<PAGE>
As filed with the Securities and Exchange Commission on December 10, 1997.
Registration No.: 333-22705
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1 ON
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
THOUSAND TRAILS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 709 75-2138671
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
2711 LBJ Freeway, Suite 200
Dallas, Texas 75234
(972) 243-2228
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
WALTER B. JACCARD, ESQ.
Vice President, General Counsel and Secretary
Thousand Trails, Inc.
2711 LBJ Freeway, Suite 200
Dallas, Texas 75234
(972) 243-2228
(Name, address including zip code, and telephone number, including area code, of
agent for service)
COPY TO:
IRWIN F. SENTILLES, III, ESQ.
Gibson, Dunn & Crutcher LLP
1717 Main Street, Suite 5400
Dallas, Texas 75201
(214) 698-3100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act check
the following box: [X]
If the Registrant elects to deliver its annual report to security holders, or a
complete and legal facsimile thereof, pursuant to Item 11(a)(1) of this Form,
check the following box: [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CROSS REFERENCE SHEET SHOWING LOCATION
IN THE PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-2
<TABLE>
<CAPTION>
Item LOCATION IN PROSPECTUS
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<S> <C>
1. Forepart of Registration Statement and Facing Page of Registration Statement; Outside
Outside Front Cover Page of Prospectus Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Available Information; Additional Information;
Prospectus Table of Contents
3. Summary Information, Risk Factors and Ratio Prospectus Summary; The Company; Risk Factors
of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Determination of Offering Price
6. Dilution *
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Registered Description of Common Stock
10. Interests of Named Experts and Counsel *
11. Information With Respect to the Registrant Prospectus Summary; Risk Factors; The Company;
Business; Incorporation of Certain Information by
Reference.
12. Incorporation of Certain Information by Incorporation of Certain Information by Reference.
Reference
13. Disclosure of Commission Position on *
Indemnification for Securities Act Liabilities
</TABLE>
__________
*Not applicable or answer thereto is negative.
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PROSPECTUS
THOUSAND TRAILS, INC.
419,612 SHARES OF COMMON STOCK
Thousand Trails, Inc. (the "Company") is offering 10,170 shares of its Common
Stock, par value $.01 per share (the "Common Stock"), to the holders of its
Common Stock Purchase Warrants expiring March 31, 1999 (the "1994 Warrants").
The 1994 Warrants were issued in 1994 to holders of the 12% Secured Notes due
1998 (the "Secured Notes") of the Company's predecessor, USTrails Inc.
("USTrails"), in connection with a consent solicitation that resulted in
indenture amendments affecting such notes, which have since been retired. The
Company will receive proceeds from the issuance of Common Stock upon the
exercise of the 1994 Warrants to the extent of their exercise price. The
current exercise price of the 1994 Warrants is $1.625 per share.
The selling security holders (the "Selling Security Holders") may offer from
time to time up to 409,442 shares of Common Stock issuable upon the exercise of
the Company's Common Stock Purchase Warrants expiring June 30, 1999
(collectively, the "1991/1992 Warrants"). Of these, warrants to purchase
194,521 shares of Common Stock (the "1991 Warrants") were issued in 1991 in
connection with the consummation of the Plan of Reorganization of USTrails, and
warrants to purchase 290,314 shares of Common Stock (the "1992 Warrants") were
issued in 1992 in connection with the retirement of debt of a predecessor of the
Company that was then a subsidiary of USTrails. The current exercise price of
the 1991/1992 Warrants is $4.24 per share. Offers and sales of the Common Stock
issuable upon exercise of the 1991/1992 Warrants may be made directly to other
purchasers, through agents or otherwise, in negotiated or market transactions.
The prices, terms and conditions of any sale will be determined at the time of
sale by the seller or as a result of negotiations between or on behalf of the
buyer and the seller. Expenses of any such sale will be borne by the parties to
the sale as they may agree. See "Selling Security Holders" and "Plan of
Distribution." On December 2, 1997, the high bid and low bid prices of the
Common Stock in the over-the-counter market were $5 and $5, respectively. See
"Market for Common Stock and Related Stockholder Matters." The Company will not
receive any proceeds from the sale of shares of Common Stock by the Selling
Security Holders; however, it will receive proceeds from the issuance of shares
of Common Stock upon the exercise of the 1991/1992 Warrants to the extent of
their exercise price.
SEE "RISK FACTORS," BEGINNING AT PAGE 3, FOR A DISCUSSION OF CERTAIN FACTORS
THAT PROSPECTIVE PURCHASERS SHOULD CONSIDER IN EVALUATING A PURCHASE OF THE
COMMON STOCK OFFERED HEREBY.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------------
THESE SECURITIES 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 PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 10, 1997.
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company has enclosed with this Prospectus its Annual Report on
Form 10-K for the fiscal year ended June 30, 1997, its Proxy Statement for the
1997 Annual Meeting of the Company filed on October 3, 1997 and its Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1997
(collectively, the "Company Reports"), which are incorporated herein by
reference.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-2 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus, filed as part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement. Statements made in this Prospectus as to the contents
of any indenture, contract, agreement or other document referred to are not
necessarily complete. With respect to each such indenture, contract, agreement
or other document filed as an exhibit to the Registration Statement, reference
is made to such exhibit for a more complete description thereof, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the exhibits and schedules thereto may be inspected
and copied (at prescribed rates) at the public reference facilities maintained
by the Commission and without charge electronically at the Commission's World
Wide Web site. See "Available Information" for the office and World Wide Web
site addresses of the Commission.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Commission. The public may inspect and copy (at prescribed
rates) the Registration Statement as well as such reports, proxy and information
statements and other information that the Company 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 and
information statements and other information concerning the Company from the
Public Reference Section of the Commission, 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 the Company,
which files electronically with the Commission.
(ii)
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus or incorporated in this Prospectus by
reference. Unless the context otherwise requires, the term "the Company" refers
to Thousands Trails, Inc., a Delaware corporation, and its predecessors and
subsidiaries. In this Prospectus, the Company makes certain statements as to
its expected financial condition, results of operations, cash flows, and
business strategies and plans for future periods. All of these statements are
forward-looking statements based on the beliefs of management of the Company as
well as assumptions made by the Company and are made pursuant to the safe harbor
provisions of Section 27A of the Securities Act and Section 21E of the Exchange
Act. These statements are not historical and involve risks and uncertainties.
The Company's actual financial condition, results of operations, cash flows, and
business strategies and plans for future periods may differ materially due to
certain risks, uncertainties and assumptions set forth under "Risk Factors" and
described elsewhere in this Prospectus or incorporated in this Prospectus by
reference.
THE COMPANY
The Company and its subsidiaries own and operate a system of 55
membership-based campgrounds located in 17 states and British Columbia, Canada,
serving 120,000 members as of June 30, 1997. Through its subsidiaries, the
Company also provides a reciprocal use program for members of approximately 380
recreational facilities and manages 48 public campgrounds for the US Forest
Service.
The Company entered the membership campground business on June 30,
1991, with the acquisition of 100% of the capital stock of National American
Corporation (collectively with its subsidiaries, "NACO," unless the context
otherwise requires) and 69% of the capital stock of Thousand Trails, Inc., a
Washington corporation (collectively with its subsidiaries, "Trails," unless the
context otherwise requires). The Company subsequently increased its ownership
in Trails to 80% through a tender offer and acquired the remaining 20% of the
stock of Trails in a merger. In July 1996, Trails was merged into the Company.
Prior to the acquisitions of NACO and Trails, the Company purchased contracts
receivable generated principally by NACO and Trails from the sale of campground
memberships and resort interests on an installment basis. In November 1996, the
Company, then known as USTrails Inc. ("USTrails"), reincorporated in the State
of Delaware and changed its name to Thousand Trails, Inc.
THE SELLING SECURITY HOLDERS
The Selling Security Holders received their 1991/1992 Warrants in two
transactions, one in 1991 as part of the Company's reorganization and the other
in 1992 as part of the retirement of the debt of Trails. In each transaction,
recipients of the 1991/1992 Warrants became entitled to the benefits of
registration rights agreements, which included "piggyback" registration rights.
The Common Stock issuable upon exercise of the 1991/1992 Warrants is being
included in the Registration Statement to satisfy any obligations of the Company
under such agreements in connection with the registration of shares of Common
Stock offered by the Company under the 1994 Warrants.
THE OFFERINGS
Offering by the Company........ The Company is offering to holders of the 1994
Warrants 10,170 shares of Common Stock,
subject to certain antidilution provisions,
issuable upon the exercise of their 1994
Warrants. The current exercise price of the
1994 Warrants is $1.625 per share.
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Offering by
Selling Security Holders....... From time to time, the Selling Security
Holders may offer up to 409,442 shares of
Common Stock, subject to certain antidilution
provisions, that are issuable upon the
exercise of the 1991/1992 Warrants. The
current exercise price of the 1991/1992
Warrants is $4.24 per share and the current
expiration date of the 1991/1992 Warrants is
June 30, 1999. The 1991/1992 Warrants
themselves are not being offered by the
Selling Security Holders.
Use of Proceeds................ The Company will receive the proceeds of the
issuance of shares of Common Stock upon the
exercise of the 1994 Warrants to the extent of
their exercise price. The Company will not
receive any of the proceeds from any sales of
Common Stock by the Selling Security Holders;
however, it will receive proceeds from the
issuance of shares of Common Stock upon the
exercise of the 1991/1992 Warrants to the
extent of their exercise price.
COMMON STOCK OFFERED UNDER 1994 WARRANTS
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Exercise Price of 1994
Warrants...................... $1.625 per share of Common Stock, subject to
certain antidilution provisions.
Number of Shares Issuable...... 10,170 shares of Common Stock, subject to
certain antidilution provisions.
Expiration Date................ 5:00 p.m., Eastern time, on March 31, 1999.
The holder of a 1994 Warrant, however, will be
unable to exercise his 1994 Warrant unless a
registration statement is in effect under the
Securities Act with respect to the issuance of
the Common Stock subject thereto and such
issuance has been registered or qualified
under the applicable state or other securities
laws or exemptions therefrom exist. No
assurance exists that the Company can maintain
the effectiveness of the Registration
Statement or any such state qualifications or
registrations as required to permit the
exercise of the 1994 Warrants.
Common Stock................... The Common Stock (including the common stock
of USTrails for which the Common Stock was
exchanged in USTrails' reincorporation merger
into the Company) has traded in the over-the-
counter market since 1992. Trading in the
Common Stock is light, and an established
public trading market may not exist. It is
unclear whether the market for the Common
Stock is adversely affected by transfer
restrictions applicable to the Common Stock
that are intended to help reduce the risk of
an "ownership change" (within the meaning of
Section 382 of the Internal Revenue Code of
1986), which could materially limit the
availability of the Company's substantial net
operating loss carry forwards.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that
prospective purchasers should consider in evaluating a purchase of the
securities offered hereby.
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RISK FACTORS
Prospective purchasers should review the risk factors discussed below
when considering whether to purchase shares of Common Stock. These risk
factors, however, may not be the only risks involved in connection with a
purchase of such securities.
BUSINESS STRATEGY UNCERTAINTY
The Company's current business strategy is to improve its campground
operations and stabilize its campground membership base through increased sales
and marketing efforts. The Company believes there is a viable market for
campground memberships and that it has a significant opportunity to compete for
campers interested in higher quality facilities and a higher level of service
than is typically available at public campgrounds or competing private
campgrounds. The Company also believes that its flexible membership products
give it a competitive advantage because they offer consumers the ability to
choose the type of membership most suitable to their needs.
However, the Company's membership base has declined over the past five
fiscal years. In response to this decline, the Company has downsized its
business by closing and disposing of campgrounds and decreasing campground
operating costs and general administrative expenses. The Company intends to
continue to downsize its business while its membership base declines. In this
regard, the Company will likely close and dispose of additional campgrounds and
it will seek to decrease other expenses. At the same time, the Company intends
to expand its sales and marketing efforts with a view to stopping the membership
decline. The Company believes that the ultimate size of its campground system
and the amounts realized from future asset sales will depend principally upon
the degree to which the Company can successfully implement this strategy.
Although the Company's membership sales revenues have increased, the level of
sales in fiscal 1997 did not meet the Company's expectations. In addition, the
Company's intention to keep the cash it expends on selling and marketing
expenses within a close relation to the cash it receives from campground
membership sales may limit its ability to increase sales in the future.
Consequently, no assurance can be given that the Company will be successful in
stopping its membership decline.
If the Company is successful in increasing campground membership sales
significantly, the increase could adversely affect future operating results.
The Company's selling and marketing efforts require significant expenditures,
the majority of which must be expensed in the current period, while the related
sales revenues are deferred and recognized on a straight-line basis over the
expected life of the memberships sold. As a consequence, the Company's selling
and marketing expenses exceed its membership campground sales revenues, and this
disparity will likely increase to the extent the Company is able to grow
campground membership sales.
See "Business," "Selected Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Company
Reports incorporated herein by reference.
NET OPERATING LOSS CARRYFORWARDS
Risk of Ownership Change. For federal income tax purposes, the
Company has estimated net operating loss carryforwards ("NOLs") available for
its use of $47.9 million as of June 30, 1997. The NOLs can generally be used to
offset taxable income earned by the Company (and thus reduce the Company's
income tax liability) in subsequent years within a 15-year carryover period.
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"),
provides that when a corporation undergoes an "ownership change," the
corporation's use of its NOLs is limited each year to an amount of losses
determined by multiplying the fair market value of the corporation's stock
immediately before the ownership change by the "long-term tax exempt rate." The
restructuring in which the Secured Notes were retired in July 1996 (the
"Restructuring") was structured to avoid an "ownership change" under Section 382
of the Code. However, the issuance of shares of Common Stock in the
Restructuring resulted in a change
3
<PAGE>
in ownership for purposes of Section 382 of approximately 42.5%, which is less
than the 50% change required to cause an "ownership change." If the Company were
to experience an "ownership change," the Company estimates that it would not be
entitled to use a substantial amount of its available NOLs to reduce its taxable
income. Such a limitation on the use of the Company's NOLs would materially
reduce the Company's after-tax earnings as well as its ability to service its
indebtedness.
Transfer Restrictions. In order to reduce the risk of "ownership
change" in the future, the transfer of the Common Stock has been restricted
through the inclusion of transfer restrictions in the Company's certificate of
incorporation (the "Transfer Restrictions"). However, notwithstanding the
Transfer Restrictions, the Company may be unable to, or may elect not to,
prevent every transaction that could cause an "ownership change." In addition,
the Transfer Restrictions do not apply to the exercise of outstanding warrants
or certain options to purchase Common Stock, including the 1991/1992 Warrants
and the 1994 Warrants. Further, while the Company believes that the Transfer
Restrictions are enforceable as to all of the 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. There can be no assurance that
legislation will not be adopted that would limit the Company's 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 the Company to utilize the NOLs.
Use of NOLs. 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 Transfer
Restrictions 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.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company Reports incorporated herein by reference.
SIGNIFICANT LEVERAGE
The Company remains significantly leveraged. As of June 30, 1997, the
Company had outstanding indebtedness of approximately $44.1 million. In
addition, as a result of their pay-in-kind feature, the Company's Senior
Subordinated Pay-In-Kind Notes due 2003 (the "PIK Notes"), which were issued in
the Restructuring, will increase at the rate of 12% per annum, compounded semi-
annually, at least until the indebtedness under the Company's Loan and Security
Agreement, dated as of July 10, 1996 (as amended, the "Loan Agreement"), with
Foothill Capital Corporation ("Foothill") is repaid. Subject to the
restrictions of the Loan Agreement and the Indenture for the PIK Notes (the
"Indenture"), the Company may incur additional indebtedness from time to time.
This leverage increases the risk inherent in the Company's business strategy and
may limit the Company's ability to respond to variances from the results sought,
as well as changing business and economic conditions. Required payments of
principal and interest are expected to be financed from operating cash flow,
collections of contracts receivables and proceeds from the disposition of non-
core assets. The Company's ability to generate such cash is subject to many
factors, including stabilizing the Company's membership base and the amount of
asset sales to be effected as the Company downsizes. See "Selected Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company Reports incorporated herein by reference
and "Capitalization".
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MEMBERS RIGHTS
The Company believes that the success of its business strategy will
necessarily be tied to continued operation of a downsized campground system.
Some states, including California, Oregon and Washington, where 29 of the
Company's campgrounds are located, have nondisturbance statutes that limit the
ability of an owner to sell or close, or a lienholder to foreclose a lien on, a
campground. In certain states, these statutes permit sale, closure or
foreclosure if the holders of related memberships receive access to a comparable
campground. Moreover, the campground mortgages that could secure the PIK Notes
in the future will contain similar nondisturbance provisions. Certain of these
limitations purport to survive any rejection of member contracts in a
bankruptcy, and the United States Bankruptcy Code may provide additional
protections of member rights. As a consequence, although the Company may be able
to sell or close some of its campgrounds as it has done in the past, a sale or
closure of significant numbers of campgrounds in addition to those currently
contemplated will likely be limited by state law or the membership contracts
themselves, and foreclosure of the campground liens in significant numbers will
also likely be limited. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business -- Government Regulation" and
"Properties" in the Company Reports incorporated herein by reference.
MARKET CONDITIONS
Trading in the Common Stock is light, and an established market in the
Common Stock may not exist. Moreover, it is unclear whether the market for the
Common Stock is adversely affected by the Transfer Restrictions. As a
consequence, the investment in the Common Stock may be illiquid for an
indefinite period. See "Market for Common Stock and Related Stockholder
Matters" and "Description of Common Stock."
In the Restructuring, the Company issued, in a private transaction
with certain holders of Secured Notes, an aggregate of 3,680,550 shares of
Common Stock in partial consideration for the retirement of the Secured Notes.
These shares represent approximately 50% of the shares of Common Stock currently
outstanding. These shares were registered under the applicable securities laws
in connection with USTrails' reincorporation merger into the Company, which was
effected on November 20, 1996. It is uncertain whether these shares will
adversely affect any market for the Common Stock.
CONCENTRATION OF OWNERSHIP
As of September 30, 1997, Mr. Andrew Boas, a director of the Company,
beneficially owned an aggregate of 48.3% of the outstanding Common Stock and
$11.5 million in principal amount of PIK Notes (representing approximately 37.3%
in principal amount of PIK Notes). As a result, Mr. Boas, will be in a position
to significantly influence the outcome of certain actions by the Company's
stockholders. As a holder of PIK Notes, the interests of Mr. Boas may not be
wholly aligned with the interests of other holders of Common Stock. See
"Security Ownership of Certain Beneficial Owners and Management" in the Company
Reports incorporated herein by reference and "Selling Security Holders."
THE COMPANY
The Company and its subsidiaries own and operate a system of 55
membership-based campgrounds located in 17Estates and British Columbia, Canada,
serving 120,000 members as of June 30, 1997. Through its subsidiaries, the
Company also provides a reciprocal use program for members of approximately 380
recreational facilities and manages 48 public campgrounds for the US Forest
Service. The Company's principal executive office is located at 2711 Lyndon B.
Johnson Freeway, Suite 200, Dallas, Texas 75234, and its telephone number is
(972) 243-2228.
The Company entered the membership campground business on June 30,
1991, with the acquisition of 100% of the capital stock of NACO and 69% of the
capital stock of Trails. The Company subsequently increased its ownership in
Trails to 100% through a tender offer and merger and, on July 16,
5
<PAGE>
1996, Trails was merged into the Company. Prior to acquiring NACO and Trails,
the Company purchased contracts receivable generated principally by them from
the sale of campground memberships and resort interests on the installment
basis. In November 1996, the Company, then known as USTrails, reincorporated in
the State of Delaware and changed its name to Thousand Trails, Inc.
1996 SECURED NOTE RESTRUCTURING
On July 17, 1996, the Company consummated the Restructuring whereby
all of the $101,458,000 principal amount of Secured Notes outstanding were
retired. In the Restructuring, the Company purchased $10,070,000 in aggregate
principal amount of Secured Notes pursuant to a tender offer for $780 per $1,000
principal amount, and exchanged $81,790,000 in aggregate principal amount of
Secured Notes pursuant to a private exchange offer for, in each case per $1,000
in principal amount: $400 in cash, $492 in principal amount of PIK Notes and 45
shares of Common Stock. The remaining $9,598,000 in aggregate principal amount
of Secured Notes were redeemed at 100% of principal amount, plus accrued
interest. In connection with the Restructuring, the Company entered into the
Loan Agreement with Foothill. A total of $32.0 million was drawn under the Loan
Agreement at closing of the Restructuring.
1997 PIK NOTE REPURCHASE
On June 25, 1997, the Company repurchased $13.4 million principal
amount of PIK Notes at a cost of $12.6 million, including accrued interest. The
Company made these repurchases at an average price of $897 per $1,000 of
principal amount in a Dutch auction available to all holders of PIK Notes. At
September 30, 1997, a total of $31 million principal amount of PIK Notes was
outstanding.
CURRENT BUSINESS STRATEGY
The Company's current business strategy is to improve its campground
operations and stabilize its campground membership base through increased sales
and marketing efforts. The Company believes that there is a viable market for
campground memberships and that it has a significant opportunity to compete for
campers interested in higher quality facilities and a higher level of service
than is typically available at public campgrounds or competing private
campgrounds. The Company also believes that its flexible membership products
give it a competitive advantage because they offer consumers the ability to
choose the type of membership most suitable to their needs.
However, the Company's membership base has declined over the past five
fiscal years. In response to this decline, the Company has downsized its
business by closing and disposing of campgrounds and decreasing campground
operating costs and general and administrative expenses. The Company intends to
continue to downsize its business while its membership base declines. In this
regard, the Company will likely close and dispose of additional campgrounds and
it will seek to decrease other expenses. At the same time, the Company intends
to expand its sales and marketing efforts with a view to stopping the membership
decline. The Company believes that the ultimate size of its campground system
and the amounts realized from future asset sales will depend principally upon
the degree to which the Company can successfully implement this strategy.
USE OF PROCEEDS
The Company will receive the proceeds of the issuance of shares of
Common Stock upon the exercise of the 1994 Warrants to the extent of their
exercise price. The 1994 Warrants were issued in 1994 to holders of the Secured
Notes in connection with a consent solicitation that resulted in indenture
amendments affecting such notes.
The Company will not receive any of the proceeds from any sales of
Common Stock by the Selling Security Holders; however, it will receive proceeds
from the issuance of shares of Common Stock upon the exercise of the 1991/1992
Warrants to the extent of their exercise price. The 1991 Warrants were
6
<PAGE>
issued in 1991 in connection with the consummation of the Plan of Reorganization
of USTrails. The 1992 Warrants were issued in 1992 in connection with the
retirement of debt of Trails.
Any proceeds received by the Company, net of the expenses of the
offerings borne by the Company, will be added to the Company's working capital.
See "Plan of Distribution."
DETERMINATION OF OFFERING PRICE
The exercise price of the 1994 Warrants offered, which is $1.625, was
established by agreement between the Company and a committee of former holders
of Secured Notes.
The Company has no knowledge of whether or when a sale of any of the
shares of Common Stock offered by the Selling Security Holders will occur or
what price, terms or conditions may be offered by the Selling Security Holders.
See "Plan of Distribution."
MARKET FOR COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
MARKET AND TRADING
The Common Stock (including the common stock of USTrails for which the
Common Stock was exchanged in USTrails' reincorporation merger into the Company)
has been publicly traded in the over-the-counter market under the symbol USTQ
from 1992 through November 20, 1996 and under the symbol TRLS thereafter. Since
the Common Stock does not trade every day and the trading volume is often small,
the Common Stock may not be deemed to be traded in an established public trading
market. The following table sets forth for the fiscal periods indicated, the
high and low bid quotations as quoted through the National Quotation BureauOs
Pink Sheets. Such quotations reflect inter-dealer prices, without retail mark-
up, mark-down or commission, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
High Bid Low Bid
-------- --------
1998:
<S> <C> <C>
Second Quarter
(through December 2) 5 5
First Quarter 3 1/8 2 1/8
1997:
Fourth Quarter 2 7/16 1 3/4
Third Quarter 1 31/32 1 5/16
Second Quarter 1 7/16 15/16
First Quarter 1 1/8 1/2
1996:
Fourth Quarter 5/8 1/4
Third Quarter 3/4 1/4
Second Quarter 5/8 1/4
First Quarter 5/8 1/4
</TABLE>
On December 2, 1997, the high bid and the low bid prices of the Common
Stock were $5 and $5, respectively. As of December 2, 1997, the Common Stock
was held by 78 holders of record. Moreover, security position listings
available to the Company listed approximately 570 beneficial holders of Common
Stock.
7
<PAGE>
ABSENCE OF DIVIDENDS
Since inception, the Company has not paid any dividends. The Loan
Agreement prohibits the payment of any cash dividends on the Common Stock,
without the consent of Foothill, until the borrowings under the Loan Agreement
are repaid. In addition, the Indenture prohibits the payment of any cash
dividends on the Common Stock until the PIK Notes are repaid.
CAPITALIZATION
The following table sets forth the unaudited consolidated
capitalization of the Company as of June 30, 1997 (in thousands). Investors
should read this table in conjunction with the Company's consolidated financial
statements and the notes thereto incorporated by reference herein.
<TABLE>
<CAPTION>
June 30, 1997
-------------
<S> <C>
Borrowings under Loan Agreement $ 14,097
PIK Notes, including deferred gain of $.2 million 29,393 (1)
Notes and Mortgages Payable, Due June 2009 604
----------
Total Debt $ 44,094
==========
Preferred stock, $.01 par value, 1,500,000 shares
authorized, none issued and outstanding ---
Common Stock, $.01 par value, 15,000,000 shares
authorized, 7,383,276 shares issued and outstanding $ 74
Additional paid-in capital 20,502
Accumulated deficit subsequent to December 31, 1991,
date of emergence from bankruptcy (42,613)
Cumulative currency translation adjustment (131)
---------
Total Stockholders' Deficit $ (22,168)
==========
</TABLE>
_______________
(1) The Restructuring was accounted for as a Troubled Debt Restructuring
whereby the PIK Notes were recorded at the carrying value of the Secured
Notes, and no gain or loss was recorded on the transaction. As a result,
$40.2 million principal amount of PIK Notes issued in the Restructuring was
recorded with a deferred gain of $303,000. This deferred gain is being
amortized as a reduction of interest expense using the effective interest
method over the term of the PIK Notes.
BUSINESS
GENERAL
The Company and its subsidiaries own and operate a system of 55
membership-based campgrounds located in 17 states and British Columbia, Canada,
serving 120,000 members as of June 30, 1997. Through its subsidiaries, the
Company also provides a reciprocal use program for members of approximately 380
recreational facilities and manages 48 public campgrounds for the US Forest
Service.
CURRENT BUSINESS STRATEGY
The Company's current business strategy is to improve its campground
operations and stabilize its campground membership base through increased sales
and marketing efforts. The Company believes there is a viable market for
campground memberships and that it has a significant opportunity to
8
<PAGE>
compete for campers interested in higher quality facilities and a higher level
of service than is typically available at public campgrounds or competing
private campgrounds. The Company also believes that its flexible membership
products give it a competitive advantage because they offer consumers the
ability to choose the type of membership most suitable to their needs.
However, the Company's membership base has declined over the past five
fiscal years and, accordingly, the Company has downsized its business by closing
and disposing of campgrounds and decreasing campground operating costs and
general and administrative expenses. The Company intends to continue to downsize
its business while its membership base declines. In this regard, the Company
will likely close and dispose of additional campgrounds and it will seek to
decrease other expenses. At the same time, the Company intends to expand its
sales and marketing efforts with a view to stopping the membership decline. The
Company believes that the ultimate size of its campground system and the amounts
realized from future asset sales will depend principally upon the degree to
which the Company can successfully implement this strategy.
RESTRUCTURING
On July 17, 1996, the Company consummated a restructuring of its
outstanding debt. This restructuring provided the Company with a new capital
structure and decreased the Company's outstanding debt to a level the Company
believes it can support under its downsized operations. See "The Company - 1996
Secured Note Restructuring" and "- 1997 PIK Note Repurchase."
CAMPGROUND OPERATIONS
Campgrounds. The Company and its subsidiaries own and operate a
network of 55 membership-based campgrounds located in 17 states and British
Columbia, Canada. The Company owns and operates a network of 34 of these
campgrounds under the Thousand Trails logo, and NACO owns and operates a network
of 21 of these campgrounds under the NACO logo. The 55 campgrounds contain a
total of approximately 10,200 acres and 18,400 campsites.
Members using the campgrounds may bring their own recreational
vehicles ("RVs"), tents or other sleeping equipment, or rent travel trailers or
cabins located at the campgrounds or visit for the day. As of JuneE30, 1997,
there were approximately 77,000 campground members in the Thousand Trails system
and 43,000 campground members in the NACO system. However, approximately 35% of
the NACO campground members and approximately 52% of the Thousand Trails
campground members possess the right to use the campgrounds in both networks.
The largest percentage of campground members reside in California (approximately
37%). Large numbers of campground members also reside in Florida, Oregon,
Texas, and Washington.
Memberships provide the member's family access to the Company's
network of campgrounds, but do not convey a deeded interest in campgrounds with
the exception of six campgrounds in which members have received deeded undivided
interests in the campground. A member also does not possess the right to use a
specific campsite, trailer, or cabin, or the right to control further
development or operation of a campground.
Depending upon member usage, the campgrounds are open year-round or on
a seasonal basis. The campgrounds feature campsites with electrical, water, and
in some cases, sewer connections for RVs, restroom and shower facilities, rental
trailers or cabins, and other recreational amenities. At each campground, a
manager and staff provide security, maintenance, and recreational programs that
vary by location.
The Company derives other campground revenue from renting trailers,
cabins, and sports equipment to members, selling food and other items to members
from convenience stores located at the campgrounds, and providing the members
access to laundry facilities and game machines. The Company also charges
members a fee for storing recreational vehicles and providing food service.
9
<PAGE>
Existing Membership. At June 30, 1997, the Company had 120,000
campground members. The majority of these members have been members for over 10
years. The Company's membership base has declined significantly over the past
five fiscal years and, net of new sales, the membership base is presently
declining at the rate of approximately 6% per year. The Company attributes this
continuing decline principally to its aging membership base, of whom
approximately 50% are senior citizens. In addition, the Company estimates that
the memberships sold in recent fiscal years will have an expected life that is
significantly shorter than the expected life of the memberships previously sold
by the Company. To stop the continuing decline in its membership base, the
Company must significantly increase its campground membership sales over current
levels.
Membership Sales. In April 1992, the Company suspended the sale of
new campground memberships because its sales program was operating at a loss and
with negative cash flow. In the fall of 1992, the Company began to assist
campground members desiring to sell their memberships in the secondary market.
During fiscal 1994, the Company determined that it should increase its sales and
marketing efforts in order to replenish its declining campground membership
base, and it began selling new campground memberships on a limited basis. In
May 1995, the Company introduced new membership products, and significantly
increased its sales and marketing efforts. In recent years, the Company has
focused its membership sales efforts primarily on guests referred by existing
members and customers referred by RV dealers and RV manufacturers, who
management believes are more likely to purchase memberships.
The Company's current membership products offer the consumer a choice
of membership options ranging from the use of one campground to the entire
system of campgrounds with prices ranging from $695 to $2,995. In addition, the
membership products offer a choice of annual dues levels ranging from $329 for
30 nights of use to $1,095 for 365 nights of use. The member is charged a
nightly fee for camping more days than are included in the dues option selected.
During fiscal 1997 and 1996, the Company sold approximately 3,400 and 3,100 new
memberships, respectively. The average sales price was $707 in fiscal 1997 and
$779 in fiscal 1996, and the average annual dues level was $332 in fiscal 1997
and $306 in fiscal 1996. During the past two fiscal years, the Company offered
financing for sales with prices of $895 or higher. The Company required a down
payment of at least 25% of the sales price and would finance the balance over a
period of up to 12 months. In August 1997, the Company began offering financing
on certain memberships for periods of up to 36 months. The Company estimates
that the memberships sold in recent fiscal years will have an expected life that
is significantly shorter than the expected life of the memberships previously
sold by the Company.
The Company has the capacity to sell approximately 67,000 additional
new campground memberships in the future, assuming the sale of ten memberships
for each existing campsite. Further downsizing of the Company's business would
reduce this capacity.
Marketing. The Company's research indicates that camping is a popular
and growing activity in the United States. Camping was the second largest
participant sport/activity in the United States in 1995 with 23% of US
households camping at least once a year. Sales of camping equipment total $1.5
billion annually in 1995 and 1996. In addition, although RV sales were flat in
1995 and 1996, a recent study by the University of Michigan Survey Research
Center reported that RV sales revenues are expected to grow 4% annually for at
least the next ten years. Moreover, the Company believes that the aging of the
baby boomers should have a positive effect on sales of camping equipment and
RVs, and lead to further growth in family camping. The Company's campgrounds
are located in markets containing approximately 25% of all camping households in
the United States.
While most campers use national or state parks, the Company believes
that it has a significant opportunity to compete for campers interested in
higher quality facilities and a higher level of service than is typically
available at public campgrounds or competing private campgrounds. Based on the
Company's research, approximately 35% of campers are "amenity" campers, whose
needs match the benefits provided by the Company's campgrounds, such as pools,
lodges, sport courts, and recreational activities. The Company believes the
needs of amenity campers are not being met by underfunded national and state
campgrounds. In addition, the Company believes that it can differentiate its
campgrounds and
10
<PAGE>
services from other campgrounds by emphasizing the quality of its facilities and
the benefits and services available at its campgrounds.
Dues. Campground members pay annual dues ranging from $100 to $1,095.
The annual dues collected from campground members constitute general revenue of
the Company. The Company uses the dues to fund its operating expenses, including
corporate expenses and the maintenance and operation of the campgrounds.
However, the membership agreements do not require the Company to use the dues
for any specific purpose.
The average annual dues paid by the Company's campground members were
$344 for the year ended June 30, 1997, $335 for the year ended June 30, 1996,
and $329 for the year ended June 30, 1995. The increases resulted primarily
from the annual increase in dues implemented by the Company each year in
accordance with the terms of the membership agreements. In addition, the
Company's new members generally pay annual dues at a higher level than the older
members retiring from the system.
The membership agreements generally permit the Company to increase
annually the amount of each member's dues by either (i) the percentage increase
in the consumer price index ("CPI") or (ii) the greater of 10% or the percentage
increase in the CPI. The Company, however, may not increase the dues on
existing contracts of senior citizens and disabled members who notify the
Company of their age or disability and request that their dues be frozen. At
the present time, approximately 35% of the members have requested that their
dues be frozen because of their age or disability. The Company estimates that
approximately 50% of the campground members are senior citizens eligible to
request that their dues be frozen. The Company is unable to estimate when or if
a significant number of these members will request that their dues be frozen in
the future.
Maintenance and Improvements. The Company's campgrounds require
annual capital and maintenance expenditures, which have been deferred, in part,
as a result of general cost-cutting measures. During fiscal 1997, the Company
spent $4.6 million on major maintenance, repairs, and improvements at the
campgrounds and anticipates that it will spend an additional $4.3 million on
similar costs in fiscal 1998.
Resort Parks International. NACO members and holders of dual-system
memberships, which permit the member to use the campgrounds in both the NACO and
Thousand Trails systems, may join Resort Parks International, Inc. ("RPI"), a
wholly owned subsidiary of the Company. The RPI program offers members
reciprocal use of approximately 380 participating recreational facilities.
Members of these participating facilities pay a fee to RPI that entitles them to
use any of the participating facilities, subject to the limitation that they
cannot use an RPI facility located within 125 miles of their home facility. As
of June 30, 1997, there were approximately 89,000 RPI members, of which
approximately 67,000 were members of campgrounds that are not affiliated with
the Company.
Campground Management. During fiscal 1994, UST Wilderness Management
Corporation, a wholly owned subsidiary of the Company ("Wilderness Management"),
began to manage public campgrounds for the US Forest Service. As of June 30,
1997, Wilderness Management had entered into management contracts covering 48
campgrounds containing a total of approximately 1,700 campsites. Pursuant to
these contracts, the Company incurs the expenses of operating the campgrounds
and receives the related revenues, net of a fee paid to the US Forest Service.
These management contracts typically have terms ranging from one to five years.
RESORT OPERATIONS
Over the past several years, NACO has been selling the assets it owns
at eight resorts located in seven states. NACO currently owns and operates the
resort amenities at one of these locations. NACO's other interest in the
resorts presently consists of approximately 200 residential lots and other
miscellaneous real estate that NACO intends to sell over the next several years.
11
<PAGE>
ASSET SALES
During fiscal 1997, 1996 and 1995, the Company sold certain of its
real estate assets and received proceeds of $4.7 million, $7.2 million, and $1.1
million, respectively. During this three year period, the Company sold the
timeshare operations at the resorts, the country club and golf operations at
certain resorts, and various other properties at the resorts. In addition, the
Company sold or otherwise disposed of several campgrounds and sold excess
acreage associated with certain campgrounds. Subsequent to year-end, the Company
sold additional campgrounds for which it received proceeds of $4.5 million. Over
the next several years, the Company intends to dispose of its remaining assets
at the resorts, any campgrounds that are closed as the Company downsizes, and
other undeveloped, excess acreage associated with the campgrounds. The sale of
campgrounds requires addressing the rights of members associated with such
campgrounds. The impact of these rights is uncertain and could adversely affect
the availability or timing of sale opportunities or the ability of the Company
to realize recoveries from asset sales. In addition, although the Company has
successfully sold assets during the past three years, no assurance exists that
the Company will be able to locate a buyer for any of the remaining assets or
that sales on acceptable terms can be effected.
Under the Loan Agreement, all proceeds from asset sales must be paid
to Foothill and applied to reduce outstanding borrowings under the Loan
Agreement.
CONTRACTS RECEIVABLE
Prior to April 1992, the Company sold substantially all of its
campground memberships and resort interests on the installment basis, creating a
portfolio of contracts receivable. This portfolio has declined significantly
over the past five fiscal years as the Company has collected the outstanding
contracts receivable. Since April 1992, the Company has sold only a limited
number of campground memberships and resort interests on an installment basis
and, as a result, the portfolio of contracts receivable will continue to
decline.
Interest accrues on the unpaid balance of the contracts receivable at
fixed rates, which vary depending upon the size of the down payment and the
length of the contract. The contracts receivable bear interest at rates ranging
from 9.5% to 16.0%, with an approximate weighted average stated interest rate of
13.0% as of June 30, 1997. Monthly installment payments range from $41 to $170
over the term of the contracts receivable, which can be up to ten years. The
terms of most newer contracts receivable, however, have averaged two years or
less. At June 30, 1997, approximately 96% of the campground members and
purchasers of resort interests had paid for their membership or resort interest
in full, and the remaining outstanding contracts receivable had an average
remaining term of approximately two years.
As of June 30, 1997, the Company owned contracts receivable with an
aggregate principal balance of $12.4 million, consisting of $7.9 million of
contracts receivable associated with the Thousand Trails campgrounds, $3.3
million of contracts receivable associated with the NACO campgrounds, $1.1
million of contracts receivable associated with the resorts, and $113,000 of
contracts receivable associated with SoPac Resort Properties, Inc., a former
affiliate. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company Reports incorporated herein by reference.
Under the Loan Agreement, all collections on the contracts receivable,
including principal, interest, and fees, must be paid to Foothill and applied to
reduce outstanding borrowings under the Loan Agreement.
SELLING SECURITY HOLDERS
The following table sets forth certain information regarding the
Selling Security Holders' beneficial ownership of the Common Stock, including
Common Stock issuable upon exercise of the 1991/1992 Warrants, as of September
30, 1997. Each of the Selling Security Holders had registered and,
12
<PAGE>
assuming exercise of its 1991/1992 Warrants, may sell up to the number of shares
of Common Stock that such Selling Security Holder may receive as a result of
such exercise, as set forth opposite each Selling Security Holder's name below.
The Selling Security Holders may also sell additional shares of Common Stock
that may be issuable upon exercise of the 1991/1992 Warrants as a result of
certain antidilution provisions. It is not currently possible to predict the
number of shares of Common Stock, if any, which will be sold or the price, terms
or conditions of their sale. See "Plan of Distribution."
<TABLE>
<CAPTION>
COMMON STOCK
ISSUABLE UPON
COMMON STOCK EXERCISE OF
BENEFICIALLY 1991/1992 WARRANTS COMMON STOCK BENEFICIALLY
SELLING SECURITY HOLDERS OWNED THAT MAY BE OFFERED/1/ OWNED AFTER OFFERING
- ---------------------------------------------- ------------ ---------------------- -------------------------
PERCENT OF
NUMBER CLASS
------------ ----------
<S> <C> <C> <C> <C>
American Investors Life Insurance Company, Inc. 0 7,121 0 0
Bankers Life & Casualty Company 0 16,540 0 0
Carl Marks Strategic Investments L.P./2/ 2,474,244 194,521 2,474,244 33.5%
Fidelity & Guaranty Life Insurance Company 0 49,622 0 0
Fulton Bank, Custodian for Stanley Steiner, 0 175 0 0
Rollover IRA
Alan Kanis 706 189 706 *
Sheldon Kasower 0 3,308 0 0
OP Limited Partnership 0 13,232 0 0
Pacholder Associates, Inc. 0 551 0 0
Trussal & Co. 0 616 0 0
United States Fidelity & Guaranty Company 0 88,825 0 0
USF&G Pacholder Fund 0 33,081 0 0
Larry K. West 0 1,521 0 0
Robert and Suzanne Yudelson 0 140 0 0
---------- -------- -----------
TOTAL 2,479,950 409,442 2,479,950
========== ======== ===========
</TABLE>
__________
* Less than 1%
** Assumes that all shares of Common Stock that may be offered by Selling
Security Holders are sold.
1 The Selling Security Holders may also sell additional shares of Common Stock
that may be issuable from time to time pursuant to the antidilution
provisions applicable to the 1991/1992 Warrants.
2 Andrew M. Boas, a director of the Company, is a general partner of Carl
Marks Management Co., L.P., which is the general partner of Carl Marks
Strategic Investments, L.P. See "Security Ownership of Certain Beneficial
Owners and Management" in the Company Reports incorporated herein by
reference.
PLAN OF DISTRIBUTION
The Company is offering 10,170 shares of Common Stock by reason of the
outstanding 1994 Warrants.
