common Stock") and (ii)
each share of common stock of the Subsidiary issued and outstanding immediately
prior to the Effective Time shall be canceled and returned to the status of
authorized but unissued shares, without the payment of consideration therefor.
1.4. RIGHT TO DISSENT. Notwithstanding anything in this Agreement to the
----------------
contrary, shares, if any, of Company Common Stock that are issued and
outstanding immediately prior to the Effective Time and that are held by a
stockholder who has delivered to the Company, before the vote of the
stockholders of the Company with respect to the Merger is taken, written notice
of his intent to demand payment for his shares if the Merger is effectuated and
has not voted his shares in favor of the Merger in the manner provided by Nevada
Revised Statute 92A.300 to 92A.500 ("Dissenting Shares")
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shall not be converted into Subsidiary Common Stock, but the holders of the
Dissenting Shares shall be entitled to obtain the fair value of such shares in
accordance with Nevada Revised Statute 92A.300 to 92A.500 unless and until such
holder shall have failed to perfect or shall have effectively withdrawn or lost
his right to dissent and payment under the Nevada General Corporation Law. If
such holder shall have so failed to perfect or shall have effectively withdrawn
or lost such right, his shares of Company Common Stock shall thereupon be deemed
to have been converted, at the Effective Time, into shares of Subsidiary Common
Stock.
1.5. Exchange of Stock Certificates.
------------------------------
(a) At or prior to the Effective Time, the Subsidiary shall appoint a bank
or trust company selected by the Subsidiary as exchange agent
("Exchange Agent") for the purpose of facilitating the exchange of
certificates representing shares of Company Common Stock ("Company
Certificates") for certificates representing shares of Subsidiary
Common Stock ("Subsidiary Certificates").
(b) As soon as practicable after the Effective Time, the Exchange Agent
shall mail to each holder of record of Company Certificates a form
letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Company Certificates shall
pass, only upon delivery of the Company Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the
Company Certificates in exchange for Subsidiary Certificates. Upon
proper surrender of a Company Certificate for exchange and
cancellation to the Exchange Agent, together with such properly
completed letter of transmittal, duly executed, the holder of such
Company Certificate shall be entitled to receive in exchange therefor
a Subsidiary Certificate representing a number of shares of Subsidiary
Common Stock equal to the number of shares of Company Common Stock
represented by the surrendered Company Certificate.
(c) No dividends or other distributions declared after the Effective Time
with respect to Subsidiary Common Stock shall be paid to the holder of
any unsurrendered Company Certificate until the holder thereof shall
surrender such Company Certificate in accordance with paragraph (b).
After the surrender of a Company Certificate in accordance with
paragraph (b), the record holder thereof shall be entitled to receive
any such dividends or other distributions, without any interest
thereon, which theretofore had become payable with respect to shares
of Subsidiary Common Stock represented by such Company Certificate.
Notwithstanding the foregoing, none of Subsidiary, the Company, the
Exchange Agent or any other person shall be liable to any former
holder of shares of Company Common Stock for any amount properly
delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(d) If any Subsidiary Certificate is to be issued in a name other than
that in which the Company Certificate surrendered in exchange therefor
is registered, it shall be a condition of the issuance thereof that
the Company Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in
proper form for transfer, and that the person requesting such exchange
shall pay to the Exchange Agent in advance any transfer or other taxes
required by reason of the issuance of a Subsidiary Certificate in any
name other than that of the registered holder of the Company
Certificate surrendered, or required for any other reason, or shall
establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not payable.
(e) After the Effective Time, there shall be no transfers on the stock
transfer books of the Company of the shares of Company Common Stock
which were issued and outstanding immediately prior to the Effective
Time. If, after the Effective Time, Company Certificates representing
such shares are presented for transfer, no transfer shall be effected
A-2
<PAGE>
on the stock transfer books of Subsidiary with respect to such shares
and no Subsidiary Certificate shall be issued representing the shares
of Subsidiary Common Stock exchangeable for such shares of Company
Common Stock unless and until such Company Certificate is delivered to
the Exchange Agent together with properly completed and duly executed
copies of all documents required by paragraph (b) (or such other
documents as are satisfactory to Subsidiary and the Exchange Agent in
their sole discretion).
(f) In the event any Company Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Company Certificate to be lost, stolen or destroyed and,
if required by Subsidiary, the posting by such person of a bond in
such amount as Subsidiary may determine is reasonably necessary as
indemnity against any claim that may be made against it with respect
to such Company Certificate, the Exchange Agent will issue, in
exchange for such lost, stolen, or destroyed Company Certificate, a
Subsidiary Certificate representing the shares of Subsidiary Common
Stock deliverable in respect of such Company Certificate pursuant to
this Agreement.
1.6. OPTIONS. At the Effective Time, the Surviving Corporation will assume the
-------
obligations and succeed to the rights of the Company under the Company's 1991
Employee Stock Option Plan, 1993 Stock Option Plan and 1993 Director Stock
Option Plan and the Stock Option Agreement dated as of August 1, 1996 between
the Company and William J. Shaw (the "Plans"). At the Effective Time, by virtue
of the Merger, each outstanding and unexercised portions of all options to
purchase shares of Company Common Stock outstanding under the Plans shall become
options to purchase the same number of shares of Subsidiary Common Stock with no
other changes in the terms and conditions of such options, including exercise
prices.
1.7. WARRANTS. At the Effective Time, the Surviving Corporation will, without
--------
further action, assume the obligations and succeed to the rights of the Company
under all outstanding warrants to purchase shares of Company Common Stock
granted by the Company (the "Warrants"). At the Effective Time by virtue of the
Merger, each Warrant to purchase Company Common Stock shall become a warrant to
purchase the same number of shares of Subsidiary Common Stock with no other
changes in the terms and conditions of such Warrants, including exercise prices.
1.8. ACTS, PLANS, POLICIES, AGREEMENTS, ETC. All corporate acts, plans,
--------------------------------------
policies, agreements, arrangements, approvals, and authorizations of the
Company, its stockholders, Board of Directors and committees thereof, officers
and agents which were valid and effective immediately prior to the Effective
Time shall be taken for all purposes as the acts, plans, policies, agreements,
arrangements, approvals and authorizations of the Surviving Corporation and
shall be as effective and binding thereon as the same were with respect to the
Company.
ARTICLE 2.
EFFECTIVE TIME
--------------
2.1. STOCKHOLDER APPROVAL. Subsequent to the execution of this Agreement, each
--------------------
of the Constituent Corporations shall submit this Agreement to their respective
stockholders for approval pursuant to the applicable provisions of the General
Corporation Law of the State of Nevada and the General Corporation Law of the
State of Delaware. The Company covenants and agrees that it will, as sole
stockholder of Subsidiary, vote the Subsidiary Common Stock owned by it to
approve this Agreement as provided by law.
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<PAGE>
2.2. EFFECTIVE TIME. Following approval of this Agreement in accordance with
--------------
Section 2.1 above, and provided that:
(a) the conditions specified in Section 5.1 hereof have been fulfilled or
waived, and
(b) this Agreement has not been terminated and abandoned pursuant to
Section 5.4 hereof;
the Subsidiary shall cause a Certificate of Ownership and Merger to be executed,
acknowledged and filed with the Secretary of State of Delaware in accordance
with the Delaware General Corporation Law and shall cause Articles of Merger to
be executed, acknowledged and filed with the Secretary of State of Nevada in
accordance with the Nevada General Corporation Law.
2.3. EFFECTIVE TIME. The "Effective Time" shall be the later of the time a
--------------
Certificate of Ownership and Merger is filed with the Delaware Secretary of
State or the time Articles of Merger are filed with the Nevada Secretary of
State.
ARTICLE 3.
COVENANTS AND AGREEMENTS
------------------------
3.1. ASSUMPTION BY SUBSIDIARY. Subsidiary covenants and agrees that as the
------------------------
Surviving Corporation, it shall be liable for all the obligations of the
Constituent Corporations outstanding as of the Effective Time and hereby
expressly assume all such obligations as of the Effective Time.
ARTICLE 4.
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
-----------------------------------------
4.1. CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of the
----------------------------
Subsidiary as constituted at the Effective Time shall thereafter be the
Certificate of Incorporation of the Surviving Corporation until such time as it
shall be amended as provided by law. At the Effective Time and by virtue of the
Merger, the certificate of the Subsidiary shall be amended and restated to read
in full as set forth in Exhibit A hereto, which is incorporated herein by
reference.
4.2. BYLAWS. The bylaws of the Subsidiary shall be the bylaws of the Surviving
------
Corporation, subject to alteration, amendment or repeal from time to time by the
Board of Directors or the stockholders of the Surviving Corporation.
4.3. DIRECTORS AND OFFICERS. From and after the Effective Time, the Board of
----------------------
Directors of the Surviving Corporation will consist of the members of the Board
of Directors of the Company immediately prior to the Merger. The directors will
continue to hold office as directors of the Surviving Corporation for the same
term for which they would otherwise serve as directors of the Company. From and
after the Effective Time, individuals serving as officers of the Company
immediately prior to the Merger will serve as officers of the Surviving
Corporation, holding the same titles and positions which such officers held at
the Company upon the effectiveness of the Merger.
ARTICLE 5.
MISCELLANEOUS
-------------
5.1. CONDITIONS. The respective obligations of the Constituent Corporations to
----------
consummate the Merger are subject to the following conditions, each of which
(other than paragraph (c)) may be waived by the Constituent Corporations:
A-4
<PAGE>
(a) All material third party consents which are required in order to
consummate the Merger and to effectuate the contemplated transactions
incidental or related thereto shall have been obtained;
(b) Holders of no more than 1% of the Company Common Stock shall have
asserted the right to dissent with respect to the Merger in accordance with
the Nevada General Corporation Law; and
(c) Each of the Constituent Corporations shall have received the approval
of its stockholders.
5.2. FURTHER ASSURANCES. From time to time, and when required by the
------------------
Subsidiary or by its successors and assigns, there shall be executed and
delivered on behalf of the Company such deeds and other instruments, and there
shall be taken or caused to be taken by it such further and other action, as
shall be appropriate and necessary in order to vest or perfect, or to confirm of
record or otherwise, in the Subsidiary the title to and possession of all the
property, interests, assets, rights, privileges, immunities, powers, franchises
and authority of the Company and otherwise to carry out the purposes of this
Agreement, and the directors and officers of the Company are fully authorized in
the name and on behalf of the Company or otherwise to take any and all such
action and to execute and deliver any and all such deeds and other instruments.
5.3. AMENDMENTS. To the fullest extent permitted by applicable law, at any
----------
time before or after approval by the stockholders of the Company, this Agreement
may be amended in any manner as may be determined in the judgment of the
respective boards of directors of the Constituent Corporations to be necessary,
desirable or expedient, whether or not the stockholders of the Constituent
Corporations, or either of them, shall have approved this Agreement.
5.4. ABANDONMENT. At any time before the Effective Time, this Agreement may be
-----------
terminated and the Merger may be abandoned by the Board of Directors of the
Company, notwithstanding the approval of this Agreement by the stockholders of
the Company, or the consummation of the Merger may be deferred for a reasonable
period if, in the opinion of the Board of Directors of the Company, such action
would be in the best interests of the Constituent Corporations.
5.5. GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware and, to the extent applicable,
the Nevada General Corporation Law.
[Signatures on Next Page]
A-5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their
respective officers thereunto duly authorized and their respective corporate
seals affixed, all as of the day and year first above written.
USTRAILS INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
NEW THOUSAND TRAILS, INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
A-6
<PAGE>
ANNEX B
RESTATED CERTIFICATE OF INCORPORATION
OF
THOUSAND TRAILS, INC.
---------------------------------------------------
(Originally incorporated on October 1, 1996
under the name of New Thousand Trails, Inc.)
------------------------------------
I. NAME
----
The name of the corporation is Thousand Trails, Inc.
II. REGISTERED OFFICE AND RESIDENT AGENT
------------------------------------
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of the Corporation's registered agent at such address is Corporation
Service Company.
III. PURPOSES
--------
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
the State of Delaware.
IV. AUTHORIZATION OF CAPITAL STOCK
------------------------------
The total number of shares of all classes of capital stock which the
Corporation is authorized to issue is Sixteen Million Five Hundred Thousand, of
which Fifteen Million (15,000,000) shares shall be Common Stock, $.01 par
value, and One Million Five Hundred Thousand (1,500,000) shares shall be
Preferred Stock, $.01 par value.
The Preferred Stock may be issued from time to time in one or more classes
or series. The Board of Directors of the Corporation shall have authority to
the fullest extent permitted under the Delaware General Corporation Law to
adopt by resolution from time to time one or more certificates of designation
providing for the designation of one or more classes or series of Preferred
Stock and the voting powers, whether full, limited or no voting powers, and
such designations, preferences and relative, participating, optional or other
special rights, and qualifications, or restrictions thereof, and to fix the
number of shares constituting any such class or series, and to increase or
decrease (but not below the number of shares thereof then outstanding) the
number of shares of any such class or series. In case the number of shares of
any such class or series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption of the
resolution or resolutions originally fixing the number of shares of such class
or series. Unless provided in the resolution or certificate of designation
establishing a class or series thereof, the holders of outstanding shares of
Preferred Stock shall not be entitled to vote as a class upon a proposed
amendment to increase or decrease the number of authorized shares of Preferred
Stock.
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<PAGE>
V. DIRECTORS
---------
The number of the Corporation's Board of Directors shall be fixed and may
be altered from time to time by the Board of Directors as shall be provided by
the Bylaws of the Corporation.
VI. LIABILITY OF DIRECTORS
----------------------
No person shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided, however, that the foregoing shall not eliminate or limit the liability
- -------- -------
of a director:
(A) for any breach of the director's duty of loyalty to the Corporation
or its stockholders,
(B) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
(C) under Section 174 of the General Corporation Law of the State of
Delaware, or
(D) for any transaction from which the director derived an improper
personal benefit.
If the General Corporation Law of the State of Delaware is amended to
further eliminate or limit the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, as so amended. Any repeal or modification of the provisions of this
Article VI by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
VII. BYLAWS
------
In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware, the Board of Directors of the Corporation is expressly
authorized and empowered to adopt, amend or repeal the Bylaws of the
Corporation, subject to the power of the stockholders of the Corporation to
alter or repeal any bylaw made by the Board of Directors. The stockholders may
prescribe that any Bylaw or Bylaws adopted by them shall not be altered, amended
or repealed by the Board of Directors.
VIII. AMENDMENTS
----------
The Corporation reserves the right at any time and from time to time to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation in the manner now or hereafter prescribed by law, and the rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors, or any other persons whomsoever by and pursuant to this Certificate
of Incorporation in its present form or as hereafter amended are granted subject
to the right reserved in this Article.
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<PAGE>
IX. RESTRICTIONS ON TRANSFER AND OWNERSHIP
--------------------------------------
9.1 Prohibited Transfer; Excess Common Stock. Except as provided in
----------------------------------------
Section 9.2, until the Restriction Termination Date, any attempted direct or
indirect Transfer shall be prohibited and shall constitute a "Prohibited
Transfer" if:
(a) such Transfer would increase the Percentage of Common Stock Owned by
any Person that (or by any Person whose Common Stock is or by virtue of such
Transfer would be attributed to any Person that), either after giving effect to
the attribution rules (including the option attribution rules) of Section 382
of the Code or without regard to such attribution rules, Owns, by virtue of
such Transfer would Own, or has at any time since the period beginning three
years prior to the date of such Transfer Owned, Common Stock in excess of 4.75
Percent of the Common Stock issued and outstanding,
(b) such Transfer would increase the Percentage of Common Stock Owned by
any 5% Shareholder (including but not limited to a Transfer that results in the
creation of a 5% Shareholder), or
(c) such Transfer would cause an "ownership change" of the Corporation
within the meaning of Section 382 of the Code.
Except as otherwise provided in Sections 9.5 and 9.7, the Common Stock
sought to be Transferred in the Prohibited Transfer shall be deemed "Excess
Common Stock."
9.2 Exceptions. The term "Prohibited Transfer" shall not include:
----------
(a) any Transfer described in Section 382(l)(3)(B) of the Code (relating
to transfers upon death or divorce and certain gifts) if all Persons who would
Own the Common Stock Transferred would be treated for purposes of Section 382
of the Code as having Owned such Common Stock at all times beginning more than
three (3) years prior to the date of the Transfer;
(b) any Transfer if such Transfer would not result in any greater
aggregate increase in the amount of Common Stock owned by 5% Shareholders
during the three-year period ending on the date of such Transfer (within the
meaning of Section 382 of the Code);
(c) any Transfer if such Transfer would result in not more than a 35%
aggregate increase in the amount of Common Stock owned by 5% shareholders
during the three-year period ending on the date of such Transfer (within the
meaning of Section 382 of the Code); and
(d) any Transfer with respect to which the Person who would otherwise be
the Purported Transferee obtains or is granted the prior written approval of
the Board of Directors of the Corporation (the "Board of Directors"), which
approval shall be granted in its sole and absolute discretion after considering
all facts and circumstances, including but not limited to future events the
occurrence of which are deemed by the Board of Directors to be relevant.
9.3 Transfer of Excess Common Stock to Trustee. Except as otherwise
------------------------------------------
provided in Sections 9.5 and 9.7, a Prohibited Transfer shall be void ab initio
as to the Purported Transferee in the Prohibited Transfer and such Purported
Transferee shall not be recognized as the owner of the Excess Common Stock for
any purpose and shall not be entitled to any rights as a shareholder of the
Corporation arising from the ownership of Excess Common Stock, including, but
not limited to, the right to vote such Excess Common Stock or to receive
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dividends or other distributions in respect thereof or, in the case of Options,
to receive Common Stock in respect of their exercise. Any Excess Common Stock
shall automatically be transferred to the Trustee in trust for the benefit of
the Charitable Beneficiary, effective as of the close of business on the
business day prior to the date of the Prohibited Transfer; provided, however,
-------- -------
that if the transfer to the trust is deemed ineffective for any reason, such
Excess Common Stock shall nevertheless be deemed to have been automatically
transferred to the person selected as the Trustee at such time, and such person
shall have rights consistent with those of the Trustee as described in this
Section 9.3 and in Section 9.4 below. Any dividend or other distribution with
respect to such Excess Common Stock paid prior to the discovery by the
Corporation that the Excess Common Stock has been transferred to the Trustee
("Prohibited Distributions") shall be deemed to be held by the Purported
Transferee as agent for the Trustee, and shall be paid to the Trustee upon
demand, and any dividend or distribution declared but unpaid shall be paid when
due to the Trustee. Any vote cast by a Purported Transferee with respect to
Excess Common Stock prior to the discovery by the Corporation that the Excess
Common Stock has been transferred to the Trustee will be rescinded as void and
shall be recast in accordance with the desires of the Trustee acting for the
sole benefit of the Charitable Beneficiary. The Purported Transferee and any
other Person holding certificates representing Excess Common Stock shall
immediately surrender such certificates to the Trustee. The Trustee shall have
all the rights of the owner of the Excess Common Stock, including the right to
vote, to receive dividends or other distributions, and to receive proceeds from
liquidation, which rights shall be exercised for the sole benefit of the
Charitable Beneficiary.
9.4 Disposition of Excess Common Stock. As soon as practicable following
----------------------------------
receipt of notice from the Corporation that Excess Common Stock has been
transferred to the Trustee, the Trustee shall take such actions as it deems
necessary to dispose of the Excess Common Stock in an arm's-length transaction
that would not constitute a Prohibited Transfer. Upon the disposition of such
Excess Common Stock, the interest of the Charitable Beneficiary in the Excess
Common Stock shall terminate, and the Trustee shall distribute the net proceeds
of the sale as follows:
(a) the Purported Transferee shall receive an amount of the net proceeds
of such sale not to exceed the Purported Transferee's cost incurred to acquire
such Excess Common Stock, or, if such Excess Common Stock was Transferred for
less than fair market value, the fair market value of the Excess Common Stock
on the date of the Prohibited Transfer, in each case less all costs incurred by
the Corporation, the Trustee and the Transfer Agent in enforcing the
Restrictions, and
(b) the Charitable Beneficiary shall receive the balance of the net
proceeds from the sale of the Excess Common Stock, if any, together with any
Prohibited Distributions received from the Purported Transferee and any other
distributions with respect to such Excess Common Stock while such Common Stock
was held by the Trustee.
In the event the Purported Transferee has disposed of the Excess Common
Stock and distributed the proceeds and other amounts otherwise than in
accordance with this section, then (w) such Purported Transferee shall be
deemed to have disposed of such Excess Common Stock as an agent for the
Trustee, (x) such Purported Transferee shall be deemed to hold such proceeds
and any Prohibited Distributions as an agent for the Trustee, (y) such
Purported Transferee shall be required to return to the Trustee the proceeds
from such sale, together with any Prohibited Distributions theretofore received
by the Purported Transferee with respect to such Excess Common Stock, provided
--------
that upon receipt of written permission from the Trustee, the Purported
Transferee will be entitled to retain an amount of such sale proceeds not to
exceed the amount that such Purported Transferee would have received from the
Trustee if the Trustee had obtained and resold the Excess Common Stock at any
time during the period beginning on the date of the Prohibited Transfer giving
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rise to such Excess Common Stock and ending on the date of such disposition by
the Purported Transferee, assuming for this purpose that the Trustee would have
sold the Excess Common Stock for an amount equal to the lowest-quoted trading
price of such Excess Common Stock during such period, and (z) the Trustee shall
transfer any remaining proceeds to the Charitable Beneficiary. Neither the
Trustee, the Corporation, the Purported Transferee nor any other party shall
claim an income tax deduction with respect to any transfer to the Charitable
Beneficiary and neither the Trustee nor the Corporation shall benefit in any way
from the enforcement of the Restrictions, except insofar as these restrictions
protect the Corporation's Income Tax Net Operating Loss Carryover. Neither the
Trustee, the Corporation nor the Transfer Agent shall have any liability to any
Person for any loss arising from or related to a Prohibited Transfer.
9.5 Transfers by 5% Shareholders. In the event a Prohibited Transfer is
----------------------------
attributable to a Transfer by a 5% Shareholder, the Corporation and the
Transfer Agent shall make all reasonable efforts to locate the Person or Public
Group who acquired the Excess Common Stock (the "Public Purchaser"). In the
event the Corporation is able to locate the Public Purchaser within ninety (90)
days of the Prohibited Transfer, the Corporation shall request that the Public
Purchaser surrender the Excess Common Stock, together with any dividends or
other distributions theretofore received with respect to the Excess Common Stock
by the Public Purchaser, to the Purported Transferor, and, if such Common Stock
is surrendered, the Purported Transferor shall surrender to the Public Purchaser
the purchase price paid by the Public Purchaser for the Excess Common Stock,
plus, if the Public Purchaser acquired Ownership of the Excess Common Stock
without knowledge that such acquisition was a Prohibited Transfer, an amount
equal to all other losses, damages, costs and expenses incurred by the Public
Purchaser to acquire Ownership of the Excess Common Stock and to comply with the
Restrictions (including any loss incurred as a result of a decline in value of
such Excess Common Stock). In the event the Transfer Agent and the Corporation
are unable to locate the Public Purchaser within ninety (90) days following the
Prohibited Transfer, or the Public Purchaser refuses to surrender or has
disposed of the Excess Common Stock prior to the surrender of the Excess Common
Stock to the Purported Transferor, such Common Stock shall no longer be treated
as Excess Common Stock and the Corporation shall, to the extent not prohibited
from doing so by any credit agreement, indenture or other agreement or
instrument for money borrowed (after the Corporation shall have used its efforts
to obtain the waiver of any such prohibition):
(a) purchase from one or more third parties, in one or more transactions
that would, to the extent possible, reduce the Ownership of Common Stock by the
Person or Public Group whose Ownership increased as a result of the Prohibited
Transfer to an amount equal to such Ownership immediately prior to the
Prohibited Transfer, shares of Common Stock equal in type and number to the
Common Stock Transferred in the Prohibited Transfer (which Common Stock shall
be treated as Excess Common Stock),
(b) hold such Common Stock for and on behalf of the Purported Transferor,
(c) treat such Common Stock as Owned by the Purported Transferor since
the date of the Prohibited Transfer for all purposes, including the right to
``vote and to receive dividends and other distributions, and
(d) for all purposes treat any dividends and other distributions made to
such Person or Public Group as a dividend or other distribution to the
Purported Transferor, a payment by the Purported Transferor to the Corporation
to be applied against the Amount Due (as defined below), and a non-dividend
payment to the Persons or Public Group who received such distributions.