The Selling Security Holders may offer and sell the 409,442 shares of
Common Stock, if and when issued upon the exercise of the 1991/1992 Warrants,
from time to time acting as principals for their own accounts, through agents or
otherwise, in negotiated or market transactions. The prices, terms and
conditions of any sale will be determined at the time of sale by the seller or
as a result of negotiations between or on behalf of the buyer and the seller.
The sales of such shares may be effected during such time as the Registration
Statement is effective. The sales may occur in one or more transactions at a
fixed price
13
<PAGE>
or prices, which may be changed, or at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at other negotiated
prices. Moreover, the Selling Security Holders may make negotiated sales at any
time if such sales are exempt from the registration requirements of the
Securities Act pursuant to Rule 144 thereunder. Although the Company has agreed
to pay all costs of the registration of these securities, any other expenses of
any sale will be borne by the parties to the sale as they may agree, including
any distributors' or brokers' commissions. Currently, no underwritten public
offering is contemplated.
The Company has called to the Selling Security Holders' attention
certain restrictions under the federal securities laws applicable to sales
registered under the Registration Statement, including the requirements of
Regulation M under the Exchange Act. In such connection, the Selling Security
Holders have entered into agreements with the Company requiring that they will
not violate any federal or state securities laws in connection with the
distribution or transfer of the Company's securities. The Selling Security
Holders have each agreed to indemnify the Company for certain information
supplied in connection with the Registration Statement. The Company similarly
agreed to indemnify the Selling Security Holders for certain other information
contained in the Registration Statement.
DESCRIPTION OF COMMON STOCK
GENERAL
The authorized capital stock of the Company 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 December 2, 1997, the Company had 7,392,776
shares of Common Stock issued and outstanding. In addition, as of such date the
Company had outstanding warrants (consisting of the 1991/1992 Warrants and the
1994 Warrants) to purchase 419,612 shares of Common Stock and options under the
Company's 1991 Employee Stock Incentive Plan, the Company's 1993 Stock Option
and Restricted Stock Purchase Plan, the Company's 1993 Director Stock Option
Plan and the stock option agreement, dated as of August 1, 1996, with the
Company's Chief Executive Officer and President to purchase 1,224,495 shares of
Common Stock. The warrants, options and Stock Option Agreement are each subject
to certain antidilution provisions. The Company's Certificate of Incorporation
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 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 Common Stock. In addition, if the preferred stock
were made convertible into Common Stock, dilution of the interests of holders of
the Common Stock may result.
Holders of 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 Company's Certificate of Incorporation or any merger or
consolidation (with certain limited exceptions) or dissolution of the Company,
or any sale, lease, or exchange of all or substantially all of the assets of the
Company, however, requires the affirmative vote of holders of shares
representing a majority of the votes entitled to be cast.
The Company's Bylaws contain 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 Company's 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
14
<PAGE>
or persons calling such meeting is permitted to come before the meeting. The
limitations on procedures to bring business before the annual meeting of
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 Company's Certificate of Incorporation does not contain a
provision permitting cumulative voting for the election of directors. The
holders of more than 50% of the 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 the Company. The directors of the Company are
elected annually and serve until their successors are elected and qualified.
Holders of shares of 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 and the Loan
Agreement, the Company may not pay any dividends (other than stock dividends) on
the Common Stock, nor purchase, redeem or otherwise acquire or retire for value
any Common Stock, until the obligations thereunder are repaid.
Upon liquidation, the holders of Common Stock are entitled to share on
a pro rata basis in the net assets of the Company after payment of any and all
amounts due to creditors and holders of any preferred stock. The holders of
Common Stock have no preemptive, redemption or conversion rights.
The Company is not currently subject to the provisions of Section 203
of the Delaware GCL because the Common Stock is not listed on a national
securities exchange, authorized for quotation on the NASDAQ stock market or held
of record by more than 2,000 stockholders. 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 (which may include stock issuances) with a person
or affiliate or associate of such person who is such "interested stockholder"
unless certain board or shareholder approvals are obtained. Stockholders that
beneficially received 15% or more of the Common Stock in the Company's
reincorporation merger in November 1996, however, will not be subject to the
provisions of Section 203 should they become applicable to the Company, 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 of Certain Beneficial
Owners and Management" and "Certain Relationships and Related Transactions" in
the Company Reports incorporated herein by reference.
TRANSFER RESTRICTIONS
The Company's Certificate of Incorporation contains restrictions on
the transfer of shares of Common Stock (the "Transfer Restrictions") that are
designed to restrict direct and indirect transfers that could result in the
imposition of limitations on the use by the Company, for federal income tax
purposes, of its NOLs and other tax attributes. Section 382 of the Internal
Revenue Code of 1986, as amended (the "Code"), limits the use of losses and
other tax benefits by a company that has undergone an "ownership change" (as
defined in the Code). 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
15
<PAGE>
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 (with certain adjustments) by (ii) the federal long-term tax
exempt rate (5.33% for ownership changes occurring during October 1997). 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).
The Transfer Restrictions generally restrict until 2011 (or earlier in
certain events) any direct or indirect transfer of Common Stock that would (i)
except as provided below, increase to more than 4.75% the percentage ownership
of Common Stock of any person who at any time during the preceding three-year
period did not own more than 4.75% of the Common Stock, (ii) except as provided
below, 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% 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 the Company within the
meaning of Section 382.
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 will
permit a stockholder who owns less than 4.75% of the Common Stock to transfer
shares of Common Stock to any other stockholder who (after giving effect to the
transfer) owns 4.75% or less of the Common Stock. Similarly, the Transfer
Restrictions will 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 may 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 Common Stock purportedly transferred in excess of the threshold
established in the Transfer Restrictions.
The Transfer Restrictions will apply differently over time. 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 USTrails' reincorporation
merger into the Company on November 20, 1996 was as much as 42.5%. Therefore,
all transactions (other than the exercise of the outstanding warrants and
certain options) that would increase the aggregate percentage increase owned by
4.75% Shareholders will be restricted upon effectiveness of the reincorporation
merger.
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 Common Stock.
16
<PAGE>
Transfers included under the Transfer Restrictions include sales to
persons who would exceed the thresholds discussed above, or to persons whose
ownership 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 Common Stock, such as an interest in an entity that,
directly or indirectly, owns the Common Stock may result in the 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 Common Stock to the extent, generally, that exercise of the option would
result in a proscribed level of ownership.
The Board of Directors has issued instructions to or made 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 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 Common Stock on the stock transfer records, to request an
affidavit from the purported transferee of the Common Stock regarding such
purported transferee's actual and constructive ownership of the 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 the Company 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 Common
Stock.
It is the intention of the Transfer Restrictions that any direct or
indirect transfer of 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 Common Stock, or
in the case of options subject to the Transfer Restrictions, receiving Common
Stock in respect of their exercise. 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 the Company 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 the Company, 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 the Company 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 the Company 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.
17
<PAGE>
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, the Company
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 the Company is unable
to locate the purchaser within 90 days, the Company is required (to the extent
permitted under its debt instruments) to purchase Common Stock in a manner that
would reduce the ownership of the person or public group whose ownership
increased as a result of the prohibited transfer and to hold such 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 the Company 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 Common
Stock, the Transfer Restrictions provide a mechanism that is intended to
invalidate the ownership of the 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 Common Stock by other persons be invalidated
under the Transfer Restrictions.
Notwithstanding the Transfer Restrictions, there remains a risk that
certain transfers of 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 Common Stock
could cause changes in ownership of Common Stock through the application of the
attribution rules discussed above, and therefore could also trigger an ownership
change causing a loss of NOLs. 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 (including the 1991/1992 Warrants and
the 1994 Warrants) 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 has 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 has 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 may occur.
The Board of Directors also has 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 has the power to adopt Bylaws, regulations and procedures,
not inconsistent with the Transfer Restrictions, for purposes of determining
whether any acquisition of Common Stock would jeopardize the ability of the
Company to
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<PAGE>
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 the Company, (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.
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.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain anticipated federal
income tax consequences with respect to the ownership and disposition of the
Common Stock. This discussion is general in nature, and does not discuss all
aspects of federal income taxation that may be relevant to a particular investor
in light of the investor's particular circumstances, or to certain types of
investors subject to special treatment under federal income tax laws (such as
individual retirement accounts, insurance companies, tax-exempt organizations,
financial institutions, brokers, dealers, foreign entities, and taxpayers that
are neither citizens nor residents of the United States). In addition, the
discussion does not consider the effect of any foreign, state, local, or other
tax laws, or any United States tax consequences other than income tax (e.g.,
estate or gift tax) consequences, that may be applicable to particular
investors. The summary is based upon the Code and applicable Treasury
Regulations (including proposed regulations), rulings, administrative
pronouncements and decisions as of the date hereof, all of which are subject to
change or differing interpretations at any time and in some circumstances with
retroactive effect.
THE COMPANY URGES EACH PURCHASER OF COMMON STOCK TO CONSULT ITS OWN
TAX ADVISOR TO DETERMINE THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX
CONSEQUENCES TO IT OF THE OWNERSHIP AND DISPOSITION OF THE COMMON STOCK.
DIVIDENDS
Dividend distributions with respect to the shares of Common Stock
should constitute dividends for federal income tax purposes to the extent of the
Company's current and accumulated earnings and profits (as computed for federal
income tax purposes). Accordingly, distributions should qualify to that extent
for the dividends received deduction for corporations as set forth in Section
243 of the Code. Distributions in excess of current and accumulated earnings
and profits will be treated as a tax-free return of capital (reducing the
holder's tax basis in the shares of Common Stock) to the extent of the holder's
basis in such shares, and as long-term or short-term capital gain, as the case
may be (assuming such shares are held as capital assets), thereafter. Holders
receiving distributions on the shares of Common Stock also may be affected by
the taxable income limitations set forth in Section 246(b), the holding period
requirements of Section 246(c), the debt financed portfolio stock limitations of
Section 246A, and the "extraordinary dividend" rules of Section 1059 of the
Code. Holders should consult their tax advisors in order to determine the
application of these provisions. The Indenture and the Loan Agreement prohibit
dividend payments on the Common Stock.
SALE OR EXCHANGE
Upon a sale or exchange of Common Stock, the holder generally
recognizes income or loss equal to the amount of cash plus the fair market value
of any property received over the holder's adjusted
19
<PAGE>
tax basis in the Common Stock sold or exchanged. Assuming the holder held the
Common Stock as a capital asset, the income or loss will generally be capital
gain or loss, and will be mid-term capital gain if the holder's holding period
for the Common Stock exceeds one year but does not exceed eighteen months at the
time of sale, or will be long-term capital gain or loss if the holder's holding
period for the Common Stock exceeds eighteen months at the time of sale. Current
legislation does not address how capital loss incurred on the Common Stock will
be treated if the holder's holding period for the Common Stock exceeds one year
but does not exceed eighteen months at the time of sale. Any sale proceeds
attributable to dividends will be taxed in accordance with the rules discussed
in the preceding paragraph.
BACKUP WITHHOLDING
Under the Code, a holder of Common Stock may be subject, under certain
circumstances, to "backup withholding" at a rate of 31% with respect to payments
in respect of dividends on the Common Stock. This withholding generally applies
only if the holder (i) fails to furnish his or its social security or other
taxpayer identification number ("TIN"), (ii) furnishes an incorrect TIN, (iii)
is notified by the Internal Revenue Service that he or it has failed to report
properly payments of interest and dividends and the Internal Revenue Service has
notified the Company that he or it is subject to backup withholding, or (iv)
fails, under certain circumstances, to provide a certified statement, signed
under penalty of perjury, that the TIN provided is his or its correct number and
that he or it is not subject to backup withholding. Any amount withheld from a
payment to a holder under the backup withholding rules does not constitute
additional tax, and is allowable as a credit against such holder's federal
income tax liability, provided that the required information is furnished to the
Internal Revenue Service. Holders of Common Stock should consult their tax
advisers as to their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption.
EXPERTS
The consolidated financial statements incorporated by reference in
this Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon
for the Company by Gibson, Dunn & Crutcher LLP, Dallas, Texas.
20
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NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION, OR TO
MAKE ANY REPRESENTATIONS, OTHER THAN THOSE
CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY
THOUSAND TRAILS, INC. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THOUSAND TRAILS, INC. SINCE THE
DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. THOUSAND TRAILS, INC.
419,612
SHARES OF
COMMON STOCK
-------------------
TABLE OF CONTENTS
Page
----
Incorporation of Certain Information
by Reference............................. (ii)
Additional Information.................... (ii)
Available Information..................... (ii)
Prospectus Summary........................ 1
Risk Factors.............................. 3
The Company............................... 5
Use of Proceeds........................... 6
Determination of Offering Price........... 7
Market for Common Stock and
Related Stockholder Matters.............. 7
Capitalization............................ 8
Business.................................. 8
Selling Security Holders.................. 12
Plan of Distribution...................... 13
Description of Common Stock............... 14
Certain Federal Income Tax Considerations. 19
Experts................................... 20
Legal Matters............................. 20
PROSPECTUS
DATED DECEMBER 10, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses (other than registration fees) are estimated;
however, they include amounts expended in connection with pre-effective filings.
None of them is to be paid by the Selling Security Holders. The Registrant
anticipates that it will incur additional expenses in connection with any post-
effective amendments to the Registration Statement and any supplements to the
Prospectus included therein:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.. $ 532
Blue Sky fees and expenses........................... 18,456
Printing............................................. 10,000
Accountants' fees and expenses....................... 7,500
Legal fees and expenses.............................. 25,000
Miscellaneous........................................ 1,512
Total........................................ $63,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under its Bylaws, the Registrant 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).
The Registrant must advance funds to these individuals to enable them
to defend any such threatened or pending action, suit, or proceeding. The
Registrant 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. The Registrant has established trusts (the
"Indemnification Trusts") that will reimburse its present and former directors
and officers for any indemnifiable damages and expenses that they incur and that
will advance to them defense funds. The Registrant contributed $800,000 to the
Indemnification Trusts. Pursuant to the trust agreements, interest on the
Indemnification Trusts corpus becomes part of the trust estate.
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 estate, 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 Trust, 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 Registrant possesses a residuary interest in the trust
estates upon termination of the Indemnification Trusts.
Section 145 of the Delaware Corporate Law provides that a corporation
may 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 (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
II-1
<PAGE>
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if such person acted in good faith and in a
manner the person 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 not reasonable cause to believe was unlawful. A similar standard
of care is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred in
connection with defense or settlement of such an action and then, where the
person is adjudged to be liable to the corporation, only if and to the extent
that the Court of Chancery of the State of Delaware or the court in which such
action was brought determines that such person is fairly and reasonably entitled
to such indemnity and then only for such expenses as the court shall deem
proper.
The Registrant has entered into Indemnity Agreements with its
directors and officers contractually obligating the Company to provide
indemnification rights substantially similar to those described above.
The Registrant is empowered by Section 102(b)(7) of the Delaware
Corporate Law to include a provision in its Certificate of Incorporation that
limits a director's liability to the Registrant or its stockholders for monetary
damages for breaches of his or her fiduciary duty as a director. The
Registrant's Certificate of Incorporation states that directors shall not be
liable for monetary damages for breaches of their fiduciary duty to the fullest
extent permitted by the Delaware Corporate Law.
The Registrant maintains directors' and officers' insurance for
certain expenses and losses.
Under the Registrant's stock option plans, the Registrant must
indemnify the members of the Board of Directors of the Company and the
Compensation Committee thereof, which committee administers the plans, for any
damages and expenses that they incur in connection with such plans or the making
of awards thereunder, so long as they act in good faith.
Additionally, National American Corporation ("NACO"), a wholly-owned
subsidiary of the Registrant and a Co-Registrant, has indemnification
obligations to its directors and officers. In connection therewith, NACO
contributed $200,000 to a trust. The trust will reimburse the NACO directors
and officers for any indemnifiable damages and expenses that they incur and will
advance defense funds to them.
ITEM 16. EXHIBITS
Exhibit
Number Description
- ------ -----------
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 "S-4 Registration
Statement")).
2.2 Plan of Reorganization of USTrails Inc. ("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, File No.
0-19743).
2.3 Exchange Agreement, dated as of June 11, 1992, between the Company and
certain holders of Trails' 14-5/8% Senior Subordinated Notes
(incorporated by reference to Exhibit 4.1 to the Company's Report on Form
8-K filed with the SEC on June 25, 1992, File No. 0-19743).
II-2
<PAGE>
2.4 Agreement and Plan of Merger, dated as of August 2, 1993, among the
Company, Trails Acquisition, Inc., and Trails, as amended (incorporated
by reference to Exhibit C(1) to the Rule 13E-3 Transaction Statement on
Schedule 13E-3 that the Company, Trails Acquisition, Inc., and Trails
originally filed with the SEC on December 21, 1993).
2.5 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, File No. 0-19743).
2.6 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, File No. 0-19743).
2.7 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, File No. 0-19743).
2.8 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, File No. 0-19743).
2.9 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, File No. 0-19743).
2.10 Offer to Purchase for Cash the Company's 12% Senior Subordinated Pay-In-
Kind Notes Due 2003, dated as of May 20, 1997 (incorporated by reference
to Exhibit 99.1 to the Company's Current Report on Form 8-K filed with
the SEC on July 8, 1997, File No. 0-19743).
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 S-4 Registration Statement).
3.2 Amended and Restated By-Laws of the Registrant (incorporated by reference
to Exhibit 3.2 to the Form 8-B filed by the Registrant with the SEC on
November 27, 1996).
4.1 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).
4.2 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 (incorporated by
reference to Exhibit 4.2 to the Form 8-B filed by the Registrant with the
SEC on November 27, 1996).
II-3
<PAGE>
4.3 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, File No. 0-19743).
4.4 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, File No. 0-19743).
5.1 Opinion of Gibson, Dunn & Crutcher LLP, counsel to the Registrant, as to
the validity of the securities being registered.
10.1 Loan Agreement, dated as of December 31, 1991, between USTrails and NACO
(incorporated by reference to Exhibit 10.27 to USTrails' Annual Report on
Form 10-K for the year ended June 30, 1992, File No. 0-19743).
10.2 First Amendment to Loan Agreement, dated as of May 20, 1993, between
USTrails and NACO (incorporated by reference to Exhibit 10.48 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1993,
File No. 0-19743).
10.3 Second Amendment to Loan Agreement, dated as of November 10, 1994,
between USTrails and NACO (incorporated by reference to Exhibit 10.3 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.4 Third Amendment to Loan Agreement, dated as of July 1, 1996, between NACO
and the Registrant (incorporated by reference to Exhibit 10.4 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
19357, originally filed with the SEC on January 7, 1997).
10.5 Amended and Restated Revolving Credit Note, dated as of July 1, 1996,
pursuant to which the Registrant provides a $40,000,000 revolving credit
facility to NACO (incorporated by reference to Exhibit 10.5 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
19357, originally filed with the SEC on January 7, 1997).
10.6 Amended and Restated Term Loan Note, dated as of July 1, 1996, pursuant
to which the Registrant provided a $10,765,000 term loan to NACO
(incorporated by reference to Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-19357,
originally filed with the SEC on January 7, 1997).
10.7 Guaranty, dated as of December 31, 1991, pursuant to which the
subsidiaries of NACO guaranteed certain amounts that NACO owes USTrails
(incorporated by reference to Exhibit 10.5 to USTrails' Registration
Statement No. 33-73284 on Form S-2, originally filed with the SEC on
December 22, 1993, File No. 0-19743).
10.8 Release From Guaranty, 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
10.56 to USTrails' Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File No. 0-19743).
10.9 Release under Loan 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, File No.
0-19743).
II-4
<PAGE>
10.10 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, File No. 0-19743).
10.11 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,
File No. 0-19743).
10.12 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, File No. 0-19743).
10.13 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, File No. 0-19743).
10.14 Loan and Security Agreement, dated as of July 10, 1996 (the "Loan
Agreement"), 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, File No.
0-19743).
10.15 First Amendment to Loan and Security Agreement, dated as of May 16,
1997, between the Company and Foothill Capital Corporation (incorporated
by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K
filed with the SEC on July 8, 1997, File No. 0-19743).
10.16 Secured Promissory Note (Account Note), dated July 10, 1996, from
USTrails payable to 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, File No. 0-19743).
10.17 Secured Promissory Note (Term Note), dated July 10, 1996, from USTrails
payable to 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, File No. 0-19743).
10.18 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,
File No. 0-19743).
10.19 Form of Mortgage, dated as of July 10, 1996, to grant liens to Foothill
Capital Corporation to secure USTrails' obligations under the Loan
Agreement, and schedule of documents
II-5
<PAGE>
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, File No. 0-19743).
10.20 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 Loan Agreement, 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, File No. 0-19743).
10.21 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 Loan Agreement, 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, File No.
0-19743).
10.22 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, File No. 0-19743).
10.23 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, File No. 0-19743).
10.24 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, File No.
0-19743).
10.25 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, File No. 0-19743).
10.26 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,
File No. 0-19743).
10.27 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, File No. 0-19743).
10.28 Stock Option Agreement, dated as of August 1, 1996 between USTrails and
William J. Shaw (incorporated by reference to Exhibit 10.26 to the Form
8-B filed by the Registrant with the SEC on November 27, 1996, File No.
0-19743).
10.29 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
II-6
<PAGE>
William J. Shaw (incorporated by reference to Exhibit 10.27 to the
Form 8-B filed by the Registrant with the SEC on November 27, 1996, File
No. 0-19743).
10.30 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, File No. 0-19743).
10.31 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, File No. 0-19743).
10.32 Amended and Restated Employment Agreement, dated as of September 10,
1992, among NACO, USTrails, 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, File No. 0-19743), 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,
File No. 0-19743).
10.33 Amended and Restated Employment Agreement, dated as of December 2, 1992,
among NACO, USTrails 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, File No. 0-19743), 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, File No. 0-19743).
10.34 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, File No. 0-19743), 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, File No.
0-19743).
10.35 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,
File No. 0-19743).
10.36 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,
File No. 0-19743), 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,
File No. 0-19743).
10.37 Indemnification Agreement, dated as of September 1, 1995, between
USTrails and William J. Shaw, and schedule of substantially identical
Indemnification Agreements (incorporated by
II-7
<PAGE>
reference to Exhibit 10.36 to USTrails' Annual Report on Form 10-K filed
with the SEC for the year ended June 30, 1996, File No. 0-19743).
10.38 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, File No. 0-19743).
10.39 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, File No. 0-19743).
10.40 Indemnification Agreement, dated as of November 20, 1996, between the
Registrant and William J. Shaw and schedule of substantially identical
Indemnification Agreements (incorporated by reference to Exhibit 10.39 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-19357, originally filed with the SEC on January 7, 1997).
10.41 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,
File No. 0-19743).
10.42 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,
File No. 0-19743).
10.43 Grantor Trust Agreement, dated as of September 30, 1991, between Union
Bank of California, N.A. (formerly known as The Bank of California, N.A.)
and Old Trails (the "Old Trails Trust Agreement") (incorporated by
reference to Trails' Annual Report on Form 10-K for the year ended June
30, 1992, File No. 0-9246).
10.44 Supplement No. 1 to Grantor Trust Agreement, dated as of July 16, 1996,
by USTrails in favor of Union Bank of California, N.A. (formerly known as
The Bank of California, N.A.) supplementing the Old Trails Trust
Agreement (incorporated by reference to Exhibit 10.44 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-19357,
originally filed with the SEC on January 7, 1997).
10.45 Supplement No. 2 to Grantor Trust Agreement, dated as of November 20,
1996, by the Registrant in favor of Union Bank of California, N.A.
(formerly known as The Bank of California, N.A.) supplementing the Old
Trails Trust Agreement (incorporated by reference to Exhibit 10.45 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
19357, originally filed with the SEC on January 7, 1997).
10.46 Grantor Trust Agreement, dated as of September 30, 1991, between Union
Bank of California, N.A. (formerly known as 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, File No. 0-19743).
II-8
<PAGE>
10.47 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, File No. 0-19743).
10.48 Supplement and Succession Agreement to Grantor Trust Agreement, dated as
of October 13, 1992, among Union Bank of California, N.A. (formerly known
as The Bank of California, N.A.), Texas Commerce Bank, National
Association, USTrails, and certain beneficiaries under the TCB 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, File No. 0-19743).
10.49 Supplement to Grantor Trust Agreement, dated as of November 20, 1996, by
the Registrant in favor of Union Bank of California, N.A. supplementing
the TCB Trust Agreement (incorporated by reference to Exhibit 10.43 to
the Form 8-B filed by the Registrant with the SEC on November 27, 1996,
File No. 0-19743).
10.50 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, File No. 0-19743).
10.51 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, File No. 0-19743).
10.52 Tax Allocation Agreement, dated as of September 10, 1992, between
USTrails and Resort Parks International (incorporated by reference to
Exhibit 99.6 to USTrails' Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993, File No. 0-19743).
10.53 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, File No. 0-19743).
10.54 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,
File No. 0-19743).
10.55 Sample form of current Membership Contract (incorporated by reference to
Exhibit 10.54 to the Company's Annual Report on Form 10-K filed with the
SEC for the year ended June 30, 1997, File No. 0-19743).
11.1 Statement re: Computation of Per Share Earnings (incorporated by
reference to Exhibit 11.1 to the Company's Annual Report on Form 10-K
filed with the SEC for the year ended June 30, 1997, File No. 0-19743).
13.1 The Company's Annual Report on Form 10-K for the year ended June 30,
1997.
13.2 The Company's Proxy Statement for the 1997 Annual Meeting of the Company
filed on October 3, 1997.
13.3 The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
II-9
<PAGE>
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 11.1
to the Company's Annual Report on Form 10-K filed with the SEC for the
year ended June 30, 1997, File No. 0-19743).
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (see signature page of this Registration Statement, as
filed on March 3, 1997).
99.1 Form of Compliance Agreement between the Registrant and Selling Security
Holders.
99.2 Supplement to Compliance Agreement between the Registrant and Selling
Security Holders.
99.3 Additional Supplement to Compliance Agreement between the Registrant and
Selling Security Holders.
II-10
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in this Registration Statement. Notwithstanding
the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end
of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation
Registration Fee" table in the effective Registration
Statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
this Registration Statement or any material change to
such information in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceedings) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
[SIGNATURES ON THE NEXT PAGE]
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant, Thousand Trails, Inc., a Delaware corporation, has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on December 9, 1997.
THOUSAND TRAILS, INC.,
A DELAWARE CORPORATION
By: /s/ William J. Shaw
----------------------------------------
Name: William J. Shaw
Title: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities indicated on December 9, 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ William J. Shaw Director, Chairman of the Board, President and
- -----------------------------
William J. Shaw Chief Executive Officer (principal executive
officer)
/s/ Harry J. White, Jr.* Vice President, Chief Financial Officer, Chief
- -----------------------------
Harry J. White, Jr. Accounting Officer and Treasurer (principal
financial and accounting officer)
/s/ Andrew M. Boas* Director
- -------------------------------
Andrew M. Boas
/s/ William P. Kovacs* Director
- -------------------------------
William P. Kovacs
/s/ Donald R. Leopold* Director
- -------------------------------
Donald R. Leopold
/s/ H. Sean Mathis* Director
- -------------------------------
H. Sean Mathis
/s/ Douglas K. Nelson* Director
- ------------------------------
Douglas K. Nelson
*By: /s/ William J. Shaw
- ------------------------------
William J. Shaw
Attorney-in-Fact
</TABLE>
II-12
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
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 "S-4 Registration Statement")).
2.2 Plan of Reorganization of USTrails Inc. ("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, File No.
0-19743).
2.3 Exchange Agreement, dated as of June 11, 1992, between the Company and
certain holders of Trails' 14-5/8% Senior Subordinated Notes
(incorporated by reference to Exhibit 4.1 to the Company's Report on
Form 8-K filed with the SEC on June 25, 1992, File No. 0-19743).
2.4 Agreement and Plan of Merger, dated as of August 2, 1993, among the
Company, Trails Acquisition, Inc., and Trails, as amended (incorporated
by reference to Exhibit C(1) to the Rule 13E-3 Transaction Statement on
Schedule 13E-3 that the Company, Trails Acquisition, Inc., and Trails
originally filed with the SEC on December 21, 1993).
2.5 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, File No. 0-19743).
2.6 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, File No. 0-19743).
2.7 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, File No. 0-19743).
2.8 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, File No. 0-19743).
1
<PAGE>
2.9 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, File No. 0-19743).
2.10 Offer to Purchase for Cash the Company's 12% Senior Subordinated
Pay-In-Kind Notes Due 2003, dated as of May 20, 1997 (incorporated by
reference to Exhibit 99.1 to the Company's Current Report on Form 8-K
filed with the SEC on July 8, 1997, File No. 0-19743).
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 S-4 Registration Statement).
3.2 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Exhibit 3.2 to the Form 8-B filed by the Registrant with
the SEC on November 27, 1996).
4.1 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).
4.2 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
(incorporated by reference to Exhibit 4.2 to the Form 8-B filed by the
Registrant with the SEC on November 27, 1996).
4.3 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, File No. 0-19743).
4.4 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, File No. 0-19743).
5.1* Opinion of Gibson, Dunn & Crutcher LLP, counsel to the Registrant, as
to the validity of the securities being registered.
10.1 Loan Agreement, dated as of December 31, 1991, between USTrails and
NACO (incorporated by reference to Exhibit 10.27 to USTrails' Annual
Report on Form 10-K for the year ended June 30, 1992, File No.
0-19743).
10.2 First Amendment to Loan Agreement, dated as of May 20, 1993, between
USTrails and NACO (incorporated by reference to Exhibit 10.48 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1993,
File No. 0-19743).
10.3 Second Amendment to Loan Agreement, dated as of November 10, 1994,
between USTrails and NACO (incorporated by reference to Exhibit 10.3 to
USTrails' Annual Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
2
<PAGE>
10.4 Third Amendment to Loan Agreement, dated as of July 1, 1996, between
NACO and the Registrant (incorporated by reference to Exhibit 10.4 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-19357, originally filed with the SEC on January 7, 1997).
10.5 Amended and Restated Revolving Credit Note, dated as of July 1, 1996,
pursuant to which the Registrant provides a $40,000,000 revolving
credit facility to NACO (incorporated by reference to Exhibit 10.5 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-19357, originally filed with the SEC on January 7, 1997).
10.6 Amended and Restated Term Loan Note, dated as of July 1, 1996, pursuant
to which the Registrant provided a $10,765,000 term loan to NACO
(incorporated by reference to Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1, Registration No. 333-19357,
originally filed with the SEC on January 7, 1997).
10.7 Guaranty, dated as of December 31, 1991, pursuant to which the
subsidiaries of NACO guaranteed certain amounts that NACO owes USTrails
(incorporated by reference to Exhibit 10.5 to USTrails' Registration
Statement No. 33-73284 on Form S-2, originally filed with the SEC on
December 22, 1993, File No. 0-19743).
10.8 Release From Guaranty, 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
10.56 to USTrails' Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File No. 0-19743).
10.9 Release under Loan 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, File No. 0-19743).
10.10 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, File
No. 0-19743).
10.11 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, File No. 0-19743).
10.12 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, File No. 0-19743).
3
<PAGE>
10.13 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, File
No. 0-19743).
10.14 Loan and Security Agreement, dated as of July 10, 1996 (the "Loan
Agreement"), 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, File
No. 0-19743).
10.15 First Amendment to Loan and Security Agreement, dated as of May 16,
1997, between the Company and Foothill Capital Corporation
(incorporated by reference to Exhibit 99.2 to the Company's Current
Report on Form 8-K filed with the SEC on July 8, 1997, File No.
0-19743).
10.16 Secured Promissory Note (Account Note), dated July 10, 1996, from
USTrails payable to 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, File No. 0-19743).
10.17 Secured Promissory Note (Term Note), dated July 10, 1996, from USTrails
payable to 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, File No. 0-19743).
10.18 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, File No. 0-19743).
10.19 Form of Mortgage, dated as of July 10, 1996, to grant liens to Foothill
Capital Corporation to secure USTrails' obligations under the Loan
Agreement, 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, File No. 0-19743).
10.20 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 Loan
Agreement, 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, File No. 0-19743).
10.21 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 Loan Agreement, and schedule of documents
substantially identical to the form of Subordination Agreement
(incorporated by
4
<PAGE>
reference to Exhibit 10.25 to USTrails' Annual Report on Form 10-K
filed with the SEC for the year ended June 30, 1996, File No. 0-19743).
10.22 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, File No. 0-19743).
10.23 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, File No. 0-19743).
10.24 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, File No.
0-19743).
10.25 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, File
No. 0-19743).
10.26 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,
File No. 0-19743).
10.27 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, File No.
0-19743).
10.28 Stock Option Agreement, dated as of August 1, 1996 between USTrails and
William J. Shaw (incorporated by reference to Exhibit 10.26 to the Form
8-B filed by the Registrant with the SEC on November 27, 1996, File No.
0-19743).
10.29 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 (incorporated by
reference to Exhibit 10.27 to the Form 8-B filed by the Registrant with
the SEC on November 27, 1996, File No. 0-19743).
10.30 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, File No. 0-19743).
10.31 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
5
<PAGE>
by reference to Exhibit 10.30 to USTrails' Annual Report on Form 10-K
for the year ended June 30, 1996, File No. 0-19743).
10.32 Amended and Restated Employment Agreement, dated as of September 10,
1992, among NACO, USTrails, 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, File No. 0-19743), 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, File No. 0-19743).
10.33 Amended and Restated Employment Agreement, dated as of December 2,
1992, among NACO, USTrails 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, File No.
0-19743), 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, File No. 0-19743).
10.34 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, File No. 0-19743), 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, File No. 0-19743).
10.35 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,
File No. 0-19743).
10.36 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,
File No. 0-19743), 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, File No. 0-19743).
10.37 Indemnification Agreement, dated as of September 1, 1995, between
USTrails 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, File No. 0-19743).
10.38 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, File No. 0-19743).
10.39 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, File No. 0-19743).
6
<PAGE>
10.40 Indemnification Agreement, dated as of November 20, 1996, between the
Registrant and William J. Shaw and schedule of substantially identical
Indemnification Agreements (incorporated by reference to Exhibit 10.39
to the Registrant's Registration Statement on Form S-1, Registration
No. 333-19357, originally filed with the SEC on January 7, 1997).
10.41 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, File No. 0-19743).
10.42 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,
File No. 0-19743).
10.43 Grantor Trust Agreement, dated as of September 30, 1991, between Union
Bank of California, N.A. (formerly known as The Bank of California,
N.A.) and Old Trails (the "Old Trails Trust Agreement") (incorporated
by reference to Trails' Annual Report on Form 10-K for the year ended
June 30, 1992, File No. 0-9246).
10.44 Supplement No. 1 to Grantor Trust Agreement, dated as of July 16, 1996,
by USTrails in favor of Union Bank of California, N.A. (formerly known
as The Bank of California, N.A.) supplementing the Old Trails Trust
Agreement (incorporated by reference to Exhibit 10.44 to the
Registrant's Registration Statement on Form S-1, Registration No. 333-
19357, originally filed with the SEC on January 7, 1997).
10.45 Supplement No. 2 to Grantor Trust Agreement, dated as of November 20,
1996, by the Registrant in favor of Union Bank of California, N.A.
(formerly known as The Bank of California, N.A.) supplementing the Old
Trails Trust Agreement (incorporated by reference to Exhibit 10.45 to
the Registrant's Registration Statement on Form S-1, Registration No.
333-19357, originally filed with the SEC on January 7, 1997).
10.46 Grantor Trust Agreement, dated as of September 30, 1991, between Union
Bank of California, N.A. (formerly known as 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, File
No. 0-19743).
10.47 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, File No. 0-19743).
10.48 Supplement and Succession Agreement to Grantor Trust Agreement, dated
as of October 13, 1992, among Union Bank of California, N.A. (formerly
known as The Bank of California, N.A.), Texas Commerce Bank, National
Association, USTrails, and certain beneficiaries under the TCB 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, File No. 0-19743).
7
<PAGE>
10.49 Supplement to Grantor Trust Agreement, dated as of November 20, 1996,
by the Registrant in favor of Union Bank of California, N.A.
supplementing the TCB Trust Agreement (incorporated by reference to
Exhibit 10.43 to the Form 8-B filed by the Registrant with the SEC on
November 27, 1996, File No. 0-19743).
10.50 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, File No. 0-19743).
10.51 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, File
No. 0-19743).
10.52 Tax Allocation Agreement, dated as of September 10, 1992, between
USTrails and Resort Parks International (incorporated by reference to
Exhibit 99.6 to USTrails' Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993, File No. 0-19743).
10.53 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, File No.
0-19743).
10.54 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, File No. 0-19743).
10.55 Sample form of current Membership Contract (incorporated by reference
to Exhibit 10.54 to the Company's Annual Report on Form 10-K filed with
the SEC for the year ended June 30, 1997, File No. 0-19743).
11.1 Statement re: Computation of Per Share Earnings (incorporated by
reference to Exhibit 11.1 to the Company's Annual Report on Form 10-K
filed with the SEC for the year ended June 30, 1997, File No. 0-19743).
13.1** The Company's Annual Report on Form 10-K for the year ended June 30,
1997.
13.2** The Company's Proxy Statement for the 1997 Annual Meeting of the
Company filed on October 3, 1997.
13.3** The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.
21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit
11.1 to the Company's Annual Report on Form 10-K filed with the SEC for
the year ended June 30, 1997, File No. 0-19743).
23.1* Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
23.2** Consent of Arthur Andersen LLP.
8
<PAGE>
24.1* Power of Attorney (see signature page of this Registration Statement,
as filed on March 3, 1997).
99.1* Form of Compliance Agreement between the Registrant and Selling
Security Holders.
99.2* Supplement to Compliance Agreement between the Registrant and Selling
Security Holders.
99.3** Additional Supplement to Compliance Agreement between the Registrant
and Selling Security Holders.
______________
* Previously filed with this Registration Statement.
** Filed herewith.
9
<PAGE>
EXHIBIT 13.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
Commission file number 0-19743
THOUSAND TRAILS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2138671
- ---------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2711 LBJ FREEWAY, SUITE 200, DALLAS, TX 75234
- --------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 243-2228
----------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
VALUE $.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
<PAGE>
At September 19, 1997, the latest practicable date, the aggregate market value
of voting common stock of the Registrant held by nonaffiliates was $12.5
million.
At September 19, 1997, there were 7,386,776 shares of Common Stock, $.01 par
value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10-13) is incorporated by reference
from the Registrant's definitive Proxy Statement for the Registrant's 1997
Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission (the "SEC") pursuant to Regulation 14A.
Page 2
<PAGE>
INDEX TO
ANNUAL REPORT ON FORM 10-K
Page
----
PART I
Item 1. Business............................................ 4
Item 2. Properties.......................................... 11
Item 3. Legal Proceedings................................... 15
Item 4. Submission of Matters to a Vote of Security-Holders. 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................ 16
Item 6. Selected Financial Data............................ 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 21
Item 8. Financial Statements and Supplementary Data........ 36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 76
PART III
Item 10. Directors and Executive Officers of the Registrant 77
Item 11. Executive Compensation............................ 77
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................... 77
Item 13. Certain Relationships and Related Transactions.... 77
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................... 78
Signature Page................................................ 88
Page 3
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
GENERAL. Thousand Trails, Inc., a Delaware corporation ("Thousand Trails"), is
the successor by merger to USTrails Inc., a Nevada corporation ("USTrails").
Thousand Trails and its subsidiaries (the "Company") own and operate a system of
55 membership-based campgrounds located in 17 states and British Columbia,
Canada, serving 120,000 members as of June 30, 1997. Through its subsidiaries,
the Company also provides a reciprocal use program for members of approximately
380 recreational facilities and manages 48 public campgrounds for the US Forest
Service. The Company's principal executive office is located at 2711 LBJ
Freeway, Suite 200, Dallas, Texas 75234, and its telephone number is (972) 243-
2228.
The Company entered the membership campground business on June 30, 1991, with
the acquisition of 100% of the capital stock of National American Corporation, a
Nevada corporation (collectively with its subsidiaries, "NACO") and 69% of the
capital stock of Thousand Trails, Inc., a Washington corporation (collectively
with its subsidiaries, "Trails"). The Company subsequently increased its
ownership in Trails to 100% through a tender offer and merger and, on July 16,
1996, Trails was merged into the Company. Prior to acquiring NACO and Trails,
the Company purchased contracts receivable generated by them from the sale of
campground memberships on the installment basis. The Company was incorporated
in 1984, NACO was incorporated in 1967, and Trails was incorporated in 1969.
On November 20, 1996, the Company, then known as USTrails, reincorporated in the
state of Delaware and changed its name to Thousand Trails, Inc. The
reincorporation was effected through a merger with a newly formed wholly owned
subsidiary of USTrails that was approved by USTrails' stockholders at their
annual meeting.
CURRENT BUSINESS STRATEGY. The Company's current business strategy is to
improve its campground operations and stabilize its campground membership base
through increased sales and marketing efforts. The Company believes there is a
viable market for campground memberships and that it has a significant
opportunity to compete for campers interested in higher quality facilities and a
higher level of service than is typically available at public campgrounds or
competing private campgrounds. The Company also believes that its flexible
membership products give it a competitive advantage because it offers consumers
the ability to choose the type of membership most suitable to their needs.
However, the Company's membership base has declined over the past five fiscal
years and, accordingly, the Company has downsized its business by closing and
disposing of campgrounds and decreasing campground operating costs and general
and administrative expenses. The Company intends to continue to downsize its
business while its membership base declines. In this regard, the Company will
likely close and dispose of additional campgrounds and it will seek to decrease
other expenses. At the same time, the Company intends to expand its sales and
marketing efforts with a view to stopping the membership decline. The Company
believes that the ultimate size of its campground system and the amounts
realized from future asset sales will depend principally upon the degree to
which the Company can successfully implement this strategy.
Page 4
<PAGE>
DEBT RESTRUCTURING. On July 17, 1996, the Company consummated a restructuring
of its outstanding debt (see "Liquidity and Capital Resources - Debt
Restructuring" in Item 7). This restructuring provided the Company with a new
capital structure and decreased the Company's outstanding debt to a level the
Company believes it can support under its downsized operations.
CAMPGROUND OPERATIONS
CAMPGROUNDS. The Company and its subsidiaries own and operate a network of 55
membership-based campgrounds located in 17 states and British Columbia, Canada.
The Company owns and operates a network of 34 of these campgrounds under the
Thousand Trails logo, and NACO owns and operates a network of 21 of these
campgrounds under the NACO logo. The 55 campgrounds contain a total of
approximately 10,200 acres and 18,400 campsites.