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To the extent reasonably possible, any votes cast by such Person or Public
Group from and after the date of the Prohibited Transfer with respect to Excess
Common Stock shall be rescinded in the same proportion as the votes actually
cast by such Person or Public Group, and the Purported Transferor shall be
entitled to cast those votes that were rescinded. The Corporation shall hold
such Excess Common Stock, and any dividends or other distributions thereon, on
behalf of the Purported Transferor, as security for payment of the Amount Due,
until the earlier of such time as:
(a) the Corporation has received, either directly from the Purported
Transferor or indirectly from any dividends or other distributions theretofore
received by the Corporation with respect to such Excess Common Stock on behalf
of the Purported Transferor (or any amounts deemed paid by the Purported
Transferor as provided in this Section 9.5), or any combination thereof, an
amount equal to the amount incurred by the Corporation to fund the purchase of
such Excess Common Stock, plus all costs incurred by the Corporation in
enforcing the Restrictions with respect to such Prohibited Transfer (including
the amount of any non-dividend payment deemed made by the Corporation to the
Person or Public Group as provided in this Section 9.5), plus interest on all
such amounts from the dates incurred by the Corporation at the "applicable
federal rate" determined under Section 1274(d) of the Code (collectively, the
"Amount Due") (it being the intent to treat the Amount Due and any portion
thereof as a loan to the Purported Transferor), or
(b) the Corporation is able to dispose of such Excess Common Stock on
behalf of the Purported Transferor in a transaction that would not be a
Prohibited Transfer, in which case the Corporation will sell such Excess Common
Stock and distribute to the Purported Transferor any proceeds (together with
any other cash distributions theretofore received (or deemed received) with
respect to the Excess Common Stock) in excess of the Amount Due.
The obligation of the Purported Transferor for the Amount Due shall be
payable on demand by the Corporation. In the event the Amount Due exceeds the
proceeds from a sale of Excess Common Stock and any cash distributions
theretofore received (or deemed received) by the Corporation on behalf of the
Purported Transferor with respect to such Excess Common Stock, the balance
shall be due from the Purported Transferor on demand.
9.6 Transfer Agent's Rights and Responsibilities. The Transfer Agent
--------------------------------------------
shall not register any Transfer of Common Stock on the Corporation's stock
transfer records if it has knowledge that such Transfer is a Prohibited
Transfer. The Transfer Agent shall have the right, prior and as a condition to
registering any Transfer of Common Stock on the Corporation's stock transfer
records, to request any transferee of the Common Stock to submit an affidavit,
on a form agreed to by the Transfer Agent and the Corporation, stating the
number of shares of each class of Common Stock Owned by the transferee (and by
Persons who would Own the transferee's Common Stock) before the proposed
Transfer and that would, if effect were given to the proposed Transfer, be Owned
by the transferee (and by Persons who would Own the prospective transferee's
Common Stock) after the proposed Transfer. If the Transfer Agent requests such
an affidavit and either the Transfer Agent does not receive an affidavit, or
such affidavit evidences that the Transfer was a Prohibited Transfer, the
Transfer Agent shall notify the Corporation and shall not enter the Prohibited
Transfer into the Corporation's stock transfer records, and the Trustee, the
Corporation and the Transfer Agent shall take such steps as provided in the
Restrictions in order to dispose of the Excess Common Stock purportedly Owned by
such Purported Transferee. If the Transfer Agent, for whatever reason, enters a
Prohibited Transfer in the Corporation's stock transfer records, such Transfer
shall be nonetheless void and shall have no force and effect, in accordance with
the Restrictions, and the Corporation's stock transfer records shall be revised
to so provide.
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9.7 Certain Indirect Prohibited Transfers. In the event a Transfer would
-------------------------------------
be a Prohibited Transfer as a result of attribution to the Purported Transferee
of the Ownership of Common Stock by a Person (an "Other Person") who is not
controlling, controlled by or under common control with the Purported
Transferee, which Ownership is nevertheless attributed to the Purported
Transferee, the Restrictions shall not apply in a manner that would invalidate
any Transfer to such Other Person, and the Purported Transferee and any Persons
controlling, controlled by or under common control with the Purported Transferee
(collectively, the "Purported Transferee Group") shall automatically be deemed
to have transferred to the Trustee at the time and in a manner consistent with
Section 9.3 hereof, sufficient Common Stock (which Common Stock shall (i)
consist only of Common Stock held legally or beneficially, whether directly or
indirectly, by any member of the Purported Transferee Group, but not Common
Stock held through any Other Person, other than shares held through a Person
acting as agent or fiduciary for any member of the Purported Transferee Group,
(ii) be deemed transferred to the Trustee, in the inverse order in which it was
acquired by members of the Purported Transferee Group, and (iii) be treated as
Excess Common Stock) to cause the Purported Transferee, following such transfer
to the Trustee, not to be in violation of the Restrictions; provided, however,
that to the extent the foregoing provisions of this Section 9.7 would not be
effective to prevent a Prohibited Transfer, the Restrictions shall apply to such
other Common Stock Owned by the Purported Transferee (including Common Stock
actually owned by Other Persons), in a manner designed to minimize the amount of
Common Stock subject to the Restrictions or as otherwise determined by the Board
of Directors to be necessary to prevent a Prohibited Transfer (which Common
Stock shall be treated as Excess Common Stock).
9.8 Legend. All certificates or other instruments evidencing Ownership
------
of Common Stock shall bear a conspicuous legend describing the Restrictions.
9.9 Prompt Enforcement; Further Actions. As soon as practicable and
-----------------------------------
within thirty (30) business days of learning of a purported Prohibited Transfer,
the Corporation through its Secretary or any Assistant Secretary shall demand
that the Purported Transferee (or any other member of the Purported Transferee
Group) or Public Purchaser surrender to the Trustee the certificates
representing the Excess Common Stock or any resale proceeds therefrom, and any
Prohibited Distributions or other dividends or distributions received thereon,
and if such surrender is not made within twenty (20) business days from the date
of such demand, the Corporation shall institute legal proceedings to compel such
surrender; provided, however, that nothing in this Section 9.9 shall preclude
-------- -------
the Corporation in its discretion from immediately bringing legal proceedings
without a prior demand, and also provided that failure of the Corporation to act
--------
within the time periods set out in this Section 9.9 shall not constitute a
waiver of any right of the Corporation to compel any transfer required hereby.
Upon a determination by the Board of Directors that there has been or is
threatened a Prohibited Transfer, the Board of Directors may authorize such
additional action as it deems advisable to give effect to the Restrictions,
including, without limitation, refusing to give effect on the books of the
Corporation to any such purported Prohibited Transfer or instituting proceedings
to enjoin any such purported Prohibited Transfer. Nothing contained in the
Restrictions shall limit the authority of the Board of Directors to take such
other action to the extent permitted by law as it deems necessary or advisable
to protect the Corporation and the interests of the holders of its securities in
preserving the Income Tax Net Operating Loss Carryover, including, but not
limited to, refusing to give effect to any Prohibited Transfer or other action
on the books of the Corporation or instituting proceedings to enjoin any
Prohibited Transfer or other action, provided, however, that any Prohibited
-------- -------
Transfer shall nevertheless result in the consequences otherwise described in
the Restrictions.
9.10 Further Actions. Subject to Section 9.13 hereof, nothing contained
---------------
in this Article Nine shall limit the authority of the Board of Directors to
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take such other action to the extent permitted by law as it in good faith deems
necessary or advisable to protect the Corporation in preserving the Income Tax
Net Operating Loss Carryover. Without limiting the generality of the foregoing,
in the event of a change in law (including applicable regulations) making one or
more of the following actions necessary or desirable or in the event that the
Board of Directors in good faith believes one or more of such actions is in the
best interest of the Corporation, the Board of Directors may:
(a) accelerate or extend the Restriction Termination Date;
(b) modify the definitions of any terms set forth in this Article Nine; or
(c) conform any provisions of the Restrictions to the extent necessary to
make such provisions consistent with the Code and Regulations following
any changes therein;
provided that the Board of Directors shall determine in writing that such
acceleration, extension, change or modification is reasonably necessary or
desirable to preserve the Income Tax Net Operation Loss Carryover or that the
continuation of these restrictions is no longer reasonably necessary for the
preservation of the Income Tax Net Operation Loss Carryover, which determination
may be based upon an opinion of legal counsel to the Corporation and which
determination shall be filed with the Secretary of the Corporation and mailed by
the Secretary to the stockholders of the Corporation within ten (10) days after
the date of any such determination. In addition, the Board of Directors may, to
the extent permitted by law, from time to time establish, modify, amend or
rescind Bylaws, regulations and procedures of the Corporation not inconsistent
with the express provisions of this Article Nine for purposes of determining
whether any acquisition of Common Stock would jeopardize the Corporation's
ability to preserve and use the Income Tax Net Operating Loss Carryover, and for
the orderly application, administration and implementation of the provisions of
this Article Nine. Such procedures and regulations shall be kept on file with
the Secretary of the Corporation and with its transfer agent and shall be made
available for inspection by the public and, upon request, shall be mailed to any
holder of Common Stock. The Board of Directors of the Corporation shall have the
exclusive power and authority to administer this Article Nine and to exercise
all rights and powers specifically granted to the Board of Directors of the
Corporation, or as may be necessary or advisable in the administration of this
Article Nine, including without limitation, the right and power to (1) interpret
the provisions of this Article Nine, and (2) make all calculations and
determinations deemed necessary or advisable for the administration of this
Article Nine. All such actions, calculations, interpretations and determinations
which are done or made by the Board of Directors in good faith shall be final,
conclusive and binding on the Corporation and any Person or Public Group who
Owns or purports to acquire Ownership of Common Stock.
9.11 Other Remedies. In the event the Board of Directors determines that
--------------
a Person proposes to take any action in violation of Section 9.1, or in the
event the Board of Directors determines after the fact that an action has been
taken in violation of Section 9.1, in addition to any other remedy provided in
this Article IX, the Board of Directors, subject to Section 9.13, may take such
action as it deems advisable to prevent or to refuse to give effect to any
purported Transfer or other action which would result, or has resulted, in such
violation, including, but not limited to, refusing to give effect to such
purported Transfer or other action on the books of the Corporation or
instituting proceedings to enjoin such purported Transfer or other action.
9.12 Severability. If any part of this Article IX or the application of
------------
any part of this Article IX to any Person or under any circumstance shall be
held to be invalid, illegal or otherwise unenforceable in any respect by a court
of competent jurisdiction, such invalidity, illegality or unenforceability shall
not affect the remainder of this Article IX, which shall
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be thereafter interpreted as if the invalid or unenforceable part were not
contained herein, and, to the maximum extent possible, in a manner consistent
with preserving the ability of the Corporation to utilize to the greatest extent
possible the Income Tax Net Operating Loss Carryover.
9.13 Effect on Stock Exchange Transactions. Nothing in the Restrictions
-------------------------------------
shall preclude the settlement of a transaction entered into through the
facilities of the NASDAQ Over-The-Counter Stock Exchange. The Common Stock that
is the subject of such a transaction shall continue to be subject to the terms
of the Restrictions after such settlement.
9.14 Definitions:
------------
"Charitable Beneficiary" shall mean an organization described in Sections
170(b)(1)(A), 170(c)(2) and 501(c)(3) of the Code designated in writing by the
Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended and as it
may be amended from time to time hereafter.
"Common Stock" shall mean all shares of the Corporation's common stock
issued and outstanding, and shall also include any common stock the Ownership
of which may be acquired by the exercise of an Option.
"Control" shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management, policies or decisions of a
Person, whether through the ownership of voting securities, by contract, family
relationship or otherwise. The terms "controlling," "controlled by" and "under
common control with" shall have correlative meanings. A Person shall be deemed
to control or be under common control with a Purported Transferee if the Excess
Common Stock Owned by such Person is treated as Owned by the Purported
Transferee by virtue of the family attribution rules of Section 318 of the
Code.
"5% Shareholder" shall mean any Person or Public Group who is a "5%
percent shareholder" of the Corporation within the meaning of Section 382 of
the Code, substituting "4.75 percent" for "5 percent" each place it appears
therein.
"Income Tax Net Operating Loss Carryover" shall mean the net operating
loss, capital loss, net unrealized built-in loss, general business credit,
alternative minimum tax credit, foreign tax credit and any other carryovers or
losses as determined for United States federal income tax purposes that are or
could become subject to limitation under Section 382 of the Code, and to which
the Corporation is entitled under the Code and Regulations, at any time during
which the Restrictions are in force.
"Option" shall mean any interest that could give rise to the Ownership of
Common Stock and that is an option, contract, warrant, convertible instrument,
put, call, stock subject to a risk of forfeiture, pledge of stock or any
interest that is similar to any of such interests or any other interest that
would be treated, under paragraph (d)(9) of Treasury Regulation Section
1.382-4, in the same manner as an option, whether or not any of such interests
is subject to contingencies.
"Own," and all derivations of the word "Own," shall mean any direct or
indirect, actual or beneficial interest, including, except as otherwise
provided, a constructive ownership interest under the attribution rules
(including the option attribution rules) of Section 382 of the Code. In
determining whether a Person Owns an amount of Common Stock in excess of 4.75%
of the Common Stock, Options Owned by such Person (or other Persons whose
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<PAGE>
Ownership of Common Stock is or would be attributable under Section 382 of the
Code to such Person) shall be treated as exercised (and the Common Stock that
would be acquired by such exercise as outstanding) and Options Owned by other
Persons shall be treated as not exercised (and the Common Stock that would be
acquired if such Options Owned by other Persons were exercised shall be treated
as not outstanding), in each case without regard to whether such treatment would
result in an ownership change within the meaning of Section 382 of the Code. In
determining whether a Transfer that is an exercise, conversion or similar
transaction with respect to an Option increases the Percentage Ownership of
Common Stock of any Person or Public Group, such Option shall be treated as if
it were not Owned by such Person immediately prior to such Transfer.
"Percent," "Percentage" or "%" shall mean percent or percentage by value.
"Person" shall mean any individual (other than a Public Group treated as
an individual under Section 382 of the Code) or any "entity" as that term is
defined in Regulations Section 1.382-3(a).
"Public Group" shall have the meaning assigned to such term in the
applicable Regulations under Section 382 of the Code. Any Transfer or attempted
Transfer of Common Stock to or from an individual or entity whose Common Stock
is included in determining the Percentage of Common Stock Owned by a Public
Group for purposes of Section 382 of the Code shall be treated as a Transfer or
attempted Transfer to such Public Group.
"Purported Transferee" shall mean a Person or Public Group who acquires
Ownership of Excess Common Stock in a Prohibited Transfer or, except as
otherwise provided in the Restrictions, any subsequent transferee of such
Excess Common Stock,
"Purported Transferor" shall mean a Person who Transfers Excess Common
Stock in a Prohibited Transfer.
"Regulations" shall mean Treasury Regulations, including proposed or
temporary regulations, promulgated under the Code, as the same may be amended
from time to time. References herein to specific provisions of temporary
Regulations shall include the analogous provisions of final Regulations or
other successor Regulations.
"Restriction Effective Date" shall mean the date of the filing of the
Certificate of Incorporation of Thousand Trails.
"Restriction Termination Date" shall mean the earliest to occur of (a)
June 30, 2011, (b) the first day of the first taxable year following the taxable
year (or years) in which the Income Tax Net Operating Loss Carryover has been
reduced to zero, or (c) the date upon which the Board of Directors has
determined that there has been a change in law (including but not limited to the
repeal of Section 382 of the Code without a successor provision that places
restrictions on the Income Tax Net Operating Loss Carryover based on changes of
ownership of the Corporation's Common Stock similar to Section 382 of the Code)
eliminating the need for the Restrictions in order to preserve the Corporation's
ability to utilize the Income Tax Net Operating Loss Carryover.
"Restrictions" shall mean the restrictions on the Transfer and Ownership
of Common Stock as set forth in this Article Nine of this Certificate of
Incorporation.
"Transfer" shall mean any direct or indirect disposition of stock,
whether by sale, exchange, merger, consolidation, transfer, assignment,
conveyance, distribution, inheritance, gift, disposition resulting from the
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enforcement of any pledge, mortgage, security interest in, or lien or
encumbrance upon, stock or any other disposition of any kind and in any manner,
whether voluntary or involuntary, knowing or unknown by operation of law or
otherwise. Notwithstanding any understandings or agreements to which an Owner of
Common Stock is a party, any arrangement, the effect of which is to transfer any
or all of the rights rising from Ownership of Common Stock, shall be treated as
a Transfer. A Transfer shall also include (i) a transfer of an interest in an
entity and a change in the relationship between two or more Persons that results
in a change in the Ownership of Common Stock and (ii) the creation, grant,
exercise, conversion, Transfer or other disposition of or with respect to an
Option, regardless of whether such Option previously has been treated as
exercised or converted for any other purpose; provided, however, that a Transfer
-------- -------
shall not include the issuance or disposition (other than a conversion, exercise
or similar transaction in which Common Stock is acquired) of an Option described
in paragraph (d)(9) of Treasury Regulation Section 1.382-4, and whether an
Option is so described shall be determined by the Board of Directors in its sole
and absolute discretion.
"Transfer Agent" means the Person responsible for maintaining the books
and records in which are recorded the ownership and transfer of shares of
Common Stock or any Person engaged by the Corporation for the purpose of
fulfilling the duties required to be fulfilled by the Transfer Agent hereunder.
"Trustee" means the trustee of the trust appointed by the Corporation,
provided that the Trustee shall be a Person unaffiliated with the Corporation,
- --------
any 5% Shareholder, or any Person purchasing or disposing of Common Stock in a
Prohibited Transfer.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which
restates and amends the provisions of the Certificate of Incorporation of this
Corporation, and which has been duly adopted in accordance with Section 242 and
245 of the Delaware General Corporation Law has been executed by its duly
authorized officer this ________day of ______________, 1996.
THOUSAND TRAILS, INC.
By:
-------------------------------------------
Its:
------------------------------------------
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ANNEX C
BYLAWS
OF
NEW THOUSAND TRAILS, INC.
ARTICLE I
OFFICES
1.1 Registered Office and Agent. New Thousand Trails, Inc. (hereinafter
---------------------------
the "Corporation"), a Delaware corporation, shall maintain a registered office
within the State of Delaware and shall have a registered agent whose business
office is identical with such registered office.
1.2 Other Offices. In addition to its registered office, the Corporation
-------------
may have offices at such other place or places, within or without the State of
Delaware, as the board of directors of the Corporation (hereinafter the "Board
of Directors") may from time to time appoint or as the business of the
Corporation may require or make desirable.
ARTICLE II
STOCKHOLDERS' MEETINGS
2.1 Place of Meetings. Meetings of the stockholders may be held at any
-----------------
place within or without the State of Delaware as set forth in the notice
thereof or, in the event of a meeting held pursuant to waiver of notice, as set
forth in the waiver, or if no place is so specified, at the principal offices
of the Corporation.
2.2 Annual Meetings. The annual meeting of stockholders shall be held on
---------------
a date and at a time following the end of the Corporation's fiscal year as may
be determined by the Board of Directors, for the purpose of electing directors
and transacting any and all business that may properly come before the meeting.
2.3 Special Meetings. Special meetings of the stockholders may be called
----------------
at any time by the President, the Secretary or a majority of the directors.
Special meetings of the stockholders shall be called by the Corporation upon
the written request of the holders of fifty percent (50%) or more of all the
shares of capital stock of the Corporation entitled to vote in an election of
directors.
2.4 Notice of Meetings. Unless otherwise required by law or unless
------------------
waived as contemplated in Section 5.2 or as provided in this Section 2.4, a
written or printed notice of each stockholders' meeting stating the place, date
and time of the meeting, and the purpose or purposes for which the meeting is
called, shall be given not less than ten (10) days nor more than sixty (60)
days before the date thereof, either personally or by postage prepaid mail, by
or at the direction of the President, a Vice President, the Secretary, or the
director or persons calling the meeting, to each stockholder of record entitled
to vote at such meeting. Attendance at the meeting, either in person or by
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proxy, for any purpose other than to object to the transaction of business,
shall constitute waiver of the requirement of notice of the meeting.
2.5 Business for Stockholders' Meetings.
-----------------------------------
(a) Business at Annual Meetings. Only business properly brought
---------------------------
before an annual meeting of the stockholders may be transacted at such
meeting. To be properly brought before an annual meeting, business must
be (i) brought by or at the direction of the Board of Directors, or (ii)
brought before the meeting by a stockholder pursuant to written notice
thereof, in accordance with Section 2.5(c) hereof, and received by the
Secretary not fewer than sixty (60) nor more than ninety (90) days prior
to the date determined pursuant to Section 2.2 hereof for such annual
meeting (or if less than sixty (60) days notice of the date of the
annual meeting is given or made to the stockholders, not later than the
tenth day following the day on which the notice of the date of the annual
meeting was mailed). Any stockholder notice shall set forth (i) the name
and address of the stockholder proposing such business; (ii) a
representation that the stockholder is entitled to vote at such meeting
and a statement of the number of shares of the Corporation which are
beneficially owned by the stockholder; (iii) a representation that the
stockholder intends to appear in person or by proxy at the meeting to
propose such business; and (iv) as to each matter the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting, the language of the proposal (if appropriate),
and any material interest of the stockholder in such business. No
business shall be conducted at any annual meeting of stockholders except
in accordance with this Section 2.5(a). If the facts warrant, the Board
of Directors, or the chairman of an annual meeting of stockholders, may
declare that business was not properly brought before the meeting in
accordance with the provisions of this Section 2.5(a) and, if it is so
determined, any such business not properly brought before the meeting
shall not be transacted. The procedures set forth in this Section 2.5(a)
for business to be properly brought before an annual meeting by a
stockholder are in addition to, and not in lieu of, the requirements set
forth in Rule 14a-8, promulgated under Section 14 of the Securities
Exchange Act of 1934, or any successor provision.
(b) Business at Special Meetings. At any special meeting of the
----------------------------
stockholders, only such business as is specified in the notice of such
special meeting given by or at the direction of the person or persons
calling such meeting, in accordance with Section 2.3 hereof, shall come
before such meeting.
(c) Notice to Corporation. Any written notice required to be
---------------------
delivered by a stockholder to the Corporation pursuant to Section 2.3,
2.5(a) or 2.5(b) hereof must be given, either by personal delivery or by
registered or certified mail, postage prepaid, to the Secretary at the
Corporation's principal executive office.
2.6 Quorum. At all meetings of the stockholders, a majority of the
------
holders of the shares outstanding and entitled to vote, present in person or
represented by proxy, shall constitute a quorum. If a quorum is present, a
majority of the shares outstanding and entitled to vote which are present in
person or represented by proxy at any meeting shall determine any matter coming
before the meeting unless a different vote is required by statute, by the
Certificate of Incorporation or by these Bylaws. The stockholders at a meeting
at which a quorum is once present may continue to transact business at the
meeting or at any adjournment thereof, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
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2.7 Proxies. A stockholder entitled to vote may vote in person or by
-------
proxy executed in writing by the stockholder or by his attorney in fact. A
proxy shall not be valid after three (3) years from the date of its execution,
unless the person executing it specifies therein the length of time for which
it is to continue in force. If the validity of any proxy is questioned it must
be submitted to the secretary of the stockholders' meeting for examination or
to a proxy officer or committee appointed by the person presiding at the
meeting. The secretary of the meeting or, if appointed, the proxy officer or
committee shall determine the validity or invalidity of any proxy submitted and
reference by the secretary in the minutes of the meeting to the regularity of a
proxy shall constitute prima facie evidence of the facts stated in the minutes
for the purpose of establishing the presence of a quorum at such meeting and
for all other purposes.
2.8 Presiding Officer. The Chairman of the Board, the President, a Vice
-----------------
President or a director selected by the Board of Directors in that order, shall
serve as the chairman of every stockholders' meeting unless some other person
is elected to serve as chairman by a majority vote of the shares represented at
the meeting. The chairman shall appoint such persons as he deems required to
assist with the meeting.
2.9 Adjournments. When a quorum is once present to organize a meeting,
------------
any meeting of the stockholders may be adjourned by the holders of a majority
of the voting shares represented at the meeting to reconvene at a specific time
and place notwithstanding the withdrawal of enough stockholders to leave less
than a quorum. It shall not be necessary to give notice of the reconvened
meeting and of the business to be transacted to all of the stockholders. At any
such reconvened meeting any business may be transacted which could have been
transacted at the meeting which was adjourned. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
2.10 Action of Stockholders Without a Meeting. Except as limited by the
----------------------------------------
Delaware General Corporation Law, any action required by the Delaware General
Corporation Law to be taken at a meeting of the stockholders, or any action
which may be taken at a meeting of the stockholders, may be taken without a
meeting without prior notice and without a vote if a consent or consents in
writing, setting forth the action so taken, shall be signed by holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all of the
shares entitled to vote thereon were presented and voted, and shall be
delivered to the Corporation to its registered office in Delaware, its
principal place of business or an officer or agent of the Corporation having
custody of the minute books of the Corporation. Such consent shall have the
same force and effect as a vote of the stockholders at a meeting called for the
purpose of considering the action authorized.
ARTICLE III
THE BOARD OF DIRECTORS
3.1 General Powers. The business and affairs of the Corporation shall be
--------------
managed by the Board of Directors. In addition to the powers and authority
expressly conferred upon it by these Bylaws, the Board of Directors may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law, by any lawful agreement among stockholders of the
Corporation or by the Certificate of Incorporation directed or required to be
exercised or done by the stockholders.