Members using the campgrounds may bring their own recreational vehicles ("RVs"),
tents or other sleeping equipment, or rent travel trailers or cabins located at
the campgrounds or visit for the day. As of June 30, 1997, there were
approximately 77,000 campground members in the Thousand Trails system and 43,000
campground members in the NACO system. However, approximately 35% of the NACO
campground members and approximately 52% of the Thousand Trails campground
members possess the right to use the campgrounds in both networks. The largest
percentage of campground members reside in California (approximately 37%).
Large numbers of campground members also reside in Florida, Oregon, Texas, and
Washington.
Memberships provide the member's family access to the Company's network of
campgrounds, but do not convey a deeded interest in the campgrounds with the
exception of six campgrounds in which members received deeded undivided
interests in the campground. A member also does not possess the right to use a
specific campsite, trailer, or cabin, or the right to control further
development or operation of a campground.
Depending upon member usage, the campgrounds are open year-round or on a
seasonal basis. The campgrounds feature campsites with electrical, water, and
in some cases, sewer connections for RVs, restroom and shower facilities, rental
trailers or cabins, and other recreational amenities. At each campground, a
manager and staff provide security, maintenance, and recreational programs that
vary by location.
The Company derives other campground revenue from renting trailers, cabins, and
sports equipment to members, selling food and other items to members from
convenience stores located at the campgrounds, and providing the members access
to laundry facilities and game machines. The Company also charges members a fee
for storing recreational vehicles and providing food service.
EXISTING MEMBERSHIP. At June 30, 1997, the Company had 120,000 campground
members. The majority of these members have been members for over 10 years.
The Company's membership base has declined significantly over the past five
fiscal years and, net of new sales, the membership base is presently declining
at the rate of approximately 6% per year. The Company attributes this
continuing decline principally to its aging membership base, of whom
approximately 50% are senior citizens. In addition, the Company estimates that
the memberships sold in recent fiscal years will have an expected life that is
significantly shorter than the expected life of the memberships previously sold
by the Company. To stop the continuing decline in its membership base, the
Company must significantly increase its campground membership sales over current
levels.
MEMBERSHIP SALES. As noted above, the majority of the Company's existing
members have been members for over 10 years. The Company's membership sales
declined significantly in the early 1990's due to increasing marketing costs and
other factors. In April 1992, the Company suspended the sale of new campground
memberships because its
Page 5
<PAGE>
sales program was operating at a loss and with negative cash flow. In the fall
of 1992, the Company began to assist campground members desiring to sell their
memberships in the secondary market. During fiscal 1994, the Company determined
that it should increase its sales and marketing efforts in order to replenish
its declining campground membership base, and it began selling new campground
memberships on a limited basis. In May 1995, the Company introduced new
membership products and significantly increased its sales and marketing efforts.
In recent years, the Company has focused its membership sales efforts primarily
on guests referred by existing members and customers referred by RV dealers and
RV manufacturers, whom management believes are more likely to purchase
memberships.
The Company's current membership products offer the consumer a choice of
membership options ranging from the use of one campground to the entire system
of campgrounds with prices ranging from $695 to $2,995. In addition, the
membership products offer a choice of annual dues levels ranging from $329 for
30 nights of use to $1,095 for up to 365 nights of use. The member is charged a
nightly fee for camping more days than are included in the dues option selected.
During fiscal 1997 and 1996, the Company sold approximately 3,400 and 3,100 new
memberships, respectively. The average sales price was $707 in fiscal 1997 and
$779 in fiscal 1996, and the average annual dues level was $332 in fiscal 1997
and $306 in fiscal 1996. During the past two fiscal years, the Company offered
financing for sales with prices of $895 or higher. The Company required a down
payment of at least 25% of the sales price and would finance the balance over a
period of up to 12 months. In August 1997, the Company began offering financing
on certain memberships for periods of up to 36 months. The Company estimates
that the memberships sold in recent fiscal years will have an expected life that
is significantly shorter than the expected life of the memberships previously
sold by the Company.
The Company has the capacity to sell approximately 67,000 additional new
campground memberships in the future, assuming the sale of ten memberships for
each existing campsite. Further downsizing of the Company's business would
reduce this capacity.
MARKETING. The Company's research indicates that camping is a popular and
growing activity in the United States. Camping was the second largest
participant sport/activity in the United States in 1995 with 23% of all
households camping at least once a year. Sales of camping equipment totaled
$1.5 billion annually in 1995 and 1996. In addition, although RV sales were
flat in 1995 and 1996, a recent study by the University of Michigan Survey
Research Center reported that RV sales revenues are expected to grow 4% annually
for at least the next 10 years. Moreover, the Company believes the aging of the
baby boomers will have a positive effect on sales of camping equipment and RVs,
and lead to further growth in family camping. The Company's campgrounds are
located in markets containing approximately 25% of all camping households in the
United States.
While most campers use national or state parks, the Company believes that it has
a significant opportunity to compete for campers interested in higher quality
facilities and a higher level of service than is typically available at public
campgrounds or competing private campgrounds. Based on the Company's research,
approximately 35% of campers are "amenity" campers, whose needs match the
benefits provided by the Company's campgrounds, such as pools, lodges, sport
courts, and recreational activities. The Company believes the needs of amenity
campers are not being met by underfunded national and state campgrounds. In
addition, the Company believes that it can differentiate its campgrounds and
services from other campgrounds by emphasizing the quality of its facilities and
the benefits and services available at its campgrounds.
DUES. The Company's campground members currently pay annual dues ranging from
$100 to $1,095. The annual dues collected from campground members constitute
general revenue of the Company. The Company uses the dues to fund its operating
expenses, including corporate expenses and the maintenance and operation of the
campgrounds.
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<PAGE>
However, the membership agreements do not require the Company to use the dues
for any specific purpose.
The average annual dues paid by the Company's campground members was $344 for
the year ended June 30, 1997, $335 for the year ended June 30, 1996, and $329
for the year ended June 30, 1995. The increases resulted primarily from the
annual increase in dues implemented by the Company in accordance with the terms
of the membership agreements. In addition, the Company's new members generally
pay annual dues at a higher level than the older members retiring from the
system.
The membership agreements generally permit the Company to increase annually the
amount of each member's dues by either (i) the percentage increase in the
consumer price index ("CPI") or (ii) the greater of 10% or the percentage
increase in the CPI. The Company, however, may not increase the dues on
existing contracts of senior citizens and disabled members who notify the
Company of their age or disability and request that their dues be frozen. At
the present time, approximately 35% of the members have requested that their
dues be frozen because of their age or disability. The Company estimates that
approximately 50% of the campground members are senior citizens eligible to
request that their dues be frozen. The Company is unable to estimate when or if
a significant number of these members will request that their dues be frozen in
the future.
MAINTENANCE AND IMPROVEMENTS. The Company's campgrounds require annual capital
and maintenance expenditures, which have been deferred, in part, as a result of
general cost-cutting measures. During fiscal 1997, the Company spent $4.6
million on major maintenance, repairs, and improvements at the campgrounds and
anticipates that it will spend an additional $4.3 million on similar costs in
fiscal 1998.
RESORT PARKS INTERNATIONAL. NACO members and holders of dual-system
memberships, which permit the member to use the campgrounds in both the NACO and
Thousand Trails systems, may join a reciprocal program operated by Resort Parks
International, Inc. ("RPI"), a wholly owned subsidiary of the Company. The RPI
program offers members reciprocal use of approximately 380 participating
recreational facilities. Members of these participating facilities pay a fee to
RPI that entitles them to use any of the participating facilities, subject to
the limitation that they cannot use an RPI facility located within 125 miles of
their home facility. As of June 30, 1997, there were approximately 89,000 RPI
members, of which approximately 67,000 were members of campgrounds that are not
affiliated with the Company.
CAMPGROUND MANAGEMENT. During fiscal 1994, UST Wilderness Management
Corporation ("Wilderness Management"), a wholly owned subsidiary of the Company,
began to manage public campgrounds for the US Forest Service. As of June 30,
1997, Wilderness Management had entered into management contracts covering 48
campgrounds containing a total of 1,700 campsites. Pursuant to these contracts,
Wilderness Management incurs the expenses of operating the campgrounds and
receives the related revenues, net of a fee paid to the US Forest Service.
These management contracts typically have terms ranging from one to five years.
RESORT OPERATIONS
Over the past several years, NACO has been selling the assets it owns at eight
resorts located in seven states. NACO currently owns and operates the resort
amenities at one of these locations. NACO's other interest in the resorts
presently consists of approximately 580 residential lots and other miscellaneous
real estate that NACO intends to sell over the next several years.
Page 7
<PAGE>
SEGMENT FINANCIAL INFORMATION
Segment financial information for the campgrounds and resorts is set forth in
Note 16 to the consolidated financial statements included in Item 8.
ASSET SALES
During fiscal 1997, 1996, and 1995, the Company sold certain of its real estate
assets and received proceeds of $4.7 million, $7.2 million, and $1.1 million,
respectively. During this three-year period, the Company sold the timeshare
operations at the resorts, the country club and golf operations at certain
resorts, and various other properties at the resorts. In addition, the Company
sold or otherwise disposed of several campgrounds and sold excess acreage
associated with certain campgrounds. Subsequent to year-end, the Company sold
additional campgrounds for which it received proceeds of $4.5 million. Over the
next several years, the Company intends to dispose of its remaining assets at
the resorts, any campgrounds that are closed as the Company downsizes, and other
undeveloped, excess acreage associated with the campgrounds. The sale of
campgrounds requires addressing the rights of members associated with such
campgrounds. The impact of these rights is uncertain and could adversely affect
the availability or timing of sale opportunities or the ability of the Company
to realize recoveries from asset sales. In addition, although the Company has
successfully sold assets during the past three years, no assurance exists that
the Company will be able to locate a buyer for any of the remaining assets or
that sales on acceptable terms can be effected.
Under the Credit Agreement (as amended, the "Credit Agreement"), between the
Company and Foothill Capital Corporation ("Foothill"), all proceeds from asset
sales must be paid to Foothill and applied to reduce outstanding borrowings
under the Credit Agreement.
CONTRACTS RECEIVABLE
Prior to April 1992, the Company sold substantially all of its campground
memberships and resort interests on the installment basis, creating a portfolio
of contracts receivable. This portfolio has declined significantly over the
past five fiscal years as the Company has collected the outstanding contracts
receivable. Since April 1992, the Company has sold only a limited number of
campground memberships and resort interests on an installment basis and, as a
result, the portfolio of contracts receivable will continue to decline.
Interest accrues on the unpaid balance of the contracts receivable at fixed
rates, which vary depending upon the size of the down payment and the length of
the contract. The contracts receivable bear interest at rates ranging from 9.5%
to 16%, with a weighted average stated interest rate of 13% as of June 30, 1997.
Monthly installment payments range from $41 to $170 over the term of the
contracts receivable, which can be up to ten years. The terms of most newer
contracts receivable, however, have averaged two years or less. At June 30,
1997, approximately 96% of the campground members and purchasers of resort
interests had paid for their membership or resort interest in full, and the
remaining outstanding contracts receivable had an average remaining term of
approximately two years.
As of June 30, 1997, the Company owned contracts receivable with an aggregate
principal balance of $12.4 million, consisting of $7.9 million of contracts
receivable associated with the Thousand Trails campgrounds, $3.3 million of
contracts receivable associated with the NACO campgrounds, $1.1 million of
contracts receivable associated with the resorts, and $113,000 of contracts
receivable associated with SoPac Resort Properties, Inc., a former affiliate.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Contracts Receivable " in Item 7.
Page 8
<PAGE>
Under the Credit Agreement between the Company and Foothill, all collections on
the contracts receivable, including principal, interest, and fees, must be paid
to Foothill and applied to reduce outstanding borrowings under the Credit
Agreement.
SEASONALITY
The Company experiences its most significant demand for working capital between
May and October of each year, which period coincides with the highest level of
operating expenses. During the summer, operating expenses increase
significantly because the peak usage of the campgrounds requires seasonal
workers and increased maintenance and operating expenses. In addition, the
majority of the Company's sales and marketing efforts occur during the spring
and summer. On the other hand, most dues collection activity for campground
members occurs during the months of November through April, which is a period of
relatively lower expenses.
GOVERNMENT REGULATION
To operate its campgrounds, the Company must comply with major discretionary
permits or approvals issued by local governments under local zoning ordinances,
master plans for shoreline use, and state environmental policy statutes. The
Company has complied in all material respects with the discretionary permits and
approvals regulating its existing operations.
In addition, to construct improvements at its campgrounds, the Company has
usually been required to obtain permits that are typically non-discretionary and
routinely issued such as building and sanitary sewage permits. The Company has
generally resolved problems concerning the issuance of such permits through
design, operating, or engineering solutions negotiated with local government
officials.
The Company's campgrounds are also subject to a variety of federal and state
environmental statutes and regulations. Certain environmental issues may exist
at some of the campgrounds concerning underground storage tanks, sewage
treatment plants and septic systems, and waste disposal. Management believes
that these issues will not have a material adverse impact on the Company's
operations or financial position, as the Company has conducted environmental
testing to identify and correct a number of these problems, and has removed
substantially all of the underground storage tanks. The Company does not
possess insurance or indemnification agreements with respect to any
environmental liability that it may incur.
Most of the states in which the Company does business have laws regulating
campground membership, timeshare, and lot sales. These laws generally require
comprehensive disclosure to prospective purchasers, and give purchasers the
right to rescind their purchase for three-to-five days after the date of sale.
Some states have laws requiring the Company to register with a state agency and
obtain a permit to market.
In some states, including California, Oregon, and Washington, laws place
limitations on the ability of the owner of a campground to close the campground
unless the members at the campground receive access to a comparable campground.
In these states, members from campgrounds that have been closed by the Company
were reassigned to other campgrounds located in the same general area as the
closed campgrounds. The impact of the rights of members under these laws is
uncertain and could adversely affect the implementation of, and the benefits or
recoveries that may be available from, additional downsizing of the Company's
business.
The government authorities regulating the Company's activities have broad
discretionary power to enforce and interpret the statutes and regulations that
they administer, including the power to enjoin or suspend sales activities,
require or restrict construction of additional
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<PAGE>
facilities, and revoke licenses and permits relating to business activities. The
Company monitors its sales presentations and debt collection activities to
control practices that might violate consumer protection laws and regulations or
give rise to consumer complaints. The Company believes that it has conducted its
sales programs and debt collection activities in substantial compliance with all
applicable federal and state laws and regulations.
Certain consumer rights and defenses that vary from jurisdiction to jurisdiction
may affect the Company's portfolio of contracts receivable. Examples of such
laws include state and federal consumer credit and truth-in-lending laws
requiring the disclosure of finance charges, and usury and retail installment
sales laws regulating permissible finance charges. The Company believes that it
has complied in all material respects with these laws.
In certain states, as a result of government regulations and provisions in
certain of the membership agreements, the Company is prohibited from selling
more than 10 memberships per campsite. At the present time, these restrictions
do not preclude the Company from selling memberships in any state. However,
these restrictions may limit the Company's ability to downsize by closing
campgrounds and reassigning members to other campgrounds.
In a decision to which the Company was not a party, the Mississippi Supreme
Court ruled that the Mississippi Timeshare Rules apply to the sale of campground
memberships in Mississippi. The Company has discussed the ramifications of this
decision with the Mississippi state agency responsible for the administration of
these rules. The Company does not believe that the agency will require the
Company to rescind any sales of campground memberships because of the decision;
however, the agency has the power to do so. The Company has sold $15.9 million
of campground memberships in Mississippi.
COMPETITION
There are approximately 46,000 campgrounds in the United States today, of which
approximately 500 are membership campgrounds. The balance of the campgrounds
are generally open to the public and usually charge fees based on the length of
stay. The 500 membership campgrounds have approximately 400,000 members, of
which 120,000 are the Company's members.
Several companies compete directly with the Company's campground operations.
For example, Resorts USA, Inc., which does business as Outdoor World, sells
memberships to its system of 14 campgrounds, Travel America, Inc. (formerly All
Seasons Resorts, Inc. and Thousand Adventures, Inc.) sells memberships to its
system of 38 campgrounds, and Leisure Time Resorts, Inc. sells memberships to
its system of nine campgrounds. Other companies or individuals operate the
balance of the membership campgrounds. The Company's direct competitors
generally offer their members reciprocal use of other campgrounds through
affiliations. Over the past several years, many of the Company's direct
competitors have experienced financial difficulties, and several competitors
have filed for bankruptcy.
The vast majority of the campgrounds in the United States are operated for the
public by Federal, state, and local governments. Although these public
campgrounds are used by most campers, in recent years, many of these public
campgrounds have experienced overcrowding and increased user fees. The
Company's campgrounds also compete indirectly with timeshare resorts and other
types of recreational land developments that do not involve camping.
The Company's campground operations compete on the basis of location and the
quality of facilities and services offered at the campgrounds. The Company
believes it has a significant opportunity to compete for campers interested in
higher quality facilities and a
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higher level of service than is typically available at public campgrounds or
competing private campgrounds (see "Marketing").
The operations of Wilderness Management compete directly with approximately five
other companies in bidding for contracts to manage public campgrounds for the US
Forest Service. The Company currently has contracts to manage 48 campgrounds
for the US Forest Service out of a total of 760 such campgrounds operated by
private companies.
Coast to Coast Resorts, RPI's primary competitor and the largest reciprocal use
system, has approximately 350 affiliated campgrounds and in excess of 250,000
members. Both RPI and Coast to Coast Resorts operate vacation clubs offering
travel and lodging discounts and services to their members.
EMPLOYEES
As of June 30, 1997, the Company had 1,289 full-time equivalent employees. Due
to the seasonal nature of the Company's business, the Company has a greater
number of employees during the summer months. The Company does not have any
collective bargaining agreements with its employees and considers its relations
with employees to be satisfactory.
ITEM 2. PROPERTIES
OFFICES. The Company leases office space at 2711 LBJ Freeway, Suite 200,
Dallas, Texas 75234. NACO leases office space at 2325 Highway 90, Gautier,
Mississippi 39553. RPI leases office space at 3711 Long Beach Blvd., Suite
110, Long Beach, California 90807.
CAMPGROUNDS. The Company currently operates 55 campgrounds in 17 states and
British Columbia, Canada. The locations of these campgrounds are shown on the
map on page 13. The amenities presently available at each campground are
indicated on the chart on page 14. The Company owns 54 of these campgrounds and
leases the LaConner campground and a portion of the Lake Tawakoni campground.
The Company has sold undivided interests to members at six of the campgrounds.
Of the 55 campgrounds, 26 operate all year, 22 operate all year, but provide
only limited services during the off-season, and seven operate seasonally only.
ENCUMBRANCES. The Company has granted liens on substantially all of its assets
to secure its obligations under the Credit Agreement between the Company and
Foothill. Under the Credit Agreement, Foothill has agreed to make revolving
loans to the Company in the maximum amount of $12.2 million as of September 19,
1997. Total outstanding borrowings under the Credit Agreement were $8.8 million
as of such date. All of the Company's subsidiaries (other than an immaterial
utility subsidiary) (collectively, the "Subsidiary Guarantors") have fully and
unconditionally guaranteed, on a joint and several basis, the Company's
obligations under the Credit Agreement, and subject to certain limitations, have
granted liens on substantially all of their assets to secure their guarantees.
NACO has also granted liens, subject to certain limitations, on substantially
all of its assets to secure the repayment of its indebtedness to the Company,
which totaled $28.2 million at June 30, 1997. These security interests were
subordinated to the security interests securing the guarantees of the Credit
Agreement. The indebtedness that these security interests secure, however, is
pledged by the Company to Foothill to secure its obligations under the Credit
Agreement, and these security interests have been collaterally assigned to
Foothill. Furthermore, the subsidiaries of NACO each guaranteed their parent's
indebtedness to the
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Company and granted security interests in substantially all of their assets to
secure such guarantees.
The Subsidiary Guarantors have also fully and unconditionally guaranteed, on a
joint and several basis, the Company's obligations under the Senior Subordinated
Pay-In-Kind Notes Due 2003 (the "PIK Notes") that were issued on July 17, 1996,
as well as the PIK Notes issued in lieu of cash payment of interest. The PIK
Notes are presently unsecured. However, upon payment in full of all of the
Company's obligations under the Credit Agreement with Foothill, the PIK Notes
will be secured by the same assets as then secure the Credit Agreement other
than cash and cash equivalents and other assets required to secure any
refinancing or replacement of the borrowings provided by the Credit Agreement
for working capital purposes. This replacement credit facility may be secured by
substantially all of the assets of the Company and its subsidiaries other than
certain excluded assets, provided it does not exceed $10.0 million in principal
amount.
One of the Thousand Trails campgrounds and two of the NACO campgrounds are also
subject to mortgages in favor of the party from whom the property was purchased.
Some states, including California, Oregon, and Washington, have nondisturbance
statutes that place limitations on the ability of the owner of a campground to
sell or close, or a lienholder to foreclose a lien on, a campground. In certain
states, these statutes permit sale, closure, or foreclosure if the holders of
related memberships receive access to a comparable campground. The mortgages on
the Company's campgrounds that were granted to secure the Company's obligations
under the Credit Agreement, and any mortgages on the Company's campgrounds that
are granted in the future to secure the Company's obligations under the PIK
Notes, contain or will contain similar nondisturbance provisions. As a
consequence, although the Company may be able to sell or close some of its
campgrounds as it has done in the past, a sale or closure of significant numbers
of campgrounds would likely be limited by state law or the membership contracts
themselves, and foreclosure of the campground liens in such significant numbers
would also likely be limited. The impact of the rights of members under these
laws and nondisturbance provisions is uncertain and could adversely affect the
availability or timing of sale opportunities or the ability of the Company or
lienholder to realize recoveries from asset sales.
OTHER. The Company owns approximately 580 residential lots and other
miscellaneous real estate at eight resorts located in seven states, and various
other parcels of undeveloped real estate, that it intends to sell over time.
Page 12
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THOUSAND TRAILS, INC.
CAMPGROUNDS
[A MAP OF THE UNITED STATES OF AMERICA WITH PLOT POINTS DEPICTING
THOUSAND TRAILS AND NACO CAMPGROUND LOCATIONS APPEARS HERE]
THOUSAND TRAILS CAMPGROUNDS NACO CAMPGROUNDS
--------------------------- ----------------
BRITISH COLUMBIA TEXAS WASHINGTON INDIANA
- ---------------- ----- ---------- -------
Cultus Lake Medina Lake Birch Bay Indian Lakes
Galveston Island Little Diamond
WASHINGTON Lake Conroe Rainier VIRGINIA
- ---------- Colorado River Long Beach --------
LaConner Lake Whitney Virginia Landing
Mount Vernon Lake Texoma OREGON
Chehalis Lake Tawakoni ------ NEW JERSEY
Leavenworth South Jetty ----------
MICHIGAN Chestnut Lakes
OREGON -------- CALIFORNIA
- ------ St. Clair ----------
Bend Lake Minden
Pacific City INDIANA Russian River
------- Snowflower
CALIFORNIA Horseshoe Lakes Turtle Beach
- ---------- Yosemite
Donner Pass OHIO Windsor
Lake of the Springs ---- Rancho Oso
Morgan Hill Wilmington Wilderness Lakes
San Benito Kenissee Lake
Soledad Canyon TEXAS
Idyllwild PENNSYLVANIA ------
Pio Pico ------------ Bay Landing
Oakzanita Springs Hershey
Palm Springs MISSISSIPPI
VIRGINIA -----------
NEVADA -------- Indian Point
- ------ Lynchburg
Las Vegas Chesapeake Bay SOUTH CAROLINA
--------------
ARIZONA NORTH CAROLINA Carolina Landing
- ------- --------------
Verde Valley Forest Lake TENNESSEE
---------
FLORIDA Natchez Trace
- ------- Cherokee Landing
Orlando
Page 13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CAMPGROUND FAMILY TRAILERS
FACILITIES AND ACREAGE RV TENT ADULT CENTER/ POOL TENNIS ATHLETIC VEHICLE RESTROOMS (SEASONAL
AMENITIES SITES SITES LODGES PAVILION COURT COURT STORAGE SHOWERS AVAILABILITY
- ------------------------------------------------------------------------------------------------------------------------------------
Thousand Trails
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bend 93 300 10 1 1 2 2 1 1 6 17
- ------------------------------------------------------------------------------------------------------------------------------------
Chehalis 306 278 1 1 2 2 2 1 8 9
- ------------------------------------------------------------------------------------------------------------------------------------
Chesapeake Bay 280 373 19 1 1 2 1 1 1 4 50
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado River 217 128 1 1 1 1 1 1 2 10
- ------------------------------------------------------------------------------------------------------------------------------------
Cultus Lake 14 216 12 1 1 1 2 2 1 4 5
- ------------------------------------------------------------------------------------------------------------------------------------
Donner Pass 360 414 6 1 2 2 1 8 18
- ------------------------------------------------------------------------------------------------------------------------------------
Forest Lake 205 294 12 1 1 2 2 1 1 3 14
- ------------------------------------------------------------------------------------------------------------------------------------
Galveston Island 85 122 1 1 1 1 1 10
- ------------------------------------------------------------------------------------------------------------------------------------
Hershey 196 310 1 1 1 1 1 1 3 38
- ------------------------------------------------------------------------------------------------------------------------------------
Horseshoe Lakes 202 118 1 1 2 1 1 2 10
- ------------------------------------------------------------------------------------------------------------------------------------
Idyllwild 181 287 38 1 1 1 3 1 6 35
- ------------------------------------------------------------------------------------------------------------------------------------
Kenisee Lake 159 110 10 1 1 1 1 2 8
- ------------------------------------------------------------------------------------------------------------------------------------
LaConner 106 313 1 1 1 1 6 18
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Conroe 130 285 1 1 1 2 2 1 4 25
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Of The Springs 176 541 12 1 1 1 1 2 1 12 25
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Tawakoni 300 318 1 1 1 2 1 1 5 30
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Texoma 198 319 2 1 1 2 1 1 6 34
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Whitney 253 244 3 1 1 2 1 1 1 5 22
- ------------------------------------------------------------------------------------------------------------------------------------
Las Vegas 11 217 2 1 1 2 1 3 10
- ------------------------------------------------------------------------------------------------------------------------------------
Leavenworth 279 275 1 1 2 4 2 1 8 7
- ------------------------------------------------------------------------------------------------------------------------------------
Lynchburg 150 223 1 1 1 2 6 1 5 20
- ------------------------------------------------------------------------------------------------------------------------------------
Medina Lake 260 387 1 1 1 1 1 4 34
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Hill 62 317 28 1 1 1 1 1 1 7 27
- ------------------------------------------------------------------------------------------------------------------------------------
Mount Vernon 185 248 3 1 1 1 1 1 6 4
- ------------------------------------------------------------------------------------------------------------------------------------
Oakzanita Springs 148 135 30 1 1 1 1 1 2 15
- ------------------------------------------------------------------------------------------------------------------------------------
Orlando 269 734 1 1 2 2 1 7 30
- ------------------------------------------------------------------------------------------------------------------------------------
Pacific City 105 305 1 1 1 1 2 1 5 16
- ------------------------------------------------------------------------------------------------------------------------------------
Palm Springs 28 392 1 1 1 1 1 4 24
- ------------------------------------------------------------------------------------------------------------------------------------
Pio Pico 182 500 12 1 1 2 5 3 8 20
- ------------------------------------------------------------------------------------------------------------------------------------
San Benito 200 517 51 1 1 2 1 1 7 32
- ------------------------------------------------------------------------------------------------------------------------------------
Soledad Canyon 230 809 9 1 1 2 2 3 1 14 45
- ------------------------------------------------------------------------------------------------------------------------------------
Saint Clair 110 96 8 1 1 1 1 3 13
- ------------------------------------------------------------------------------------------------------------------------------------
Verde Valley 300 333 6 2 1 1 2 3 12
- ------------------------------------------------------------------------------------------------------------------------------------
Wilmington 109 125 1 1 1 1 2 1 2 10
- ------------------------------------------------------------------------------------------------------------------------------------
NACO
- ------------------------------------------------------------------------------------------------------------------------------------
Bay Landing 305 257 1 1 1 1 2 24
- ------------------------------------------------------------------------------------------------------------------------------------
Birch Bay 30 215 8 1 1 1 1 3 8
- ------------------------------------------------------------------------------------------------------------------------------------
Carolina Landing 119 193 1 2 2 1 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Cherokee Landing 55 341 1 1 1 1 1 3
- ------------------------------------------------------------------------------------------------------------------------------------
Chestnut Lake 31 179 1 1 1 1 1 23
- ------------------------------------------------------------------------------------------------------------------------------------
Indian Lakes 545 1088 50 2 1 3 2 2 1 5 12
- ------------------------------------------------------------------------------------------------------------------------------------
Indian Point 11 157 1 2 1 2 3
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Minden 97 162 161 1 1 1 1 3 13
- ------------------------------------------------------------------------------------------------------------------------------------
Little Diamond 200 541 100 1 4 1 1 1 5 4
- ------------------------------------------------------------------------------------------------------------------------------------
Long Beach 17 120 20 1 1 1 2 6
- ------------------------------------------------------------------------------------------------------------------------------------
Natchez Trace 623 561 1 2 1 1 5
- ------------------------------------------------------------------------------------------------------------------------------------
Rainier 107 609 300 1 1 1 1 10 9
- ------------------------------------------------------------------------------------------------------------------------------------
Rancho Oso 310 219 50 1 1 1 1 1 3 25
- ------------------------------------------------------------------------------------------------------------------------------------
Russian River 42 125 30 1 4 7
- ------------------------------------------------------------------------------------------------------------------------------------
Snowflower 720 248 10 1 1 11 7
- ------------------------------------------------------------------------------------------------------------------------------------
South Jetty 60 162 10 1 1 1 1 5 18
- ------------------------------------------------------------------------------------------------------------------------------------
Turtle Beach 39 72 120 1 2 6
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia Landing 339 262 1 1 1 3 10
- ------------------------------------------------------------------------------------------------------------------------------------
Wilderness Lakes 74 523 5 1 1 2 1 1 1 8 34
- ------------------------------------------------------------------------------------------------------------------------------------
Windsor 17 95 25 1 1 1 1 8
- ------------------------------------------------------------------------------------------------------------------------------------
Yosemite Lakes 387 379 131 1 1 1 8 33
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CAMPGROUND CHILDREN'S BOAT
FACILITY AND HORSESHOE PLAY TRADING MINIATURE SHUFFLE LAUNCH/ LAUNDRY CABINS/
AMENITIES PITS AREA POST GOLF BOARD SPA VOLLEYBALL MARINA FACILITY LODGING
- ------------------------------------------------------------------------------------------------------------------------------------
Thousand Trails
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bend 4 2 1 1 1 1 1 7
- ------------------------------------------------------------------------------------------------------------------------------------
Chehalis 7 1 1 1 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Chesapeake Bay 6 3 1 1 2 1 1 1 1 18
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado River 4 2 1 1 1 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Cultus Lake 2 2 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Donner Pass 6 2 1 8 1 1 1 6
- ------------------------------------------------------------------------------------------------------------------------------------
Forest Lake 4 2 1 1 2 2 1 1 18
- ------------------------------------------------------------------------------------------------------------------------------------
Galveston Island 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Hershey 4 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Horseshoe Lakes 4 10 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Idyllwild 4 3 1 1 2 1 3 4
- ------------------------------------------------------------------------------------------------------------------------------------
Kenisee Lake 2 2 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
LaConner 6 3 1 1 3 1 1 1 1 17
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Conroe 8 2 1 1 2 1 2 1 2
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Of The Springs 8 3 1 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Tawakoni 8 2 1 1 8 2 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Texoma 6 2 1 1 2 2 1 1 1 18
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Whitney 8 2 1 1 2 1 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
Las Vegas 2 1 1 1 1 3
- ------------------------------------------------------------------------------------------------------------------------------------
Leavenworth 5 2 1 1 4 1 2 8
- ------------------------------------------------------------------------------------------------------------------------------------
Lynchburg 7 2 1 1 2 1 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
Medina Lake 4 3 1 1 4 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Hill 4 3 1 1 4 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Mount Vernon 4 2 1 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Oakzanita Springs 4 3 1 1 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Orlando 6 2 1 1 16 1 1 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Pacific City 12 2 1 1 1 1 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Palm Springs 4 1 2 1 3
- ------------------------------------------------------------------------------------------------------------------------------------
Pio Pico 12 3 1 1 8 2 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
San Benito 4 4 1 1 6 2 2 1
- ------------------------------------------------------------------------------------------------------------------------------------
Soledad Canyon 13 7 1 1 8 1 4 1
- ------------------------------------------------------------------------------------------------------------------------------------
Saint Clair 2 2 1 1 1 1 1 2
- ------------------------------------------------------------------------------------------------------------------------------------
Verde Valley 8 3 1 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Wilmington 2 2 1 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
NACO
- ------------------------------------------------------------------------------------------------------------------------------------
Bay Landing 6 1 1 1 4 1 1 1 34
- ------------------------------------------------------------------------------------------------------------------------------------
Birch Bay 2 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Carolina Landing 4 1 1 1 1 1 18
- ------------------------------------------------------------------------------------------------------------------------------------
Cherokee Landing 3 1 1 1 2 1 1 30
- ------------------------------------------------------------------------------------------------------------------------------------
Chestnut Lake 2 1 1 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Indian Lakes 8 3 1 1 2 3 1 3 54
- ------------------------------------------------------------------------------------------------------------------------------------
Indian Point 1 1 1 1 1 1 1 16
- ------------------------------------------------------------------------------------------------------------------------------------
Lake Minden 2 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Little Diamond 3 3 1 2 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Long Beach 2 2 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Natchez Trace 1 4 1 1 1 1 1 58
- ------------------------------------------------------------------------------------------------------------------------------------
Rainier 8 2 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Rancho Oso 4 1 1 1 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
Russian River 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Snowflower 3 1 2 1 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
South Jetty 3 1 1 2 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Turtle Beach 2 1 1 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia Landing 2 2 1 1 2 1 1 1 19
- ------------------------------------------------------------------------------------------------------------------------------------
Wilderness Lakes 6 2 1 1 3 3 1 4
- ------------------------------------------------------------------------------------------------------------------------------------
Windsor 3 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Yosemite Lakes 4 1 1 1 1 1 2 32
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 14
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Johnnie Lacy v. Thousands Trails, Inc., Civil Action No C-96 004411, filed
- -------------------------------------
February 1, 1996, in the United States District Court for the Northern District
of California. In this action, the plaintiffs allege that the Company's
campgrounds in California fail to comply with the Americans with Disabilities
Act and related California statutes (collectively, the "ADA"). On July 23,
1997, the Court certified a class of plaintiffs and tentatively approved a
settlement agreement between the Company and representatives of the class. The
settlement agreement requires the Company to bring its campgrounds in California
into compliance with the ADA by spending $75,000 on such campgrounds every 18
months until they comply fully with the ADA. The settlement agreement also
requires the Company to pay $10,500 to the individual representative of the
class of plaintiffs, $10,000 to a disability rights foundation, and $39,500 to
the plaintiffs' attorneys. The settlement agreement is not binding on the
parties until it is approved by the Court following a "fairness" hearing, which
is tentatively scheduled to be held on November 4, 1997. Assuming it is
approved by the Court, management does not believe that the settlement agreement
will have a material adverse impact on the Company's operations or financial
position.
The Company is involved in certain claims and litigation arising in the normal
course of business. Management believes that the eventual outcome of these
claims and litigation will not have a material adverse impact on the Company's
operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
Page 15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
REINCORPORATION MERGER. On November 20, 1996, the Company, then known as
USTrails, reincorporated in the state of Delaware and changed its name to
Thousand Trails, Inc. The reincorporation was effected through a merger (the
"Merger") with a newly formed wholly owned subsidiary of USTrails that was
approved by USTrails' stockholders at their annual meeting. In the Merger, each
share of USTrails common stock, par value $.01 per share ("USTrails Common
Stock"), outstanding prior to the Merger was converted into one share of the
Company's common stock, par value $.01 per share ("Common Stock"), and each
outstanding stock option, warrant, or other right to purchase or receive
USTrails Common Stock was converted into a similar stock option, warrant, or
other right to acquire Common Stock. The principal purposes of the Merger were
to implement the transfer restrictions described below and to change the
Company's state of incorporation to Delaware.
MARKET AND TRADING. From 1992 through November 20, 1996, the USTrails Common
Stock was publicly traded in the over-the-counter market under the symbol USTQ.
Since the Merger on November 20, 1996, the Common Stock has been publicly traded
in the over-the-counter market under the symbol TRLS. As the Common Stock does
not trade every day and the trading volume is often small, the Common Stock may
not be deemed to be traded in an established public trading market. The
following chart and table set forth for the fiscal periods indicated, the high
and low bid quotations 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, mark-down or commission, and may not necessarily
represent actual transactions.
[A CHART WITH PLOT POINTS DEPICTING THE HIGH AND LOW BID QUOTATIONS
FOR EACH OF THE FOUR FISCAL QUARTERS OF 1996 AND 1997 APPEARS HERE]
<TABLE>
<CAPTION>
High Bid Low Bid
-------- -------
<S> <C> <C>
1996: First Quarter 5/8 1/4
Second Quarter 5/8 1/4
Third Quarter 3/4 1/4
Fourth Quarter 5/8 1/4
1997: First Quarter 1 1/8 1/2
Second Quarter 1 5/16 15/16
Third Quarter 1 31/32 1 5/16
Fourth Quarter 2 7/16 1 3/4
</TABLE>
Page 16
<PAGE>
As of September 19, 1997, the Company's Common Stock was held by 118 holders of
record. Moreover, security position listings available to the Company listed
approximately 700 beneficial holders of Common Stock.
ABSENCE OF DIVIDENDS. Since inception, the Company has not paid any dividends.
The Credit Agreement with Foothill prohibits the payment of any cash dividends
on the Common Stock, without the consent of Foothill, until the borrowings under
the Credit Agreement are repaid. In addition, the Indenture for the PIK Notes
prohibits the payment of any cash dividends on the Common Stock until the PIK
Notes are repaid.
TRANSFER RESTRICTIONS. The Company's Common Stock is subject to transfer
restrictions designed to avoid an "ownership change" within the meaning of
Section 382 of the Internal Revenue Code of 1986, as amended ("the Code").
These transfer restrictions are designed to help assure that the Company's
substantial net operating loss carryforwards ("NOLs"), which are estimated to
total $47.9 million at June 30, 1997, will continue to be available to offset
future taxable income. Section 382 of the Code limits the use of NOLs and other
tax benefits by a company that has undergone an ownership change.
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 Common Stock
that would without the approval of the Board of Directors of the Company (i)
increase to more than 4.75% the percentage ownership of Common Stock of any
person who at any time during the preceding three-year period did not own more
than 4.75% of the 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 Code but substituting "4.75%" for "5 Percent"),
or (iii) cause an "ownership change" of the Company. Article IX provides that
any direct or indirect transfer of Common Stock 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 acquired in violation of Article IX for
any purpose, including for purposes of voting and receiving dividends or other
distributions in respect of Common Stock. Any shares purportedly acquired in
violation of Article IX will be transferred to a trustee who will be required to
sell them.
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 of the Company, the transfer does not result in any greater
aggregate increase in Common Stock ownership by 5% shareholders. Also, the
restrictions will not prevent a transfer if the purported transferee obtains the
approval of the Board of Directors of the Company, 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, the transfer restrictions only apply with respect to the amount of
Common Stock purportedly transferred in excess of the threshold established in
the transfer restrictions.
These transfer restrictions (i) may have the effect of impeding the attempt of a
person or entity to acquire a significant or controlling interest in the
Company, (ii) may render it more difficult to effect a merger or similar
transaction even if such transaction is favored by a majority of the
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 the
tax benefits of the transfer restrictions outweigh any anti-takeover effect they
may have.
The application of these transfer restrictions to any particular stockholder
will depend on the stockholder's ownership of Common Stock, determined after
applying numerous
Page 17
<PAGE>
attribution rules prescribed by the Code and related regulations, and will also
depend on the history of trading of the Common Stock. As a result, stockholders
are urged to consult their tax advisors with respect to any planned purchase or
sale of Common Stock.
RECENT SALES OF UNREGISTERED SECURITIES. On July 17, 1996, the Company
consummated a restructuring (the "Restructuring") of its 12% Secured Notes due
1998 (the "Secured Notes") whereby all of the $101,458,000 principal amount of
Secured Notes outstanding were retired. As part of the Restructuring, the
Company issued $40,218,000 principal amount of PIK Notes and 3,680,550 shares of
Common Stock, and paid $32,716,000 in cash, plus accrued interest on the Secured
Notes, in exchange for $81,790,000 in principal amount of Secured Notes. The PIK
Notes and Common Stock were acquired by exchanging Secured Noteholders, all of
whom confirmed their status as "accredited investors," in an exchange that met
the requirements of Rule 506 under Regulation D under the Securities Act of
1933, as amended. The PIK Notes were guaranteed by the Subsidiary Guarantors. On
January 15, 1997, the Company issued to the holders of the PIK Notes an
additional $2.4 million principal amount of PIK Notes as interest.
At the time of the Restructuring, the Company agreed to file registration
statements with respect to the resale by exchanging Secured Noteholders of the
Common Stock and PIK Notes received by them in the Restructuring. The Common
Stock was registered in October 1996 in connection with the Company's
reincorporation merger. The resale of the PIK Notes is covered by a
registration statement in which a majority of the exchanging Secured Noteholders
are participating.
Page 18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICAL DATA)
The following historical Selected Financial Data has been restated for all
periods presented because the Company has changed its accounting method to
recognize revenue from the sale of campground memberships that do not convey a
deeded interest in real estate on a straight-line basis over the expected life
of the memberships sold (see Note 1 to the consolidated financial statements
included in Item 8).
<TABLE>
<CAPTION>
For the year ended June 30,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- --------
(Restated) (Restated) (Restated) (Restated)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue $ 78,413 $ 91,022 $ 91,392 $101,697 $ 97,620
Campground membership dues 39,945 39,924 41,175 43,200 39,555
Other campground/resort revenues 17,906 22,288 23,506 23,524 26,856
Membership and resort interest sales 3,477 3,013 4,074 4,750 3,858
Interest income 3,726 6,756 9,935 12,202 16,345
Interest expense 9,084 17,693 20,960 21,446 22,249
Income (loss) from operations before
taxes, minority interest and
Extraordinary item 7,169 (240) (11,573) (5,338) (10,124)
Extraordinary gain on debt repurchases - 1,390 - 671 2,507
Net income (loss) 6,799 1,109 (11,828) (5,417) (7,925)
Dividends paid (1) - - - - -
Earnings (loss) per share data (2):
Income (loss) before extraordinary item .89 (.08) (3.19) (1.64) (2.82)
Extraordinary item - .38 - .18 .68
Net income (loss) .89 .30 (3.19) (1.46) (2.14)
Weighted average shares 7,658 3,703 3,703 3,703 3,702
BALANCE SHEET DATA:
(AT END OF YEAR)
Cash and cash equivalents (3) 1,343 37,403 50,596 50,596 44,359
Receivables, net 7,517 13,219 18,698 32,585 57,731
Campground properties 42,764 46,309 51,960 49,761 48,359
Resort properties 1,530 2,902 5,736 6,612 11,252
Total assets 63,302 111,631 137,517 149,546 171,595
PIK Notes, including deferred gain 29,393 - - - -
Borrowings under Credit Agreement 14,097 - - - -
Secured Notes, net of discount - 94,350 115,490 110,854 115,389
Other notes payable 604 1,102 4,753 5,503 7,558
Stockholders' equity (deficit) (22,168) (31,952) (33,054) (21,240) (15,750)
STATISTICAL DATA:
(AT END OF YEAR)
Number of operating campgrounds 55 58 60 62 65
Number of campsites 18,400 19,300 19,400 20,000 20,400
Number of members 120,000 128,000 136,000 149,000 157,000
Average annual dues per member $ 344 $ 335 $ 329 $ 315 $ 290
Average cost per camper night $18.13 $18.03 $19.69 $ 18.36 $ 17.29
</TABLE>
(continued)
Page 19
<PAGE>
(continued)
FOOTNOTES
(1) During the periods presented, the Company has been prohibited from paying
any cash dividends by the indentures governing its Secured Notes and PIK
Notes and the Credit Agreement with Foothill.
(2) As part of a restructuring of the Company, on July 17, 1996, the Company
issued 3,680,550 additional shares of Common Stock, which represent
approximately 50% of the shares of Common stock currently outstanding.
(3) During the periods presented, the Company has generally been required to
deposit its cash, other than that required for operations, in accounts that
were pledged for the benefit of the holders of the Secured Notes or, after
July 17, 1996, for the benefit of Foothill.
Page 20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In this Management's Discussion and Analysis of Financial Condition and Results
of Operations, and elsewhere in this report, the Company makes certain
statements as to its expected financial condition, results of operations, cash
flows, and business strategies and plans for periods after June 30, 1997. All
of these statements are forward-looking statements made pursuant to the safe
harbor provisions of Section 21 (E) of the Securities Exchange Act of 1934, as
amended. These statements are not historical and involve risks and
uncertainties. The Company's actual financial condition, results of operations,
cash flows, and business strategies and plans for future periods may differ
materially due to several factors, including but not limited to the Company's
continued ability to control costs and implement its sales and marketing plan,
the actual rate of decline in the campground membership base, the actual use of
the campgrounds by members and guests, the effects on members and guests of the
Company's efforts to downsize its business, the Company's success in collecting
its contracts receivable and selling assets, and the other factors affecting the
Company's operations described in this report.
CHANGE IN ACCOUNTING METHOD
Subsequent to year-end, the Staff of the Securities and Exchange Commission (the
"SEC") informed the Company that the SEC will now require the Company to
recognize revenue from the sale of campground memberships that do not convey a
deeded interest in real estate on a straight-line basis over the expected life
of the memberships sold. This accounting method differs from the revenue
recognition method historically used by the Company for over 20 years.
Accordingly, to show comparable results for the periods presented, the
consolidated financial statements included in Item 8 have been restated from
those originally reported to reflect this change in accounting method (see Note
1 to the consolidated financial statements included in Item 8). The deferral of
historical sales revenues and expenses resulting from this change in accounting
method had no impact on the Company's liquidity or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
STABILIZED OPERATIONS. During fiscal 1996, the Company stabilized its
operations, which it had been seeking to accomplish for several years. In
fiscal 1997, the Company achieved a positive contribution from operations of
$8.2 million, an improvement over the $4.1 million achieved in fiscal 1996 (as
restated). For this purpose, the contribution from operations is defined as
operating income (loss) before interest income and expense, gain on asset
dispositions, restructuring costs, nonrecurring income and expenses, taxes, and
extraordinary item. See the table on page 29 for the elements of the
contribution from operations and the Company's operating income (loss) before
taxes and extraordinary item for the historical periods presented.
CURRENT BUSINESS STRATEGY. The Company's current business strategy is to
improve its campground operations and stabilize its campground membership base
through increased sales and marketing efforts. The Company believes there is a
viable market for campground memberships and that it has a significant
opportunity to compete for campers interested in higher quality facilities and a
higher level of service than is typically available at public campgrounds or
competing private campgrounds. The Company also believes that its flexible
membership products give it a competitive advantage because they offer consumers
the ability to choose the type of membership most suitable to their needs.
However, the Company's membership base has declined over the past five fiscal
years. In response to this decline, the Company has downsized its business by
closing and disposing of campgrounds and decreasing campground operating costs
and general and administrative expenses. The Company intends to continue to
downsize its business while its
Page 21
<PAGE>
membership base declines. In this regard, the Company will likely close and
dispose of additional campgrounds and it will seek to decrease other expenses.
At the same time, the Company intends to expand its sales and marketing efforts
with a view to stopping the membership decline. The Company believes that the
ultimate size of its campground system and the amounts realized from future
asset sales will depend principally upon the degree to which the Company can
successfully implement this strategy.
DEBT RESTRUCTURING. On July 17, 1996, the Company consummated the Restructuring
of the Secured Notes whereby all of the $101,458,000 principal amount of Secured
Notes outstanding were retired. The Restructuring provided the Company with a
new capital structure and decreased the Company's outstanding debt to a level
the Company believes it can support under its downsized operations. The Secured
Notes were issued in the Company's 1991 bankruptcy reorganization and in a 1992
restructuring of a subsidiary's debt.
In the Restructuring, the Company purchased $10,070,000 in aggregate principal
amount of Secured Notes pursuant to a tender offer for $780 per $1,000 principal
amount, and exchanged $81,790,000 in aggregate principal amount of Secured Notes
pursuant to a private exchange offer for, in each case per $1,000 in principal
amount: $400 in cash, $492 in principal amount of PIK Notes, and 45 shares of
Common Stock. The remaining $9,598,000 in aggregate principal amount of Secured
Notes were redeemed at 100% of principal amount, plus accrued interest. In
connection with the Restructuring, the Company entered into the Credit Agreement
with Foothill.
CASH. On June 30, 1997, the Company had approximately $1.3 million of cash and
cash equivalents, a decrease of $36.1 million during fiscal 1997. The Company's
cash declined primarily because $28.6 million was used to retire Secured Notes
and pay legal and other costs related to the Restructuring (including accrued
interest), and $30.5 million was used to repay borrowings under the Credit
Agreement with Foothill. See Borrowings. These expenditures were partially
offset by proceeds of $4.7 million from the sale of assets, and $12.6 million
provided by operating activities.
In the Restructuring, $50.2 million of cash was paid to the holders of the
Secured Notes as full or partial consideration for the retirement of the Secured
Notes, and $6.2 million of cash was paid to the holders of the Secured Notes for
the semi-annual interest due July 15, 1996, and additional interest through the
date of the Restructuring. In addition, $1.1 million of cash was used to pay
the costs of the Restructuring, and $3.1 million of cash was used to pay the
costs of obtaining the Credit Agreement with Foothill. The Company funded these
cash payments with $28.6 million of its cash and $32.0 million of new borrowings
under the Credit Agreement with Foothill.
On June 25, 1997, the Company repurchased $13.4 million principal amount of PIK
Notes in a Dutch auction for a total cost of $12.6 million, which the Company
funded through borrowings in that amount under the Credit Agreement with
Foothill.
The Company's principal sources of operating cash for the year were $11.4
million in principal and interest collections on contracts receivable and
invested cash, and $65.9 million in dues collections and other campground
revenues. Principal uses of operating cash for fiscal 1997 consisted of $40.9
million in operating expenses, $14.1 million in general and administrative
expenses (including corporate member services and restructuring costs), $4.5
million in sales and marketing expenses, $1.7 million in insurance premiums, and
$8.1 million in interest payments, $6.2 million of which related to the Secured
Notes that were retired in the Restructuring. During fiscal 1997, the Company
also spent $1.0 million on capital expenditures and HUD-related improvements,
and made $384,000 in principal payments on mortgages and other notes.
Page 22
<PAGE>
Under the Credit Agreement with Foothill, as of June 30, 1997, the Company had
an outstanding term loan totaling $28,000 and a revolving loan in the maximum
amount of $19.3 million, of which $14.1 million was outstanding and $5.2 million
was available for borrowing. Under the Credit Agreement, the Company must use
all collections of principal and interest on the contracts receivable and all
proceeds from asset sales to reduce borrowings under the Credit Agreement. In
addition, the Company must make specified principal reductions on these
borrowings over time based on a monthly calculation of eligible contracts
receivable and an amortization schedule set forth in the Credit Agreement. The
maximum amount of the revolving loan declines as these principal reductions are
made. The Credit Agreement must be paid in full on July 16, 1999.
As of September 19, 1997, the outstanding loans under the Credit Agreement had
been reduced to a total of $8.8 million, and $3.4 million was available for
borrowing. Based upon its current business plan, the Company believes that
future cash flows provided from operations, asset sales, and borrowings
available under the revolving loan will be adequate for the Company's operating
and other cash requirements during the remaining term of the Credit Agreement.
All cash held by the Company and its wholly owned subsidiaries is generally
deposited in accounts that are controlled by and pledged to Foothill.
CONTRACTS RECEIVABLE. As of June 30, 1997, the Company on a consolidated basis
owned $12.4 million of contracts receivable related to the sale of campground
memberships and resort interests. See "Contracts Receivable" in Item 1.
Because of low interest rates available in the marketplace during fiscal 1997,
1996, and 1995, some members chose to prepay their accounts, and the Company
received principal payments of $1.6 million, $2.5 million, and $3.3 million,
respectively, in excess of scheduled payments. The Company may continue to
experience such prepayments in the future, although at a decreasing rate as the
contracts receivable portfolio continues to decline.
Allowance for Doubtful Accounts
- -------------------------------
The Company's allowance for doubtful accounts was 31% of gross contracts
receivable at June 30, 1997, compared with 30% of gross contracts receivable at
June 30, 1996, and 39% at June 30, 1995. The overall cancellation rate as a
percentage of gross contracts receivable was 7% for fiscal 1997, compared with
8% for fiscal 1996 and 1995. In fiscal 1997, 1996, and 1995, the Company
reduced the allowance for doubtful accounts on the contracts receivable by $1.2
million, $5.1 million, and $457,000, respectively. These adjustments were made
because the Company experienced lower contract losses than anticipated in these
years.
The allowance for doubtful accounts is an estimate of the contracts receivable
that will cancel in the future and is determined based on historical
cancellation rates and other factors deemed relevant to the analysis. The
Company does not presently anticipate any further adjustments to the allowance
for doubtful accounts on the contracts receivable. However, the allowance and
the rate at which the Company provides for future losses on its contracts
receivable could be increased or decreased in the future based on the Company's
actual collection experience.
Other Allowances
- ----------------
In connection with the purchase of NACO and Trails, the Company recorded an
allowance for interest discount of $3.9 million to increase to 14.75% the
weighted average yield on the contracts receivable then owned by NACO and
Trails. Additionally, in connection with the purchase of NACO and Trails and
the Company's bankruptcy reorganization in 1991, the Company recorded an
allowance of $7.5 million for future collection costs, which is being applied to
reduce future general and administrative expenses. In fiscal 1995, the Company
reduced the allowance for future collection costs related to the contracts
receivable by $540,000 more than the scheduled amortization amount because the
estimated cost to collect the remaining contracts receivable was less than the
amount estimated when
Page 23
<PAGE>
the allowance was recorded. The allowance is continuing to be amortized as a
reduction of general and administrative expenses based on cash collected on the
related portfolio.
Repurchase of Receivables Owned by Third Party
- ----------------------------------------------
On March 22, 1995, the Company purchased $3.0 million of contracts receivable
from a third party, effective as of June 30, 1994, for $1.6 million. The
Company received contracts receivable with a gross balance of $2.0 million and
$1.0 million in cash representing principal and interest collections on the
contracts receivable from July 1, 1994 to March 22, 1995. The Company recorded
the $2.0 million gross balance of the contracts receivable net of an allowance
for doubtful accounts of $523,000 and a valuation allowance of $550,000. The
valuation allowance is being amortized over the remaining term of the contracts
receivable.
These contracts receivable had previously been sold by NACO to the third party.
In connection with this sale, a portion of the purchase price was withheld as a
dealer holdback against which the purchaser could offset canceled and delinquent
contracts receivable. As of March 22, 1995, the canceled and delinquent
contracts receivable charged against the dealer holdback had consumed it and a
deficiency of $2.7 million existed. Although the Company took the position that
it was not liable for the deficiency based upon the terms of certain agreements
and releases with the third party, the Company had recorded a contingent
liability for the amount of the deficiency. When the Company repurchased the
contracts receivable, this contingent liability was released, and the Company
reversed the $2.7 million recorded liability.
Changes in Receivables
- ----------------------
The net balance of contracts receivable decreased by $5.7 million during fiscal
1997, due primarily to $8.0 million in cash collections on contracts receivable,
offset by a reduction of $1.2 million in the allowance for doubtful accounts,
new financed sales, and scheduled amortization of the allowances for interest
discount, collection costs, and valuation discount.
CAMPGROUND AND RESORT PROPERTIES. The Company's campground properties consist
of land, buildings, and other equipment used in administration and operations as
well as land held for sale. Campground properties decreased by $3.5 million in
fiscal 1997, primarily as a result of the sale of several campgrounds and
certain other real estate, and depreciation on property and equipment.
The Company's campgrounds require annual capital and maintenance expenditures, a
portion of which has been deferred. During fiscal 1997 and 1996, the Company
spent $4.6 million and $4.0 million, respectively, on major maintenance,
repairs, and improvements at the campgrounds.
During the periods presented, the Company's resort properties consisted of
timeshare and lot inventory, buildings and equipment used in operations, and
land held for sale. Resort properties decreased by $1.4 million in fiscal 1997,
due primarily to the sale of the timeshare operations at the resorts, the golf
operations at one of the resorts, excess acreage and buildings at certain
resorts, and lots in the normal course of business. Over the past several
years, the Company has been selling the assets it owns at the resorts.
At June 30, 1997, the Company had obligations to spend $2.8 million in
connection with reports that it filed with the Department of Housing and Urban
Development ("HUD"). Although certain of these HUD obligations remain
substantially incomplete, during fiscal 1997 and 1996, the Company spent
$212,000 and $300,000, respectively, in fulfilling these obligations. A person
who purchased a lot when a particular HUD report was in effect may allege that
the failure to make timely improvements constitutes a breach of his or her
agreement with the Company and could seek damages from the Company or rescission
of the lot purchase. Approximately 1,400 persons purchased lots from the
Company when
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<PAGE>
the HUD reports in effect described improvements that the Company has not yet
constructed. An insignificant number of persons have asserted claims against the
Company for the failure to make these improvements.
BORROWINGS. On June 30, 1997, the Company had outstanding $44.1 million of
debt, which consisted of $14.1 million of borrowings under the Credit Agreement,
$29.2 million principal amount of PIK Notes plus a deferred gain of $180,000,
and $604,000 in outstanding mortgages and other notes.
On June 30, 1996, the Company had outstanding $101.5 million principal amount of
Secured Notes which were retired in full on July 17, 1996, in the Restructuring
for a combination of cash, PIK Notes, and Common Stock (see "Debt Restructuring"
above). The Restructuring was accounted for as a Troubled Debt Restructuring,
whereby the restructured debt was recorded at the carrying value of the old
debt, and no gain or loss was recorded on the transaction.
Credit Agreement with Foothill
- ------------------------------
In connection with the Restructuring, the Company entered into the Credit
Agreement with Foothill, under which Foothill made term loans to the Company
totaling $13.0 million, and agreed to make revolving loans to the Company in the
maximum amount of $25.0 million, provided that the aggregate borrowings under
the Credit Agreement at any one time could not exceed $35.0 million. During
fiscal 1997, the Company repaid substantially all of its initial borrowings
under the Credit Agreement.
On May 16, 1997, the Company and Foothill entered into an amendment to the
Credit Agreement which significantly modified its original terms. The amendment
reduced the maximum availability under the revolving portion of the Credit
Agreement to $20.0 million, decreased the interest rate payable thereunder from
prime plus 2 3/4% per annum to prime plus 1 1/2% per annum, and reduced or
eliminated certain fees. The amendment also permitted the Company to borrow up
to $12.0 million to repurchase the principal amount of PIK Notes, and up to
$750,000 to pay accrued interest on the PIK Notes repurchased. Because of the
substantial modifications made to the original Credit Agreement, the amendment
of the Credit Agreement was accounted for as an extinguishment of debt and the
remaining unamortized balance of the original debt issue costs of $1.3 million
was charged to expense.
The Company must use all collections of principal and interest on the contracts
receivable, which are estimated to be $4.7 million in fiscal 1998, and all
proceeds from asset sales to reduce borrowings under the Credit Agreement. In
addition, the Company must make specified principal reductions on these
borrowings over time based on a monthly calculation of eligible contracts
receivable and an amortization schedule set forth in the agreement. The maximum
amount of the revolving loan declines as these principal reductions are made.
The remaining borrowings under the Credit Agreement must be paid in full on July
16, 1999. Availability of such working capital is subject to continued
compliance by the Company with the financial covenants and other requirements of
the Credit Agreement, including certain covenants respecting minimum earnings
before interest, taxes, depreciation and amortization, and minimum tangible net
worth. The Credit Agreement prohibits the Company from borrowing from other
sources in significant amounts except for equipment purchases.
PIK Notes
- ---------
In the Restructuring, the Company issued $40.2 million principal amount of PIK
Notes that do not require the cash payment of interest until fiscal 2001 and
mature on July 15, 2003 without earlier scheduled principal payments. On
January 15, 1997, the Company issued an additional $2.4 million principal amount
of PIK Notes as interest.
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<PAGE>
On June 25, 1997, the Company repurchased $13.4 million principal amount of PIK
Notes at a cost of $12.6 million, including accrued interest. The Company made
these repurchases at an average price of $897 per $1,000 of principal amount in
a Dutch auction available to all holders of PIK Notes. A gain of $1.2 million
was recognized on this transaction. At June 30, 1997, a total of $29.2 million
principal amount of PIK Notes were outstanding.
The Indenture for the PIK Notes provides holders of PIK Notes with the right to
have their notes repurchased at 101% of principal amount, plus interest, in the
event of a Change of Control (as defined). The Indenture also requires the
Company to apply certain asset sale proceeds to the retirement of the PIK Notes
in certain circumstances, subject to the rights of Foothill to repayment in
connection with asset sales. The Indenture does not contain financial
covenants, but it does prohibit the Company from borrowing from other sources in
significant amounts except for the Credit Agreement with Foothill, a $10.0
million replacement working capital facility, and equipment purchases.
The Company is not permitted to pay cash interest on the PIK Notes until the
borrowings under the Credit Agreement are repaid in full. As a result, the
principal amount of PIK Notes outstanding will increase at the rate of 12% per
year, compounded semi-annually, at least until the borrowings under the Credit
Agreement are repaid in full. The payment-in-kind feature of the PIK Notes will
decrease the Company's cash interest costs over this period. However, the
payment-in-kind feature of the PIK Notes will also decrease the rate at which
the Company is able to retire its total debt outstanding.
All of the Company's debt and equity interests in the Subsidiary Guarantors has
been pledged by the Company to secure its obligations under the Credit
Agreement. In the event of a default and foreclosure under the Credit
Agreement, distributions from, and the assets of, the Subsidiary Guarantors may
not be available to satisfy other obligations of the Company, including the
obligations of the Company to the holders of the PIK Notes.
DEFERRED REVENUES AND EXPENSES. Deferred revenues of $23.6 million and $23.4
million at June 30, 1997 and 1996, respectively, include $15.6 million and $15.9
million, respectively, of membership dues collections which relate to future
periods, $6.3 million and $5.8 million, respectively, of campground membership
sales revenues to be recognized in future periods, and other deferred revenues
related primarily to the resort operations. Deferred membership selling expenses
of $1.4 million and $1.2 million at June 30, 1997 and 1996, respectively,
represent incremental direct selling costs to be recognized in future periods.
SELF INSURANCE. The Company is self-insured for general liability losses up to
$250,000 per occurrence, with an annual aggregate exposure to the Company of
$2.0 million. The Company's liability insurance program provides coverage in
excess of the self-insured amounts up to an annual limit of $26.8 million. The
Company has provided a liability for estimated known and unknown claims related
to uninsured general liability risks of $2.0 million and $1.6 million at June
30, 1997 and 1996, respectively. This liability is determined based on actuarial
estimates.
The medical and dental benefits provided to the Company's employees under the
Company's employee benefit plans (collectively, the "Plans") are funded
primarily through employer and employee contributions. In addition, the Company
has purchased a stop loss insurance policy which protects the Plans against
claims in excess of set policy amounts. The Company has provided a liability for
estimated future claims of $1.4 million and $1.8 million at June 30, 1997 and
1996, respectively. This liability is based on actuarial estimates of amounts
needed to fund expected claims, as well as premium payments and administrative
costs of the Plans. During fiscal 1997, the Company determined that its actual
claims experience for certain previous years was significantly below the
estimates for those years. As a result, the Company reduced its liability for
estimated future claims, which resulted in nonrecurring income of $611,000.
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<PAGE>
WORKERS' COMPENSATION INSURANCE. During fiscal 1997, the Company determined
that it is entitled to refunds in future periods of $865,000 for deposits made
in previous years to cover workers' compensation claims in excess of those
covered by the standard premium paid by the Company. These deposits were
expensed in the years the deposits were made because the Company anticipated
that the deposits would be used to cover workers' compensation claims. At June
30, 1997, the Company recorded the refundable amount as an asset, resulting in
nonrecurring income of $865,000. The refundable amount is included in other
assets in the accompanying consolidated balance sheet at June 30, 1997.
In fiscal 1996, the Company changed its method of determining workers'
compensation premiums, whereby it no longer records the cost of such premiums
based on estimates that are subject to potential audit adjustments at year end.
As a result, in fiscal 1996, the Company reversed its recorded contingent
liability related to workers' compensation premium audits. The $799,000
reversal amount is included in nonrecurring income in the accompanying
consolidated statement of operations.
NEW ACCOUNTING STANDARDS. The Financial Accounting Standards Board (the "FASB")
has recently issued several accounting pronouncements that are effective for the
Company in either fiscal 1997 or fiscal 1998. The adoption of certain of these
accounting pronouncements in fiscal 1997 did not have a material impact on the
Company's financial statements for fiscal 1997, and the Company anticipates that
the one accounting pronouncement to be adopted in fiscal 1998 will not have a
material impact on the Company's financial statements for fiscal 1998 (see Note
1 to the Company's consolidated financial statements included in Item 8).
RESULTS OF OPERATIONS
The following discussion and analysis are based on the historical results of
operations of the Company for the years ended June 30, 1997, 1996, and 1995, as
restated (see "Change in Accounting Method"). The deferral of historical sales
revenues and expenses resulting from the change in accounting method had no
impact on the Company's liquidity or cash flows.
The financial information set forth below should be read in conjunction with the
Company's consolidated financial statements included in Item 8.
NET INCOME (LOSS). For the year ended June 30, 1997, the Company reported net
income of $6.8 million or $.89 per share on revenues of $78.4 million. This
compares with net income of $1.1 million or $.30 per share on revenues of $91.0
million for the year ended June 30, 1996, and a net loss of $11.8 million or
$3.19 per share on revenues of $91.4 million for the year ended June 30, 1995.
Excluding extraordinary gains, nonrecurring income and expenses, and
restructuring costs, the Company would have had net income of $5.3 million for
fiscal 1997, compared with a net loss of $2.8 million for fiscal 1996, and a net
loss of $14.5 million for fiscal 1995. Excluding these items, the Company's
results improved in the current fiscal year, despite declining revenues, due
primarily to decreases in expenses, principally campground operating costs and
interest.
The results for fiscal 1997 include $2.7 million of nonrecurring income
consisting of a $1.2 million reduction in the allowance for doubtful accounts
and a $1.5 million reduction in certain insurance reserves. The fiscal 1997
results also include $1.1 million of restructuring costs related to the
Restructuring and $132,000 of nonrecurring expenses representing the net loss
resulting from the amendment of the Credit Agreement and the repurchase of PIK
Notes.
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<PAGE>
The results for fiscal 1996 include a $1.4 million extraordinary gain on the
repurchase of Secured Notes and $5.9 million of nonrecurring income consisting
of $5.1 million from a reduction in the allowance for doubtful accounts and
$799,000 from the reversal of a contingent liability. The fiscal 1996 results
also include $1.1 million of restructuring costs related to the Company's
efforts to restructure the Secured Notes, and $2.3 million of other nonrecurring
expenses consisting of a $1.0 million charge to record a provision for certain
uncollectible membership dues receivable and a $1.3 million charge to accrue a
one-time bonus for the Company's Chief Executive Officer.
The results for fiscal 1995 include $3.7 million of nonrecurring income
consisting of $1.0 million from reductions in the allowances for doubtful
accounts and collection costs and $2.7 million from the reversal of a contingent
liability. The fiscal 1995 results also include $637,000 of restructuring costs
incurred in connection with the relocation of the Company's corporate office to
Dallas, Texas, and $437,000 of other nonrecurring expenses representing
severance payments made to certain management employees who left the Company in
the fourth quarter of fiscal 1995.
The table on the next page shows separately the results of the campground
operations, Resort Parks International, and resort operations, without any
allocation of corporate expenses, as well as corporate expenses and other
revenues and expenses in the aggregate, for the years ended June 30, 1997, 1996,
and 1995, as restated (see "Change in Accounting Method").
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<PAGE>
<TABLE>
<CAPTION>
(dollars in thousands)
Year ended June 30,
--------------------------------
1997 1996 1995
-------- -------- --------
(Restated) (Restated)
CAMPGROUND OPERATIONS
<S> <C> <C> <C>
Membership dues $ 39,945 $ 39,924 $ 41,175
Campground revenues 15,302 15,313 15,411
Cost of campground revenues (7,608) (7,726) (8,150)
Operating expenses (32,454) (35,211) (40,236)
-------- -------- --------
Contribution from campground operations 15,185 12,300 8,200
-------- -------- --------
SALES
Sales revenues 2,892 1,656 1,626
Selling expenses (2,654) (3,094) (1,736)
Marketing expenses (1,383) (1,294) (3,639)
-------- -------- --------
Loss on sales (1,145) (2,732) (3,749)
-------- -------- --------
RESORT PARKS INTERNATIONAL
Revenues 4,086 4,579 4,845
Expenses (1,978) (2,237) (2,727)
-------- -------- --------
Contribution from RPI 2,108 2,342 2,118
-------- -------- --------
16,148 11,910 6,569
-------- -------- --------
RESORT OPERATIONS
Revenues 3,189 8,332 10,543
Expenses (3,218) (8,297) (10,125)
-------- -------- --------
Contribution (loss) from resort
operations (29) 35 418
-------- -------- --------
16,119 11,945 6,987
-------- -------- --------
Other income 3,673 4,479 3,485
Corporate member services (1,532) (1,843) (2,200)
General and administrative expenses (10,100) (10,473) (12,118)
-------- -------- --------
OPERATING INCOME (LOSS) BEFORE INTEREST
INCOME AND EXPENSE, GAIN ON ASSET
DISPOSITIONS, NONRECURRING INCOME AND
EXPENSES, RESTRUCTURING COSTS, TAXES
AND EXTRAORDINARY ITEM 8,160 4,108 (3,846)
-------- -------- --------
Interest income 3,726 6,756 9,935
Interest expense (9,084) (17,693) (20,960)
Gain on asset dispositions 2,892 4,038 658
Nonrecurring income 2,708 5,945 3,714
Nonrecurring expenses (132) (2,270) (437)
Restructuring costs (1,101) (1,124) (637)
-------- -------- --------
OPERATING INCOME (LOSS) BEFORE TAXES
AND EXTRAORDINARY ITEM $ 7,169 $ (240) $(11,573)
======== ======== ========
</TABLE>
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<PAGE>
CAMPGROUND OPERATIONS. The Company's operations are highly seasonal. The
Company receives the majority of the dues revenue from its members during the
winter, which are recognized as income ratably during the year. However, the
Company incurs a higher level of operating expenses during the summer. In
addition, a majority of the Company's sales and marketing efforts occur during
the summer.
Campground membership dues revenue was $39.9 million for the years ended June
30, 1997 and 1996, compared with $41.2 million for the year ended June 30, 1995.
Dues revenue declined in fiscal 1996 due primarily to the net loss of campground
members during the year, partially offset by the annual dues increase. In
fiscal 1997, the effect of the annual dues increase substantially offset the net
loss of members during the year.
Campground revenues were $15.3 million for the years ended June 30, 1997 and
1996, compared with $15.4 million for the year ended June 30, 1995. The expenses
associated with these campground revenues were $7.6 million, $7.7 million, and
$8.2 million for fiscal 1997, 1996, and 1995, respectively. The continuing
improvement in the contribution from these programs resulted primarily from
better expense control in fiscal 1997 and 1996.
Campground operating expenses were $32.5 million for the year ended June 30,
1997, compared with $35.2 million for the year ended June 30, 1996, and $40.2
million for the year ended June 30, 1995. The continuing reduction in expenses
between years was due primarily to the closure and disposition of campgrounds
and to operational changes made at the campgrounds in fiscal 1996 and 1997. In
fiscal 1996, the Company closed and disposed of several campgrounds, reduced
campground management and personnel, and changed to seasonal operations at
campgrounds with low usage during off-season periods. In fiscal 1997, the
Company closed and disposed of several additional campgrounds and lengthened the
off-season for the campgrounds with seasonal closures. The lower operating
expenses in fiscal 1997 also reflect the full effects of the personnel
reductions made in fiscal 1996. In addition, the Company incurred lower
insurance and maintenance costs in fiscal 1997 compared with the prior periods.
Insurance costs decreased due to the lower number of campgrounds and personnel
and the Company's continued efforts to reduce insurance claims. Furthermore,
maintenance costs were lower in fiscal 1997 compared with fiscal 1996 due to
expenditures made in fiscal 1996 to refurbish rental trailers.
The Company intends to continue to downsize its campground operations while its
membership base declines. The Company will likely close and dispose of
additional campgrounds and it will seek to decrease other expenses. Subsequent
to year-end, the Company sold additional campgrounds for net proceeds of $4.5
million. The sale of these campgrounds and other anticipated changes should
result in lower operating expenses in fiscal 1998, but no assurance can be given
that such changes will not reduce revenues by an amount in excess of the expense
reductions.
The Company recognizes revenue from the sale of campground memberships that do
not convey a deeded interest in real estate on a straight-line basis over the
expected life of the memberships sold (see "Change in Accounting Method"). For
the years ended June 30, 1997, 1996, and 1995, the Company recognized campground
membership sales revenues of $2.9 million, $1.7 million, and $1.6 million,
respectively. These amounts include revenues of $1.7 million, $1.1 million, and
$854,000, respectively, that were deferred in prior periods. Moreover, for
fiscal 1997, 1996, and 1995, the Company deferred revenues of $2.1 million, $2.1
million, and $1.0 million, respectively, which will be recognized in future
periods.
The increase in sales revenues resulted primarily from the Company's increased
sales and marketing efforts during the past three fiscal years. The Company has
expanded its sales and marketing efforts with a view to stopping the decline in
its membership base.
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<PAGE>
Although the Company's membership sales revenues have increased, the level of
sales in fiscal 1997 did not meet the Company's expectations. In an effort to
improve its membership sales, the Company has been working to increase the
number of prospects that attend its sales presentations. In this regard, in
fiscal 1997, the Company entered into a joint marketing arrangement with
Fleetwood Industries, Inc., the largest manufacturer of RVs. Under this
marketing arrangement, commencing in June 1997, purchasers of Fleetwood RVs
receive a temporary membership and are invited to visit one of the Company's
campgrounds. In the future, the Company intends to pursue joint marketing
relationships with other companies.
Selling expenses directly related to the sale of campground memberships are
deferred and recognized as expenses on a straight-line basis over the expected
life of the memberships sold. All other selling and marketing costs are
recognized as expenses in the period incurred. For the years ended June 30,
1997, 1996, and 1995, the Company recognized selling expenses of $2.7 million,
$3.1 million, and $1.7 million, respectively. These amounts include expenses of
$358,000, $235,000, and $172,000, respectively, that were deferred in prior
periods. Moreover, for fiscal 1997, 1996, and 1995, the Company deferred
expenses of $505,000, $481,000, and $219,000, respectively, which will be
recognized in future periods.
Although the Company's sales results are improving, selling and marketing
expenses exceeded sales revenues by $1.1 million, $2.7 million, and $3.7 million
for the years ended June 30, 1997, 1996, and 1995, respectively. These expenses
exceeded sales revenue because of the increased marketing activity, and the low
volume of sales, which did not cover fixed costs. In addition, the Company
deferred more sales revenues than selling expenses in each of the periods
presented.
The Company's selling and marketing efforts require significant expense, the
majority of which must be expensed in the current period, while the related
sales revenues are deferred and recognized on a straight-line basis over the
expected life of the memberships sold. As a consequence, the Company expects
that its selling and marketing expenses will continue to exceed its campground
membership sales revenues. This disparity will increase as the Company grows
campground membership sales. However, the Company intends to keep the cash it
expends on selling and marketing expenses within a close relation to the cash it
receives from campground membership sales.
The Company must significantly increase its campground membership sales over
current levels in order to stop the continuing decline in the Company's
membership base. The success of the Company's business strategy over the long
term is dependent upon the Company's ability to market new memberships in
sufficient numbers on a cost-effective basis.
CAMPGROUND MANAGEMENT. Wilderness Management, a wholly owned subsidiary of the
Company, manages 48 public campgrounds for the US Forest Service. For the year
ended June 30, 1997, these operations produced revenues of $1.1 million with
related expenses (excluding certain shared administrative costs) of $1.0
million. This compares with revenues for fiscal 1996 of $853,000 and related
expenses (excluding certain shared administrative costs) of $831,000, and
revenues for fiscal 1995 of $589,000 and related expenses (excluding certain
shared administrative costs) of $665,000. The increase in revenues and expenses
between years was due primarily to new contracts entered into in fiscal 1997 and
1996.
RESORT PARKS INTERNATIONAL. RPI charges its members a fee for a membership that
entitles them to use any of the campgrounds participating in RPI's reciprocal
use system, subject to certain limitations. For the year ended June 30, 1997,
RPI's operations produced a net contribution of $2.1 million, compared with $2.3
million for the year ended June 30, 1996, and $2.1 million for the year ended
June 30, 1995. RPI's revenues have
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<PAGE>
declined over the three year period as a result of declining sales in the
membership camping industry generally. During this period, however, RPI has been
able to maintain its positive contribution by reducing its expenses. To maintain
its net contribution in the future, RPI is working to introduce new products to
increase its revenues; however, there is no assurance that it will be
successful.
RESORT OPERATIONS. During the last five years, the Company sold a substantial
portion of the assets it owned at eight resorts. In fiscal 1997, the sale of
resort assets produced cash proceeds totaling $1.7 million plus notes receivable
of $1.1 million. This compares with cash proceeds of $5.0 million in fiscal
1996, and $902,000 in fiscal 1995. The differences between years was due to the
timing of asset sales. As the resort assets were sold, the revenues and
expenses from the resort operations decreased accordingly. The Company's
present operations at the resorts are limited primarily to the sale of
residential lots.
During the year ended June 30, 1997, the resort operations produced a net
negative contribution of $29,000, compared with a net positive contribution of
$35,000 and $418,000 for the years ended June 30, 1996 and 1995, respectively.
The Company expects a negative contribution from the resort operations in the
future as it continues its efforts to sell the remaining assets it owns at the
resorts. These assets consist primarily of approximately 580 residential lots
and other miscellaneous real estate. The Company presently plans to dispose of
the remaining assets that it owns at the resorts over the next several years.
However, there is no assurance that the Company will be able to locate a buyer
for any of the remaining resort assets or that sales on acceptable terms can be
effected.
INTEREST INCOME AND EXPENSE. Interest income decreased by $3.0 million and $3.2
million for the years ended June 30, 1997 and 1996, respectively, from the
previous year, due primarily to a decrease in interest earned on the Company's
diminishing portfolio of contracts receivable, and a decrease in interest earned
on lower cash balances. Also included in interest income is amortization of the
allowance for interest discount and valuation allowance related to the contracts
receivable, of which $379,000 was amortized during fiscal 1997 and $607,000 was
amortized in fiscal 1996 and fiscal 1995 (see "Liquidity and Capital Resources -
Contracts Receivable").
Interest expense decreased by $8.6 million for the year ended June 30, 1997,
from the previous year, due primarily to a net $50.9 million reduction in the
Company's outstanding debt resulting from the Restructuring and subsequent
repayments under the Credit Agreement, the repurchase of $7.4 million principal
amount of Secured Notes in January 1996, a $2.5 million reduction in mortgage
notes payable due to the abandonment of two operating campgrounds in the Fall of
1995, and scheduled repayments of notes payable. Interest expense decreased by
$3.3 million for the year ended June 30, 1996, from the previous year, due
primarily to a mandatory redemption of $18.6 million of Secured Notes in July
1995, the repurchase of Secured Notes in January 1996, the $2.5 million
reduction in mortgage notes payable in the Fall of 1995, and scheduled
repayments of notes payable.
Interest expense for the year ended June 30, 1997, includes (i) amortization of
debt issue costs incurred in connection with obtaining the Credit Agreement in
July 1996, which increased interest expense by $1.8 million, and (ii)
amortization of the deferred gain related to the PIK Notes, which reduced
interest expense by $39,000. The remaining unamortized balance of the debt
issue costs and a portion of the deferred gain were eliminated in connection
with the amendment of the Credit Agreement and repurchase of PIK Notes at the
end of fiscal 1997.
Interest expense for fiscal 1996 and 1995 includes amortization of the discount
on the Secured Notes, which increased interest expense by $4.2 million and $4.6
million in these years, respectively. The discount on the Secured Notes was
recorded to reduce the
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<PAGE>
carrying value of the Secured Notes to their estimated fair value on the date of
issuance. On July 17, 1996, the unamortized balance of this discount was
eliminated in connection with the retirement of the Secured Notes in the
Restructuring.
Interest expense is expected to continue to decrease in fiscal 1998 due to the
repurchase of PIK Notes in June 1997, and continued repayment of borrowings
under the Credit Agreement. Since the Company is prohibited from making cash
interest payments on the PIK Notes until all borrowings under the Credit
Agreement are repaid, during this period, a significant portion of the Company's
interest expense will represent non-cash interest. Moreover, during this
period, the principal amount of PIK Notes outstanding will increase at the rate
of 12% per year, compounded semi-annually, which will increase interest expense
in the future.
GAINS ON ASSET SALES. During the years ended June 30, 1997, 1996, and 1995, the
Company sold certain of its real estate assets and recognized related gains of
$2.9 million, $4.0 million, and $658,000, respectively. The differences between
years was due to the timing of asset sales. During this three-year period, the
Company sold the timeshare operations at the resorts, the country club and golf
operations at certain resorts, and various other properties at the resorts. In
addition, the Company sold or otherwise disposed of several campgrounds and sold
excess acreage associated with certain campgrounds. Subsequent to year-end, the
Company sold additional campgrounds for which it recognized related gains of
$3.2 million. Over the next several years, the Company intends to dispose of
the remaining assets it owns at the resorts, any campgrounds that are closed as
the Company downsizes, and other undeveloped, excess acreage associated with the
campgrounds. The sale of campgrounds requires addressing the rights of members
associated with such campgrounds. The impact of these rights is uncertain and
could adversely affect the availability or timing of sale opportunities or the
ability of the Company to realize recoveries from asset sales. In addition,
although the Company has successfully sold assets during the past three years,
no assurance exists that the Company will be able to locate a buyer for any of
the remaining assets or that sales on acceptable terms can be effected.
OTHER INCOME. Other income consists principally of transfer fees received when
existing memberships are transferred in the secondary market without assistance
from the Company, collections on written-off contracts, subscription fees
received from members who subscribe to the Company's member magazine, and
beginning in fiscal 1997, fees charged to members for making more than five
operator-assisted reservations in a given year.
Other income was $3.7 million for the year ended June 30, 1997, compared with
$4.5 million for the year ended June 30, 1996, and $3.5 million for the year
ended June 30, 1995. Other income was higher in fiscal 1996, compared with the
other years, because in fiscal 1996 the Company increased it use of outside
collection agencies to collect on written-off contracts, which resulted in a
one-time increase in such collections.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$10.1 million for the year ended June 30, 1997, compared with $10.5 million for
the year ended June 30, 1996, and $12.1 million for the year ended June 30,
1995. During fiscal 1997, the Company's continued efforts to lower
administrative costs were partially offset by higher legal fees incurred in
connection with the Company's reincorporation merger, the registration of the
PIK Notes, and the formation of a new wholly owned subsidiary to provide debt
collection services for third parties. The decrease in fiscal 1996 from the
prior year was due primarily to cost reductions implemented in the last quarter
of fiscal 1995 and the first quarter of fiscal 1996.
General and administrative expenses include costs related to collecting the
contracts receivable and membership dues of $2.4 million, $3.0 million, and $3.1
million for the
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years ended June 30, 1997, 1996, and 1995, respectively. These collection costs
were reduced by $314,000, $513,000, and $854,000, respectively, as a result of
the amortization of the allowance for collection costs related to the contracts
receivable ("see "Liquidity and Capital Resources - Contracts Receivable"). The
Company anticipates that these costs will continue to decrease as the contracts
receivable portfolio continues to decline.
CORPORATE MEMBER SERVICES. Corporate member services include the reservation
and member support services performed at the corporate office, as well as the
costs incurred to produce the Company's member magazine. These costs were $1.5
million for the year ended June 30, 1997, compared with $1.8 million for the
year ended June 30, 1996, and $2.2 million for the year ended June 30, 1995.
The decrease in costs between periods reflects the Company's continued efforts
to reduce administrative costs.