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3.2 Number, Election and Term of Office. The number of directors of the
-----------------------------------
Corporation shall be as determined from time to time by resolution, duly
adopted, of either the stockholders or the Board of Directors. Absent such
resolution of the stockholders or Board of Directors, the number of directors
of the Corporation shall be six (6). In the event the number of directors is
decreased, such decrease shall not shorten the term of an incumbent director.
Except as provided herein and in Section 3.4, the directors shall be elected at
each annual meeting of the stockholders, or at a special meeting of
stockholders called for purposes that include the election of directors, in
either case by the affirmative vote of the holders of a majority of the shares
represented at the meeting. Each director, except in case of death,
resignation, retirement, disqualification, or removal, shall serve until the
next succeeding meeting at which directors are elected and thereafter until his
successor shall have been elected and has qualified.
3.3 Removal. The entire Board of Directors or any individual director
-------
may be removed from office with or without cause by the affirmative vote of the
holders of a majority of all of the shares entitled to vote at an election of
directors. Removal action may be taken at any stockholders' meeting with
respect to which notice of such purpose has been given, and a removed
director's successor may be elected at the same meeting to serve the unexpired
term.
3.4 Vacancies. A vacancy occurring in the Board of Directors, including
---------
vacancies occurring by reason of an increase in the number of directors or by
reason of the resignation of a director may be filled for the unexpired term
and until his successor shall have been elected and qualified, by the
affirmative vote of a majority of the directors remaining in office though less
than a quorum of the Board of Directors.
3.5 Compensation. Directors may receive such compensation for their
------------
services as directors as may from time to time be fixed by vote of the Board of
Directors including, but not limited to a fixed fee and expenses of attendance
for attendance at each meeting. A director may also serve the Corporation in a
capacity other than that of director and receive compensation, as determined by
the Board of Directors, for services rendered in such other capacity.
3.6 Committees of the Board of Directors. The Board of Directors by
-------------------------------------
resolution adopted by a majority of the full Board of Directors may designate
from among its members an executive committee and one or more other standing or
ad hoc committees, each consisting of one or more directors. Except as
prohibited by law, each committee shall have the authority set forth in the
resolution establishing such committee.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
4.1 Regular Meetings. Regular meetings of the Board of Directors shall
----------------
be held immediately before or after the annual meeting of stockholders. In
addition, the Board of Directors may schedule other regular meetings to occur
at other times during the year.
4.2 Special Meetings. Special meetings of the Board of Directors may be
----------------
called by or at the request of the President, a Vice President or by any two
directors, with notice to each director pursuant to Section 4.4.
4.3 Place of Meetings. Directors may hold their meetings at any place
-----------------
within or without the State of Delaware as the Board of Directors may from time
to time establish for regular meetings or as set forth in the notice of special
meetings or, in the event of a meeting held pursuant to waiver of notice, as
set forth in the waiver.
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4.4 Notice of Meetings. No additional notice shall be required for any
------------------
scheduled regular meeting of the directors of the Corporation. Unless waived
as contemplated in Section 5.2, the President, the Secretary or any director
shall give notice to each director of each special meeting called in accordance
with Section 4.2 stating the time, place and purposes of the meeting. Such
notice shall be given by mailing a notice of the meeting at least five (5)
business days before the date of the meeting, or by telephone, telegram,
telecommunication, cablegram or personal delivery at least two (2) business
days before the date of the meeting. Notice shall be deemed to have been given
by telegram or cablegram at the time notice is filed with the transmitting
agency. Attendance by a director at a meeting shall constitute waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of business because the meeting
is not lawfully called.
4.5 Quorum. At meetings of the Board of Directors, more than one-half
------
(1/2) of the directors then in office shall be necessary to constitute a quorum
for the transaction of business, unless a greater number is required by law,
the Certificate of Incorporation or these Bylaws. If a quorum shall not be
present at any meeting of directors, the directors present may adjourn the
meeting from time to time until a quorum shall be present, without notice of
the time and place that the meeting will be reconvened other than announcement
at the adjourned meeting.
4.6 Vote Required for Action. Except as otherwise provided in the
-------------------------
Certificate of Incorporation, these Bylaws or by law, the act of a majority of
the directors present at a meeting at which a quorum is present at the time
shall be the act of the Board of Directors.
4.7 Participation by Conference Telephone. Members of the Board of
-------------------------------------
Directors, or members of any committee designated by the Board of Directors,
may participate in a meeting of the Board or of such committee by means of
conference telephone or similar communications equipment through which all
persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this Section 4.7 shall constitute presence in person at
such meeting.
4.8 Action by Directors Without a Meeting. Any action required or
-------------------------------------
permitted to be taken at any meeting of the Board of Directors or any action
which may be taken at a meeting of a committee of directors may be taken
without a meeting if a written consent thereto shall be signed by all the
directors, or all the members of the committee, as the case may be, and if such
written consent is filed with the minutes of the proceedings of the Board of
Directors or the committee. Such consent shall have the same force and effect
as a unanimous vote of the Board of Directors or the committee.
4.9 Adjournments. A meeting of the Board of Directors, whether or not a
------------
quorum is present, may be adjourned by a majority of the directors present to
reconvene at a specific time and place. It shall not be necessary to give to
all of the directors notice of the reconvened meeting and of the business to be
transacted, other than by announcement at the meeting which was adjourned. At
any such reconvened meeting at which a quorum is present, any business may be
transacted which could have been transacted at the meeting which was adjourned.
ARTICLE V
NOTICE AND WAIVER
5.1 Procedure. Whenever these Bylaws require notice to be given to any
---------
stockholder or director, the notice shall be given as prescribed in Sections
2.4 or 4.4 for any stockholder or director, respectively. Whenever notice is
given to a stockholder or director by mail, the notice shall be sent first
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class mail by depositing the same in a post office or letter box in a postage
prepaid sealed envelope addressed to the stockholder or director at his address
as it appears on the books of the Corporation, and such notice shall be deemed
to have been given at the time the same is deposited in the United States mail.
5.2 Waiver. Except as limited by the Delaware General Corporation Law,
------
whenever any notice is required to be given to any stockholder or director by
law, by the Certificate of Incorporation or by these Bylaws, a written waiver
signed by the person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE VI
OFFICERS
6.1 Number. The officers of the Corporation shall be a President, a
------
Secretary and a Treasurer. The Board of Directors may from time to time create
and establish the duties of other officers and elect or provide for the
appointment of other officers as it deems necessary for the efficient
management of the Corporation, including a Chairman of the Board, one or more
Vice Presidents, one or more Assistant Secretaries and one or more Assistant
Treasurers. Any two or more offices may be held by the same person, except the
offices of President and Secretary.
6.2 Election and Term. All officers shall be elected by the Board of
-----------------
Directors and shall serve at the will of the Board of Directors and until their
successors have been elected and have qualified or until their earlier death,
resignation, removal, retirement or disqualification.
6.3 Compensation. The compensation of all officers of the Corporation
------------
shall be fixed by the Board of Directors or by a committee or officer appointed
by the Board.
6.4 Removal. Any officer or agent elected or appointed by the Board of
-------
Directors may be removed by the Board of Directors, with or without cause,
whenever in its judgment the best interests of the Corporation will be served
thereby.
6.5 Chairman of the Board. If there shall be a Chairman of the Board, he
---------------------
shall be the chief executive officer of the Corporation and shall have general
supervision of the business of the Corporation. He shall see that all orders
and resolutions of the Board of Directors are carried into effect and shall
call to order meetings of the stockholders and of the Board of Directors, and
shall act as chairman of such meetings (unless another person is selected under
Section 2.8 to act as chairman). The Chairman of the Board shall have such
other powers and duties as may from time to time be prescribed by the Board of
Directors, upon written direction given to him pursuant to resolution duly
adopted by the Board of Directors.
6.6 President. The President shall be the chief operating officer of the
---------
Corporation and shall have supervision of the day to day business of the
Corporation. The President shall perform such other duties and have such other
powers as the Board of Directors may determine from time to time. The President
shall be authorized to appoint one or more Assistant Secretaries and one or
more Assistant Treasurers. In the absence or disability of the Chairman of the
Board, at the direction of the Chairman of the Board, or if the Board of
Directors chooses not to designate a Chairman of the Board, the President
shall, in addition to the duties and powers of the President as specified in
these Bylaws or otherwise, perform the duties and exercise the powers, whether
such duties are specified in these Bylaws or otherwise, of the Chairman of the
Board.
6.7 Vice President. If there shall be a Vice President, he shall, in the
--------------
absence or disability of the President, or at the direction of the President,
perform the duties and exercise the powers, whether such duties and powers are
specified in these Bylaws or otherwise, of the President. If the Corporation
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has more than one Vice President, the one designated by the Board of Directors
shall act in lieu of the President. Vice Presidents shall perform such other
duties and have such other powers as the Board of Directors may determine from
time to time.
6.8 Secretary. The Secretary shall keep accurate records of the acts and
---------
proceedings of all meetings of stockholders, directors and committees of
directors. He shall have authority to give all notices required by law or these
Bylaws. He shall be responsible for the custody of the corporate books,
records, contracts and other documents. The Secretary may affix the corporate
seal to any lawfully executed documents requiring it and shall sign such
instruments as may require his signature. The Secretary shall perform such
other duties and have such other additional powers as the Board of Directors
may determine from time to time.
6.9 Treasurer. The Treasurer shall be responsible for the custody of all
---------
funds and securities belonging to the Corporation and for the receipt, deposit
or disbursement of such funds and securities under the direction of the Board
of Directors. The Treasurer shall cause full and true accounts of all receipts
and disbursements to be maintained and shall make such reports of same as the
Board of Directors and President request. The Treasurer shall perform such
other duties and have such other powers as the Board of Directors may determine
from time to time.
6.10 Assistant Secretaries and Assistant Treasurers. The Assistant
----------------------------------------------
Secretary and Assistant Treasurer (or if there be more than one of either such
officer, the one so designated by the Board of Directors or by the President)
shall, in the absence or disability, or at the direction, of the Secretary or
the Treasurer, respectively, perform the duties and exercise the powers,
whether such duties and powers are specified in these Bylaws or otherwise, of
those offices. Each Assistant Secretary and Assistant Treasurer shall perform
such other duties and have such other powers as the Board of Directors may
determine from time to time, and each Assistant Secretary may affix the
corporate seal to all necessary documents and attest the signature of any
officer of the Corporation.
6.11 Bonds. The Board of Directors may by resolution require any or all
-----
of the officers, agents or employees of the Corporation to give bonds to the
Corporation, with sufficient surety or sureties, conditioned on the faithful
performance of the duties of their respective offices or positions, and to
comply with such other conditions as may from time to time be required by the
Board of Directors.
ARTICLE VII
DIVIDENDS
Subject to the provisions of the Certificate of Incorporation and the
Delaware General Corporation Law, distributions upon the stock of the
Corporation may be declared by the Board of Directors as and when they deem
expedient. Dividends may be paid in cash, in property, or in shares of the
Corporation.
ARTICLE VIII
SHARES
8.1 Authorization and Issuance of Shares. The par value and the maximum
------------------------------------
number of shares of any class of the Corporation which may be issued and
outstanding shall be set forth from time to time in the Certificate of
Incorporation of the Corporation or, with respect to a class of preferred or
special stock, by a resolution adopted by the Board of Directors
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pursuant to the Delaware General Corporation Law. The Board of Directors may
increase or decrease the number of issued and outstanding shares of any class
of the Corporation within the maximum authorized by the Certificate of
Incorporation and the minimum requirements of the Certificate of Incorporation
or Delaware law.
8.2 Share Certificates. The interest of each stockholder in the
------------------
Corporation shall be evidenced by a certificate or certificates representing
shares of the Corporation which shall be in such form as the Board of Directors
may from time to time adopt. Share certificates shall be consecutively
numbered, shall be in registered form, and shall indicate the date of issue and
all such information shall be entered on the Corporation's books. Each
certificate shall be signed by the Chairman or Vice-Chairman of the Board of
Directors or the President or a Vice President and by the Treasurer or
Assistant Treasurer or the Secretary or an Assistant Secretary; provided,
--------
however, that the signatures of such officers may be facsimiles. In case any
-------
officer or officers who shall have signed or whose facsimile signatures shall
have been placed upon a share certificate shall have ceased for any reason to
be such officer or officers of the Corporation before such certificate is
issued, such certificate may be issued by the Corporation with the same effect
as if the person or persons who signed such certificate or whose facsimile
signatures shall have been used thereon had not ceased to be such officer or
officers.