NONRECURRING INCOME. Nonrecurring income was $2.7 million, $5.9 million, and
$3.7 million for the years ended June 30, 1997, 1996, and 1995, respectively.
Nonrecurring income for fiscal 1997 consists of $1.2 million from a reduction in
the allowance for doubtful accounts related to the contracts receivable and $1.5
million from a reduction of certain insurance reserves (see "Liquidity and
Capital Resources - Self Insurance and Workers' Compensation Insurance").
Nonrecurring income for fiscal 1996 consists of $5.1 million from a reduction in
the allowance for doubtful accounts related to the contracts receivable and
$799,000 from the reversal of a contingent liability. Nonrecurring income for
fiscal 1995 consists of $1.0 million from reductions in the allowances for
doubtful accounts and collection costs related to the contracts receivable and
$2.7 million from the reversal of a contingent liability.
NONRECURRING EXPENSES. Nonrecurring expenses were $132,000, $2.3 million, and
$437,000 for the years ended June 30, 1997, 1996, and 1995, respectively.
Nonrecurring expenses for fiscal 1997 consist of a $1.3 million loss resulting
from expensing unamortized debt issue costs upon significantly modifying the
Credit Agreement, reduced by a $1.2 million gain resulting from repurchasing PIK
Notes at a discount (see "Liquidity and Capital Resources-Debt Restructuring").
Nonrecurring expenses for fiscal 1996 consist of a $1.0 million charge to record
a provision for certain uncollectible membership dues receivable and a $1.3
million charge to accrue a one-time bonus for the Company's Chief Executive
Officer (see "Accrued Bonus" below). Nonrecurring expenses for fiscal 1995
represent severance payments made to certain management employees who left the
Company in the fourth quarter of fiscal 1995.
ACCRUED BONUS. The employment agreement between the Company and its Chief
Executive Officer ("CEO") provided that the CEO 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 the CEO elected to receive the bonus. The bonus would have
been adversely affected by the consummation of the Restructuring. As a result,
on June 29, 1996, the CEO exercised his right to receive the bonus, which
entitled the CEO to $1,270,589. In accordance with the agreement, $952,927 of
the bonus was paid on July 9, 1996, and the remaining $317,662 was paid in May
1997. The Company obtained an irrevocable standby letter of credit on which the
CEO could draw this bonus if the Company failed to pay the bonus after receiving
a request from the CEO. The letter of credit was secured by a $1.5 million cash
deposit, which was subsequently reduced to $317,662 after the payment of the
initial bonus amount, and released in February 1997. The Company accrued the
entire amount of the bonus at June 30, 1996.
RESTRUCTURING COSTS. In fiscal 1997, the Company incurred $1.1 million of costs
in connection with the consummation of the Restructuring. The Company also
incurred $3.1 million of costs in connection with obtaining the Credit Agreement
with Foothill, which were capitalized as debt issue costs. In May 1997, the
unamortized balance of these debt
Page 34
<PAGE>
issue costs of $1.3 million was charged to expense upon amendment of the Credit
Agreement, as previously discussed in Nonrecurring Expenses above.
During the year ended June 30, 1996, the Company incurred $1.1 million of
restructuring costs related to its efforts to restructure the Secured Notes.
During the year ended June 30, 1995, the Company incurred $922,000 of costs
related to expanding its Dallas office and hiring and training new employees.
$637,000 of these costs were expensed as restructuring costs, and $285,000 of
these costs were capitalized. The Company moved its administrative offices to
Dallas during fiscal 1994.
INCOME TAXES. The Company's provision for income taxes was $370,000, $41,000,
and $255,000 for the years ended June 30, 1997, 1996, and 1995, respectively.
The provision for fiscal 1997 includes amounts related to federal alternative
minimum taxes, as well as amounts related to state income taxes payable in the
various states where the Company conducts its operations. The provisions for
fiscal 1996 and 1995 relate primarily to state income taxes. With the exception
of the alternative minimum tax amounts, the Company does not have federal income
taxes payable on a consolidated basis due to its net operating tax loss
carryforwards, which are estimated to total $47.9 million at June 30, 1997, and
expire in years 2007 through 2011.
EXTRAORDINARY ITEM. The $1.4 million extraordinary gain in fiscal 1996 resulted
from a repurchase of Secured Notes in January 1996.
INFLATION. During the past three fiscal years, the Company's results have not
been affected materially by inflation. However, should the rate of inflation
increase in the future, the Company's expenses are likely to increase at a
greater rate than it can increase the annual dues paid by the campground members
because the Company cannot increase the dues on existing contracts of senior
citizens and disabled members who notify the Company of their age or disability
and request that their dues be frozen. At the present time, approximately 35%
of the members have requested that their dues be frozen because of their age or
disability (see "Campground Operations - Dues").
Page 35
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements Index
---------------------------------------
Page
----
Report of Independent Public Accountants................... 37
Consolidated Balance Sheets - June 30, 1997 and 1996....... 38
Consolidated Statements of Operations for the years ended
June 30, 1997, 1996 and 1995............................. 39
Consolidated Statements of Stockholders' Deficit
for the years ended June 30, 1997, 1996 and 1995......... 40
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1996 and 1995............................. 41
Notes to Consolidated Financial Statements................. 43
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts... 75
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
Page 36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Thousand Trails, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Thousand Trails,
Inc. (formerly USTrails Inc.) and subsidiaries (the "Company") as of June 30,
1997 and June 30, 1996, as restated (see Note 1) and the related consolidated
statements of operations, stockholders' deficit and cash flows for the two years
ended June 30, 1996 and 1995, as restated and for the year ended June 30, 1997.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Thousand Trails, Inc. and
subsidiaries as of June 30, 1997 and June 30, 1996, as restated, and the results
of their operations and their cash flows for each of the two years ended June
30, 1996 and 1995, as restated and for the year ended June 30, 1997, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a required part of the
basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in our audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
Dallas, Texas
September 11, 1997
Page 37
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30,
--------------------
ASSETS 1997 1996
------ -------- ---------
CURRENT ASSETS (Restated)
<S> <C> <C>
Cash and cash equivalents $ 1,343 $ 37,403
Current portion of receivables, net of
allowances and discount of $1.7
million in 1997 and $2.7 million in
1996 3,134 4,270
Accounts and dues receivable, net 542 522
Current portion of deferred membership
selling expenses 478 357
Inventory and other current assets 3,536 4,672
-------- --------
Total Current Assets 9,033 47,224
Restricted cash 1,407 2,912
Receivables, net of allowances and
discount of $3.3 million in 1997 and
$5.4 million in 1996 4,383 8,949
Campground land 13,359 14,101
Lot and timeshare inventory 342 1,159
Buildings and equipment, net of
accumulated depreciation of
$12.8 million in 1997 and $10.4
million in 1996 23,211 27,130
Land held for sale 7,382 6,821
Deferred membership selling expenses 913 887
Other assets 3,272 2,448
-------- --------
Total Assets $ 63,302 $111,631
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,864 $ 3,030
Accrued interest 1,693 5,617
Other accrued liabilities 7,485 9,329
Current portion of long term debt 5,864 28,530
Accrued construction costs 2,809 3,154
Current portion of deferred revenue 19,455 19,265
-------- --------
Total Current Liabilities 39,170 68,925
Long term debt 38,230 66,922
Deferred revenue 4,158 4,172
Other liabilities 3,912 3,564
-------- --------
Total Liabilities 85,470 143,583
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, $.01 par value,
1,500,000 shares authorized, none
issued and outstanding
Common Stock, $.01 par value,
15,000,000 shares authorized,
7,383,276 and 3,702,726 shares issued
and outstanding 74 37
Additional paid-in capital 20,502 17,549
Accumulated deficit subsequent to
December 31, 1991, date of emergence
from bankruptcy (42,613) (49,412)
Cumulative foreign currency translation
adjustment (131) (126)
-------- --------
Total Stockholders' Deficit (22,168) (31,952)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 63,302 $111,631
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 38
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended June 30,
--------------------------------
1997 1996 1995
-------- ---------- ----------
REVENUES (Restated) (Restated)
<S> <C> <C> <C>
Membership dues $39,945 $39,924 $ 41,175
Other campground/resort revenue 17,906 22,288 23,506
Membership and resort interest sales 3,477 3,013 4,074
RPI membership fees 4,086 4,579 4,845
Interest income 3,726 6,756 9,935
Gain on asset dispositions 2,892 4,038 658
Nonrecurring income 2,708 5,945 3,714
Other income 3,673 4,479 3,485
------- ------- --------
Total Revenues 78,413 91,022 91,392
------- ------- --------
EXPENSES
Campground/resort operating expenses 42,860 50,308 57,097
Selling expenses 3,074 4,020 3,150
Marketing expenses 1,383 1,294 3,639
RPI membership expenses 1,978 2,237 2,727
Corporate member services 1,532 1,843 2,200
Interest expense and amortization 9,084 17,693 20,960
General and administrative expenses 10,100 10,473 12,118
Nonrecurring expenses 132 2,270 437
Restructuring costs 1,101 1,124 637
------- ------- --------
Total Expenses 71,244 91,262 102,965
------- ------- --------
INCOME (LOSS) BEFORE TAXES AND
EXTRAORDINARY ITEM 7,169 (240) (11,573)
Income tax provision (370) (41) (255)
------- ------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM 6,799 (281) (11,828)
Extraordinary gain on debt repurchases 1,390
------- ------- --------
NET INCOME (LOSS) $ 6,799 $ 1,109 $(11,828)
======= ======= ========
PRIMARY AND FULLY DILUTED NET INCOME
(LOSS) PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ .89 $ (.08) $ (3.19)
EXTRAORDINARY ITEM .38
------- ------- --------
NET INCOME (LOSS) $ .89 $ .30 $ (3.19)
======= ======= ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 7,658 3,703 3,703
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 39
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Dollars in thousands)
<TABLE>
<CAPTION>
Cumulative
Common Stock Foreign
----------------- Additional Currency
Number of Paid-In Accumulated Translation
Shares Amount Capital Deficit Adjustment Total
--------- ------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994
(restated) 3,702,726 $ 37 $17,549 $(38,693) $(133) $(21,240)
Foreign currency
translation adjustment 14 14
Net loss (restated) (11,828) (11,828)
--------- ---- ------- -------- ----- --------
Balance, June 30, 1995
(restated) 3,702,726 37 17,549 (50,521) (119) (33,054)
Foreign currency
translation adjustment (7) (7)
Net income (restated) 1,109 1,109
--------- ---- ------- -------- ----- --------
Balance, June 30, 1996
(restated) 3,702,726 37 17,549 (49,412) (126) (31,952)
Issuance of common shares
in Restructuring 3,680,550 37 2,953 2,990
Foreign currency
translation adjustment (5) (5)
Net income 6,799 6,799
--------- ---- ------- -------- ----- --------
Balance, June 30, 1997 7,383,276 $74 $20,502 $(42,613) $(131) $(22,168)
========= ==== ======= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 40
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended June 30,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on receivables $ 7,978 $ 12,251 $ 16,678
Interest received 3,407 6,202 9,270
Interest paid (8,107) (14,545) (15,873)
General and administrative, corporate
member services and restructuring costs (14,061) (13,827) (18,233)
Cash collected from operations,
including deferred revenue 65,894 73,220 77,231
Cash from sales of memberships and
resort interests at the point of sale 3,705 3,789 4,036
Expenditures for property operations (40,872) (49,627) (56,768)
Expenditures for sales and marketing (4,472) (5,370) (5,645)
Expenditures for insurance premiums (1,706) (5,176) (4,553)
Payment of income taxes (370) (41) (256)
Reduction of (deposit made to secure)
standby letter of credit 1,500 (1,500)
Other, net (345) 221
-------- -------- --------
Net cash provided by operating
activities 12,551 5,597 5,887
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and HUD-related expenditures (1,046) (1,022) (5,732)
Proceeds from asset sales 4,663 7,239 1,132
-------- -------- --------
Net cash provided by (used in)
investing activities 3,617 6,217 (4,600)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial borrowings under Credit
Agreement 44,640
Net repayments under Credit Agreement (30,543)
Payment of debt issue costs (3,132)
Retirement of Secured Notes (50,169)
Repurchase of PIK Notes/Secured Notes (12,640) (5,275)
Mandatory redemption of Secured Notes (18,599)
Repayments of notes and mortgages (384) (1,133) (750)
-------- -------- --------
Net cash used in financing activities (52,228) (25,007) (750)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (36,060) (13,193) 537
CASH AND CASH EQUIVALENTS:
Beginning of year 37,403 50,596 50,059
-------- -------- --------
End of year $ 1,343 $ 37,403 $ 50,596
======== ======== ========
</TABLE>
(continued)
Page 41
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
For the years ended June 30,
------------------------------
1997 1996 1995
-------- -------- --------
RECONCILIATION OF NET INCOME (LOSS) TO (Restated) (Restated)
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 6,799 $ 1,109 $(11,828)
------- ------- --------
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES-
Depreciation 3,195 2,866 2,591
Amortization of interest yield,
collection costs and valuation
allowance (693) (1,120) (1,461)
Amortization of PIK Note deferred gain
and debt issue costs 1,770
Amortization of debt discount and
consent fees 4,565 5,060
Gain on asset dispositions (2,892) (4,038) (658)
Net loss resulting from amendment of
Credit Agreement and repurchase of
PIK Notes 132
Extraordinary gain on debt repurchases (1,390)
Net deferral of sales revenues and
selling expenses 318 728 107
Reduction of allowances for doubtful
accounts, net (1,232) (4,146) (457)
Reduction of insurance excesses (1,476) (799)
Reversal of contingent liability (2,717)
CEO bonus accrual 1,270
Reduction of allowance for collection
costs (540)
Decrease (increase) in restricted cash 1,505 (1,283) (404)
Decrease in receivables 7,592 11,721 16,322
Decrease (increase) in other assets 767 (747) 29
Decrease in other liabilities (3,347) (3,354) (633)
Other, net 113 215 476
------- ------- --------
Total adjustments 5,752 4,488 17,715
------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $12,551 $ 5,597 $ 5,887
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 42
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
Thousand Trails, Inc., a Delaware corporation ("Thousand Trails"), is the
successor by merger to USTrails Inc., a Nevada corporation ("USTrails") (see
Note 3). Thousand Trails and its subsidiaries (the "Company") own and operate a
system of 55 membership-based campgrounds located in 17 states and British
Columbia, Canada. In addition, the Company provides a reciprocal use program
for members of approximately 380 recreational facilities and manages 48 public
campgrounds for the US Forest Service. Prior to November 21, 1996, the Company
also managed timeshare facilities at eight resorts located in seven states (see
Note 6). The Company currently owns certain real estate at these resorts and
owns and operates the resort amenities at one of these locations. The campground
business represents the most significant portion of the Company's business
comprising 89% of the Company's operating revenues in fiscal 1997. The
reciprocal use and resort businesses provided the remaining 11%. Operating
revenues consist primarily of membership dues received from campground members,
fee revenue from members of the reciprocal use program, and management fees,
guest fees and other fees and revenues received from the campground and resort
operations.
The accompanying consolidated financial statements include the accounts of
Thousand Trails, Inc. and the following wholly owned subsidiaries: National
American Corporation and its subsidiaries ("NACO"), Resort Parks International,
Inc. ("RPI"), Thousand Trails (Canada), Inc., UST Wilderness Management
Corporation ("Wilderness Management"), and until July 16, 1996, Thousand Trails,
Inc., a Washington corporation, and its subsidiaries ("Trails"). The Company
acquired 100% of the capital stock of NACO and 69% of the capital stock of
Trails on June 30, 1991. The Company subsequently increased its ownership in
Trails to 100% through a tender offer and merger and, on July 16, 1996, Trails
was merged into the Company. The acquisitions of NACO and Trails were accounted
for as a purchase with the purchase price being allocated to the assets acquired
and liabilities assumed based on their estimated fair value on the date of
acquisition. RPI was a wholly owned subsidiary of NACO until September 10, 1992,
when it became a direct subsidiary of the Company. Wilderness Management
commenced operations in January 1994.
The Company emerged from proceedings under Chapter 11 of the Bankruptcy Code on
December 31, 1991, pursuant to a confirmed plan of reorganization. Due to the
Company's emergence from bankruptcy, "fresh start reporting," as required by
AICPA Statement of Position ("SOP") 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," was reflected as of December 31, 1991
in the Company's consolidated financial statements. Under fresh start
reporting, a new reporting entity was created and assets and liabilities were
restated to reflect their reorganization value which approximated fair value at
the date of reorganization.
All significant intercompany transactions and balances have been eliminated in
the accompanying consolidated financial statements as of and for the years ended
June 30, 1997, 1996 and 1995.
The accompanying consolidated financial statements were prepared in conformity
with generally accepted accounting principles ("GAAP"). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Page 43
<PAGE>
New Accounting Pronouncements
- -----------------------------
In March 1995, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS 121") which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted SFAS 121 in the first quarter of fiscal 1997, and the adoption
did not have a material impact on the Company's operations or financial
position.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") effective for fiscal years beginning after December
15, 1995. SFAS 123 defines a fair value method of accounting for employee stock
options which provides for compensation cost to be charged to results of
operations at the grant date. The Company intends to continue to account for
stock-based compensation under Accounting Pronouncement Bulletin Opinion No. 25
("APB 25") as allowed under SFAS 123, while providing additional disclosure
required under SFAS 123 (see Note 14).
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities", which provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The Company adopted this statement,
which is effective for transactions occurring after December 31, 1996, in its
consolidated financial statements for the year ended June 30, 1997.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share". SFAS No.
128 establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock. This statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. Earlier application is not permitted. The
Company does not anticipate that the adoption of this standard will have a
material impact on the Company's financial statements.
Restatement
- -----------
Subsequent to year-end, the staff of the Securities and Exchange Commission (the
"SEC") informed the Company that the SEC will now require the Company to
recognize revenue from the sale of campground memberships that do not convey a
deeded interest in real estate on a straight-line basis over the expected life
of the memberships sold. The staff of the SEC has indicated that it will
require all membership-based campground registrants selling similar memberships
to change to this method of accounting.
The Company's campground memberships provide the member with access to an
established network of membership-based campgrounds in return for an initial
upfront membership fee (which in certain instances may be financed) and annual
dues. The member's right to use the Company's campgrounds generally continues
as long as the annual dues are paid. Since inception, the Company has
recognized revenue from initial membership fees at the time of sale, while
recognizing revenue from the annual dues ratably over the year of provided
service. Under the new accounting method, revenue from initial membership fees
is deferred and recognized on a straight-line basis over the expected life of
the memberships sold.
This new accounting method differs from the revenue recognition method
historically used by the Company for over 20 years. Accordingly, to show
comparable results for the periods presented, the accompanying consolidated
financial statements have been restated from those originally reported to
reflect this change in accounting method. The deferral of historical sales
revenues and expenses resulting from this change in accounting method had no
impact on the Company's liquidity or cash flows.
Page 44
<PAGE>
The following table provides selected summarized information illustrating the
effect of the restatement on the Company's consolidated financial position and
results of operations for the years ended June 30, 1996 and 1995 (dollars in
thousands):
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
------------------------ ------------------------
As As
As Originally As Originally
Restated Reported Restated Reported
-------- ----------- -------- ----------
<S> <C> <C> <C> <C>
FINANCIAL POSITION:
Campground land $ 14,101 $ 13,468 $ 15,964 $ 15,331
Deferred selling expenses -
Current 357 - 235 -
Long term 887 - 763 -
-------- --------
Total 1,244 998
Deferred revenue -
Current 19,265 17,599 19,764 18,622
Long term 4,172 3,722
-------- -------- -------- ---------
Total 23,437 17,599 23,486 18,622
Stockholders' Equity (Deficit) (31,952) (27,991) (33,054) (29,821)
RESULTS OF OPERATIONS:
Membership and resort interest sales 3,013 3,987 4,074 4,228
Total revenues 91,022 91,996 91,392 91,546
Income (loss) before extraordinary item (281) 447 (11,828) (11,923)
Net income (loss) 1,109 1,837 (11,828) (11,923)
Net income (loss) per common share .30 .50 (3.19) (3.22)
</TABLE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
- -------------------
The Company sells campground memberships pursuant to membership contracts that
give purchasers the right to use one or more of the Company's campgrounds, but
do not convey a deeded interst in the campgounds. Until 1990, the Company also
sold campground memberships that gave purchasers an undivided fractional
interest in one of six campgrounds. A membership requires the payment of an
upfront membership fee and permits the member's family to use one or more of the
Company's campgrounds for an initial period, subject to renewal each year upon
payment of annual dues.
Resort interest sales have historically included interval ownerships
("timeshares") that gave purchasers exclusive use of fully furnished vacation
homes in weekly intervals and fee simple ownership of lots located at the
resorts. Resort interest sales are currently limited to sales of lots as the
timeshare operations and timeshare inventory were sold in November 1996 (see
Note 6).
The Company has offered financing on certain campground memberships for a period
of up to 12 months with a down payment of 25% of the sales price, and has
offered financing on the sale of resort interests for periods up to five years
with a down payment of at least 10% of the sales price. However, during the
periods presented, the majority of the Company's campground membership and
resort interest sales were not financed.
Sales revenue from the sale of resort interests and campground memberships that
convey a deeded interest in real estate is recognized upon execution of a sales
contract and receipt of a down payment of at least 10% of the sales price.
Historically, sales revenue from the sale of campground memberships that do not
convey a deeded interest in real estate was recognized in
Page 45
<PAGE>
the same manner. However, as discussed above, the staff of the SEC has required
the Company to change its accounting method to recognize sales revenue from the
sale of campground memberships that do not convey a deeded interest in real
estate on a straight-line basis over the expected life of the memberships sold.
In addition, costs directly related to the sale of such campground memberships
are deferred and recognized as selling expenses on a straight-line basis over
the expected life of the memberships sold.
The annual dues paid by the campground members are used to fund the Company's
operating expenses, including corporate expenses and the maintenance and
operation of the campgrounds. The membership contracts generally permit the
Company to increase annually the amount of each member's dues by either (i) the
percentage increase in the consumer price index ("CPI") or (ii) the greater of
10% or the percentage increase in the CPI. The Company, however, may not
increase the dues on existing contracts of senior citizens and disabled members
who notify the Company of their age or disability and request that their dues be
frozen. At the present time, approximately 35% of the members have requested
that their dues be frozen because of their age or disability. The Company
estimates that approximately 50% of the campground members are senior citizens
eligible to request that their dues be frozen. The Company is unable to
estimate when or if a significant number of these members will request that
their dues be frozen in the future. Annual dues are recognized as revenue
ratably over 12 months as services are provided, and are recorded net of an
allowance to provide for uncollectible amounts. Dues paid in advance are
deferred as unearned revenue.
Cash and Cash Equivalents
- -------------------------
The Company considers demand accounts and short-term investments with maturities
of nine months or less when purchased to be cash equivalents.
Restricted Cash
- ---------------
Restricted cash generally consists of deposits to collateralize performance
bonds and letters of credit in the ordinary course of business.
Receivables
- -----------
Prior to June 30, 1991, the Company purchased contracts receivable from NACO,
Trails and SoPac Resort Properties, Inc. ("SoPac"), a former affiliate (the
"Selling Companies"). The Company recorded the contracts receivable at the
Selling Company's carrying value net of a discount to reflect the current market
yield at the time of acquisition of NACO and Trails. Interest income is
recognized on purchased contracts receivable based upon the effective yield at
which they were purchased and on other contacts receivable at their stated rates
based on the outstanding principal balances.
Allowance for Doubtful Accounts
- -------------------------------
The Company provides an allowance for future cancellations of contracts
receivable. The allowance is based on management's estimate of future contract
cancellations considering the Company's historical cancellation rates as well as
other factors deemed relevant to the analysis. The allowance is reviewed on a
periodic basis with changes in management's estimates recognized in the period
known. The Company presently believes that the allowance for doubtful accounts
is adequate. However, if cancellations occur at a different rate than is
presently anticipated, it may be necessary for the Company to revise its
estimates and increase or decrease the allowance, which would affect the
Company's operating results and financial condition.
Allowance for Interest Discount
- -------------------------------
In connection with the acquisition of NACO and Trails, the Company recorded an
allowance for interest discount to increase to 14.75% the weighted average yield
on the contracts receivable then owned by NACO and Trails. The interest
discount is being amortized using the effective interest method over the
respective terms of the contracts.
Page 46
<PAGE>
Allowance for Collection Costs
- ------------------------------
In connection with the Company's acquisition of NACO and Trails and its
emergence from bankruptcy in 1991, the Company recorded an allowance for future
costs associated with the collection of the contracts receivable portfolio. The
allowance is being amortized as a reduction to general and administrative
expenses based on cash collected on the related portfolio.
Valuation Allowance
- -------------------
In connection with purchases of contracts receivable from third parties, the
Company recorded a valuation allowance to record the contracts receivable at the
purchase price. The allowance is being amortized as an increase to interest
income over the respective terms of the contracts.
Campground Land and Timeshare and Lot Inventory
- -----------------------------------------------
Campground land and timeshare and lot inventory are recorded at the lower of
cost or estimated net realizable value. The remaining timeshare inventory was
sold in November 1996. Prior to November 1996, the timeshare inventory was
charged to cost of sales based on the value of a timeshare week sold in relation
to total sellable weeks at the property. Similarly, while the Company sold
campground memberships that conveyed an undivided interest in the campground
property, the related campground property was charged to cost of sales based on
the total number of memberships available for sale at the campground. In
connection with the restatement (see Note 1), the land underlying the Company's
operating campgrounds was recaptioned as "campground land."
Buildings, Equipment and Depreciation
- -------------------------------------
Buildings and equipment are recorded at cost. The costs of betterments and
improvements which extend the useful life of the asset are capitalized whereas
the costs of maintenance and repairs which do not extend the useful life of the
asset are expensed in the period incurred. Depreciation is recorded using the
straight-line method over the estimated useful lives of the assets which range
from three to thirty years.
Consent Fees
- ------------
In fiscal 1994, to obtain an amendment of the Indenture for the 12% Senior
Secured Notes Due 1998 (the "Secured Notes"), the Company paid aggregate cash
consent fees of $1.6 million to the holders of the Secured Notes who consented
to the amendment. The consent fees were capitalized, and through fiscal 1996,
were amortized on the effective interest method over the remaining term of the
Secured Notes. The remaining unamortized balance of the consent fees was
eliminated when the Secured Notes were retired in a restructuring (the
"Restructuring") that was completed on July 17, 1996 (see Note 8).
Discount on Secured Notes
- -------------------------
In connection with the issuance of the Secured Notes, a discount was recorded to
reduce the carrying value of the Secured Notes to their estimated fair value as
of December 31, 1991, the fresh start reporting date. The discount resulted in
an effective interest yield of 18% for the Secured Notes, and through fiscal
1996, was being amortized as additional interest expense using the effective
interest method over the term of the Secured Notes. The remaining unamortized
balance of this discount was eliminated when the Secured Notes were retired in
the Restructuring on July 17, 1996 (see Note 8).
Income Taxes
- ------------
The Company recognizes certain revenues and expenses in periods which differ for
tax and financial reporting purposes.
Net Income (Loss) Per Common Share
- ----------------------------------
Net income per common share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding, as determined
by the treasury stock method, whereby proceeds, if any, from the assumed
exercise of common stock equivalents, would be used to purchase shares at
current market prices. Net loss per common share is computed based on weighted
average common shares outstanding only. Warrants
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<PAGE>
outstanding as well as common stock equivalents that would be assumed
outstanding are excluded from the net loss per common share computation as they
would be anti-dilutive.
As part of the Restructuring, on July 17, 1996, the Company issued an aggregate
of 3,680,550 shares of common stock as partial consideration for the retirement
of the Secured Notes (see Note 8). These shares represent approximately 50% of
the shares of common stock currently outstanding.
Foreign Currency Translation Adjustments
- ----------------------------------------
The Company translates the balance sheet of its Canadian subsidiary into US
dollars at exchange rates in effect as of the balance sheet date. Profit and
loss accounts are translated monthly at exchange rates in effect at that time.
NOTE 3 - REINCORPORATION MERGER
On November 20, 1996, the Company, then known as USTrails, reincorporated in the
state of Delaware and changed its name to Thousand Trails, Inc. The
reincorporation was effected through a merger (the "Merger") with a newly formed
wholly owned subsidiary of USTrails that was approved by USTrails' stockholders
at their annual meeting. In the Merger, each share of USTrails common stock,
par value $.01 per share ("USTrails Common Stock"), outstanding prior to the
Merger was converted into one share of the Company's common stock, par value
$.01 per share ("Common Stock"), and each outstanding stock option, warrant or
other right to purchase or receive USTrails Common Stock was converted into a
similar stock option, warrant or other right to acquire Common Stock. The
principal purposes of the Merger were to implement certain transfer restrictions
on the Common Stock (see Note 11) and to change USTrails' state of incorporation
to Delaware.
NOTE 4 - RESTRUCTURING COSTS
In fiscal 1997, the Company incurred $1.1 million of costs in connection with
the consummation of the Restructuring (see Note 8), which are presented as
restructuring costs in the accompanying consolidated statement of operations.
In connection with the Restructuring, the Company also incurred $3.1 million of
costs to obtain a Credit Agreement (the "Credit Agreement") with Foothill
Capital Corporation ("Foothill"), which were capitalized as debt issue costs in
fiscal 1997. In May 1997, the unamortized balance of these debt issue costs of
$1.3 million was charged to expense upon amendment of the Credit Agreement (see
Note 8).
In fiscal 1996, the Company incurred $1.1 million of restructuring costs related
to its efforts to restructure the Secured Notes. In fiscal 1995, the Company
incurred $922,000 of costs related to expanding its Dallas office and hiring and
training new employees. $637,000 of these costs are included in restructuring
costs in the accompanying consolidated statement of operations, and $285,000 of
these costs were capitalized and are included in buildings and equipment in the
accompanying consolidated balance sheets. The Company moved its administrative
offices to Dallas during fiscal 1994.
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<PAGE>
NOTE 5 - RECEIVABLES
CONTRACTS RECEIVABLE
Contracts receivable are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-----------------
1997 1996
------- -------
<S> <C> <C>
Contracts receivable -
Memberships/undivided interests $11,293 $18,689
Timeshares and lots 1,069 2,440
------- -------
12,362 21,129
Allowance for doubtful accounts (3,855) (6,290)
Allowance for interest discount (455) (722)
Allowance for collection costs (464) (778)
Valuation allowance (150) (262)
------- -------
7,438 13,077
Interest receivable 79 142
------- -------
$ 7,517 $13,219
======= =======
</TABLE>
Contracts Receivable
- --------------------
Contracts receivable bear interest at rates which generally range from 9.5% to
16%, with a weighted average stated rate of 13% and 12.9% at June 30, 1997 and
1996, respectively. The obligor's weighted average equity in the contracts
receivable at June 30, 1997 and 1996, was 70% and 65%, respectively. As of June
30, 1997, approximately 96% of the campground members and purchasers of resort
interests had paid for their membership or resort interest in full.
The Company has no obligation to refund moneys received or to provide further
services to purchasers in the event a contract is canceled for the purchaser's
nonperformance of contractual obligations. Contracts receivable related to
undivided interests, lot sales and timeshare interests are secured by deeds of
trust on the related real estate. The Company does not require campground
members to provide collateral or other security for related contracts
receivable.
Repurchase of Receivables From a Third Party
- --------------------------------------------
On March 22, 1995, the Company purchased $3.0 million of contracts receivable
from a third party, effective as of June 30, 1994, for $1.6 million. The
Company received contracts receivable with a gross balance of $2.0 million and
$1.0 million in cash representing principal and interest collections on the
contracts receivable from June 30, 1994 to March 22, 1995. The Company recorded
the $2.0 million gross balance of the contracts receivable net of an allowance
for doubtful accounts of $523,000 and a purchase price discount of $550,000.
These contracts receivable had previously been sold by NACO to the third party.
In connection with this sale, a portion of the purchase price was withheld as a
dealer holdback against which the purchaser could offset canceled and delinquent
contracts receivable. As of March 22, 1995, the canceled and delinquent
contracts receivable charged against the dealer holdback had consumed it and a
deficiency of $2.7 million existed. Although the Company took the position that
it was not liable for the deficiency based upon the terms of certain agreements
and releases with the third party, the Company had recorded a contingent
liability for the amount of the deficiency. When the Company repurchased the
contracts receivable, this contingent liability was released. As a result, the
Company reversed the $2.7 million recorded liability and included this amount in
nonrecurring income in the accompanying consolidated statement of operations.
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<PAGE>
Allowance for Doubtful Accounts
- -------------------------------
In fiscal 1997, 1996 and 1995, the Company reduced the allowance for doubtful
accounts on the contracts receivable by $1.2 million, $5.1 million and $457,000,
respectively. These amounts are included in nonrecurring income in the
accompanying consolidated statements of operations. These adjustments were made
because the Company experienced lower contract losses than anticipated in these
years.
The allowance for doubtful accounts is an estimate of the contracts receivable
that will cancel in the future and is determined based on historical
cancellation rates and other factors deemed relevant to the analysis. The
Company does not presently anticipate any further adjustments to the allowance
for doubtful accounts on the contracts receivable. However, the allowance and
the rate at which the Company provides for future losses on its contracts
receivable could be increased or decreased in the future based on the Company's
actual collection experience.
Allowance for Interest Discount
- -------------------------------
The allowance for interest discount had a remaining balance of $455,000 and
$722,000 at June 30, 1997 and 1996, respectively. Amortization of the allowance
for interest discount totaled $267,000, $357,000 and $486,000 for the years
ended June 30, 1997, 1996 and 1995, respectively, which increased interest
income.
Allowance for Collection Costs
- ------------------------------
The allowance for collection costs had a remaining balance of $464,000 and
$778,000 at June 30, 1997 and 1996, respectively. Amortization of the allowance
for collection costs totaled $314,000, $513,000 and $854,000 for the years ended
June 30, 1997, 1996 and 1995, respectively, which decreased general and
administrative expenses. In fiscal 1995, the Company reduced the allowance for
future collection costs by $540,000 more than the normal accrual because the
estimated future cost to collect the remaining contracts receivable was less
than the amount anticipated when the allowance was recorded. This amount is
included in nonrecurring income in the accompanying consolidated statement of
operations.
Valuation Allowance
- -------------------
The valuation allowance had a balance of $150,000 and $262,000 at June 30, 1997
and 1996, respectively. Amortization of the valuation allowance totaled
$112,000, $250,000 and $121,000 for the years ended June 30, 1997, 1996 and
1995, respectively, which increased interest income.
At June 30, 1997, scheduled future receipts on contracts receivable are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Memberships
and Undivided Timeshares
Interests and Lots Total
------------- ---------- -------
<S> <C> <C> <C>
1998 $ 4,171 $ 556 $ 4,727
1999 3,452 284 3,736
2000 2,470 138 2,608
2001 1,025 58 1,083
2002 135 25 160
Thereafter 40 8 48
------- ------ -------
Total $11,293 $1,069 $12,362
======= ====== =======
</TABLE>
The Company operates 55 campgrounds located in 17 states and British Columbia,
Canada. The largest volume of campground membership sales occurred at
campgrounds located in California, and that is where the largest percentage of
campground members reside (approximately 37%). As of June 30, 1997, the
Company's contracts receivable from
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<PAGE>
members who purchased memberships in the state of California totaled
approximately $4.9 million.
MEMBERSHIP DUES RECEIVABLE
In fiscal 1996, the Company increased the allowance for uncollectible dues by
$1.0 million, related to certain aged dues accounts that were determined
uncollectible in fiscal 1996. This charge is included in nonrecurring expenses
in the accompanying consolidated statement of operations.
NOTE 6 - CAMPGROUND AND RESORT PROPERTIES
Campground properties consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-------------------
1997 1996
-------- --------
(Restated)
<S> <C> <C>
Land held for sale $ 6,211 $ 5,339
Campground land at campgrounds where
right-to-use memberships are sold 11,288 12,030
Campground land at campgrounds where
undivided interests were sold 2,071 2,071
Property and equipment 35,826 37,138
Construction in progress 172 67
Accumulated depreciation (12,804) (10,336)
-------- --------
$ 42,764 $ 46,309
======== ========
</TABLE>
The Company sells campground memberships that give members the right to use one
or more of the Company's campgrounds but do not convey a deeded interest in the
campgrounds. Until 1990, the Company also sold campground memberships that gave
members a deeded undivided interest in one of six campgrounds. At the six
campgrounds where undivided interests were sold, the Company is not required to
seek the consent of the campground members to sell or encumber the Company's
interest in the campgrounds.
Resort properties consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-----------------
1997 1996
------ ------
<S> <C> <C>
Land held for sale $1,171 $1,482
Timeshare and lot inventory 342 1,159
Property and equipment 23 311
Construction in progress 24
Accumulated depreciation (6) (74)
------ ------
$1,530 $2,902
====== ======
</TABLE>
The campground and resort properties are encumbered by certain borrowings as
described in Note 8.
Over the past several years, the Company has been selling the assets it owns at
the resorts. On November 21, 1996, the Company sold its timeshare management
operations and timeshare
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<PAGE>
inventory at the resorts to a newly formed corporation owned by two former
employees (the "Buyer"). The sales price was $850,000, of which $50,000 was paid
in cash at closing with the balance represented by a promissory note in the
principal amount of $800,000. The first principal installment on the note of
$300,000 was paid by its due date of May 15, 1997, and the remaining $500,000 is
due on May 15, 1998. Interest accrues on the note at the rate of 14 1/2% per
annum and is payable with the principal installments. The Buyer may extend
payment of $150,000 of the second principal installment for up to one year, with
interest accruing at 20% per annum. The note is secured by liens on
substantially all of the assets of the Buyer, a pledge of the Buyer's
outstanding stock, and the personal guarantees of the two shareholders of the
Buyer.
A deferred gain of $471,000 recorded in connection with this sale is being
recognized on the installment method of accounting as payments on the note are
received. The deferred gain has been netted against the principal amount of the
note. The net amount is included in inventory and other assets in the
accompanying consolidated balance sheet as of June 30, 1997.
NOTE 7 - DEFERRED REVENUE AND SELLING EXPENSES
Deferred revenue is summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-------------------
1997 1996
------- ---------
Deferred Revenue - (Restated)
<S> <C> <C>
Campground membership sales $ 6,303 $ 5,838
Membership dues 15,611 15,889
Other 1,699 1,710
------- -------
$23,613 $23,437
======= =======
</TABLE>
Components of the change in deferred membership selling expenses and deferred
membership sales revenue are as follows (dollars in thousands):
<TABLE>
<CAPTION>
For the years ended June 30,
-------------------------------
1997 1996 1995
------- ------- ------
(Restated) (Restated)
<S> <C> <C> <C>
Deferred Membership Selling Expenses,
beginning of year $ 1,244 $ 998 $ 951
Deferred 505 481 219
Recognized (358) (235) (172)
------- ------- ------
Net change 147 246 47
------- ------- ------
Deferred Membership Selling Expenses,
end of year $ 1,391 $ 1,244 $ 998
======= ======= ======
Deferred Membership Sales Revenue,
beginning of year $ 5,838 $ 4,864 $4,710
Deferred 2,131 2,116 1,008
Recognized (1,666) (1,142) (854)
------- ------- ------
Net change 465 974 154
------- ------- ------
Deferred Membership Sales Revenue,
end of year $ 6,303 $ 5,838 $4,864
======= ======= ======
</TABLE>
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<PAGE>
NOTE 8 - LONG TERM DEBT
SECURED NOTES
At June 30, 1996, the Company had outstanding $101.5 million principal amount of
Secured Notes, which were retired in full on July 17, 1996 (see "Secured Note
Restructuring" below). The original principal amount of the Secured Notes was
recorded net of a discount to yield an effective interest rate of 18%. During
the years ended June 30, 1996 and 1995, $4.2 million and $4.6 million,
respectively, of this discount was amortized as additional interest expense.
The Secured Notes bore interest at 12% per annum, payable semi-annually on
January 15 and July 15 of each year. The Company was required to redeem $18.6
million in principal amount of Secured Notes on each of July 15, 1995, 1996 and
1997, with the remaining unpaid principal due at maturity on July 15, 1998. The
Secured Notes were secured by substantially all of the assets of the Company.
On July 15, 1995, the Company made the mandatory redemption of $18.6 million
principal amount of Secured Notes. On January 31, 1996, the Company repurchased
$7.4 million principal amount of Secured Notes from unrelated sellers for $5.3
million, including accrued interest. The Company recognized a gain of $1.4
million on this transaction, which is presented as an extraordinary item in the
accompanying consolidated statement of operations. No taxes were provided as
cancellation of debt income is not included in taxable income to the extent that
the Company's liabilities exceeded the value of its assets immediately prior to
the acquisition of the Secured Notes.
SECURED NOTE RESTRUCTURING
On July 17, 1996, the Company consummated the Restructuring of the Secured
Notes, whereby all of the $101,458,000 principal amount of Secured Notes
outstanding were retired. In the Restructuring, the Company purchased
$10,070,000 in aggregate principal amount of Secured Notes pursuant to a tender
offer for $780 per $1,000 principal amount, and exchanged $81,790,000 in
aggregate principal amount of Secured Notes pursuant to a private exchange offer
for, in each case per $1,000 in principal amount: $400 in cash, $492 in
principal amount of 12% Senior Subordinated Pay-In-Kind Notes Due 2003 ("PIK
Notes") and 45 shares of Common Stock. The remaining $9,598,000 in aggregate
principal amount of Secured Notes were redeemed at 100% of principal amount,
plus accrued interest. In connection with the Restructuring, the Company
entered into the Credit Agreement with Foothill.
The Restructuring was accounted for as a Troubled Debt Restructuring, whereby
the restructured debt was recorded at the carrying value of the old debt and no
gain or loss was recorded on the transaction. A deferred gain of $303,000
recorded in connection with the Restructuring is being amortized as a reduction
of interest expense using the effective interest method over the term of the PIK
Notes.
CREDIT AGREEMENT WITH FOOTHILL
In connection with the Restructuring, the Company entered into the Credit
Agreement with Foothill, under which Foothill made term loans to the Company
totaling $13.0 million, and agreed to make revolving loans to the Company in the
maximum amount of $25.0 million, provided that the aggregate borrowings under
the Credit Agreement at any one time could not exceed $35.0 million. During
fiscal 1997, the Company repaid substantially all of its initial borrowings
under the Credit Agreement.
The Company incurred debt issue costs of $3.1 million related to obtaining the
original Credit Agreement. These costs, which were capitalized, included
prepaid interest, legal costs, financial advisory fees and other direct costs of
obtaining the loans.
Page 53
<PAGE>
On May 16, 1997, the Company and Foothill entered into an amendment to the
Credit Agreement which significantly modified its original terms. The amendment
reduced the maximum availability under the revolving portion of the Credit
Agreement to $20.0 million, decreased the interest rate payable thereunder from
prime plus 2 3/4% per annum to prime plus 1 1/2% per annum, and reduced or
eliminated certain fees. The amendment also permitted the Company to borrow up
to $12.0 million to repurchase the principal amount of PIK Notes, and up to
$750,000 to pay accrued interest on the PIK Notes repurchased. As a result of
such amendment and repurchases of PIK Notes (see discussion below), as of June
30, 1997, the Company had an outstanding term loan totaling $28,000 and a
revolving loan in the maximum amount of $19.3 million, of which $14.1 million
was outstanding and $5.2 million was available for borrowing. Because of the
substantial modifications made to the original Credit Agreement, the amendment
of the Credit Agreement was accounted for as an extinguishment of debt and the
remaining unamortized balance of the original debt issue costs of $1.3 million
was charged to expense and recorded as a loss on extinguishment of debt. This
$1.3 million charge has been presented as a nonrecurring expense in the
accompanying consolidated statement of operations, offsetting a $1.2 million
gain resulting from the PIK Note repurchases, as further discussed below.
The Company must use all collections of principal and interest on the contracts
receivable, which are estimated to be $4.7 million in fiscal 1998, and all
proceeds from asset sales to reduce borrowings under the Credit Agreement. In
addition, the Company must make specified principal reductions on these
borrowings over time based on a monthly calculation of eligible contracts
receivable and an amortization schedule set forth in the agreement. The maximum
amount of the revolving loan declines as these principal reductions are made.
The remaining borrowings under the Credit Agreement must be paid in full on July
16, 1999. Availability of such working capital is subject to continued
compliance by the Company with the financial covenants and other requirements of
the Credit Agreement, including certain covenants respecting minimum earnings
before interest, taxes, depreciation and amortization, and minimum tangible net
worth. The Credit Agreement prohibits the Company from borrowing from other
sources in significant amounts except for equipment purchases.
The Company has granted liens on substantially all of its assets to secure its
obligations under the Credit Agreement. In addition, the Company's subsidiaries
other than an immaterial utility subsidiary have guaranteed the Company's
obligations under the Credit Agreement and, subject to certain limitations, have
granted liens on substantially all of their assets to secure their guarantees.
PIK NOTES AND PIK NOTE REPURCHASES
In the Restructuring, the Company issued $40.2 million principal amount of PIK
Notes which mature on July 15, 2003. The PIK Notes bear interest at (i) 17 1/2%
per annum through January 15, 1998 (the "Initial Period"), and (ii) 12% per
annum thereafter. Upon issuance, the holders of the PIK Notes were paid prepaid
interest in the amount of $40.59 per $1,000 of principal amount (the "Prepaid
Interest") representing the incremental 5 1/2% per annum of interest during the
Initial Period. With the exception of the Prepaid Interest, interest on the PIK
Notes is due semiannually on January 15 and July 15 and is payable in the form
of additional PIK Notes (the "Secondary Notes") as long as borrowings remain
outstanding under the Credit Agreement. After the borrowings under the Credit
Agreement are repaid in full, the Company has the option to issue Secondary
Notes in lieu of cash payment of interest through July 15, 2000. After July 15,
2000, interest on the PIK Notes must be paid in cash.
On June 25, 1997, the Company repurchased $13.4 million principal amount of PIK
Notes at a cost of $12.6 million, including accrued interest. The Company made
these repurchases at an average price of $897 per $1,000 of principal amount in
a Dutch auction available to all holders of PIK Notes. The Company borrowed the
$12.6 million it used for these repurchases under the amended Credit Agreement.
Because the Credit Agreement was amended primarily to provide the funding for
the PIK Note repurchases, the $1.2 million gain resulting from the PIK Note
repurchases was netted with the $1.3 million loss on the debt extinguishment
discussed
Page 54
<PAGE>
above. The net $132,000 loss has been presented as a nonrecurring expense in the
accompanying consolidated statement of operations.
The Indenture for the PIK Notes provides holders of PIK Notes with the right to
have their notes repurchased at 101% of principal amount plus interest in the
event of a Change of Control (as defined). The Indenture also requires the
Company to apply certain asset sales proceeds to the retirement of the PIK Notes
in certain circumstances, subject to the rights of Foothill to repayment in
connection with asset sales. The Indenture does not contain financial
covenants, but it does prohibit the Company from borrowing from other sources in
significant amounts except for the Credit Agreement with Foothill, a $10.0
million replacement working capital facility and equipment purchases.
The PIK Notes were guaranteed by the Company's subsidiaries other than an
immaterial utility subsidiary and are presently unsecured. However, upon
payment in full of all of the Company's obligations under the Credit Agreement,
the PIK Notes will be secured by the same assets as then secure the Credit
Agreement other than cash and cash equivalents and other assets required to
secure any refinancing or replacement of the borrowings provided by the Credit
Agreement for working capital purposes. This replacement credit facility may be
secured by substantially all of the assets of the Company and its subsidiaries
other than certain excluded assets, provided it does not exceed $10.0 million in
principal amount. The mortgages on the Company's campgrounds that were granted
to secure the Company's obligations under the Credit Agreement, and any
mortgages on the Company's campgrounds that are granted in the future to secure
the Company's obligations under the PIK Notes, contain or will contain
nondisturbance provisions designed to protect the rights of the campground
members.
NOTES AND MORTGAGES PAYABLE
Notes and mortgages payable consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
-------------
1997 1996
------ ------
<S> <C> <C>
Real estate mortgages, interest payable
at fixed rates ranging from 7.0% to
12% due through May 2012 $ 381 $ 867
Note payable with interest at
escalating rates ranging from 8.9% to
10.4%, semi-annual payments due
through February 2008 223 235
----- ------
$ 604 $1,102
===== ======
</TABLE>
Real estate mortgages totaling $2.5 million were eliminated in connection with
the abandonment of two operating campgrounds in the Fall of 1995.
Page 55
<PAGE>
BALANCE SHEET PRESENTATION
Balance sheet presentation of the current and long term components of the
Company's outstanding debt is reflected below, as of June 30, 1997 and 1996
(dollars in thousands):
<TABLE>
<CAPTION>
June 30,
----------------
1997 1996
------- -------
<S> <C> <C>
CURRENT PORTION OF LONG TERM DEBT:
Borrowings under Credit Agreement $ 5,799
Secured Notes, net of discount of $7.1
million $28,264
Notes and mortgages payable 65 266
------- -------
$ 5,864 $28,530
======= =======
LONG TERM DEBT:
Borrowings under Credit Agreement $ 8,298
PIK Notes, including deferred gain of
$.2 million 29,393
Secured Notes $66,086
Notes and mortgages payable 539 836
------- -------
$38,230 $66,922
======= =======
Total long term debt $44,094 $95,452
======= =======
</TABLE>
The following table presents scheduled maturities of the principal amount of the
Company's outstanding debt as of June 30, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Year ending
June 30, Amount
----------------------- -------
<S> <C>
1998 $ 5,864
1999 7,123
2000 1,334
2001 94
2002 50
Thereafter 29,449
-------
43,914
Deferred gain 180
-------
$44,094
=======
</TABLE>
NOTE 9 - INCOME TAXES
The Company and its subsidiaries have entered into tax sharing agreements,
pursuant to which they file federal income tax returns on a consolidated basis
and allocate tax benefits and liabilities as provided in the agreements. The
agreements generally provide that a subsidiary will reimburse or be reimbursed
by the Company in an amount equal to 100% of any tax amounts that would have
been due or refundable, calculated as if the subsidiary were a stand-alone
taxpayer.
Page 56
<PAGE>
[CAPTION]
The differences, expressed as a percentage of pretax loss, between statutory and
effective federal income tax rates are as follows:
<TABLE>
<CAPTION>
For the years ended June 30,
----------------------------
1997 1996 1995
------- ------ -------
(Restated) (Restated)
<S> <C> <C> <C>
Statutory tax rate 34.0% 34.0% (34.0)%
Provision for state income taxes 3.5 3.6 2.2
Alternative minimum taxes 1.7
Unrecordable net operating loss (34.0) (34.0) 34.0
------ ------ ------
Effective tax rate 5.2% 3.6% 2.2%
====== ====== ======
</TABLE>
At June 30, 1997, the Company had an estimated net operating tax loss
carryforward of $47.9 million, expiring in years 2007 through 2011, as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Year Ending Amount
June 30, Expiring
----------- --------
<S> <C>
2007 $ 9,006
2008 5,897
2009 11,215
2010 16,147
2011 5,655
--------
$ 47,920
========
</TABLE>
Components of deferred income taxes are as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30,
--------------------
1997 1996
-------- --------
(Restated)
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Property Basis Differences ($2,717) ($2,872)
Purchase Discount Amortization (160) (342)
Bad Debt Provision (2,017) (1,956)
-------- --------
(4,894) (5,170)
-------- --------
DEFERRED TAX ASSETS:
Membership sales 1,670 1,562
Secured Note Offering Costs and
Consent Fee Amortization 81 305
Deferred Gain on Secured Notes 788 1,231
PIK Note Interest 1,572
Unpaid Expenses 3,454 4,387
Restructuring Costs 1,675 1,936
Deferred Revenue 553 536
Net Operating Loss 17,022 19,917
Other 40 516
-------- --------
26,855 30,390
-------- --------
Net Deferred Tax Asset 21,961 25,220
Valuation Account (21,961) (25,220)
-------- --------
Net Deferred Tax Asset $ 0 $ 0
======== ========
</TABLE>
Page 57
<PAGE>
SFAS No. 109, which provides guidance on reporting for income taxes, requires
the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. The Company has recorded a valuation
allowance for the amount by which deferred tax assets exceed deferred
liabilities and, as a result, the Company has not recorded any liability or
asset for deferred taxes as of June 30, 1997 or 1996.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Lease Commitments
- -----------------
The Company leases equipment and facilities under non-cancelable operating
leases with terms in excess of one year. At June 30, 1997, the Company's future
obligations under non-cancelable operating leases were as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Year ending
June 30, Amount
----------- ------
<S> <C>
1998 $730
1999 565
2000 262
2001 125
2002 108
</TABLE>
Accrued Construction Costs
- --------------------------
At June 30, 1997, the Company had a recorded liability of $2.8 million for
amounts necessary to complete certain improvements at the resorts as provided in
registration statements filed with the US Department of Housing and Urban
Development. The costs of such improvements are based upon engineering
estimates and are classified as a current liability in the accompanying
consolidated balance sheets.
CEO Bonus Accrual
- -----------------
The employment agreement between the Company and its Chief Executive Officer
("CEO") provided that the CEO 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 $75.0 million at the time the
CEO elected to receive the bonus. The bonus would have been adversely affected
by the consummation of the Restructuring. As a result, on June 29, 1996, the
CEO exercised his right to receive the bonus and became entitled to $1,270,589,
of which $952,927 was paid on July 9, 1996 and $317,662 was paid on May 11,
1997. The Company obtained an irrevocable standby letter of credit on which the
CEO could draw payment if the Company failed to pay the bonus after receiving a
request from the CEO. The letter of credit was secured by a $1.5 million cash
deposit, which was reduced to $317,662 after the payment of the initial bonus
amount, and released in February 1997. The Company accrued the entire amount of
the bonus at June 30, 1996, which is included in nonrecurring expenses in the
Company's consolidated statement of operations.
CONTINGENCIES
Self Insurance
- --------------
The Company is self-insured for general liability losses up to $250,000 per
occurrence, with an annual aggregate exposure to the Company of $2.0 million.
The Company's liability insurance program provides coverage in excess of the
self-insured amounts up to an annual limit of $26.8 million. The Company has
provided a liability for estimated known and unknown claims related to uninsured
general liability risks of $2.0 million and $1.6 million at June 30, 1997 and
1996, respectively, which is included in other liabilities in the accompanying
consolidated balance sheets. This liability is determined based on actuarial
estimates.
Page 58
<PAGE>
The Company also has employee benefit plans that are funded primarily through
employer and employee contributions (see Note 15).
Workers' Compensation Insurance
- -------------------------------
During fiscal 1997, the Company determined that it is entitled to refunds of
$865,000 in future periods for deposits made in previous years to cover workers'
compensation claims in excess of those covered by the standard premium paid by
the Company. These deposits were expensed in the years the deposits were made
because the Company anticipated that the deposits would be used to cover
workers' compensation claims. At June 30, 1997, the Company recorded the
refundable amount as an asset, resulting in nonrecurring income of $865,000.
The refundable amount is included in other assets in the accompanying
consolidated balance sheet as of June 30, 1997.
In fiscal 1996, the Company changed its method of determining workers'
compensation premiums, whereby it no longer records the cost of such premiums
based on estimates that are subject to potential audit adjustments at year-end.
As a result, in fiscal 1996, the Company reversed its recorded contingent
liability related to workers' compensation premium audits. The $799,000
reversal amount is included in nonrecurring income in the accompanying
consolidated statement of operations.
Declining Membership Base
- -------------------------
The Company derives a significant portion of its ongoing operating revenue from
its campground members (89% in fiscal 1997). The Company's membership base has
declined significantly over the past five fiscal years, and net of new sales,
the membership base is presently declining at the rate of approximately 6% per
year. The Company attributes this continuing decline principally to its aging
membership base, of whom approximately 50% are senior citizens. In addition,
the Company estimates that the memberships sold in recent fiscal years will have
an expected life that is significantly shorter than the expected life of the
memberships previously sold by the Company. To stop the continuing decline in
the Company's membership base, the Company must significantly increase its
campground membership sales over current levels.
Environmental Issues
- --------------------
Certain environmental issues may exist at some of the Company's campgrounds
concerning underground storage tanks, sewage treatment plants and septic
systems, and waste disposal. Management has reviewed these issues and believes
that they will not have a material adverse impact on the Company's operations or
financial position.
Litigation
- ----------
The Company is involved in certain claims and litigation arising in the normal
course of business. Management believes that the eventual outcome of these
claims and litigation will not have a material adverse impact on the Company's
operations or financial position.
NOTE 11 - STOCKHOLDERS' EQUITY (DEFICIT)
USTrails issued 3,702,726 shares of USTrails Common Stock in connection with its
emergence from bankruptcy on December 31, 1991. USTrails issued an additional
3,680,550 shares of USTrails Common Stock in the Restructuring on July 17, 1996
(see Note 8). Upon the completion of the Company's reincorporation merger on
November 20, 1996, the former USTrails Common Stock was exchanged for the
Company's Common Stock (see Note 3). Transfer of the Common Stock is subject to
transfer restrictions that are described below.
Transfer of Common Stock 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 (the "Code"). 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),
Page 59
<PAGE>
direct or indirect transfer of Common Stock that would without the approval of
the board of directors of the Company (i) increase to more than 4.75% the
percentage ownership of Common Stock of any person who at any time during the
preceding three-year period did not own more than 4.75% of the 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 Code
but substituting "4.75%" for "5 Percent"), or (iii) cause an "ownership change"
of the Company. Article IX provides that any direct or indirect transfer of
Common Stock 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 acquired in violation of Article IX for any purpose, including for
purposes of voting and receiving dividends or other distributions in respect of
Common Stock. Any shares purportedly acquired in violation of Article IX will be
transferred to a trustee who will be required to sell them.
The Company's Restated Certificate of Incorporation provides for the issuance of
15,000,000 shares of Common Stock, par value of $.01 per share. In addition,
the Company's Restated Certificate of Incorporation provides for the issuance of
1,500,000 shares of preferred stock, par value $.01 per share, none of which
have been issued to date.
On December 31, 1991, the Company issued warrants to acquire 194,521 shares of
Common Stock at $4.24 per share. These warrants expire on June 30, 1999. In
June 1992, the Company issued warrants to acquire 290,314 shares of Common Stock
at $4.24 per share. These warrants expire on June 30, 1999. In March 1994, the
Company issued warrants to acquire 10,170 shares of Common Stock at $1.625 per
share. These warrants expire on March 31, 1999. To date, none of these
warrants have been exercised. The Company has also granted stock options to the
Company's CEO, other key employees, and non-employee directors (see Note 14).
Since inception, the Company has not paid any dividends. The Indenture for the
Secured Notes, which was discharged in the Restructuring on July 17, 1996,
prohibited the Company from paying any cash dividends on the Common Stock until
the Secured Notes were repaid. In addition, the Credit Agreement with Foothill
prohibits the payment of any cash dividends on the Common Stock without the
consent of Foothill until the borrowings under the Credit Agreement are repaid,
and the Indenture for the PIK Notes prohibits the payment of any cash dividends
on the Common Stock until the PIK Notes are repaid.
Page 60
<PAGE>
NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of non-cash investing and financing activities required
by SFAS No. 95 "Statement of Cash Flows" are presented below for the years ended
June 30, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
1997
--------
Non-cash transactions related to the
Restructuring (see Note 8)
----------------------------------------
<S> <C>
Retirement of Secured Notes $(44,181)
Issuance of PIK Notes 40,521
Issuance of Common Stock 2,990
Write-off of unamortized portion of
consent fees 670
Non-cash transactions related to the
timeshare sale (see Note 6)
----------------------------------------
Note receivable from Buyer $ 800
Deferred gain (471)
Book value of timeshare inventory sold (58)
Book value of fixed assets sold (165)
Net receivables written off (156)
Non-cash payment of PIK Note interest
----------------------------------------
PIK Notes issued in lieu of cash
interest payment $ 2,372
1996
--------
Abandonment of two operating
campgrounds and elimination of related
nonrecourse obligations (see Note 8) $ 2,518
</TABLE>
The Company did not have any non-cash investing or financing activities during
the year ended June 30, 1995.
Page 61
<PAGE>
NOTE 13 - DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
an entity to disclose the estimated fair value of its financial instrument
assets and liabilities. Significant estimates and present value calculations
were used by the Company for purposes of this disclosure. The estimated fair
values of the Company's financial instruments at June 30, 1997 and 1996, as well
as their carrying amounts as reported in the accompanying consolidated balance
sheets, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------- ------- -------- -------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and Cash Equivalents
$ 1,343 $ 1,343 $37,403 $37,403
Restricted Cash 1,407 1,407 2,912 2,912
Contracts Receivable 12,441 21,271
Less: allowances and discount (4,924) (8,052)
------- -------
7,517 7,500 13,219 13,600
FINANCIAL LIABILITIES:
Secured Notes, net of discount - - 94,350 80,743
Borrowings under Credit Agreement 14,097 14,097 - -
PIK Notes 29,393 26,204 - -
Notes and Mortgages 604 604 1,102 1,000
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of the Company's financial instruments at June 30, 1997 and 1996, for
which it is practical to estimate that value.
Cash and Cash Equivalents, Restricted Cash and Borrowings under Credit Agreement
- --------------------------------------------------------------------------------
The carrying amount approximates fair value because of the short maturity of
these instruments.
Contracts Receivable
- --------------------
The fair value of contracts receivable was estimated by discounting the future
cash flows using the current rates at which the Company estimates a similar loan
portfolio would be purchased by a willing third party, after considering risk
factors regarding collectibility and future collection costs.
Secured Notes
- -------------
The fair value of the Secured Notes was estimated using (i) $18.6 million for
the mandatory redemption of Secured Notes due on July 15, 1996, and for the
balance, (ii) quoted market prices for the Company's securities at the balance
sheet date. These quoted prices may not represent actual transactions.
Page 62
<PAGE>
PIK Notes
- ---------
The fair value of the PIK Notes is estimated using the weighted average price
the Company paid to repurchase PIK Notes on June 25, 1997, in a Dutch auction.
Notes and Mortgages
- -------------------
The fair value of notes and mortgages is estimated based on the borrowing rates
currently available for bank loans with similar terms and average maturities.
Changes in assumptions or estimation methodologies may have a material effect on
these estimated fair values. Additionally, lack of uniform valuation
methodologies introduces a greater degree of subjectivity to these estimated
values.
The Company did not have any financial instruments as of the balance sheet dates
presented that were held for trading purposes.
NOTE 14 - STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
CEO Options
- -----------
Upon consummation of the Restructuring, on August 1, 1996, the Company's CEO was
granted options to purchase 664,495 shares of Common Stock at $0.69 per share.
The grant of these options was approved by the Company's stockholders at their
annual meeting. These options are 100% vested and are exercisable for a period
of ten years while the CEO is in the employ of the Company, subject to certain
exceptions. The exercise of the options, however, is subject to restrictions
designed to prevent an "ownership change" for federal tax purposes (see Note
11). To date, none of these options have been exercised.
1991 Employee Plan
- ------------------
Effective December 31, 1991, the Company adopted the 1991 Employee Stock
Incentive Plan (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 Common Stock, (ii) options to acquire shares of Common
Stock ("Options"), (iii) securities convertible into shares of 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 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 Common Stock for issuance under the 1991
Employee Plan. In fiscal 1993, the Company granted 285,000 ISOs to key
employees with an exercise price of $2.50 per share. Of these 285,000 ISOs,
190,000 were canceled in fiscal 1995 and fiscal 1996 as a result of employees
leaving the Company, and the remaining 95,000 were canceled in fiscal 1996 in
connection with the grant of replacement options issued under
Page 63
<PAGE>
the 1993 Stock Option and Restricted Stock Purchase Plan discussed below. In
September 1995, the Company granted key employees ISOs covering 140,000 shares
with an exercise price of $.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 $.81 per share. In September 1996, the Company
granted key employees ISOs covering 60,000 shares and one non-employee director
Non-qualified Options covering 5,000 shares, each with an exercise price of $.80
per share. In November 1996, the Company granted certain non-employee directors
Non-qualified Options covering 20,000 shares, each with an exercise price of
$1.08 per share. To date, 245,000 options are outstanding under the 1991
Employee Plan and none have been exercised. 105,000 of these options are fully
vested, and 140,000 of these options are 66 2/3% vested. All of the outstanding
options are fully vested, and they have a term of 10 years from the date of
grant.
1993 Employee Plan
- ------------------
On December 2, 1993, the Company adopted the 1993 Stock Option and Restricted
Stock Purchase Plan (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 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 Common Stock on the date of grant. The
exercise price of any ISOs may not be less than the fair market value of the
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 Common Stock for issuance under the 1993
Employee Plan. The 1993 Employee Plan, however, limits the number of shares of
Common Stock with respect to which awards can be made in any calendar year to
any one participant to 200,000 shares. In May 1996, the Company granted 95,000
ISOs under the 1993 Employee Plan at an exercise price of $.59 per share,
contingent upon the termination of an equal number of ISOs granted under the
1991 Employee Plan at an exercise price of $2.50 per share. In September 1996,
the Company granted key employees ISOs covering 175,000 shares with an exercise
price of $.80 per share. To date, 266,500 options are outstanding under the
1993 Employee Plan and 3,500 options have been exercised. All of the
outstanding options are fully vested, and they have a term of 10 years from the
date of grant.
Director Plan
- -------------
On December 2, 1993, the Company adopted the 1993 Director Stock Option Plan
(the "Director Plan"), which provides for the grant of Non-Qualified Options to
non-employee directors of the Company. The Company reserved 50,000 shares of
Common Stock for issuance under the Director Plan. In January 1995, the non-
employee directors of the Company were granted Non-Qualified Options covering
20,000 shares with an exercise price of $.79 per share. In November 1996, the
non-employee directors of the Company were granted Non-qualified Options
covering 25,000 shares with an exercise price of $1.08 per share. Prior to this
grant, after approval by the Board of Directors, four of the non-employee
Page 64
<PAGE>
directors had voluntarily terminated options for 20,000 shares that were granted
in December 1994 with an exercise price of $2.75 per share. To date, 45,000
options are outstanding under the Director Plan and none have been exercised.
All of these options are fully vested, and they have a term of 10 years from the
date of grant.
The Director Plan is designed to be a "formula plan," pursuant to which each
non-employee director will automatically receive a grant of Non-Qualified
Options to purchase 5,000 shares of Common Stock on the day immediately after
each annual meeting of the stockholders at which directors are elected,
beginning with the annual meeting held in December 1993. If on any such day,
the number of shares of Common Stock remaining available for issuance under the
Director Plan is insufficient for the grant of the total number of Non-qualified
Options to which all participants would otherwise be entitled, each participant
will receive Non-qualified Options to purchase a proportionate number of the
available number of remaining shares. The exercise price of each Non-Qualified
Option is required to be equal to 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.
SFAS 123 Disclosures
- --------------------
As allowed under SFAS 123, the Company follows the accounting treatment
prescribed by APB 25 in accounting for stock options issued to its employees and
directors. Accordingly, no compensation cost was recognized in connection with
the grant of options during the periods presented. Had compensation cost for
the stock options issued been based on the fair value at the grant dates for
those issuances consistent with SFAS 123, the Company's net income and earnings
per share for the years ended June 30, 1997 and 1996, would have been $6.4
million or $.79 per share, and $1.0 million or $.29 per share, respectively.
Pro forma results under SFAS 123 in fiscal 1997 and 1996 are not likely to be
representative of future pro forma results because, for example, additional
awards may be made in future years.
Set forth below is a summary of awards of stock options made by the Company for
the years ended June 30, 1997, 1996 and 1995, and awards outstanding as of the
end of those years:
<TABLE>
<CAPTION>
Years ended June 30,
---------------------------------------------------------------------------------
1997 1996 1995
------------------------- ---------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ----------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 295,000 $ .78 291,000 $2.40 310,000 $2.52
Options granted 949,495 .74 255,000 .63 20,000 .79
Options canceled (20,000) 2.75 (251,000) 2.50 (39,000) 2.50
Options exercised -- -- --
--------- -------- --------
Options outstanding, end
of year 1,224,495 .71 295,000 .78 291,000 2.40
========= ======== ========
Options exercisable, end
of year 1,131,171 .72 155,000 .92 208,984 2.37
========= ======== ========
Shares available for
grant, end of year 67,699 n/a 332,699 n/a 336,699 n/a
========= ======== ========
</TABLE>
Page 65
<PAGE>
The weighted-average fair value of stock options granted by the Company during
the years ended June 30, 1997 and 1996 was $.38 and $.37, respectively. The
value of each option grant is estimated on the date of grant using the Black-
Scholes option pricing model with the following weighted-average assumptions:
(1) a risk-free interest rate of 6.19% for fiscal 1997 and 6.66% for fiscal
1996, (2) an expected life of three years for fiscal 1997 and four years for
fiscal 1996, (3) expected volatility of 72.5% for fiscal 1997 and 71.58% for
fiscal 1996, and (4) no dividend yield, as the Company has not paid any
dividends since inception, and both the Credit Agreement and the Indenture for
the PIK Notes prohibit or substantially limit the payment of cash dividends.
The following table summarizes information about the Company's stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- -----------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding at Contractual Exercise Exercisable at Exercise
Prices 6/30/97 Life Price 6/30/97 Price
--------- -------------- ------------- ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
OPTION PLANS:
$.59 - $1.08 560,000 8.83 years $.74 466,676 $.77
CEO OPTIONS:
$.69 664,495 9.08 years $.69 664,495/1/ $.69
------------ ------------
1,224,495 8.97 years $.71 1,131,171 $.72
============ ===========
</TABLE>
/1/ As previously discussed, the options granted to the Company's CEO, although
100% vested, are subject to restrictions designed to prevent an "ownership
change" for federal tax purposes.
WARRANTS
On December 31, 1991, the Company issued warrants to acquire 194,521 shares of
Common Stock at $4.24 per share. These warrants expire on June 30, 1999. In
June 1992, the Company issued warrants to acquire 290,314 shares of Common Stock
at $4.24 per share. These warrants expire on June 30, 1999. In March 1994, the
Company issued warrants to acquire 10,170 shares of Common Stock at $1.625 per
share. These warrants expire on March 31, 1999. To date, 494,922 warrants are
outstanding and none have been exercised.
The following table summarizes information about the Company's warrants
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
--------------------------------------------------- --------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Outstanding at Contractual Exercise Exercisable Exercise
Price 6/30/97 Life Price at 6/30/97 Price
--------- -------------- ----------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$4.24 484,835 2 years $ 4.24 484,835 $ 4.24
$1.625 10,170 1.75 years $1.625 10,170 $1.625
</TABLE>
Page 66
<PAGE>
NOTE 15 - EMPLOYEE BENEFIT PLANS
Flexible Benefits Plan Trust Fund
- ---------------------------------
Effective July 1, 1992, the Company established a trust to fund the Company's
employee benefit plans (the "Trust Fund"). The benefit plans (collectively, the
"Plans") include the Company's medical plan, dental plan, disability plan, life
insurance plan, and accidental death and dismemberment plan, and any other
employee welfare benefit plan permissible under Section 3(1) of the Employee
Retirement Income Security Act of 1974. The Company has adopted a flexible
benefits plan established pursuant to Section 125 of the Code to furnish
eligible employees with a choice of receiving cash or certain statutory taxable
or non-taxable benefits under the above benefit plans.
The medical and dental benefits provided to the Company's employees under the
Plans are funded primarily through employer and employee contributions to the
Trust Fund. In addition, the Company has purchased a stop loss insurance policy
which protects the Plans against claims in excess of set policy amounts. The
Company has provided a liability for estimated future claims of $1.4 million and
$1.8 million at June 30, 1997 and 1996, respectively, which is included in other
liabilities in the accompanying consolidated balance sheets. This liability is
based on actuarial estimates of amounts needed to fund expected claims, as well
as premium payments and administrative costs of the Plans. During fiscal 1997,
the Company determined that its actual claims experience for certain previous
years was significantly below the estimates for those years. As a result, the
Company reduced its liability for its estimated future claims by $611,000, which
is reflected as nonrecurring income in the accompanying consolidated statement
of operations for the year ended June 30, 1997.
The Company from time-to-time makes contributions to the Trust Fund, which are
irrevocable. Trust assets may not revert to or inure to the benefit of the
Company. Neither the Company, administrator, nor trustee is responsible for the
adequacy of the Trust Fund.
While the trustee has virtual plenary authority to manage and invest trust
assets, the trustee is required to use trust assets and income exclusively to
provide benefits under the Plans and to defray reasonable expenses of
administering the Plans.
Employees Savings Trust
- ------------------------
Effective July 1, 1994, the Company adopted the Thousand Trails, Inc. Employees
Savings Trust for the purpose of establishing a contributory employee savings
plan exempt under Section 401(k) of the Code. An eligible employee
participating in this 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 $154,000 for the year ended June 30, 1997, and
has committed to make matching contributions for the year ended June 30, 1998,
in an amount equal to 45% of the voluntary contributions made by each
participant, up to 4% of the participant's annual compensation (or a maximum of
1.8% of the participant's annual compensation). Employer contributions are
subject to a seven-year vesting schedule.
NOTE 16 - INDUSTRY SEGMENT INFORMATION
The Company's operations are classified into two business segments: campgrounds
and resorts. Operations within the campground segment include (i) the sale of
memberships which entitle the member to use certain campground facilities, (ii)
the sale of undivided interests related to fee simple sales of interests in
campground facilities, (iii) net revenues earned from the reciprocal use program
conducted by RPI, (iv) net revenues earned from operations at the campgrounds,
and (v) net fees earned from the management of campgrounds owned by third
parties. The Company's resort operations have historically included the sale of
timeshare interests in fully furnished vacation homes, management of the
timeshare facilities, and the sale of lots at certain resorts. In November
1996, the Company sold the timeshare operations and timeshare inventory at the
resorts. The Company's current operations at the resorts consist of
Page 67
<PAGE>
the sale of lots at certain resorts and the operation of the common amenities at
one resort which are not material to the Company's consolidated operations. The
Company has sold significant resort assets in the last three years and plans to
dispose of the remaining resort assets over the next several years.
Operating earnings by business segment are defined as membership dues and other
operating revenue less operating expenses. Sales are separately identified.
Income and expenses not allocated to business segments include interest income,
interest expense, corporate administrative costs, and other income and expenses.
Identifiable assets are those assets used exclusively in the operations of each
business segment. Industry segment information is not presented for the year
ended June 30, 1997, because revenues and identifiable assets related to the
resort operations during that year are less than 10% of the related consolidated
amounts. Separate information regarding the Canadian operations is not
presented as revenues and identifiable assets related to the Canadian operations
for the periods presented are less than 10% of the related consolidated amounts.
The following tables show sales, operating earnings (loss) and other financial
information by industry segment for the years ended June 30, 1996 and 1995, as
restated to reflect a change in accounting method for the recognition of revenue
from campground membership sales (see Note 1) (in thousands):
<TABLE>
<CAPTION>
Year ended June 30, 1996
-------------------------------------------------------------
Campground Resort Corporate and
Operations Operations Other Consolidated
------------ ----------- ------------- --------------
(Restated)
<S> <C> <C> <C> <C>
Operating revenues $59,816 $6,975 $ 66,791
Sales 1,656 1,357 3,013
Operating earnings (loss) 11,910 35 ($12,185) (240)
Identifiable assets 66,953 4,705 39,973 111,631
Depreciation 2,209 123 534 2,866
Capital expenditures 621 366 35 1,022
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30, 1995
-------------------------------------------------------------
Campground Resort Corporate and
Operations Operations Other Consolidated
------------ ----------- ------------- --------------
(Restated)
<S> <C> <C> <C> <C>
Operating revenues $61,431 $8,095 $ 69,526
Sales 1,626 2,448 4,074
Operating earnings (loss) 6,569 418 ($18,560) (11,573)
Identifiable assets 76,564 9,012 51,941 137,517
Depreciation 1,940 165 486 2,591
Capital expenditures 3,984 998 750 5,732
</TABLE>
NOTE 17 - INDEMNIFICATION ARRANGEMENTS
Under its By-laws, 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.
Page 68
<PAGE>
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. In 1991,
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.
The trust assets, which totaled $1.4 million at June 30, 1997, are included in
other assets in the accompanying consolidated balance sheets.
NOTE 18 - CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
All of the Company's wholly owned subsidiaries (other than an inconsequential
utility subsidiary) (collectively, the "Subsidiary Guarantors") have fully and
unconditionally guaranteed, on a joint and several basis, the Company's
obligations under the PIK Notes that were issued on July 17, 1996, as well as
the PIK Notes issued in lieu of cash payment of interest (see Note 8).
The following condensed consolidating balance sheets and statements of
operations present the financial position and results of operations of the
Company ("TTI"), NACO, RPI and Wilderness Management, and the eliminations
necessary to arrive at the information for the Company on a consolidated basis,
as of and for the years presented. Such financial information has been restated
to reflect a change in accounting method for the recognition of revenues from
campground membership sales (see Note 1). Prior to July 16, 1996, when Trails
was merged into the Company, Trails was a separate corporation. Therefore, the
financial position and results of operations of Trails as of and for the years
ended June 30, 1996 and 1995, have been presented in a separate column. The
assets and operations of Wilderness Management are not material and have
therefore been combined with the balances of RPI. The Company has not
presented separate financial statements and other disclosures concerning the
Subsidiary Guarantors because management believes such information is not
material to investors. These condensed consolidating financial statements are
presented to provide additional analysis of, and should be read in conjunction
with, the consolidated financial statements of the Company.
All of the Company's debt and equity interests in the Subsidiary Guarantors has
been pledged by the Company to secure its obligations under the Credit
Agreement. In the event of a default and foreclosure under the Credit
Agreement, distributions from, and the assets of, the Subsidiary Guarantors may
not be available to satisfy other obligations of the Company, including the
obligations of the Company to the holders of the PIK Notes.
Page 69
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND ELIMI-
TTI NACO WILDERNESS(e) NATIONS TOTAL
---------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS -
Cash and cash equivalents $ 787 $ 484 $ 72 $ 1,343
Current portion of receivables, net 2,768 438 $ (72)a 3,134
Accounts and dues receivable, net 232 310 542
Other current assets 2,104 2,670 6,328 (7,088)b 4,014
-------- -------- ------ -------- --------
Total current assets 5,891 3,902 6,400 (7,160) 9,033
Receivables, net 3,812 699 (128)a 4,383
Notes receivable from affiliates 28,154 (28,154)c
Real estate and property, net 20,943 23,254 97 44,294
Investment in subsidiaries (10,638) 10,638d
Other assets 3,571 1,782 239 5,592
-------- -------- ------ -------- --------
Total assets $ 51,733 $ 29,637 $6,736 $(24,804) $ 63,302
======== ======== ====== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES -
Accounts payable and accrued
liabilities $ 7,259 $ 3,575 $ 408 $ (200)a $ 11,042
Due to affiliates 6,685 403 (7,088)b
Current portion of long term debt 5,844 20 5,864
Accrued construction costs 2,809 2,809
Deferred revenue 11,913 6,324 1,218 19,455
-------- -------- ------ -------- --------
Total current liabilities 31,701 12,728 2,029 (7,288) 39,170
Notes payable to parent 28,154 (28,154)c
Long term debt 37,874 356 38,230
Other liabilities 4,326 3,734 10 8,070
-------- -------- ------ -------- --------
Total liabilities 73,901 44,972 2,039 (35,442) 85,470
-------- -------- ------ -------- --------
STOCKHOLDERS' EQUITY (DEFICIT) (22,168) (15,335) 4,697 10,638 (22,168)
-------- -------- ------ -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 51,733 $ 29,637 $6,736 $(24,804) $ 63,302
======== ======== ====== ======== ========
</TABLE>
a Entry to eliminate the dealer holdback liability to subsidiaries.
b Entry to eliminate other intercompany accounts.
c Entry to eliminate intercompany debt.
d Entry to record subsidiaries' results on a consolidated basis.
e Includes Wilderness Management assets of $375,000.
Page 70
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1996
(Restated)
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND ELIMI-
TTI TRAILS NACO WILDERNESS(e) NATIONS TOTAL
--------- -------- ------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS -
Cash and cash equivalents $ 37,298 $ 16 $ 89 $ 37,403
Current portion of receivables, net 1,921 $ 2,108 375 $ (134)a 4,270
Accounts and dues receivable, net 211 311 522
Other current assets 2,031 22,786 1,830 5,388 (27,006)b 5,029
-------- ------- ------- ------ -------- --------
Total current assets 41,250 25,105 2,532 5,477 (27,140) 47,224
Receivables, net 2,252 5,713 1,203 (219)a 8,949
Notes receivable from affiliates 29,417 (29,417)c
Real estate and property, net 104 22,704 26,323 80 49,211
Investment in subsidiaries 17,121 (17,121)d
Other assets 2,421 2,035 1,592 199 6,247
-------- ------- ------- ------ -------- --------
Total assets $ 92,565 $55,557 $31,650 $5,756 $(73,897) $111,631
======== ======= ======= ====== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES -
Accounts payable and accrued
liabilities $ 6,077 $ 7,969 $ 4,486 $ 753 $ (1,309)a $ 17,976
Due to affiliates 23,748 1,571 378 (25,697)b
Current portion of long term debt 28,264 232 34 28,530
Accrued construction costs 3,154 3,154
Deferred revenue 11,782 6,307 1,176 19,265
-------- ------- ------- ------ -------- --------
Total current liabilities 58,089 19,983 15,552 2,307 (27,006) 68,925
Notes payable to parent 1 29,416 (29,417)c
Long term debt 66,086 346 490 66,922
Other liabilities 353 4,058 3,678 (353)a 7,736
-------- ------- ------- ------ -------- --------
Total liabilities 124,528 24,388 49,136 2,307 (56,776) 143,583
-------- ------- ------- ------ -------- --------
STOCKHOLDERS' EQUITY (DEFICIT) (31,963) 31,169 (17,486) 3,449 (17,121) (31,952)
-------- ------- ------- ------ -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 92,565 $55,557 $31,650 $5,756 $(73,897) $111,631
======== ======= ======= ====== ======== ========
</TABLE>
a Entry to eliminate the dealer holdback liability to subsidiaries.
b Entry to eliminate other intercompany accounts.
c Entry to eliminate intercompany debt.
d Entry to record subsidiaries' results on a consolidated basis.
e Includes Wilderness Management assets of $325,000.
Page 71
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND ELIMI-
TTI NACO WILDERNESS(d) NATIONS TOTAL
------- ------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES
Membership dues and other
campground/resort revenue $35,243 $21,514 $1,094 $57,851
Membership and resort interest sales 2,090 1,387 3,477
Interest income 5,318 1,093 $(2,685)a 3,726
Income from subsidiaries 3,400 (3,400)b
Other income 4,959 5,349 4,086 (1,035)c 13,359
------- ------- ------ ------- -------
Total Revenue 51,010 29,343 5,180 (7,120) 78,413
------- ------- ------ ------- -------
EXPENSES
Campground/resort operating
expenses 24,431 17,408 1,021 42,860
Selling and marketing 2,898 1,559 (2,685)a 4,457
Interest expense 9,130 2,639 (1,035)c 9,084
General and administrative 6,000 5,135 10,100
Restructuring costs 1,101 1,101
Other expenses 1,258 406 1,978 3,642
------- ------- ------ ------- -------
Total Expenses 44,818 27,147 2,999 (3,720) 71,244
------- ------- ------ ------- -------
Operating income 6,192 2,196 2,181 (3,400) 7,169
Income tax (provision) benefit 607 (44) (933) (370)
------- ------- ------ ------- -------
Net Income $ 6,799 $ 2,152 $1,248 $(3,400) $ 6,799
======= ======= ====== ======= =======
</TABLE>
a Entry to eliminate intercompany interest.
b Entry to record subsidiaries' results on a consolidated basis.
c Entry to eliminate servicing fee income earned on affiliate receivable
portfolios.
d Includes Wilderness Management revenues and expenses of $1.1 million
and $1.0 million, respectively.