8.3 Rights of Corporation with Respect to Registered Owners. Subject to
-------------------------------------------------------
the provisions of Article IX of the Certificate of Incorporation, prior to due
presentation for transfer of registration of its shares, the Corporation may
treat the registered owner of the shares as the person exclusively entitled to
vote such shares, to receive any dividend or other distribution with respect to
such shares, and for all other purposes; and the Corporation shall not be bound
to recognize any equitable or other claim to or interest in such shares on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by law.
8.4 Transfers of Shares. Subject to the provisions of Article IX of the
-------------------
Certificate of Incorporation, transfers of shares of the Corporation shall be
made in the share records of the Corporation only by the written direction of
the person named in the certificate or by his attorney (authorized by duly
executed power of attorney filed with the Secretary of the Corporation) or his
legal representative (who shall furnish proper evidence or authority to
transfer such shares), and upon surrender of the certificate or certificates
for such shares properly endorsed (or accompanied by a properly endorsed
instrument of transfer) and subject to such other reasonable conditions and
requirements as may be required by the Corporation, including, without
limitation, the provisions of Article IX of the Certificate of Incorporation.
The Corporation shall maintain at its principal place of business or registered
office, or at the office of its transfer agent, a record of the names and
addresses of its stockholders and the number of shares held by each.
8.5 Duty of Corporation to Register Transfer. Notwithstanding any of the
----------------------------------------
provisions of Section 8.4 of these Bylaws, the Corporation is under a duty to
register the transfer of its shares only if:
(a) the share certificate is endorsed by the appropriate person or
persons;
(b) reasonable assurance is given that the endorsements are genuine
and effective;
(c) The Corporation has no duty to inquire into adverse claims or
has discharged any such duty;
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(d) any applicable law relating to the collection of taxes has been
complied with;
(e) the transfer is in fact rightful or is to a bona fide purchaser;
(f) the transfer is in compliance with applicable provisions of state
and federal securities laws and of any restrictive legends relating to
such laws that appear on the share certificate; and
(g) the transfer is in compliance with the applicable provisions of
Article IX of the Certificate of Incorporation.
8.6 Lost, Stolen or Destroyed Certificates. Any person claiming a share
--------------------------------------
certificate to be lost, stolen or destroyed shall make an affidavit or
affirmation of the fact in such manner as the Board of Directors may require
and shall, if the Board of Directors so requires, give the Corporation a bond
of indemnity in form and amount, and with one or more sureties satisfactory to
the Board of Directors, as the Board of Directors may require, whereupon an
appropriate new certificate may be issued in lieu of the one alleged to have
been lost, stolen or destroyed.
8.7 Fixing of Record Date. For the purpose of determining stockholders
---------------------
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of stockholders for any other proper purpose, the
Board of Directors may fix in advance a date as the record date, such date to
be not more than 60 days (and, in the case of a stockholders' meeting, not less
than 10 days) prior to the date on which the particular action, requiring such
determination of stockholders, is to be taken.
8.8 Record Date if None Fixed. If no record date is fixed as provided
-------------------------
in Section 8.7 of these Bylaws, then the record date for any determination of
stockholders which may be proper or required by law shall be: the date
preceding the date on which notice is given, in the case of a stockholders'
meeting; or the date on which the Board of Directors adopts a resolution
relating thereto, in the case of a dividend or any other action.
ARTICLE IX
MISCELLANEOUS
9.1 Inspection of Books and Records. The Board of Directors shall
-------------------------------
have the power to determine which accounts, books and records of the
Corporation shall be opened to the inspection of stockholders, except such as
may by law be specifically open to inspection, and shall have power to fix
reasonable rules and regulations not in conflict with the applicable law for
the inspection of accounts, books and records which by law or by determination
of the Board of Directors shall be open to inspection.
9.2 Fiscal Year. The fiscal year of the Corporation shall begin July 1
-----------
of each year and end June 30 of each succeeding year. The Board of Directors is
authorized to change the fiscal year of the Corporation from time to time as it
deems appropriate.
9.3 Seal. The corporate seal shall be in such form as the Board of
----
Directors may from time to time determine.
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ARTICLE X
AMENDMENTS
10.1 Power to Amend Bylaws. The Board of Directors shall have power to
---------------------
alter, amend or repeal these Bylaws or adopt new Bylaws, but any Bylaws adopted
by the Board of Directors may be altered, amended or repealed, and new Bylaws
adopted, by the stockholders.
10.2 Conditions. Action taken by the stockholders with respect to Bylaws
----------
shall be taken by an affirmative vote of a majority of all shares entitled to
vote thereon, and action by the Board of Directors with respect to Bylaws shall
be taken by an affirmative vote of a majority of all of the directors then
holding office.
ARTICLE XI
INDEMNIFICATION
11.1 Proceedings Other than by or in the Right of the Corporation. The
------------------------------------------------------------
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except an
action by or in the right of the Corporation, by reason of the fact that he is
or was a director, officer or trustee of the Corporation, or is or was serving
at the request of the Corporation as a director, officer or trustee of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' and expert witness fees, costs of investigation,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the action, suit or proceeding if he acted
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action. suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, does not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and that, with respect to any
criminal action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
11.2 Proceedings by or in the Right of the Corporation. The Corporation
-------------------------------------------------
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact
that he is or was a director, officer or trustee of the Corporation, or is or
was serving at the request of the Corporation as a director, officer or trustee
of another corporation, partnership, joint venture, trust or other enterprise
against expenses, including attorneys' and expert fees and costs of
investigation actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit if he acted in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances in the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
11.3 Success on the Merits. To the extent that a director, officer or
---------------------
trustee of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section 11.1 or
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Section 11.2, or in defense of any claim, issue or matter therein, he must be
indemnified by the Corporation against expenses, including attorneys' fees and
costs of litigation, actually and reasonably incurred by him in connection
therewith.
11.4 Determination. Any indemnification under Section 11.1 or Section
-------------
11.2, unless ordered by a court, shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer or trustee is proper in the circumstances because he met
the applicable standard of conduct set forth in Section 11.1 or 11.2, as
applicable Such determination shall be made
(a) by the stockholders; or
(b) by majority vote of directors who were not parties to such
action, suit or proceeding, even though less than a quorum; or
(c) if there are no such directors or if such directors shall so
direct, by independent legal counsel in a written opinion.
11.5 Expenses. The expenses (including attorneys' fees) of officers and
--------
directors incurred in defending a civil, criminal, administrative or
investigative action, suit or proceeding must be paid by the Corporation as
they are incurred and in advance of the final disposition of the action, suit
or proceeding, upon receipt of an undertaking by or on behalf of the director
or officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the
Corporation. The provisions of this Article XI do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
11.6 Other Rights. The indemnification and advancement of expenses
------------
authorized in this Article XI shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any agreement, vote of stockholders or disinterested directors
or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office; and continues for a person who has
ceased to be a director, officer or trustee and inures to the benefit of the
heirs, executors and administrators of such a person.
11.7 Other Arrangements.
------------------
(a) The Corporation may purchase and maintain insurance or make
other financial arrangements on behalf of any person who is or was a
director, officer, employee, trustee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise for any liability asserted against him
and liability and expenses incurred by him in his capacity as a director,
officer, employee, trustee or agent or arising out of his status as such,
whether or not the Corporation has the authority to indemnify him against
such liability and expenses.
(b) The other financial arrangements made by the Corporation
pursuant to this section may include the following:
(i) the creation of a trust fund; or
(ii) the establishment of a program of self-insurance; or
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(iii) the securing of its obligation of indemnification by granting
a security interest or other lien on any assets of the Corporation; or
(iv) the establishment of a letter of credit, guaranty or surety.
No other financial arrangement made pursuant to this Section 11.7(b) may
provide protection for a person adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, not to have met the standards set
forth in Section 11.1 or Section 11.2, as applicable, except with respect to
indemnification ordered by a court; provided that this Section 11.7(b) shall
only be applicable to the other financial arrangements contemplated by this
Section 11.7(b) and not to insurance.
(c) Any insurance or other financial arrangement made on behalf of a
person pursuant to this section may be provided by the Corporation or any other
person approved by the board of directors, even if all or part of the other
person's stock or other securities is owned by the Corporation.
(d) In the absence of fraud:
(i) the decision of the board of directors as to the propriety of
the terms and conditions of any insurance or other financial arrangement
made pursuant to this section and the choice of the person to provide the
insurance or other financial arrangement is conclusive; and
(ii) the insurance or other financial arrangement;
(A) shall not be void or voidable; and
(B) shall not subject any director approving it to personal
liability for his action, even if a director approving the insurance
or other financial arrangement is a beneficiary of the insurance or
other financial arrangement.
11.8 Agreement. The provisions of this Article XI shall be deemed to
---------
constitute an agreement between the Corporation and each of the persons
entitled to indemnification, advances of expenses or limitation of liability
under this Article XI. Any amendment to this Article XI that limits or
otherwise adversely affects the limitation of liability, rights of
indemnification, advancement of expenses, or other rights of any such persons
under this Article XI shall, as to such persons, apply only to actions, suits
or proceedings based on actions, events or omissions occurring after such
amendment and after delivery of notice of such amendment to the person or
persons so affected. Any person entitled to limitation of liability, rights of
indemnification, advancement of expenses, or other rights under this Article XI
shall, as to any action, suit or proceeding based on actions, events or
omissions occurring prior to the date of receipt of such notice, be entitled to
limitation of liability, rights of indemnification, advancement of expenses,
and other rights under this Article XI to the same extent as if such provisions
had continued as part of these Bylaws of the Corporation without such
amendment. The rights conferred by this Section 11.8 cannot be altered,
amended or repealed in a manner effective as to any person entitled to
limitation of liability, rights of indemnification, advancement of expenses, or
other rights under this Article XI without the prior written consent of such
person.
11.9 "Corporation." For purposes of this Article XI, the term "the
--------------
Corporation" shall include (except when the context requires otherwise) any
corporation, joint venture, trust, partnership or unincorporated business
association which is the successor to all or substantially all of the business
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or assets of the Corporation, as a result of merger, consolidation, sale,
liquidation or otherwise, and any such successor shall be liable to the persons
indemnified under this Article XI on the same terms and conditions and to the
same extent as the Corporation.
11.10 Certain Persons Serving at Request of Corporation. For the
-------------------------------------------------
purposes of this Article XI, a person serving as a director, officer or trustee
of a subsidiary of the Corporation shall be deemed to be serving at the request
of the Corporation.
11.11 "Subsidiary." For the purposes of this Article XI a "subsidiary"
-------------
shall mean any corporation, joint venture, trust, partnership, unincorporated
business association or other enterprise of which more than 50% of the
outstanding capital stock having voting power to elect a majority of the board
of directors or similar body of such enterprise is owned by the Corporation
(irrespective of whether or not, at the time capital stock of any other class
or series of such enterprise shall or might have voting power upon the
occurrence of any contingency) or which the Corporation otherwise controls or a
non-profit corporation which receives its principal financial support from the
Corporation or its subsidiaries at the time of the action, event or omission
giving rise to the action, suit or proceeding in respect of which
indemnification or advances are mandated or authorized under this Article XI.
11.12 Severability. Each of the subsections of this Article XI, and
------------
each of the clauses set forth therein, shall be deemed separate and
independent, and should any part of any such subsection or clause thereof be
declared invalid or unenforceable by any court of competent jurisdiction such
invalidity or unenforceability shall in no way render invalid or unenforceable
any other part thereof or any other separate subsection or clause thereof of
this Article XI which is not declared invalid or unenforceable.
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ANNEX D
USTRAILS INC.
STOCK OPTION AGREEMENT
This Stock Option Agreement ("AGREEMENT") is made and entered into as of the
Date of Grant indicated below by and between USTrails Inc., a Nevada
corporation (the "COMPANY"), and the William J. Shaw ("OPTIONEE").
A. Optionee is the President and Chief Executive Officer of the Company.
In order to retain and motivate Optionee subsequent to the consummation of the
restructuring of the outstanding debt represented by the Company's 12% Senior
Secured Notes Due 1998, and to align the interest of Optionee with the
stockholders of the Company by providing for a proprietary interest of Optionee
in the Company, all of which will substantially benefit the Company, the Special
Committee of the Board of Directors of the Company (the "BOARD") has approved
the grant to Optionee of an option to purchase shares of the common stock, par
value $.01 per share, of the Company (the "COMMON STOCK"), on the terms and
conditions set forth herein.
B. In consideration of the foregoing recitals and the covenants set forth
herein, the parties hereto hereby agree as follows.