Page 72
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
(Restated)
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND ELIMI-
TTI TRAILS NACO WILDERNESS(d) NATIONS TOTAL
------- -------- ------- ------------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Membership dues and other
campground/resort revenue $34,911 $26,481 $ 820 $62,212
Membership and resort interest sales 1,444 1,569 3,013
Interest income $ 6,445 3,446 1,219 267 $ (4,621)a 6,756
Income from subsidiaries 8,526 (8,526)b
Other income 66 4,669 10,977 4,585 (1,256)c 19,041
------- -------- ------- ------- -------- -------
Total Revenue 15,037 44,470 40,246 5,672 (14,403) 91,022
------- -------- ------- ------- -------- -------
EXPENSES
Campground/resort operating
expenses 25,647 23,865 796 50,308
Selling and marketing 3,504 1,810 5,314
Interest expense 17,346 146 4,822 (4,621)a 17,693
General and administrative 1,604 3,813 6,312 (1,256)c 10,473
Restructuring costs 1,124 1,124
Other expenses 3,721 392 2,237 6,350
------- -------- ------- ------- -------- -------
Total Expenses 20,074 36,831 37,201 3,033 (5,877) 91,262
------- -------- ------- ------- -------- -------
Operating income (loss) (5,037) 7,639 3,045 2,639 (8,526) (240)
Income tax (provision) benefit 4,756 (3,471) (77) (1,249) (41)
Extraordinary gain 1,390 1,390
------- -------- ------- ------- -------- -------
Net Income $ 1,109 $ 4,168 $ 2,968 $ 1,390 $ (8,526) $ 1,109
======= ======= ======= ======= ======== ========
</TABLE>
a Entry to eliminate intercompany interest.
b Entry to record subsidiaries' results on a consolidated basis.
c Entry to eliminate servicing fee income earned on affiliate receivable
portfolios.
d Includes Wilderness Management revenues and expenses of $826,000 and
$796,000, respectively.
Page 73
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995
(Restated)
(Dollars in thousands)
<TABLE>
<CAPTION>
RPI AND ELIMI-
TTI TRAILS NACO WILDERNESS(d) NATIONS TOTAL
------- ------- -------- ------------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Membership dues and other
campground/resort revenue $36,261 $28,385 $ 554 $ (519)b $ 64,681
Membership and resort interest sales 1,009 3,065 4,074
Interest income $ 8,509 3,961 1,698 188 (4,421)a 9,935
Other income 660 1,891 7,155 4,845 (1,849)c 12,702
------- ------- -------- ------- ------- --------
Total Revenue 9,169 43,122 40,303 5,587 (6,789) 91,392
------- ------- -------- ------- ------- --------
EXPENSES
Campground/resort operating expenses 29,789 27,214 613 (519)b 57,097
Selling and marketing 3,393 3,396 6,789
Interest expense 20,370 449 4,562 (4,421)a 20,960
General and administrative 2,239 4,777 6,951 (1,849)c 12,118
Restructuring costs 124 308 205 637
Loss from subsidiaries 831 (831)b
Other expenses 2,104 534 2,726 5,364
------- ------- -------- ------- ------- --------
Total Expenses 23,564 40,820 42,862 3,339 (7,620) 102,965
------- ------- -------- ------- ------- --------
Operating income (loss) (14,395) 2,302 (2,559) 2,248 831 (11,573)
Income tax (provision) benefit 2,567 (1,656) (38) (1,128) (255)
------- ------- -------- ------- ------- --------
Net Income (Loss) $(11,828) $ 646 $(2,597) $ 1,120 $ 831 $(11,828)
======== ======= ======= ======= ======= =========
</TABLE>
a Entry to eliminate intercompany interest.
b Entry to record subsidiaries' results on a consolidated basis.
c Entry to eliminate servicing fee income earned on affiliate receivable
portfolios.
d Includes Wilderness Management revenues and expenses of $554,000 and
$613,000, respectively.
Page 74
<PAGE>
SCHEDULE II
THOUSAND TRAILS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at the Balance at
Valuation and qualifying beginning of the end of
accounts deducted from assets Year ended the year Additions Deductions the year
- -------------------------------- ------------ -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts 6/30/97 $ 6,290 $ 35 $2,470 a $ 3,855
6/30/96 13,806 24 7,540 a 6,290
6/30/95 17,495 546 b 4,235 a 13,806
Allowance for uncollectible dues 6/30/97 $ 4,666 $3,215 $4,313 $ 3,568
receivable 6/30/96 4,008 4,754 c 4,096 4,666
6/30/95 4,611 4,400 5,003 4,008
Allowance for interest discount, 6/30/97 $ 1,762 $0 $ 693 $ 1,069
collection costs and valuation 6/30/96 2,882 0 1,120 1,762
discount 6/30/95 4,333 550 d 2,001 e 2,882
Deferred tax valuation allowance 6/30/97 $25,220 $0 $3,259 $21,961
(as restated) 6/30/96 19,441 5,779 0 25,220
6/30/95 16,679 2,762 0 19,441
</TABLE>
a Includes a reduction in the allowance for doubtful accounts of $1,232;
$5,146, and $457 in fiscal 1997, 1996 and 1995, respectively.
b Includes an addition to the allowance for doubtful accounts of $523
recorded in connection with the repurchase of contracts receivable from
a third party.
c Includes an increase in the allowance for uncollectible dues receivable
of $1,000.
d Represents a valuation allowance of $550 recorded in connection with the
repurchase of contracts receivable from a third party.
e Includes a reduction in the allowance for collection costs of $540.
Page 75
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Page 76
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be included under the captions
"Proposal I - Election of Directors," "Board of Directors," "Executive
Officers," and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Registrant's definitive Proxy Statement for the Registrant's 1997 Annual Meeting
of Stockholders, which will be filed with the SEC pursuant to Regulation 14A,
and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included under the caption
"Executive Compensation" in the Registrant's definitive Proxy Statement for the
Registrant's 1997 Annual Meeting of Stockholders, which will be filed with the
SEC pursuant to Regulation 14A, and is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item will be included under the caption
"Security Ownership" in the Registrant's definitive Proxy Statement for the
Registrant's 1997 Annual Meeting of Stockholders, which will be filed with the
SEC pursuant to Regulation 14A, and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included under the caption
"Certain Transactions" in the Registrant's definitive Proxy Statement for the
Registrant's 1997 Annual Meeting of Stockholders, which will be filed with the
SEC pursuant to Regulation 14A, and is hereby incorporated by reference.
Page 77
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) FINANCIAL STATEMENTS
The following documents are filed as part of this Report:
Report of Independent Public Accountants for the years ended June 30, 1997,
1996 and 1995.
Consolidated Balance Sheets as of June 30, 1997 and 1996.
Consolidated Statements of Operations for the years ended June 30, 1997,
1996 and 1995.
Consolidated Statements of Stockholders' Deficit for the years ended June
30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended June 30, 1997,
1996 and 1995.
Notes to Consolidated Financial Statements.
Schedule II Valuation and Qualifying Accounts
(b) REPORTS ON FORM 8-K
The Company did not file any Current Reports on Form 8-K during the quarter
ended June 30, 1997. However, on July 8, 1997, the Company filed a Current
Report on Form 8-K relating to its repurchase of $13.4 million principal amount
of PIK Notes on June 25, 1997. The Company made these repurchases in a Dutch
auction available to all holders of PIK Notes.
(c) EXHIBITS
The following documents are filed or incorporated by reference as exhibits to
this report:
Exhibit
Number Description
------- -----------
2.1 Plan of Reorganization of the Company (which was
formerly known as NACO Finance Corporation), dated
October 15, 1991, as supplemented (incorporated by
reference to Exhibit 2.1 to the Company's Annual Report
on Form 10-K for the year ended June 30, 1992, File No.
0-19743).
2.2 Exchange Agreement, dated as of June 11, 1992, between
the Company and certain holders of Trails' 14 5/8%
Senior Subordinated Notes (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K
filed with the SEC on June 25, 1992, File No. 0-19743).
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<PAGE>
2.3 Agreement and Plan of Merger, dated as of August 2,
1993, among the Company, Trails Acquisition, Inc., and
Trails, as amended (incorporated by reference to Exhibit
(c)(1) to the Rule 13E-3 Transaction Statement on
Schedule 13E-3 that the Company, Trails Acquisition,
Inc., and Trails originally filed with the SEC on
December 2, 1993).
2.4 Offer to Purchase for Cash the Company's 12% Secured
Notes due 1998 and Additional Series 12% Secured Notes
due 1998 by the Company, dated June 5, 1996 (the "Offer
to Purchase") (incorporated by reference to Exhibit 99.2
to the Company's Current Report on Form 8-K filed with
the SEC on June 7, 1996, File No. 0-19743).
2.5 Supplement to the Offer to Purchase, dated June 21, 1996
(incorporated by reference to Exhibit 2.5 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
2.6 Private Placement Memorandum by the Company offering to
exchange the Company's 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 the Company's Annual Report on Form 10-K
for the year ended June 30, 1996, File No. 0-19743).
2.7 Letter of Transmittal pertaining to the transmittal of
the Company's 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 the
Company in the Private Placement Memorandum
(incorporated by reference to Exhibit 2.7 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
2.8 Supplement to the Private Placement Memorandum, dated
July 15, 1996 (incorporated by reference to Exhibit 2.8
to the Company's Annual Report on Form 10-K for the year
ended June 30, 1996, File No. 0-19743).
2.9 Agreement and Plan of Merger, dated as of October 1,
1996, between the Company and USTrails (predecessor in
interest to the Company) (incorporated by reference to
the proxy statement/prospectus filed with the the SEC on
October 3, 1996 as part of the Registration Statement on
Form S-4, Registration Statement No. 333-13339, File No.
0-19743 (the "S-4 Registration Statement").
2.10 Offer to Purchase for Cash the Company's 12% Senior
Subordinated Pay-In-Kind Notes due 2003, dated as of
May 20, 1997 (incorporated by reference to Exhibit 99.1
to the Company's Current Report on Form 8-K filed with
the SEC on July 8, 1997, File No. 0-19743).
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to the proxy
statement/prospectus filed with the SEC on October 3,
1996 as part of the S-4 Registration Statement).
3.2 Amended and Restated By-laws of the Company
(incorporated by reference to Exhibit 3.2 to the Form 8-
B filed by the Company with the SEC on November 27,
1996, File No. 0-19743).
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4.1 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 the Company's Annual Report on Form 10-K for the
year ended June 30, 1992, File No. 0-19743).
4.2 Letter Agreement, dated March 19, 1993, between the
Company and Carl Marks Strategic Investments, LP
(incorporated by reference to Exhibit 4.18 to the
Company's Registration Statement No. 33-571261 on Form
S-2, originally filed with the SEC on January 15, 1993,
File No. 0-19743).
4.3 Form of Warrant Certificate to purchase shares of Common
Stock issued pursuant to the Exchange Agreement with
certain holders of Trails' indebtedness (incorporated by
reference to Exhibit 4.3 to the Company's Current Report
on Form 8-K filed with the SEC on June 25, 1992, File
No. 0-19743) and schedule of substantially identical
warrants (incorporated by reference to Exhibit 4.15 to
the Company's Annual Report on Form 10-K for the year
ended June 30, 1992, File No. 0-19743).
4.4 Warrant Agency Agreement, dated as of March 2, 1994,
between the Company and Shawmut Bank Connecticut,
National Association, as Warrant Agent (incorporated by
reference to Exhibit 4.4 to the Company's Current Report
on Form 8-K filed with the SEC on April 11, 1994, File
No. 0-19743).
4.5 Registration Rights Agreement, dated as of December 31,
1991, regarding the Company's Secured Notes and other
securities (incorporated by reference to Exhibit 4.8 to
the Company's Annual Report on Form 10-K for the year
ended June 30, 1992, File No. 0-19743).
4.6 Registration Rights Agreement, dated as of June 12,
1992, regarding the Company's 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 the Company's Current Report on Form
8-K filed with the SEC on June 25, 1992, File No. 0-
19743).
4.7 Indemnification Agreement, dated as of January 14, 1993,
between the Company and the selling security holders
under Registration Statement No. 33-571261 (incorporated
by reference to Exhibit 10.44 to the Company's
Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File
No. 0-19743).
4.8 Indenture, dated as of July 17, 1996, among the Company,
Fleet National Bank as Trustee, and certain other
parties described therein, pertaining to the Company's
Senior Subordinated Pay-In-Kind Notes Due 2003
(incorporated by reference to Exhibit 4.36 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
4.9 Form of Senior Subordinated Pay-In-Kind Note Due 2003
(incorporated by reference to Exhibit 4.37 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
4.10 Registration Rights Agreement, dated as of July 17,
1996, between the Company and Fleet National Bank as
Trustee (incorporated by reference to Exhibit 4.38 to
the Company's Annual Report on Form 10-K for the year
ended June 30, 1996, File No. 0-19743).
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<PAGE>
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, File No. 0-
19743).
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,
File No. 0-19743).
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, File No. 0-19743).
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, File No. 0-19743).
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,
File No. 0-19743).
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, File No. 0-19743).
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, File No. 0-19743).
10.8 Release under Credit Agreement and Security Agreement,
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 10.57 to the Company's
Registration Statement No. 33-571261 on Form S-2,
originally filed with the SEC on January 15, 1993, File
No. 0-19743).
10.9 Security Agreement, dated as of December 31, 1991,
pursuant to which NACO granted to the Company 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 the Company and NACO (incorporated by reference
to Exhibit 10.31 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992, File No. 0-
19743).
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10.10 First Supplement and Amendment to Security Agreement,
dated as of May 20, 1993, among NACO and certain of its
subsidiaries, RPI, the Company, and Shawmut Bank
Connecticut, National Association, as Trustee
(incorporated by reference to Exhibit 10.53 to the
Company's Registration Statement No. 33-571261 on Form
S-2, originally filed with the SEC on January 15, 1993,
File No. 0-19743).
10.11 Form of Mortgage from NACO and its subsidiaries to the
Company pursuant to the credit agreement between the
Company and NACO (incorporated by reference to Exhibit
10.32 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1992, File No. 0-19743), and
schedule of documents substantially identical to the
Form of Mortgage (incorporated by reference to Exhibit
10.55 to the Company's Registration Statement No. 33-
571261 on Form S-2, originally filed with the SEC on
January 15, 1993, File No. 0-19743).
10.12 Form of First Amendment to Mortgage from NACO and its
subsidiaries to the Company amending certain terms of a
Mortgage that previously granted a beneficial security
interest in certain property to the Company pursuant to
the credit agreement between the Company and NACO, and
schedule of documents substantially identical to the
Form of First Amendment to Mortgage (incorporated by
reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.13 Loan and Security Agreement, dated as of July 10, 1996,
between the Company and Foothill Capital Corporation
(incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.14 First Amendment to Loan and Security Agreement, dated
as of May 16, 1997, between the Company and Foothill
Capital Corporation (incorporated by reference to
Exhibit 99.2 to the Company's Current Report on Form 8-
K filed with the SEC on July 8, 1997, File No. 0-
19743).
10.15 Secured Promissory Note (Account Note), dated July 10,
1996, between the Company and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.20
to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996, File No. 0-19743).
10.16 Secured Promissory Note (Term Note), dated July 10,
1996, between the Company and Foothill Capital
Corporation(incorporated by reference to Exhibit 10.21
to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996, File No. 0-19743).
10.17 Form of Pledge and Security Agreement, dated as of July
10, 1996, between the Company 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 the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
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<PAGE>
10.18 Form of Mortgage, dated as of July 10, 1996, to grant
liens to Foothill Capital Corporation to secure the
Company's 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 the Company's Annual
Report on Form 10-K for the year ended June 30, 1996,
File No. 0-19743).
10.19 Form of Assignment of Indebtedness and Mortgage, dated
as of July 10, 1996, transferring the liens securing
certain indebtedness that NACO owes to the Company 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
the Company's Annual Report on Form 10-K for the year
ended June 30, 1996, File No. 0-19743).
10.20 Form of Subordination Agreement, dated as of July 10,
1996, between the Company and Foothill Capital
Corporation, subordinating the security interests under
the credit agreement between the Company 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 the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.21 The Company's 1991 Employee Stock Incentive Plan
(incorporated by reference to Exhibit 10.40 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1992, File No. 0-19743).
10.22 Amendment No. 1 to the Company's 1991 Employee Stock
Incentive Plan (incorporated by reference to Exhibit
10.8 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, File No. 0-
19743).
10.23 The Company's 1993 Stock Option and Restricted Stock
Purchase Plan (incorporated by reference to Exhibit
10.22 to the Company's Registration Statement No. 33-
73284 on Form S-2, originally filed with the SEC on
December 22, 1993, File No. 0-19743).
10.24 Amendment No. 1 to the Company's 1993 Stock Option and
Restricted Stock Purchase Plan (incorporated by
reference to Exhibit 10.9 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1996, File No. 0-19743).
10.25 The Company's 1993 Director Stock Option Plan
(incorporated by reference to Exhibit 10.23 to the
Company's Registration Statement No. 33-73284 on Form
S-2, originally filed with the SEC on December 22,
1993, File No. 0-19743).
10.26 Amendment No. 1 to the Company's 1993 Director Stock
Option Plan (incorporated by reference to Exhibit 10.10
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996, File No. 0-19743).
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<PAGE>
10.27 Stock Option Agreement, dated as of August 1, 1996,
between the Company and William J. Shaw (incorporated
by reference to Exhibit 10.26 to the Form 8-B filed by
the Company with the SEC on November 27, 1996, File No.
0-19743).
10.28 Assumption of Obligations, dated as of November 20,
1996, by the Company 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, 1992, 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 (incorporated by reference to
Exhibit 10.27 to the Form 8-B filed by the Company with
the SEC on November 27, 1996, File No. 0-19743).
10.29 Employment Agreement, dated as of May 11, 1995, between
the Company 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 the Company's Annual Report on Form 10-K for the
year ended June 30, 1995, File No. 0-19743).
10.30 Letter dated June 29, 1996, from William J. Shaw to the
Company, 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 the Company's Annual
Report on Form 10-K for the year ended June 30, 1996,
File No. 0-19743).
10.31 Amended and Restated Employment Agreement, dated as of
September 10, 1992, among NACO, Trails, RPI, and
William F. Dawson (incorporated by reference to Exhibit
10.49 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1993, File No. 0-19743), and
Letter, dated December 1, 1995, from RPI to William F.
Dawson, regarding certain compensation arrangements
(incorporated by reference to Exhibit 10.4 to the
Company's Quarterly on From 10-Q for the quarter ended
December 31, 1995, File No. 0-19743).
10.32 Amended and Restated Employment Agreement, dated as of
December 2, 1992, among the Company, NACO, Trails, and
Walter B. Jaccard (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1992, File No. 0-19743),
and amendment dated November 15, 1994 (incorporated by
reference to Exhibit 10.30 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743), and amendment dated December 7, 1995
(incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995, File No. 0-19743).
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<PAGE>
10.33 Amended and Restated Employment Agreement, dated as of
October 21, 1993, between the Company and Harry J.
White, Jr. (incorporated by reference to Exhibit 99.3
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, File No. 0-19743),
and amendment dated December 7, 1996 (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31,
1995, File No. 0-19743).
10.34 Employment Agreement, dated as of August 31, 1995,
between the Company and R. Gerald Gelinas (incorporated
by reference to Exhibit 10.32 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.35 Indemnification Agreement, dated as of February 18,
1992, between the Company and Andrew Boas (incorporated
by reference to Exhibit 10.23 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1992,
File No. 0-19743), and schedule of substantially
identical Indemnification Agreements (incorporated by
reference to Exhibit 10.33 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995,
File No. 0-19743).
10.36 Indemnification Agreement, dated as of September 1,
1995, between Trails and William J. Shaw, and schedule
of substantially identical Indemnification Agreements
(incorporated by reference to Exhibit 10.36 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.37 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 the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.38 Indemnification Agreement, dated as of May 8, 1991,
between the Company and Donald W. Hair, and schedule of
substantially identical Indemnification Agreements
(incorporated by reference to Exhibit 10.38 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1996, File No. 0-19743).
10.39 Indemnification Agreement, dated as of November 20,
1996, between the Company and William J. Shaw and
schedule of substantially identical Indemnification
Agreements (incorporated by reference to Exhibit 10.39
to the Company's Registration Statement No. 333-19357
on Form S-1, originally filed with the SEC on January
7, 1997, File No. 0-19743).
10.40 Lease, dated February 24, 1994, as amended, between
Carter-Crowley Properties, Inc. as lessor, and the
Company as lessee, relating to the Company's offices in
Dallas, Texas (incorporated by reference to Exhibit
10.35 to the Company's Annual Report on Form 10-K for
the year ended June 30, 1994, File No. 0-19743).
10.41 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 the Company's Annual Report on Form 10-K for the
year ended June 30, 1994, File No. 0-19743).
Page 85
<PAGE>
10.42 Grantor Trust Agreement, dated as of September 30,
1991, between Union Bank of California, N.A. (formerly
known as The Bank of California, N.A., and referred to
herein as "Union Bank"), and Trails (incorporated by
reference from Trails' Annual Report on Form 10-K for
the year ended June 30, 1992, File No. 0-9246).
10.43 Supplement to Grantor Trust Agreement, dated as of
November 20, 1996, by the Company in favor of Union
Bank (incorporated by reference to Exhibit 10.44 to the
Company's Registration Statement No. 333-19357 on Form
S-1, originally filed with the SEC on January 7, 1997,
File No. 0-19743).
10.44 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 the
Company's Annual Report on Form 10-K for the year ended
June 30, 1992, File No. 0-19743).
10.45 Grantor Trust Agreement, dated May 8, 1991, between the
Company and Texas Commerce Bank, N.A. ("Texas Bank")
(incorporated by reference to Exhibit 10.41 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1992, File No. 0-19743).
10.46 Supplement and Succession Agreement to Grantor Trust
Agreement, dated as of October 13, 1992, among Union
Bank, Texas Bank, the Company, and certain
beneficiaries under the Grantor Trust Agreement
(incorporated by reference to Exhibit 10.51 to the
Company's Registration Statement No. 33-571261 on Form
S-2, originally filed with the SEC on January 15, 1993,
File No. 0-19743).
10.47 Supplement No. 2 to Grantor Trust Agreement, dated as
of November 20, 1996, by the Company in favor of Union
Bank (incorporated by reference to Exhibit 10.43 to the
Form 8-B filed by the Company with the SEC on November
27, 1996, File No. 0-19743).
10.48 Trust Agreement, dated as of July 22, 1992,
establishing the Company's Flexible Benefits Plan Trust
Fund (incorporated by reference to Exhibit 10.45 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1992, File No. 0-19743).
10.49 Thousand Trails, Inc. Employee Savings Trust, dated as
of July 1, 1994, between the Company and its
subsidiaries and The Bank of California, N.A., as
trustee (incorporated by reference to Exhibit 10.42 to
the Company's Annual Report on Form 10-K for the year
ended June 30, 1994, File No. 0-19743).
10.50 Tax Allocation Agreement, dated as of September 10,
1992, between the Company and RPI (incorporated by
reference to Exhibit 99.6 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993, File No. 0-19743).
10.51 Tax Allocation Agreement, dated as of July 1, 1991,
between the Company and NACO (incorporated by reference
to Exhibit 10.44 to the Company's Annual Report on Form
10-K for the year ended June 30, 1994, File No. 0-
19743).
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<PAGE>
10.52 Tax Allocation Agreement, dated as of October 29, 1993,
between the Company and Wilderness Management
(incorporated by reference to Exhibit 10.46 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1994, File No. 0-19743).
10.53 Exchange Agent Agreement, dated as of March 29, 1994,
among the Company, Trails, and American Stock Transfer
& Trust Company (incorporated by reference to Exhibit
99.1 to the Company's Current Report on Form 8-K filed
with the SEC on April 11, 1994, File No. 0-19743).
10.54 Sample form of current Membership Contract.
11.1 Statement re: Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
Page 87
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THOUSAND TRAILS, INC.
(Registrant)
Date: September 29, 1997 By: s/William J. Shaw
-------------------------------------
William J. Shaw
Chairman of the Board, President
and Chief Executive Officer
Date: September 29, 1997 By: s/Harry J. White, Jr.
-------------------------------------
Harry J. White, Jr.
Vice President, Chief Accounting Officer,
Chief Financial Officer, and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
s/Andrew M. Boas Director September 29, 1997
- ----------------------
Andrew M. Boas
s/William P. Kovacs Director September 29, 1997
- ----------------------
William P. Kovacs
s/Donald R. Leopold Director September 29, 1997
- ----------------------
Donald R. Leopold
s/H. Sean Mathis Director September 29, 1997
- ----------------------
H. Sean Mathis
s/Douglas K. Nelson Director September 29, 1997
- ----------------------
Douglas K. Nelson
s/William J. Shaw Chairman of September 29, 1997
- ---------------------- the Board
William J. Shaw
Page 88
<PAGE>
EXHIBIT 13.2
THOUSAND TRAILS, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS OF THOUSAND TRAILS, INC.
TO BE HELD NOVEMBER 20, 1997
INTRODUCTION
The enclosed proxy is solicited by the Board of Directors (the "Board of
Directors") of Thousand Trails, Inc., a Delaware corporation (the "Company"),
for use at the Annual Meeting of the Stockholders of the Company to be held at
10:00 a.m. on November 20, 1997, or any adjournment thereof (the "Annual
Meeting"). The Annual Meeting will be held at the principal executive offices of
the Company at 2711 LBJ Freeway, Suite 200, Dallas, Texas. The telephone number
of the Company's principal executive offices is (972) 243-2228. The Company
mailed this Proxy Statement and the accompanying proxy on or about October 13,
1997.
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) The ratification of Arthur Andersen LLP ("Arthur Andersen") as the
Company's independent certified public accountants for the fiscal year
ending June 30, 1998.
(3) The transaction of 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 and the
accompanying proxy.
(2) Ratify Arthur Andersen as the Company's independent certified public
accountants.
RECORD DATE AND VOTING
The Board of Directors established the close of business on October 9,
1997, 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 7,386,776 shares of common
stock, par value $.01 per share (the "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 Common Stock in
connection with the election of each of the six directors, the ratification of
the independent certified public accountants, and each other matter that may be
properly brought before the Annual Meeting. The Stockholders do not possess
cumulative voting rights.
<PAGE>
The presence, in person or by proxy, of the holders of a majority of the
shares of 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, the
election of each of the six directors, and the ratification of Arthur Andersen
as the Company's independent certified public accountants, require the
affirmative vote of the holders of a majority of the shares of 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 nominee(s) receiving fewer votes. However, the number of
votes otherwise received by such nominee(s) 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 and the accompanying material to its customers
before the Annual Meeting, the broker may vote the customers' 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. With respect to these proposals, an
abstention with respect to shares present or represented at the meeting will
have the same effect as withholding authority with respect to the election of
directors or voting against the matter.
Proxyholders will vote the shares of 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 and the accompanying proxy and for the ratification of
Arthur Andersen as the Company's independent certified public accountants. 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 proxy holders 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 19, 1997.
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
accompany proxy to the beneficial owners of shares of Common Stock.
<PAGE>
SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the persons and groups who beneficially own
more than 5% of the Common Stock as of October 1, 1997. 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................................... 3,530,833/1/ 46.5%/1/
c/o Carl Marks Management Co., L.P.
135 East 57th Street
New York, New York 10022
Carl Marks Management Co., L.P................... 3,179,691/1/ 41.9%/1/
135 East 57th Street
New York, New York 10022
Carl Marks Strategic Investments, L.P............ 2,668,765/1/ 35.2%/1/
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%/1/
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%/2/
c/o Siegler & Collery & Co.
712 Fifth Avenue
New York, NY 10019
Robert C. Ruocco................................. 3,496,676/1/ 46.1%/1/
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%/2/
712 Fifth Avenue
New York, NY 10019
SC Fundamental Value BVI, Inc.................... 361,990/2/ 4.9%/2/
712 Fifth Avenue
New York, NY 10019
William J. Shaw.................................. 881,490/3/ 11.0%/3/
Thousand Trails, Inc.
2711 LBJ Freeway, Suite 200
Dallas, TX 75234
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING SHARES
- ------------------------------------------------- --------------------- -----------------------
<S> <C> <C>
Gary N. Siegler.................................. 1,308,498/2/ 17.7%/2/
c/o Siegler & Collery & Co.
712 Fifth Avenue
New York, NY 10019
The SC Fundamental Value Fund, L.P...............
712 Fifth Avenue 946,508/2/ 12.8%/2/
New York, NY 10019
</TABLE>
- -------------------
/1/ The ownership of these shares of Common Stock includes multiple beneficial
ownership of the same shares. Carl Marks Strategic Investments, L.P. ("CM
Strategic") owns 2,474,244 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 Common Stock that CM
Strategic beneficially owns. Carl Marks Strategic Investments II, L.P.
("CM Strategic II") owns 510,926 shares of Common Stock. CM Management is
the general partner of CM Strategic II and, therefore, beneficially owns
all of the shares of Common Stock that CM Strategic II beneficially owns.
Messrs. Boas and Ruocco are each a general partner of CM Management.
Messrs. Boas and Ruocco, therefore, beneficially own all of the shares of
Common Stock that CM Management beneficially owns. In addition, Carl Marks
Offshore Management, Inc., an investment management company, exercises
investment discretion over an advisory account that owns 316,985 shares of
Common Stock. Messrs. Boas and Ruocco are executive officers of such
investment management company and therefore beneficially own such shares.
In addition, Mr. Boas (i) owns 11,569 shares of Common Stock, (ii) is
deemed to own an additional 20,000 shares because he owns options to
acquire 5,000 shares at a price of $.79 per share, 5,000 shares at a price
of $.80 per share, and 10,000 shares at a price of $1.08 per share, and
(iii) beneficially owns 2,588 shares because he is a co-trustee of a trust
that owns these shares. CM Strategic, CM Strategic II, CM Management, and
Messrs. Boas and Ruocco disclaim the existence of a group. The reported
voting and investment power over these shares is as follows: (i) CM
Strategic - sole voting and investment power over 2,668,765 shares, (ii)
CM Strategic II - sole voting and investment power over 510,926 shares,
(iii) CM Management - sole voting and investment power over 3,179,691
shares, (iv) Mr. Boas - sole voting and investment power over 31,569
shares and shared voting and investment power over 3,499,264 shares, and
(v) Mr. Ruocco - shared voting and investment power over 3,496,676 shares.
(continued)
<PAGE>
The following table shows the beneficial ownership of the shares of Common Stock
described in this footnote:
<TABLE>
<CAPTION>
CM CM CM
STRATEGIC STRATEGIC II MANAGEMENT MR. BOAS MR. RUOCCO
--------- ------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Shares owned by CM Strategic............ 2,474,244 2,474,244 2,474,244 2,474,244
Warrants owned by CM Strategic.......... 194,521 194,521 194,521 194,521
Shares owned by CM Strategic II......... 510,926 510,926 510,926 510,926
Shares over which an investment
management company affiliated with
Messrs. Boas and Ruocco possesses
investment discretion.................. 316,985 316,985
Shares owned by Mr. Boas................ 11,569
Options owned by Mr. Boas............... 20,000
Shares held in trust over which Mr.
Boas is a Co-Trustee................... 2,588
--------- ------- --------- --------- ---------
Total............................ 2,668,765 510,926 3,179,691 3,530,833 3,496,676
========= ======= ========= ========= =========
Percentage of outstanding shares........ 35.2% 6.9% 41.9% 46.5% 46.1%
</TABLE>
/2/ The ownership of these shares of 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 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 Fundamental and BVI. Peter M.
Collery is also a controlling stockholder and a vice president and director
of SC Fundamental and BVI. Messrs. Siegler and Collery are in a position to
directly and indirectly determine the investment and voting decisions made
by SC Fundamental and BVI and, therefore, are deemed to beneficially own
all of the shares of Common Stock that the Fund and BVI own.
/3/ The shares of Common Stock owned by Mr. Shaw include (i) vested stock
options for 664,495 shares at a price of $0.69 per share, and (ii) 10,000
shares held by Mr. Shaw's children and grandchildren, as to which Mr. Shaw
possesses investment discretion.
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned as of October 1, 1997, 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 individuals 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...................... 3,530,833/1,2/ 46.5%
William F. Dawson................... 36,667/2/ *
R. Gerald Gelinas................... 68,074/2,3/ *
Walter B. Jaccard................... 65,000/2/ *
William P. Kovacs................... 70,000/2/ *
Donald R. Leopold................... 10,000/2/ *
H. Sean Mathis...................... 20,000/2/ *
Douglas K. Nelson................... 20,000/2/ *
William J. Shaw..................... 881,490/2,4/ 11.0%
Harry J. White, Jr.................. 97,500/2/ 1.3%
All directors and executive
officers as a group (10
individuals)....................... 4,799,564/2/ 56.2%
</TABLE>
- -------------------
/1/ See footnote number 1 to the preceding table for a description of Mr. Boas'
beneficial ownership of Common Stock.
/2/ The shares of Common Stock beneficially owned by the following individuals
include vested stock options for the number of shares following their name:
Mr. Boas, 20,000; Mr. Dawson, 36,667; Mr. Gelinas, 43,334; Mr. Jaccard,
55,000; Mr. Kovacs, 20,000; Mr. Leopold, 10,000; Mr. Mathis, 20,000; Mr.
Nelson, 20,000; Mr. Shaw, 664,495; Mr. White, 65,000; and all directors and
executive officers as a group, 954,496.
/3/ Includes 2,400 shares held by Mr. Gelinas' spouse.
/4/ Includes 10,000 shares held by Mr. Shaw's children and grandchildren, as to
which Mr. Shaw possesses investment discretion.
* Less than 1%.
<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 42 None December Audit, Marketing, and
1991 Nominating
William P. Kovacs 51 None December Audit, Compensation, and
1991 Special
Donald R. Leopold 48 None Director Compensation and Marketing
1995
H. Sean Mathis 50 None December Audit, Compensation,
1991 Nominating, and Special
Douglas K. Nelson 54 None December Marketing, Nominating, and
1991 Special
William J. Shaw 54 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. Since
November 1986, Mr. Boas has been a general partner of CM Management, a
registered investment advisor that is the general partner of investment
partnerships 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. LTD, 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, 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.
<PAGE>
Kovacs has served as a director of the Company. Since January 1997, Mr. Kovacs
has been an attorney with the law firm of Rudnick & Wolf LLP. From March 1996 to
December 1996, Mr. Kovacs was President of MDRC, Inc., a dispute resolution and
consulting firm. 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.
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 sales and
marketing 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. Since
July 1996, Mr. Mathis has been Chairman and a director of Universal Gym
Equipment Inc. ("Universal"), a privately owned manufacturer of exercise
equipment. Universal filed for protection under the federal bankruptcy laws in
July 1997. Mr. Mathis is also Chairman of the Board of Allis Chalmers, Inc., an
industrial manufacturer, whose main asset is a net operating loss carryforward.
From July 1991 to August 1993, Mr. Mathis was President of RCL, the predecessor
firm of Allied Digital Technologies Corp., a manufacturing company, and from
August 1993 to the present, served as a director. From August 1993 to November
1995, Mr. Mathis was President and a director of RCL Capital Corporation, which
was merged into DISCGraphics, a manufacturer of packaging materials, in November
1995. From May 1988 to October 1993, Mr. Mathis was a director and the Chief
Operating Officer of Ameriscribe Management Services, Inc., a national provider
of reprographic and related facilities management services. From August 1992 to
May 1994, Mr. Mathis acted as the Federal Court Appointed Trustee for
International Wire News Service Liquidation Corporation, formerly United Press
International ("UPI"). From November 1991 to July 1992, Mr. Mathis was
Vice Chairman and a director of UPI, which was then a news syndication service.
In August 1991, UPI filed for protection under the federal bankruptcy laws.
Douglas K. Nelson became a director of the Company in December 1991. Since
April 1976, Mr. Nelson has been President of Strategic Directions, a management
consulting firm which focuses on businesses in the areas of leisure, sports, and
entertainment. From February 1970 through March 1976, Mr. Nelson was an
associate with McKinsey and Co., Inc., a management consulting firm.
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, Inc.,
a national provider of reprographic and related facilities management services.
Ameriscribe Management Services, Inc. was sold to Pitney Bowes in November 1993.
From 1983 to January 1989, Mr. Shaw was the President and Chief Executive
Officer of Grandy's, a Dallas based chain of fast service restaurants.
<PAGE>
BOARD OF DIRECTORS
MEETINGS. During the fiscal year ended June 30, 1997, the Board of
Directors held one regularly scheduled meeting and 11 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
committees to which he was assigned during the periods that he served.
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, 1997, the Audit Committee held three
meetings.
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, 1997, the
Compensation Committee held three meetings.
From June 30, 1996 to September 12, 1996, Mr. Boas, a director of the
Company, and Mr. Shaw, the President and Chief Executive Officer of the Company,
served as the members of the Compensation Committee. As described under
"Security Ownership," Mr. Boas is deemed to own beneficially 46.5% of the Common
Stock and Mr. Shaw is deemed to own beneficially 11.0% of the Common Stock. Mr.
Boas and certain of his affiliates participated in the private exchange offer
that was part of the restructuring of the Company in July 1996 (the
"Restructuring"). Mr. Boas and Mr. Ruocco are general partners of CM Management.
CM Management is the general partner of each of CM Strategic and CM Strategic
II. CM Strategic exchanged $12,979,000 in principal amount of the Company's
Secured Notes ("Secured Notes") and CM Strategic II exchanged $5,827,000 in
principal amount of Secured Notes. In addition, an investment management
company, of which Messrs. Boas and Ruocco are executive officers, (i) manages a
fund 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 a co-trustee exchanged $187,000 in principal amount of
Secured Notes; and (ii) Mr. Ruocco exchanged $10,000 in principal amount of
Secured Notes. In the aggregate, these persons exchanged $22,056,000 principal
amount of Secured Notes for $8,828,400 in cash, $10,847,000 principal amount of
the Company's Senior Subordinated Pay-In-Kind Notes ("PIK Notes"), and 992,070
shares of Common Stock, plus accrued interest. In connection with the
Restructuring, Mr. Shaw was granted options to purchase 664,495 shares of Common
Stock at $0.69 per share. The grant of these options was approved by the Special
Committee of independent directors and by the Stockholders. In connection with
the Restructuring, the Special Committee, composed of Messrs. Kovacs, Mathis,
and Nelson, performed some of the functions usually exercised by the
Compensation Committee.
Certain of Mr. Boas' affiliates also tendered PIK Notes in response to
the Company's Dutch auction tender offer that was completed in June 1997. In the
Dutch auction tender offer, the Company purchased $2,988,489 principal amount of
PIK Notes from CM Strategic and $2,750,300 principal amount of PIK Notes from CM
Strategic II. In the aggregate, the Company purchased $5,738,789 principal
amount of PIK Notes from these persons for $5,164,910, plus an amount for
accrued interest.
<PAGE>
MARKETING COMMITTEE. The Board of Directors has a Marketing Committee
(the "Marketing Committee"), presently composed of Messrs. Boas, Leopold, and
Nelson. The Marketing Committee reviews sales and marketing programs,
direction, and other issues with the Company's senior management. During the
fiscal year ended June 30, 1997, 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. The Nominating Committee 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 1998 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. During
the fiscal year ended June 30, 1997, the Nominating Committee held one meeting.
SPECIAL COMMITTEE. The Board of Directors has a Special Committee (the
"Special Committee") of independent directors, presently composed of Messrs.
Kovacs, Mathis, and Nelson. The Special Committee is authorized to review and
make recommendations to the full Board of Directors regarding recapitalization,
reorganization, and financing alternatives for the Company. The Special
Committee approved the Restructuring of the Company that was completed in July
1996. In addition, in connection with the Restructuring, the Special Committee
authorized the grant to Mr. Shaw of an option to purchase Common Stock as
described under "Compensation Committee Interlocks and Insider Participation"
above. The Special Committee also approved the Dutch Auction tender offer for
PIK Notes that was completed in June 1997. During the fiscal year ended June 30,
1997, the Special Committee held seven meetings.
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth the current executive officers of the
Company. Although each of these executive officers has an employment agreement
with the Company, they each serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE Offices
------------------- --- ---------------------------------
<S> <C> <C>
William J. Shaw 54 Chairman of the Board, President,
and Chief Executive Officer
Harry J. White, Jr. 43 Vice President, Chief Financial
Officer, Chief Accounting Officer,
and Treasurer
R. Gerald Gelinas 51 Vice President of Sales and
Marketing
Walter B. Jaccard 44 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 for protection under the federal
bankruptcy laws 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 of
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 had previously been Vice
President and General Counsel of Trails since January 1987 and Secretary since
January 1988. He served as Associate General Counsel of Trails from 1983 to
1986. Mr. Jaccard has also been Vice President and Assistant Secretary of NACO
since August 1989, and a director of NACO since February 1992. He also
<PAGE>
served as a director of Trails from February 1992 until its merger into the
Company, and he served as a director of Trails and NACO from May 1991 to June
1991.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended June 30, 1997,
1996, and 1995, 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, 1997, and to the most highly compensated officer of the Company's
subsidiaries, who is not considered an executive officer for reporting purposes.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- --------------
Other Annual Securities All Other
Name and Principal Salary Bonus Compensation Underlying Compensation
Position Year ($) ($) ($)/2/ Options (#)/1/ ($)/2/
- -------------------- ---- -------- ------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William F. Dawson, 1997 169,750 15,000 -0- 5,000 3,806
CEO of Resort 1996 169,750 40,000/3/ -0- 35,000 2,783
Parks International 1995 163,750 78,900 6,000/4/ -0- 4,316
R. Gerald Gelinas 1997 130,000 30,000 -0- 30,000 1,174
Vice President of 1996 107,600/5/ 30,000 -0- 20,000 -0-
Sales and 1995
Marketing
Walter B. Jaccard, 1997 140,000 10,000 -0- 30,000 2,796
Vice President, 1996 140,000 15,000 -0- 30,000 2,869
General Counsel, 1995 140,000 -0- -0- 1,290
and Secretary
William J. Shaw, 1997 250,000 -0- 664,495 321,143/6/
Chairman of the 1996 250,000 -0- -0- 952,927/6/
Board, President, 1995 29,800/7/ -0- -0- -0-
and CEO
Harry J. White, 1997 124,032 30,000 -0- 30,000 2,777
Jr., Vice 1996 124,032 30,000 -0- 40,000 3,127
President, CFO, 1995 124,032 15,000 -0- -0- 36,454/8/
CAO, and
Treasurer
</TABLE>
---------------------
/1/ Awards are grants of stock options pursuant to the Company's 1991
Employee Plan, 1993 Employee Plan, and a Stock Option Agreement, dated
as of August 1, 1996, between the Company and Mr. Shaw.
/2/ Amounts include matching contributions by the Company under its 401(k)
Plan for fiscal 1997, 1996, and 1995, as follows: Mr. Dawson, $3,806,
$2,783, and $4,316; Mr. Gelinas, $1,174; Mr. Jaccard, $2,796, $2,869,
and $1,290; Mr. Shaw, $3,481; and Mr. White, $2,777, $3,127, and
$2,654. The amounts do not include compensation payable to the named
executive officers under their employment agreements 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.