1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company hereby
---------------------------------------------
grants to Optionee, subject to stockholder approval (which stockholder approval
shall be within twelve months of the Date of Grant), and Optionee hereby
accepts, as of the Date of Grant, an option to purchase the number of shares of
Common Stock indicated below (the "OPTION SHARES") at the Exercise Price per
share indicated below, which option shall expire at 5:00 o'clock p.m. (local
time at the Company's principal executive office) on the Expiration Date
indicated below (unless earlier terminated pursuant to Section 2 hereof or, with
respect to the portion of the Option not constituting an Incentive Stock Option,
extended pursuant to Section 8(c) hereof), and shall be subject to all of the
terms and conditions set forth in this Agreement (the "OPTION").
DATE OF GRANT: August 1, 1996
NUMBER OF SHARES 664,495
PURCHASABLE:
EXERCISE PRICE PER SHARE: $.69
EXPIRATION DATE: July 31, 2006
OPTIONS TO PURCHASE UP TO 144,927 OPTION SHARES ARE INTENDED TO QUALIFY AS AN
INCENTIVE STOCK OPTION (FOR PURPOSES HEREOF, SUCH PORTION OF THE OPTION IS
REFERRED TO AS THE "INCENTIVE STOCK OPTION") UNDER SECTION 422 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED ("CODE"). THE COMPANY AND THE OPTIONEE HEREBY
ACKNOWLEDGE THAT THE EXERCISE PRICE REPRESENTS THE FAIR MARKET VALUE OF THE
COMMON STOCK ON THE DATE OF GRANT. THE OPTION SHALL BE EXERCISABLE, DURING HIS
LIFETIME, ONLY BY THE OPTIONEE. THE OPTIONS WITH RESPECT TO ALL OTHER OPTION
SHARES SHALL NOT BE AN INCENTIVE STOCK OPTION, BUT RATHER SHALL BE A
NONQUALIFIED OPTION.
2. TERMINATION OF OPTION.
---------------------
(a) Termination of Employment or Other Status.
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(i) Death or Disability. In the event that Optionee shall cease to be
-------------------
an employee of the Company (such event shall be referred to herein as the
"TERMINATION" of Optionee's "STATUS") by reason of the death or Permanent
Disability (as hereinafter defined) of Optionee, then the Option shall,
subject to Section 8(c), terminate upon the earlier of the Expiration Date
or the first anniversary of the date of such Termination of Status.
"PERMANENT DISABILITY" shall be deemed to have occurred if:
(A) as result of the Optionee's incapacity due to physical or
mental illness, the Optionee shall have been continuously
absent from his duties for at least six (6) consecutive
months, and
(B) the Company shall have given the Optionee written notice of
the termination of the Optionee's employment or other Status
on account of the Optionee's Disability, and
(C) thirty (30) days shall have elapsed after the giving of
such notice, and
(D) the Optionee shall not have resumed his duties on a full
time basis prior to the expiration of such thirty (30) day
period.
(ii) Termination by the Company. Except as provided below, if
--------------------------
Optionee's Status is Terminated by the Company for any reason other than
death or Permanent Disability, then, subject to Section 8(c), the Option
shall terminate upon the earlier of the Expiration Date or the completion
of three (3) months after the date of such Termination. However, if the
Termination was for "cause," as defined below, the Option shall terminate
immediately upon such Termination. For purposes hereof, "cause" shall
mean termination of the Optionee's Status by the Company because of: (i)
the Optionee's conviction for or plea of nolo contendere to any felony or
crime involving moral turpitude, (ii) the Optionee's commission of an act
of personal dishonesty or breach of fiduciary duty involving personal
profit in connection with the Optionee's employment by the Company, (iii)
the Optionee's commission of an act involving intentional misconduct on
the part of the Optionee in the conduct of his duties, (iv) the Optionee's
willful failure to execute lawful policies of the Company, (v) chronic
alcoholism or any other form of addiction to drugs on the part of the
Optionee, or (vi) a material breach by the Optionee of any material
provision of any the Employment Agreement between Optionee and the Company
dated as of May 11, 1995, as amended, modified or supplemented from time
to time, or any other employment agreement to which he may from time to
time be a party.
(iii) Voluntary Resignation. If a Optionee's Status is terminated due
---------------------
to the Optionee's resignation (as determined by the Board), then, subject to
Section 8(c), the Option shall terminate upon the earlier of the Expiration
Date or the completion of three (3) months after the date of such Termination.
(b) Other Events Causing Termination of Option. Notwithstanding anything
------------------------------------------
to the contrary in this Agreement, the Option shall terminate upon the
consummation of any of the following events, or, if later, the thirtieth day
following the first date upon which such event shall have been approved by both
the Board and the stockholders of the Company, or upon such later date as shall
be determined by the Board:
(i) the dissolution or liquidation of the Company; or
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<PAGE>
(ii) a sale of substantially all of the property and assets of the
Company, unless the terms of such sale shall provide otherwise.
3. ADJUSTMENTS. In the event that the outstanding securities of the class
-----------
then subject to the Option are increased, decreased, or exchanged for or
converted into cash, property, and/or a different number or kind of securities,
or cash, property, and/or securities are distributed in respect of such
outstanding securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, restructuring, reclassification, spin-off,
spin-out, dividend (other than a regular cash dividend) or other distribution,
stock split, reverse stock split or the like, or in the event that
substantially all of the property and assets of the Company are sold, then,
unless such event shall cause the Option to terminate pursuant to Section 3(b)
hereof, (A) a committee of the Board of Directors of the Company comprised
solely of two or more directors who qualify as "outside directors" (as defined
in Code Section 162(m)) and (B) a committee of the Board of Directors comprised
solely of "non employee directors" (as defined in Rule 16b-3 promulgated under
the Securities Exchange Act of 1934) or the full Board of Directors (the
"COMMITTEES") shall make appropriate and proportionate adjustments in the
number and type of shares or other securities or cash or other property that
may thereafter be acquired upon the exercise of the Option; provided, however,
that any such adjustments in the Option shall be made without changing the
aggregate Exercise Price of the then unexercised portion of the Option.
4. EXERCISE. Subject to stockholder approval within twelve months of the
--------
Date of Grant and subject also to Section 8 hereof, the Option shall be
exercisable, in full or in part, at any time and from time to time after the
date the Option is so approved by the stockholders of the Company and prior to
the Expiration Date (unless earlier terminated pursuant to Section 2, but
subject to Section 8(c)). The Option shall be exercisable during Optionee's
lifetime only by Optionee, and after Optionee's death only by the person or
entity entitled to do so under Optionee's last will and testament or applicable
intestate law. The Option may only be exercised by the delivery to the Company
of a written notice of such exercise, which notice shall specify the number of
Option Shares to be purchased (the "PURCHASED SHARES") and the aggregate
Exercise Price for such shares (the "EXERCISE NOTICE"), together with payment
in full of such aggregate Exercise Price in cash or by check payable to the
Company; provided, however, that payment of such aggregate Exercise Price may
instead be made, in whole or in part:
(i) with the prior approval of the Committees, by the delivery to the
Company of a promissory note in a form and amount satisfactory to the Board,
provided that the principal amount of such note shall not exceed the excess of
such aggregate Exercise Price over and above the aggregate par value of the
Purchased Shares; or
(ii) with prior approval of the Committees, by the delivery to the
Company of a certificate or certificates representing shares of Common Stock,
duly endorsed or accompanied by a duly executed stock powers, which delivery
effectively transfers to the Company good and valid title to such shares, free
and clear of any pledge, commitment, lien, claim or other encumbrance (such
shares to be valued on the basis of the aggregate Fair Market Value thereof on
the date of such exercise), provided that the Company is not then prohibited by
the terms of any contractual obligation or legal restriction from purchasing or
acquiring such shares of Common Stock.
5. PAYMENT OF WITHHOLDING TAXES.
----------------------------
(a) If the Company is obligated to withhold an amount on account of any
federal, state, or local tax, including, but not limited to, any income tax,
F.I.C.A. tax, disability insurance tax, or other employment tax, imposed for
D-3
<PAGE>
any reason, including, without limitation, upon the exercise of the Option or
subsequent disposition of the underlying stock, then the Optionee, upon the
occurrence of the taxable event and providing the Optionee is still an employee
of the Company, shall pay the applicable withholding liability (the
"WITHHOLDING LIABILITY") to the Company in cash or by check payable to the
Company; provided, however, that, in the discretion of the Committees, Optionee
may, pursuant to an irrevocable election of Optionee (a "WITHHOLDING ELECTION")
made on or prior to the date of such exercise, instead pay all or any part of
the Withholding Liability by the delivery to the Company of a stock certificate
or certificates representing shares of Common Stock, duly endorsed or
accompanied by a duly executed stock powers, which delivery effectively
transfers to the Company good and valid title to such shares, free and clear of
any pledge, commitment, lien, claim, or other encumbrance (such shares to be
valued on the basis of the aggregate Fair Market Value thereof on the date of
such exercise), provided that the Company is not then prohibited by the terms
of any contractual obligation or legal restriction from purchasing or acquiring
such shares of Common Stock. For purposes hereof, "FAIR MARKET VALUE" shall
mean the average of the closing bid and asked quotation for the Common Stock as
quoted through the NASD OTC Bulletin Board and National Quotation Bureau's Pink
Sheets or, if quoted thereon, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System.
(b) The Committees, in their sole discretion, may (1) impose such
additional conditions under Section 4 and Section 5 as may be required to
comply with Section 16 under the Exchange Act and the rules promulgated
thereunder, and (2) waive any of the restrictions in Section 4 and Section 5 in
the event that either (A) the transaction would not result in liability under
Section 16(b) of the Exchange Act, or (B) the Optionee consents to liability
thereunder and consents to disgorge any profits relating thereto to the
Company.
(c) The Committees shall have sole discretion to approve or disapprove
any Withholding Election and may adopt such rules and regulations as are
consistent with and necessary to implement the foregoing. The Committees may
permit Optionee to make a Withholding Election to pay withholding taxes in
excess of the minimum amount required by law, provided that the amount of
withholding taxes so paid does not exceed the estimated total federal, state,
and local tax liability of Optionee attributable to such exercise.
6. STOCK EXCHANGE REQUIREMENTS; APPLICABLE LAWS.
--------------------------------------------
(a) Notwithstanding anything to the contrary in this Agreement, no shares
of stock purchased upon exercise of the Option, and no certificate representing
all or any part of such shares, shall be issued or delivered if (a) such shares
have not been admitted to listing or approved for quotation upon official
notice of issuance on each stock exchange or automated quotation system upon
which shares of that class are then listed, or (b) in the opinion of counsel to
the Company, such issuance or delivery would cause the Company to be in
violation of or to incur liability under any federal, state or other securities
law, or any requirement of any stock exchange listing agreement to which the
Company is a party or other rules or regulations of the National Association of
Securities Dealers, Inc. to which the Company is subject, or any other
requirement of law or of any administrative or regulatory body having
jurisdiction over the Company.
(b) Optionee represents to the Company that Optionee is a bona fide
resident of the State of Texas (the "STATE"). Notwithstanding anything to the
contrary herein, this Agreement shall not become effective until the making of
all applicable security filings under the laws of the State and the
effectiveness thereof. Optionee shall promptly notify the Company in writing if
the Optionee becomes a bonafide resident of any jurisdiction other than the
State.
D-4
<PAGE>
7. NONTRANSFERABILITY. Neither the Option nor any interest therein may be
------------------
sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise
transferred in any manner other than by will or the laws of descent and
distribution.
8. RESTRICTIONS. (a) Except as otherwise permitted under Section 16 of
------------
the Exchange Act (including any rules promulgated thereunder), Optionee may
not, if he is subject to liability under Section 16 of the Exchange Act, sell
any Option Share issued hereunder until the expiration of the six (6) month
period commencing on the Date of Grant, unless the same would either not result
in liability under said Section 16 or the Optionee consents to such liability
and consents to disgorge any profits relating thereto to the Company.
(b) Optionee may not exercise this Option if, and to the extent that,
Option Shares issued hereunder would constitute "Excess Common Stock" as
defined in Article Nine of the Restated Bylaws of the Company (or any successor
provision in the charter or bylaws of the Company or its successor in
interest); provided, however, that with respect to that portion of the Option
constituting the Incentive Stock Option, the restriction on exercise in this
Section 8(b) shall not apply during the 90 day period immediately prior to the
Expiration Date.
(c) If pursuant to any provision hereof the Option would terminate on a
date on which Optionee is prohibited from exercising all or a portion of the
Option pursuant to Section 8(b), the term of the Option shall be extended with
respect to that portion of the Option Shares which would constitute "Excess
Common Stock" and shall terminate on the date which is 90 days after the date
the Option may thereafter first be exercised with respect to such Option Shares
without limitation pursuant to Section 8(b); provided that that portion of the
Option constituting the Incentive Stock Option shall in any event expire on the
Expiration Date.
(d) Optionee acknowledges and agrees that the Option Shares issued
hereunder shall be subject to the restrictions set forth in Article Nine of the
Restated By-Laws of the Company (or any successor provision in the charter or
bylaws of the Company or its successor in interest) and each certificate
representing Option Shares will contain a legend substantially to the following
effect (or as may be required to give notice of any successor provision in the
charter or bylaws of the Company or its successor in interest):
TRANSFER OF THESE SHARES IS SUBJECT TO RESTRICTIONS DESIGNED TO AVOID AN
"OWNERSHIP CHANGE" WITHIN THE MEANING OF SECTION 382 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED. SUCH RESTRICTIONS ARE SET FORTH IN
ARTICLE NINE OF THE RESTATED BYLAWS OF THE COMPANY. THE HOLDER OF THIS
SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO BE BOUND BY SUCH
RESTRICTIONS. THE COMPANY WILL FURNISH TO THE RECORD HOLDER OF THIS
CERTIFICATE UPON REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF
BUSINESS, A COPY OF SUCH RESTRICTIONS.
(e) Optionee understands and acknowledges that the Option and Option
Shares have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), or other applicable securities laws and represents that
he is acquiring the Option and will acquire the Option Shares for his own
account for investment and not with a view to any distribution thereof.
Optionee acknowledges that, unless issued pursuant to an effective registration
statement, each certificate for Option Shares will contain a legend
substantially to the following effect:
D-5
<PAGE>
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY ONLY PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT OR
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT, SUBJECT TO THE COMPANY'S RIGHT PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT.
9. STOCKHOLDER RIGHTS. No person or entity shall be entitled to vote,
------------------
receive dividends, or be deemed for any purpose the holder of any Option Shares
until the Option shall have been duly exercised to purchase such Option Shares
in accordance with the provisions of this Agreement.
10. STATUS RIGHTS. No provision of this Agreement or of the Option
-------------
granted hereunder shall (a) confer upon Optionee any right to continue in his
Status with the Company, (b) affect the right of the Company to Terminate the
Status of Optionee, with or without cause, or (c) confer upon Optionee any
right to participate in any employee benefit plan or other program of the
Company.
11. NOTICES. Any notice to be given to the Company shall be personally
-------
delivered to or addressed to the Secretary of the Company, at its principal
office, and any notice to be given to the Optionee shall be addressed to him at
the address given beneath his signature hereto, or at such other address as the
Optionee may hereafter designate in writing to the Company. Any notice to the
Company is deemed given when received by the Company. Any notice to the
Optionee is deemed given when enclosed in a properly sealed envelope addressed
as aforesaid, and deposited, postage prepaid, in a post office or branch post
office regularly maintained by the United States.
12. SUCCESSOR AND ASSIGNS. This Agreement shall inure to the benefit of
---------------------
and be binding upon the parties hereto and the Optionee's beneficiaries, heirs,
executors, and administrators, and the Company's successors and assigns.
13. GOVERNING LAW. This Agreement and the Option granted hereunder shall
-------------
be governed by and construed and enforced in accordance with the laws of the
State of Nevada (except to the extent preempted by federal law).
[Signatures on next page]
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<PAGE>
IN WITNESS WHEREOF, the Company and Optionee have duly executed this
Agreement effective as of the Date of Grant.
USTRAILS INC.
By:
-----------------------------
Name:
-----------------------
Title:
-----------------------
---------------------------------
Optionee
---------------------------------
Social Security Number
---------------------------------
---------------------------------
---------------------------------
Address
D-7
<PAGE>
ANNEX E
RIGHTS OF DISSENTING OWNERS
92A.300 Definitions. As used in NRS 92A.300 to 92A.500, inclusive, unless the
context otherwise requires, the words and terms defined in NRS 92A.305 to
92A.335, inclusive, have the meanings ascribed to them in those sections.
92A.305 "Beneficial Stockholder" Defined. "Beneficial stockholder" means a
person who is a beneficial owner of shares held in a voting trust or by a
nominee as the stockholder of record.
92A.310 "Corporate Action" Defined. "Corporate action" means the action of a
domestic corporation.
92A.315 "Dissenter" Defined. "Dissenter" means a stockholder who is entitled
to dissent from a domestic corporation's action under NRS 92A.380 and who
exercises that right when and in the manner required by NRS 92A.410 to 92A.480,
inclusive.
92A.320 "Fair Value" Defined. "Fair value," with respect to a dissenter's
shares, means the value of the shares immediately before the effectuation of the
corporate action to which he objects, excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion would be inequitable.
92A.325 "Stockholder" Defined. "Stockholder" means a stockholder of record or
a beneficial stockholder of a domestic corporation.
92A.330 "Stockholder Of Record" Defined. "Stockholder of record" means the
person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation.
92A.335 "Subject Corporation" Defined. "Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective or
the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
92A.340 Computation Of Interest. Interest payable pursuant to NRS 92A.300 to
92A.500, inclusive, must be computed from the effective date of the action until
the date of payment, at the average rate currently paid by the entity on its
principal bank loans or, if it has no bank loans, at a rate that is fair and
equitable under all of the circumstances.
92A.350 Rights Of Dissenting Partner Of Domestic Limited Partnership. A
partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity.
92A.360 Rights Of Dissenting Member Of Domestic Limited-Liability Company. The
articles of organization or operating agreement of a domestic limited-liability
company or, unless otherwise provided in the articles of organization or
operating agreement, an agreement of merger or exchange, may provide that
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<PAGE>
contractual rights with respect to the interest of a dissenting member are
available in connection with any merger or exchange in which the domestic
limited-liability company is a constituent entity.
92A.370 Rights Of Dissenting Member Of Domestic Nonprofit Corporation. l.
Except as otherwise provided in subsection 2 and unless otherwise provided in
the articles or bylaws, any member of any constituent domestic nonprofit
corporation who voted against the merger may, without prior notice, but within
30 days after the effective date of the merger, resign from membership and is
thereby excused from all contractual obligations to the constituent or surviving
corporations which did not occur before his resignation and is thereby entitled
to those rights, if any, which would have existed if there had been no merger
and the membership had been terminated or the member had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1.
92A.380 Right Of Stockholder To Dissent From Certain Corporate Actions And To
Obtain Payment For Shares. l. Except as otherwise provided in NRS 92A.370 to
92A.390, a stockholder is entitled to dissent from, and obtain payment of the
fair value of his shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation is a
party:
(1) If approval by the stockholders is required for the merger by NRS
92A.120 to 92A.160, inclusive, or the articles of incorporation and he is
entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged with its
parent under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic corporation is a
party as the corporation whose subject owner's interests will be acquired, if he
is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders to the
event that the articles of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting stockholders are entitled to dissent
and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to him
or the domestic corporation.
92A.390 Limitations On Right Of Dissent: Stockholders Of Certain Classes Or
Series; Action Of Stockholders Not Required For Plan Of Merger. l. There is no
right of dissent with respect to a plan of merger or exchange in favor of
stockholders of any class or series which, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting at
which the plan of merger or exchange is to be acted on, were either listed on a
national securities exchange, included in the national market system by the
National Association of Securities Dealers. Inc., or held by at least 2,000
stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the shares provide
otherwise; or
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(b) The holders of the class or series are required under the plan of merger or
exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan of
merger or exchange, were either listed on a national securities
exchange, included in the national market system by the National
Association of Securities Dealers, Inc., or held of record by a least
2,000 holders of owner's interests of record; or
(2) A combination of cash and owner's interests of the kind described in
sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130.
92A.400 Limitations On Right Of Dissent: Assertion As To Portions Only To
Shares Registered To Stockholder; Assertion By Beneficial Stockholder. l. A
stockholder of record may assert dissenter's rights as to fewer than all of the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the subject corporation in
writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares held on
his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
92A.410 Notification Of Stockholders Regarding Right Of Dissent. l. If a
proposed corporate action creating dissenters' rights is submitted to a vote at
a stockholders' meeting, the notice of the meeting must state that stockholders
are or may be entitled to assert dissenters' rights under NRS 92A.300 to
92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken without a vote
of the stockholders, the domestic corporation shall notify in writing all
stockholders entitled to assert dissenters' rights that the action was taken and
send them the dissenter's notice described in NRS 92A.430.
92A.420 Prerequisites To Demand For Payment For Shares. 1. If a proposed
corporate action creating dissenters' rights is submitted to a vote at a
stockholders meeting, a stockholder who wishes to assert dissenters rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
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2. A stockholder who does not satisfy the requirements of subsection 1 is not
entitled to payment for his shares under this chapter.
92A.430 Dissenter's Notice: Delivery To Stockholders Entitled To Assert Rights;
Contents. l. If a proposed corporate action creating dissenters' rights is
authorized at a stockholders' meeting, the subject corporation shall deliver a
written dissenter's notice to all stockholders who satisfied the requirements to
assert those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to what
extent the transfer of the shares will be restricted after the demand for
payment is received:
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of
the proposed action and requires that the person asserting dissenter's
rights certify whether or not he acquired beneficial ownership of the
shares before that date;
(d) Set a date by which the subject corporation must receive the demand
for payment, which may not be less than 30 nor more than 60 days after the
date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
92A.440 Demand For Payment And Deposit Of Certificates; Retention Of Rights Of
Stockholder. l. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares before
the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of the
notice.
2. The stockholder who demands payment and deposits his certificates, if any,
retains all other rights of a stockholder until those rights are canceled or
modified by the taking of the proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter.
92A.450 Uncertificated Shares: Authority To Restrict Transfer After Demand For
Payment; Retention Of Rights Of Stockholder. l. The subject corporation may
restrict the transfer of shares not represented by a certificate from the date
the demand for their payment is received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
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92A.460 Payment For Shares: General Requirements. l. Except as otherwise
provided in NRS 92A.470, within 30 days after receipt of a demand for payment,
the subject corporation shall pay each dissenter who complied with NRS 92A.440
the amount the subject corporation estimates to be the fair value of his shares,
plus accrued interest. The obligation of the subject corporation under this
subsection may be enforced by the district court:
(a) Of the county where the corporation's registered office is located; or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, a statement of
income for that year, a statement of changes in the stockholders' equity
for that year and the latest available interim financial statements, if
any;
(b) A statement of the subject corporation's estimate of the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
92A.470 Payment For Shares: Shares Acquired On Or After Date Of Dissenter's
Notice. l. A subject corporation may elect to withhold payment from a
dissenter unless he was the beneficial owner of the shares before the date set
forth in the dissenter's notice as the date of the first announcement to the
news media or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRA 92A.480.
92A.480 Dissenter's Estimate Of Fair Value: Notification Of Subject
Corporation; Demand For Payment Of Estimate. 1. A dissenter may notify the
subject corporation in writing of his own estimate of the fair value of his
shares and the amount of interest due, and demand payment of his estimate, less
any payment pursuant to NRS 92A.460, or reject the offer pursuant to NRS 92A.470
and demand payment of the fair value of his shares and interest due, if he
believes that the amount paid pursuant to NRS 92A.460 or offered pursuant to NRS
92A.470 is less than the fair value of his shares or that the interest due is
incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
92A.490 Legal Proceeding To Determine Fair Value: Duties Of Subject
Corporation; Powers Of Court; Rights Of Dissenter. 1. If a demand for payment
remains unsettled, the subject corporation shall commence a proceeding within 60
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days after receiving the demand and petition the court to determine the fair
value of the shares and accrued interest. If the subject corporation does not
commence the proceeding within the 60-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the district court of
the county where its registered office is located. If the subject corporation is
a foreign entity without a resident agent in the state, it shall commence the
proceeding in the county where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign entity was located.
3. The subject corporation shall make all dissenters, whether or not residents
of Nevada, whose demands remain unsettled, parties to the proceeding as in an
action against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the subject corporation;
or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment
pursuant to NRS 92A.470.
92A.500 Legal Proceeding To Determine Fair Value: Assessment Of Costs And Fees.
1. The court in a proceeding to determine fair value shall determine all of the
costs of the proceeding, including the reasonable compensation and expenses of
any appraisers appointed by the court. The court shall assess the costs against
the subject corporation, except that the court may assess costs against all or
some of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously or not in good faith
in demanding payment.
2. The court may also assess the fees and expenses of the counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if the
court finds the subject corporation did not substantially comply with the
requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith
with respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
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4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters who are parties to the proceeding, in
amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced pursuant
to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P 68 or NRS
17.115.
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