/5/ Mr. Gelinas became the Company's Vice President of Sales and Marketing
in September 1995.
<PAGE>
/6/ Amount includes a one-time bonus of $1,270,589 that was paid to Mr.
Shaw under the terms of his employment agreement with the Company. The
Company paid $952,927 of this bonus to Mr. Shaw in July 1996, and it
paid the balance of $317,662 to him in May 1997 when his right to the
additional payment vested. See "Employment Contracts" below.
/7/ Mr. Shaw became the Company's President and Chief Executive Officer in
May 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.
On May 11, 1995, the Company entered into an employment agreement 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 this bonus, which
entitled him to a payment of $1,270,589. The Company paid $952,927 of this bonus
to Mr. Shaw in July 1996, and it paid the balance of $317,662 to him in May 1997
when his right to the additional payment vested. The Company originally obtained
an irrevocable standby letter of credit in the amount of $1.5 million on which
Mr. Shaw could draw all or part of this bonus if the Company failed to pay the
bonus after receiving a request from Mr. Shaw. This letter of credit and a
related cash deposit were released upon the Company's payment of the bonus.
On September 10, 1992, the Company entered into an employment agreement
with Mr. Dawson. Under this employment agreement, as amended, 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, it must pay Mr. Dawson
a severance payment equal to six months of his base salary.
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 December 3, 1992, the Company entered into an employment agreement with
Mr. Jaccard. Under this employment agreement, as amended, 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, it 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, as amended, 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.
<PAGE>
STOCK OPTION AGREEMENT
At their annual meeting on November 19, 1996, the Stockholders approved the
grant to Mr. Shaw of options to purchase 664,495 shares of Common Stock at $0.69
per share. The options are evidenced by a stock option agreement, dated as of
August 1, 1996 (the "Stock Option Agreement") that was approved by the Special
Committee of independent directors on September 12, 1996. Options to purchase
144,927 shares of Common Stock are intended to be eligible for treatment as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended, and the remaining options are non-qualified options for such
purposes. The Company has filed a Registration Statement on Form S-8 with
respect to the shares issuable under the Stock Option Agreement.
The options granted to Mr. Shaw are 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 are exercisable for one year thereafter, or for "cause," in which case
the options will terminate immediately. However, Mr. Shaw is not permitted to
exercise the options if, and to the extent that, such exercise would cause an
increase in the amount of "ownership change" for federal tax purposes. 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 the Exercise Restriction ceases within which to exercise
such options. However, solely with respect to that portion of the options
intended to be incentive stock options, the Exercise Restriction 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 Common Stock, 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.
In connection with the options granted under 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 Common Stock in the amount of such withholding liability.
STOCK OPTION PLANS
1991 Employee Plan. Effective December 31, 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 Common Stock, (ii) options to acquire
shares of Common Stock ("Options"), (iii) securities convertible into shares of
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.
<PAGE>
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 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 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. In
September 1996, the Company granted key employees ISOs covering 60,000 shares
and one non-employee director Non-qualified Options covering 5,000 shares, each
with an exercise price of $0.80 per share. In November 1996, the Company granted
certain non-employee directors Non-qualified Options covering 20,000 shares,
each with an exercise price of $1.08 per share. As of October 1, 1997, 245,000
Options were outstanding under the 1991 Employee Plan and none had been
exercised. 105,000 of these Options are fully vested, and 140,000 of these
options are 66 2/3% vested.
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 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 Common Stock on the date of grant. The exercise price of any ISOs may not be
less than the fair market value of the 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 Common Stock for issuance under the
1993 Employee Plan. The 1993 Employee Plan, however, limits the number of shares
of Common Stock with respect to which awards can be made in any calendar year to
any one participant to 200,000 shares. In May 1996, the Company granted 95,000
ISOs under the 1993 Employee Plan at an exercise price of $0.59 per share. In
<PAGE>
September 1996, the Company granted key employees ISOs covering 175,000 shares
with an exercise price of $.080 per share. As of October 1, 1997, 266,500
Options were outstanding under the 1993 Employee Plan and 3,500 Options had been
exercised. All of the outstanding Options are fully vested.
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 Options to non-employee directors of the Company. The Company reserved
50,000 shares of Common Stock for issuance under the Director Plan. In January
1995, the non-employee directors of the Company were granted Non-qualified
Options covering 20,000 shares with an exercise price of $0.79 per share. In
November 1996, the non-employee directors of the Company were granted Non-
qualified Options covering 25,000 shares with an exercise price of $1.08 per
share. Prior to this grant, after approval by the Board of Directors, four of
the non-employee directors had voluntarily terminated Options for 20,000 shares
that were granted in December 1994 with an exercise price of $2.75 per share. As
of October 1, 1997, 45,000 Options were outstanding under the Director Plan and
none had been exercised. All of these Options are fully vested.
The Director Plan is designed to be a "formula plan," pursuant to which
each non-employee director will automatically receive a grant of Non-qualified
Options to purchase 5,000 shares of Common Stock on the day immediately after
each annual meeting of the stockholders at which directors are elected,
beginning with the annual meeting held in December 1993. If on any such day,
the number of shares of Common Stock remaining available for issuance under the
Director Plan is insufficient for the grant of the total number of Non-qualified
Options to which all participants would otherwise be entitled, each participant
will receive Non-qualified Options to purchase a proportionate number of the
available number of remaining shares. The exercise price of each Non-qualified
Option is required to equal the fair market value of such Option on the date of
grant as determined under the Director Plan. Generally, the Director Plan
specifies that such fair market value will be the average trading price of the
Common Stock during the period beginning 45 days before the date of grant and
ending 15 days before the date of grant.
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding Options to
purchase Common Stock granted in fiscal 1997 to the five individuals named in
the Summary Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------
Percentage
Number of of Total POTENTIAL REALIZABLE VALUE
Securities Options/ AT ASSUMED ANNUAL RATES OF
underlying SARs STOCK PRICE APPRECIATION
Option/ Granted to Exercise FOR OPTION TERM
SARs Employees Price --------------------------
Granted in Fiscal ($ per Expiration 5% 10%
Name (#)1 Year Share) Date ($) ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William F. Dawson 5,000 0.6 0.80 9/11/06 6,516 10,375
R. Gerald Gelinas 30,000 3.3 0.80 9/11/06 39,093 62,250
Walter B. Jaccard 30,000 3.3 0.80 9/11/06 39,093 62,250
William J. Shaw 664,495 73.9 0.69 7/31/06 746,851 1,189,235
Harry J. White, Jr. 30,000 3.3 0.80 9/11/06 39,093 62,250
</TABLE>
- --------------------
/1/ As of October 1, 1997, all of these Options were 100% vested and none of
them had been exercised.
AGGREGATE OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information concerning Options to
purchase 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, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME FISCAL YEAR-END (#) FISCAL YEAR-END ($)
- ----------------------------------------------------------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William F. Dawson 33,333 6,667 55,167 11,033
R. Gerald Gelinas 36,667 13,333 55,433 22,067
Walter B. Jaccard 50,000 10,000 78,025 16,550
William J. Shaw 664,495 -0- 1,056,547 -0-
Harry J. White, Jr. 60,000 10,000 94,925 16,550
</TABLE>
<PAGE>
LONG TERM INCENTIVE PLANS
As of June 30, 1997, the Company's only long term incentive plan was its
Employees Savings Trust (the "401(k) Plan"), which is a contributory employee
savings plan exempt under Section 401(k) of the Internal Revenue 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 $154,000 for the
year ended June 30, 1997, and has committed to make matching contributions for
the year ended June 30, 1998, 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 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 director during the fiscal year ended June
30, 1997, 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 $24,000 $2,500 15,000/1/
William P. Kovacs 24,000 2,500 10,000/1/
Donald R. Leopold 24,000 2,500 5,000
H. Sean Mathis 24,000 2,500 10,000/1/
Douglas K. Nelson 24,000 2,500 10,000/1/
William J. Shaw/2/ -0- -0- -0-
</TABLE>
- --------------------
/1/ In November 1996, after approval by the Board of Directors, each of
these non-employee directors voluntarily terminated options for 5,000
shares that were granted in December 1994 with an exercise price of
$2.75 per share and received new options for 5,000 shares with an
exercise price of $1.08 per share.
/2/ Mr. Shaw did not receive additional compensation for serving as a
director of the Company.
<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. 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 improvements 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; 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; and the
base salary of Mr. Dawson was continued at the same level as in fiscal 1996.
Mr. Jaccard and Mr. White receive discretionary annual bonuses based upon
achievement of the Company's overall objectives for the year. Mr. Gelinas
receives a discretionary annual bonus based upon achievement of the Company's
overall marketing objectives for the year. These individuals received bonuses in
fiscal 1997 based upon the successful achievement of their respective goals.
Mr. Dawson receives a discretionary annual bonus based upon the operating
results of Resort Parks International, Inc. Because Resort Parks International,
Inc. was not successful in meeting its growth objectives in fiscal 1997, Mr.
Dawson's bonus declined as compared with fiscal 1996.
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 1998. However, such persons may receive a
discretionary bonus in fiscal 1998 based upon the achievement of certain
objectives.
1997 Stock Option Grants to Executive Officers. 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 1997 to the executive officers of the Company,
the principal officers of its operating subsidiaries and other employees of the
Company and its subsidiaries. In September 1996, the Company granted options to
purchase an aggregate of 235,000 shares of Common Stock at an exercise price of
$0.80 per share under the 1991 Employee Plan and the 1993 Employee Plan. The
exercise price of these options equaled the market value of the Common Stock on
the date of grant and, therefore, provide value to the officers only with
appreciation in stock prices. These options are 100% vested and have not been
exercised.
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 1997, Mr. Shaw's base salary
<PAGE>
remained at $250,000, the level set when the Company entered into the employment
agreement with Mr. Shaw in May 1995.
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)
exceeded $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. The vested portion of Mr. Shaw's bonus, equaling
$952,927, was paid in July 1996, and the remaining balance of $317,662 was paid
when it vested in May 1997.
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 Common Stock
representing 9% of the outstanding Common Stock immediately after the
Restructuring at an exercise price equal to the average closing bid quotation
for the 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. In furtherance of its grant of the
options, 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, options to purchase 664,695 shares of Common Stock at
$0.69 per share. Such exercise price is the average closing bid quotation for
the 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 Common Stock as of the date the
Restructuring was consummated in view of the fact that the Common stock is
lightly traded. The Stockholders approved the Stock Option Agreement at their
annual meeting on November 19, 1996.
Respectfully submitted,
William P. Kovacs
Donald R. Leopold
H. Sean Mathis
Douglas K. Nelson
<PAGE>
PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
Stockholder return on the Common Stock for the period from July 1, 1992 to June
30, 1997 with the cumulative total return of the NASDAQ market index, 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.
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
<TABLE>
<CAPTION>
- ----------------------- FISCAL YEAR ENDING ---------------------------
COMPANY 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
THOUSAND TRAILS, INC. 100 160.00 140.00 40.00 45.00 170.00
INDUSTRY INDEX 100 137.06 122.17 166.27 196.89 222.32
BROAD MARKET 100 122.76 134.61 157.88 198.73 239.40
</TABLE>
Peer Group. The Peer Group selected by the Company for the above
Performance Graph 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, Inc., Argosy Gaming Company, Aztar Corporation,
Bally Total Fitness Holding Corporation, Boyd Gaming Corporation, Brassie Golf
Corporation, Casino America, Inc., Cedar Fair, L.P., Century Casinos, Inc.,
Chartwell Leisure, Inc., Cinema Ride, Inc., Circus Circus Enterprises, Inc.,
Crown Casino Corporation, Dover Downs Entertainment, Inc., Family Golf Centers,
Inc., Global Outdoors, Inc., Golden Bear Golf, Inc., Grand Casinos, Inc., Great
Bay Casino, Inc., Imax Corporation, Interactive Entertainment, Inc., Interlott
Tech., Inc., Jackpot Enterprises, Inc., Jillian's Entertainment Corporation,
Lady Luck Gaming Corporation, Malibu Entertainment Worldwide, Inc., Master
Glazier's Karate, Inc., Mirage Resorts, Inc., Multimedia Games, Inc., N-Vision,
Inc., Netlive Communication, Inc., Players International, Inc., President
Casinos, Inc., Quintel Entertainment, Inc., Renaissance Entertainment
Corporation, Rio Hotel and Casino, Inc., Sands Regent, Inc., Santa Fe Gaming
Corporation, Senior Tour Players Development, Inc., Showboat, Inc., Skylands
Park Management, Inc., Skyline Multimedia Entertainment, Inc., Sports Club
Company, Inc., Ticketmaster Group, Inc., UC Television Network, Inc., Vail
Resorts, Inc., Visual Edge Systems, Inc., and Walt Disney Holding Company.
During the year ended June 30,
<PAGE>
1997, the following companies were added to the Peer Group: Dover Downs
Entertainment, Inc., Golden Bear Golf, Inc., Great Bay Casino, Inc., Interactive
Entertainment, Inc., Interlott Tech., Inc., Malibu Entertainment Worldwide,
Inc., Netlive Communication, Inc., Ticketmaster Group, Inc., Vail Resorts, Inc.,
and Visual Edge Systems, Inc. During the year ended June 30, 1997, the following
companies were deleted from the Peer Group: BoomTown, Inc., Childrobics, Inc.,
Elsinore Corporation, Encore Marketing International, Inc., Gaming Corporation
of America, Gaming World International, Inc., Golf Enterprises, Inc., Grand
Gaming Corporation, Great American Recreation, Inc., Griffin Gaming &
Entertainment, Inc., International Lottery, Inc., Lone Star Casino Corporation,
Moutasia Entertainment International, Inc., Pratt Hotel Corporation, S-K-I,
Ltd., Sky Games International Ltd, Southshore Corporation, and Stratosphere
Corporation. The companies in the Peer Group provide a broad range of amusement
and recreation services in several industries.
Indemnification
Under its Bylaws, 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
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's directors and certain officers for any indemnifiable
damages and expenses that they incur and will advance defense funds to them.
<PAGE>
PROPOSAL II
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, 1998, subject to the Stockholders ratifying such
selection at the Annual Meeting. Arthur Andersen previously audited the accounts
of the Company for fiscal 1997, 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 1997 included the examination
of the consolidated financial statements of the Company and its subsidiaries and
services related to filings with the Securities and Exchange Commission (the
"SEC"). The Audit Committee meets with Arthur Andersen on an annual basis at
which time the Audit Committee reviews both audit and nonaudit services
performed by Arthur Andersen for the preceding year as well as the fees charged
by Arthur Andersen for such services. Nonaudit 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.
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's directors and executive officers and persons who
beneficially own more than 10% of the shares of Common Stock to file with the
SEC initial reports of Common Stock ownership and reports of changes in
ownership therein. Directors, executive officers, and greater than 10%
shareholders are required by SEC regulation to send the Company copies of all
Section 16(a) forms they file. To the Company's knowledge, based solely upon a
review of the copies of such reports sent to the Company and written
representations that no other reports were required during the year ended June
30, 1997, the Company believes that all Section 16(a) filing requirements
applicable to its directors, executive officers, and greater than 10%
shareholders were complied with.
CERTAIN TRANSACTIONS
RESTRUCTURING
Under the terms of the Restructuring, the Company offered certain holders
of its 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 Common Stock, plus accrued interest. 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 was advised by an investment banking firm that
the Restructuring was fair from a financial point of view to the holders of
Common Stock.
Certain significant stockholders of the Company participated in the
exchange offer. Mr. Boas, also a director of the Company, and Robert C. Ruocco
are general partners of CM Management. CM Management is the general partner of
each of CM Strategic and CM Strategic II. Messrs. Boas and Ruocco, CM
Management, CM Strategic, and CM Strategic II are each deemed to beneficially
own greater than 5% of the 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 and Ruocco are
executive officers of an investment management company which (i) manages a fund
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 a co-trustee exchanged $187,000 in principal amount of
Secured Notes; and (ii) Mr. Ruocco exchanged $10,000 in principal amount of
Secured Notes. In the aggregate, these persons exchanged $22,056,000 principal
amount of Secured Notes for $8,828,400 in cash, $10,847,000 principal amount of
PIK Notes, and 992,070 shares of 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 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. ("BVI Ltd."), a foreign company of
<PAGE>
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. ("LP 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 $1,270,000 in
principal amount of Secured Notes. In the aggregate, these persons exchanged
$20,933,000 principal amount of Secured Notes for $8,373,200 in cash,
$10,299,000 principal amount of PIK Notes, and 941,985 shares of Common Stock,
plus accrued interest.
At the time of the Restructuring, the Company agreed to file a shelf
registration statement with respect to the resale by exchanging Secured
Noteholders of the Common Stock and PIK Notes received by them in the
Restructuring. The Common Stock was registered in October 1996 in connection
with the Company's reincorporation merger, and the PIK Notes were registered in
February 1997.
DUTCH AUCTION TENDER OFFER
On June 25, 1997, the Company purchased $13,378,358 principal amount
of PIK Notes tendered to it in a Dutch auction tender offer (the "Offer"). The
average purchase price for the PIK Notes was $896 per $1,000 of principal
amount. A total of $32,451,928 principal amount of PIK Notes were tendered.
Pursuant to the Offer, a registered holder of PIK Notes could tender its PIK
Notes at from $800 per $1,000 of principal amount to $900 per $1,000 of
principal amount, in integral multiples of $5 of principal amount, plus a
percentage of accrued interest equal to the percentage of principal at which
such Notes were tendered. In the Offer, the Company offered to spend $12 million
to purchase the principal amount of PIK Notes, plus an amount for accrued
interest. The Company purchased all PIK Notes tendered at prices less than $900
per $1,000 of principal amount, and purchased PIK Notes tendered at $900 per
$1,000 of principal amount on a pro rata basis.
Certain significant stockholders of the Company tendered PIK Notes in
response to the Offer. As noted above, Mr. Boas, a director of the Company, CM
Strategic, CM Strategic II, and certain of their affiliates, are each deemed to
beneficially own greater than 5% of the Common Stock. In the Offer, the Company
purchased $2,988,489 principal amount of PIK Notes from CM Strategic and
$2,750,300 principal amount of PIK Notes from CM Strategic II. In the aggregate,
the Company purchased $5,738,789 principal amount of PIK Notes from these
persons for $5,164,910, plus an amount for accrued interest.
As noted above, the Fund and certain of its affiliates are also deemed to
beneficially own greater than 5% of the Common Stock. In the Offer, the Company
purchased $3,021,946 principal amount of PIK Notes from the Fund, $1,345,877
principal amount of PIK Notes from BVI Ltd., and $70,769 in principal amount of
PIK Notes from LP BVI Ltd. In the aggregate, the Company purchased $4,438,592
principal amount of PIK Notes from these persons for $3,994,733, plus an amount
for accrued interest.
The Indenture for the PIK Notes requires that (i) an Affiliate Transaction (as
defined in the Indenture) must be on terms at least as favorable to the Company
as those that could have been obtained in a comparable transaction with an
unaffiliated party; (ii) in the case of an Affiliate Transaction with a value in
excess of $1,000,000, a majority of the independent members of the Board of
Directors approve the transaction as meeting the foregoing standard; and (iii)
in the case of an Affiliate Transaction with a value in excess of $5,000,000,
the Company obtains a favorable opinion as to the fairness of such transaction
to the Company from a financial point of view from a national or regional
independent investment banking firm. The Offer was approved by the Special
Committee, which obtained the investment banking opinion required by the
Indenture. As a consequence, purchases from affiliates of the Company in the
Offer satisfied the provisions of the Indenture related to Affiliate
Transactions.
<PAGE>
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING
The Company's 1998 annual meeting of Stockholders is scheduled to be held
on November 19, 1998. To be considered for inclusion in the Company's proxy
statement for that meeting, Stockholder proposals must be received at the
Company's principal executive offices no later than May 15, 1998.
INCORPORATION BY REFERENCE
With respect to any past or future filings with the SEC into which this
Proxy Statement 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, 1997, which the Company has filed
with the SEC. 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.
By Order of the Board of Directors
s/Walter B. Jaccard
WALTER B. JACCARD
Vice President, General Counsel, and Secretary
Dallas, Texas
October 13, 1997
<PAGE>
EXHIBIT 13.3
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
Commission File Number 0-19743
THOUSAND TRAILS, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 75-2138671
- ------------------------------- -------------------------------
(State or Other Jurisdiction (IRS Employer Identification
of Incorporation or No.)
Organization)
2711 LBJ FREEWAY, SUITE 200, DALLAS, TEXAS 75234
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (972) 243-2228
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of Common Stock, par value $.01, issued and outstanding
as of November 12, 1997 was 7,392,776.
<PAGE>
THOUSAND TRAILS, INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
<C> <S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1997
and June 30, 1997............................................ 3
Consolidated Statements of Operations for the three months
ended September 30, 1997 and September 30, 1996.............. 4
Consolidated Statement of Stockholders' Deficit for the three
months ended September 30, 1997.............................. 5
Consolidated Statements of Cash Flows for the three months
ended September 30, 1997 and September 30, 1996.............. 6
Notes to Consolidated Financial Statements.................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 21
Item 6. Exhibits and Reports on Form 8-K.............................. 21
</TABLE>
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS September 30, June 30,
------ 1997 1997
------------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 958 $ 1,343
Current portion of receivables, net of allowances and
discount of $1.5 million and $1.7 million 2,961 3,134
Accounts and dues receivable, net 276 542
Current portion of deferred membership selling
expenses 511 478
Inventory and other current assets 3,660 3,536
------------- --------
Total Current Assets 8,366 9,033
Restricted cash 1,861 1,407
Receivables, net of allowances and discount of
$3.0 million and $3.3 million 3,326 4,383
Campground land 13,359 13,359
Lot inventory 194 342
Buildings and equipment, net of accumulated
depreciation of $13.4 million and $12.8 million 22,851 23,211
Land held for sale 5,221 7,382
Deferred membership selling expenses 964 913
Other assets 3,290 3,272
------------- --------
Total Assets $ 59,432 $ 63,302
============= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable $ 1,399 $ 1,864
Accrued interest 898 1,693
Other accrued liabilities 7,664 7,485
Current portion of long term debt 3,367 5,864
Accrued construction costs 2,809 2,809
Current portion of deferred revenue 13,973 19,455
------------- --------
Total Current Liabilities 30,110 39,170
Long term debt 37,606 38,230
Deferred revenue 4,287 4,158
Other liabilities 3,612 3,912
------------- --------
Total Liabilities 75,615 85,470
------------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, $.01 par value, 1,500,000 shares
authorized, none issued or outstanding
Common stock, $.01 par value, 15,000,000 shares
authorized, 7,386,776 and 7,383,276 shares issued
and outstanding 74 74
Additional paid-in capital 20,505 20,502
Accumulated deficit subsequent to December 31, 1991,
date of emergence from bankruptcy (total deficit
eliminated $51,752) (36,627) (42,613)
Cumulative currency translation adjustment (135) (131)
------------- --------
Total Stockholders' Deficit (16,183) (22,168)
------------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 59,432 $ 63,302
============= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
--------------------------
1997 1996
-------- ---------
<S> <C> <C>
REVENUES (Restated)
Membership dues $ 9,697 $ 9,863
Other campground/resort revenue 6,440 7,093
Membership and resort interest sales 1,021 922
RPI membership fees 882 1,009
Interest income 647 1,120
Gain on asset sales 3,420 1,262
Other income 1,155 1,085
------- ---------
Total Revenues 23,262 22,354
------- ---------
EXPENSES
Campground/resort operating expenses 11,731 13,007
Selling expenses 864 873
Marketing expenses 278 340
RPI membership expenses 432 441
Corporate member services 384 489
Interest expense and amortization 1,365 2,455
General and administrative expenses 2,048 2,154
Restructuring costs 897
------- ---------
Total Expenses 17,102 20,656
------- ---------
INCOME BEFORE INCOME TAXES 6,160 1,698
Income tax provision (174) (123)
------- ---------
NET INCOME $ 5,986 $ 1,575
======= =========
PRIMARY AND FULLY DILUTED NET INCOME PER SHARE $ .72 $ .23
======= =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 8,293 6,801
======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Foreign
Additional Currency
Common Paid-In Accumulated Translation
Stock Capital Deficit Adjustment Total
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1997 $74 $20,502 ($42,613) ($131) ($22,168)
Issuance of common stock 3 3
Foreign currency
translation adjustment (4) (4)
Net income for the three
months ended
September 30, 1997 5,986 5,986
------ ---------- ----------- ----------- --------
BALANCE, September 30,
1997 $74 $20,505 ($36,627) ($135) ($16,183)
====== ========== =========== =========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
--------------------------
1997 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on receivables $ 1,549 $ 2,152
Interest received 584 1,001
Interest paid (437) (6,885)
General and administrative,
corporate member services and
restructuring costs (2,558) (4,354)
Cash collected from operations,
including deferred dues revenue 12,807 13,615
Cash from sales of campground
memberships and resort interests
at the point of sale 1,043 998
Expenditures for property operations (11,555) (11,262)
Expenditures for sales and marketing (1,103) (1,148)
Expenditures for insurance premiums (533) (102)
Payment of income taxes (175) (123)
Reduction of standby letter of credit 1,182
Other, net (456)
---------- -----------
Net cash used in operating activities (834) (4,926)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Issuance of Common Stock 3
Capital and HUD-related expenditures (338) (343)
Proceeds from asset sales 5,649 2,078
---------- -----------
Net cash provided by investing activities 5,314 1,735
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial borrowings under Credit
Agreement 32,000
Net repayments under Credit
Agreement (4,856) (9,655)
Payment of debt issuance costs (3,132)
Retirement of Secured Notes (50,169)
Repayment of notes and mortgages (9) (199)
---------- -----------
Net cash used in financing activities (4,865) (31,155)
---------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (385) (34,346)
CASH AND CASH EQUIVALENTS:
Beginning of period 1,343 37,403
---------- -----------
End of period $ 958 $ 3,057
========== ===========
</TABLE>
-- continued --
Page 6
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
--------------------------
1997 1996
------------ -----------
(Restated)
<S> <C> <C>
RECONCILIATION OF NET INCOME
TO NET CASH USED IN OPERATING
ACTIVITIES:
Net income $ 5,986 $ 1,575
------------ -----------
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH USED IN
OPERATING ACTIVITIES--
Depreciation 647 701
Amortization of interest
discount, collection costs
and valuation allowance (125) (201)
Net deferral of sales revenue 246 116
Net deferral of selling expenses (84) (36)
Gain on asset sales (3,420) (1,262)
Decrease (increase) in
restricted cash (454) 1,338
Decrease in receivables 1,332 2,213
Decrease in other assets 124 558
Increase (decrease) in
accounts payable (465) 13
Increase (decrease) in
accrued interest 957 (4,423)
Decrease in other liabilities (5,720) (5,781)
Other, net 142 263
------------ -----------
Total adjustments (6,820) (6,501)
------------ -----------
NET CASH USED IN OPERATING
ACTIVITIES $ (834) $ (4,926)
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 7
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
GENERAL
Thousand Trails, Inc., a Delaware corporation ("Thousand Trails"), is the
successor by merger to USTrails Inc., a Nevada corporation ("USTrails").
Thousand Trails and its subsidiaries (the "Company") own and operate a system
of 55 membership-based campgrounds located in 17 states and British Columbia,
Canada. In addition, the Company provides a reciprocal use program for members
of approximately 350 recreational facilities and manages 48 public campgrounds
for the US Forest Service. Prior to November 21, 1996, the Company also
managed timeshare facilities at eight resorts located in seven states. The
Company currently owns certain real estate at these resorts and owns and
operates the resort amenities at one of these locations. The campground
business represents the most significant portion of the Company's business
comprising 89% of the Company's operating revenues in fiscal 1997. The
reciprocal use and resort businesses provided the remaining 11%. Operating
revenues consist primarily of membership dues received from campground
members, fee revenue from members of the reciprocal use program, and
management fees, guest fees and other fees and revenues received from the
campground and resort operations.
The accompanying consolidated financial statements include the accounts of
Thousand Trails, Inc. and the following wholly owned subsidiaries: National
American Corporation and its subsidiaries ("NACO"), Resort Parks
International, Inc. ("RPI"), Thousand Trails (Canada), Inc., UST Wilderness
Management Corporation ("Wilderness Management"), and until July 16, 1996,
Thousand Trails, Inc., a Washington corporation, and its subsidiaries
("Trails"). On July 16, 1996, Trails was merged into the Company.
The accompanying consolidated financial statements of the Company have not
been examined by independent accountants, but in the opinion of management,
the unaudited interim financial statements furnished herein reflect all
adjustments which are necessary for a fair presentation of the results for the
interim periods. All such adjustments are of a normal recurring nature, except
for the items described in the footnotes to the consolidated financial
statements.
This Quarterly Report on Form 10-Q should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended June 30, 1997, filed
with the Securities and Exchange Commission on September 29, 1997.
NOTE 1--BASIS OF FINANCIAL STATEMENT PRESENTATION
BASIS OF FINANCIAL STATEMENT PRESENTATION
The Company emerged from proceedings under Chapter 11 of the Bankruptcy Code
on December 31, 1991, pursuant to a confirmed plan of reorganization. Due to
the Company's emergence from bankruptcy, fresh start reporting, as required by
AICPA Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," was reflected as of December 31,
1991 in the Company's consolidated financial statements. Under fresh start
reporting, a new reporting entity was created and assets and liabilities were
restated to reflect their reorganization value which approximated fair value
at the date of reorganization.
All significant intercompany transactions and balances have been eliminated in
the accompanying consolidated financial statements as of and for the three
month periods ended September 30, 1997 and 1996, and in the consolidated
balance sheet at June 30, 1997.
Page 8
<PAGE>
Restatement
- -----------
During the three months ended September 30, 1997, the staff of the Securities
and Exchange Commission (the "SEC") informed the Company that the SEC will now
require the Company to recognize revenue from the sale of campground
memberships that do not convey a deeded interest in real estate on a straight-
line basis over the expected life of the memberships sold. This new accounting
method differs from the revenue recognition method historically used by the
Company for over 20 years. Accordingly, to show comparable results for the
periods presented, the accompanying consolidated financial statements for the
three months ended September 30, 1996, have been restated from those
originally reported to reflect this change in accounting method. The deferral
of historical sales revenues and expenses resulting from this change in
accounting method had no impact on the Company's liquidity or cash flows.
The following table provides selected summarized information illustrating the
effect of the restatement on the Company's consolidated results of operations
for the three months ended September 30, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1996
----------------------
As As Originally
Restated Reported
-------- -------------
<S> <C> <C>
Membership and resort interest sales $ 922 $ 1,038
Total revenues 22,354 22,470
Net income 1,575 1,655
</TABLE>
Earnings Per Share
- ------------------
Net income per common share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding, as
determined by the treasury stock method, whereby proceeds, if any, from the
assumed exercise of common stock equivalents, would be used to purchase shares
at current market prices.
Since inception, the Company has not paid any dividends. The Credit Agreement
between the Company and Foothill Capital Corporation ("Foothill") prohibits
the payment of any cash dividends without the consent of Foothill until the
borrowings under the Credit Agreement are repaid. In addition, the Indenture
for the Company's 12% Senior Subordinated Pay-In-Kind Notes Due 2003 ("PIK
Notes") prohibits the payment of any cash dividends until the PIK Notes are
repaid.
NOTE 2--SECURED NOTE RESTRUCTURING AND LONG TERM DEBT
SECURED NOTE RESTRUCTURING
On July 17, 1996, the Company consummated a restructuring (the
"Restructuring") of its 12% Secured Notes Due 1998 ("Secured Notes"), whereby
all of the $101,458,000 principal amount of Secured Notes outstanding were
retired for $50.2 million of cash, $40.2 million principal amount of PIK
Notes, and 3,680,550 shares of common stock. The Restructuring provided the
Company with a new capital structure and decreased the Company's outstanding
debt to a level the Company believes it can support under its downsized
operations.
The Restructuring was accounted for as a Troubled Debt Restructuring, whereby
the restructured debt was recorded at the carrying value of the old debt and
no gain or loss was recorded on the transaction. A deferred gain of $303,000
recorded in connection with the Restructuring is being amortized as a
reduction of interest expense using the effective interest method over the
term of the PIK Notes.
The Company incurred $897,000 of legal expenses and other direct costs during
the three months ended September 30, 1996, in connection with the completion
of the Restructuring.
Page 9
<PAGE>
CREDIT AGREEMENT WITH FOOTHILL
In connection with the Restructuring, the Company entered into the Credit
Agreement with Foothill, under which Foothill made loans to the Company in the
initial amount of $32.0 million. During fiscal 1997, the Company repaid
substantially all of its initial borrowings under the Credit Agreement. On May
16, 1997, the Company and Foothill entered into an amendment to the Credit
Agreement which, among other things, permitted the Company to borrow $12.6
million to repurchase PIK Notes, as discussed below. As a result of such
repurchases of PIK Notes and repayments in the ordinary course of business, as
of September 30, 1997, the Company had a revolving loan under the Credit
Agreement in the maximum amount of $11.4 million, of which $9.2 million was
outstanding and $2.2 million was available for borrowing.
PIK NOTES AND PIK NOTE REPURCHASES
In the Restructuring, the Company issued $40.2 million principal amount of PIK
Notes. On January 15, 1997, the Company issued an additional $2.4 million
principal amount of PIK Notes in lieu of cash interest. On June 25, 1997, the
Company repurchased $13.4 million principal amount of PIK Notes at a cost of
$12.6 million, including accrued interest. On July 15, 1997, the Company
issued an additional $1.8 million principal amount of PIK Notes in lieu of
cash interest. As a result of these transactions, as of September 30, 1997, a
total of $31.0 million principal amount of PIK Notes were outstanding.
BALANCE SHEET PRESENTATION OF LONG TERM DEBT
Balance sheet presentation of the current and long term components of the
Company's outstanding debt is reflected below, as of September 30, 1997 and
June 30, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- --------
(Unaudited)
<S> <C> <C>
CURRENT PORTION OF LONG TERM DEBT :
Borrowings under Credit Agreement $ 3,298 $ 5,799
Notes and mortgages payable 69 65
------------- --------
$ 3,367 $ 5,864
============= ========
LONG TERM DEBT:
Borrowings under Credit Agreement $ 5,943 $ 8,298
PIK Notes, including a deferred gain of $.2 million 31,137 29,393
Notes and mortgages payable 526 539
------------- --------
$37,606 $38,230
============= ========
Total long term debt $40,973 $44,094
============= ========
</TABLE>
NOTE 3--CONTINGENCIES
Self Insurance
- --------------
The Company is self-insured for general liability losses up to $250,000 per
occurrence, with an annual aggregate exposure to the Company of $1.8 million.
The Company's liability insurance program provides coverage in excess of the
self-insured amounts up to an annual limit of $26.8 million. The Company has
provided a liability for estimated known and unknown claims related to
uninsured general liability risks of $2.0 million at September 30, 1997, which
is included in other liabilities in the accompanying consolidated balance
sheet. This liability is determined based on actuarial estimates.
Page 10
<PAGE>
Declining Membership Base
- -------------------------
The Company derives a significant portion of its ongoing operating revenue
from its campground members (89% in fiscal 1997). The Company's membership
base has declined significantly over the past five fiscal years, and net of
new sales, the membership base is presently declining at the rate of
approximately 6% per year. The Company attributes this continuing attrition
principally to its aging membership base, of whom approximately 50% are senior
citizens. In addition, the Company estimates that the memberships sold in
recent fiscal years will have an expected life that is significantly shorter
than the expected life of the memberships previously sold by the Company. To
stop the continuing decline in the Company's membership base, the Company must
significantly increase its campground membership sales over current levels.
Environmental Issues
- --------------------
Certain environmental issues may exist at some of the Company's campgrounds
concerning underground storage tanks, sewage treatment plants and septic
systems, and waste disposal. Management has reviewed these issues and believes
that they will not have a material adverse impact on the Company's operations
or financial position.
Litigation
- ----------
The Company is involved in certain claims and litigation arising in the normal
course of business. Management believes that the eventual outcome of these
claims and litigation will not have a material adverse impact on the Company's
operations or financial position.
NOTE 4--SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of non-cash investing and financing activities
required by Statement of Financial Accounting Standards No. 95 "Statement of
Cash Flows" are presented below for the three months ended September 30, 1997
and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
Three Months
Ended
September 30,
1997
-------------
<S> <C>
Non-cash payment of PIK Note interest (see Note 2)
--------------------------------------------------
PIK Notes issued in lieu of cash interest payment $ 1,752
Three Months
Ended
September 30,
1996
-------------
<S> <C>
Non-cash transactions related to the Restructuring
(see Note 2)
--------------------------------------------------
Retirement of Secured Notes ($44,181)
Issuance of PIK Notes 40,521
Issuance of common stock 2,990
Write-off of unamortized portion of consent fees 670
</TABLE>
NOTE 5--SUMMARIZED FINANCIAL INFORMATION
All of the Company's wholly owned subsidiaries (other than an inconsequential
utility subsidiary) (collectively, the "Subsidiary Guarantors") have fully and
unconditionally guaranteed, on a joint and several basis, the Company's
obligations under the PIK Notes that were issued on July 17, 1996, as well as
the PIK Notes issued in lieu of cash payment of interest (see Note 2).
Set forth below is selected financial information for the Company ("TTI"),
NACO, RPI, and Wilderness Management, and the eliminations necessary to arrive
at the information for the Company on a consolidated basis, as of and for the
periods presented. The financial information
Page 11
<PAGE>
as of and for the three months ended September 30, 1996, has been restated to
reflect a change in accounting method for the recognition of revenue from
campground membership sales (see Note 1). The assets and operations of
Wilderness Management are not material and have, therefore, been combined with
the balances of RPI for purposes of this presentation. The Company has not
presented separate financial statements and other disclosures concerning the
Subsidiary Guarantors because management believes such information is not
material to investors. This summarized financial information is presented to
provide additional analysis of, and should be read in conjunction with, the
consolidated financial statements of the Company.
All of the Company's debt and equity interests in the Subsidiary Guarantors
have been pledged by the Company to secure its obligations under the Credit
Agreement with Foothill. In the event of a default and foreclosure under the
Credit Agreement, distributions from, and the assets of, the Subsidiary
Guarantors may not be available to satisfy other obligations of the Company,
including the obligations of the Company to the holders of the PIK Notes.
<TABLE>
<CAPTION>
As of and for the three months ended September 30, 1997
--------------------------------------------------------------
(Dollars in thousands)
(Unaudited)
---------------------------------------------------------------
RPI and Elimi-
TTI NACO Wilderness nations Total
----------- ----------- -------------------------- -----------
<S> <C> <C> <C> <C> <C>
Total assets $ 43,233 $ 30,250 $ 6,858 $ (20,909) $ 59,432
Total liabilities 59,566 43,117 1,741 (28,809) 75,615
Revenues 13,191 9,195 1,732 (856) 23,262
Operating income before
interest income and
expense, gain on asset
sales and taxes 4,887 774 656 (2,859) 3,458
Net income 5,956 2,468 421 (2,859) 5,986
<CAPTION>
As of and for the three months ended September 30, 1996
--------------------------------------------------------------
(Dollars in thousands)
(Unaudited)
---------------------------------------------------------------
RPI and Elimi-
TTI NACO Wilderness nations Total
----------- ----------- -------------------------- -----------
(Restated)
<S> <C> <C> <C> <C> <C>
Total assets $ 57,969 $ 30,809 $ 6,268 $ (20,967) $ 74,079
Total liabilities 83,791 48,050 2,381 (32,745) 101,477
Revenues 13,190 8,695 1,742 (1,273) 22,354
Operating income before
interest income and
expense, gain on asset
sales, restructuring
costs and taxes 2,237 425 721 (715) 2,668
Net income 1,607 120 563 (715) 1,575
</TABLE>
Page 12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Company's Annual Report on Form 10-K for the year ended June
30, 1997, filed with the SEC on September 29, 1997.
All capitalized terms used herein have the same meaning as those defined in
Item 1--Financial Statements.
In this Management's Discussion and Analysis of Financial Condition and
Results of Operations, the Company makes certain statements as to its expected
financial condition, results of operations, cash flows, and business
strategies and plans for periods after September 30, 1997. All of these
statements are forward-looking statements made pursuant to the safe harbor
provisions of Section 21E of the Securities Exchange Act of 1934, as amended.
These statements are not historical and involve risks and uncertainties. The
Company's actual financial condition, results of operations, cash flows, and
business strategies and plans for future periods may differ materially due to
several factors, including but not limited to the Company's continued ability
to control costs and implement its sales and marketing plan, the actual rate
of decline in the campground membership base, the actual use of the
campgrounds by members and guests, the effects on members and guests of the
Company's efforts to downsize its business, the Company's success in
collecting its contracts receivable and selling assets, and the other factors
affecting the Company's operations described in this report, and in the
Company's Annual Report on Form 10-K for the year ended June 30, 1997.
CHANGE IN ACCOUNTING METHOD
During the three months ended September 30, 1997, the staff of the Securities
and Exchange Commission (the "SEC") informed the Company that the SEC will now
require the Company to recognize revenue from the sale of campground
memberships that do not convey a deeded interest in real estate on a straight-
line basis over the expected life of the memberships sold. This new accounting
method differs from the revenue recognition method historically used by the
Company for over 20 years. Accordingly, to show comparable results for the
periods presented, the consolidated financial statements for the three months
ended September 30, 1996, have been restated from those originally reported to
reflect this change in accounting method (see Note 1 to the consolidated
financial statements included in Item 1). The deferral of historical sales
revenues and expenses resulting from this change in accounting method had no
impact on the Company's liquidity or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
STABILIZED OPERATIONS. During fiscal 1996, the Company stabilized its
operations, which it had been seeking to accomplish for several years. In
fiscal 1997, the Company achieved a positive contribution from operations of
$8.2 million. During the three months ended September 30, 1997, the Company
achieved a positive contribution from operations of $3.5 million, an
improvement over the $2.7 million achieved in the same period last year. For
this purpose, the contribution from operations is defined as operating income
before interest income and expense, gain on asset sales, restructuring costs,
and taxes. See the table on page 16 for the elements of the contribution from
operations and the Company's operating income before taxes for the historical
periods presented.
CURRENT BUSINESS STRATEGY. The Company's current business strategy is to
improve its campground operations and stabilize its campground membership base
through increased sales and marketing efforts. The Company believes there is a
viable market for campground memberships and that it has a significant
opportunity to compete for campers interested in higher quality facilities and
a higher level of service than is typically available at public campgrounds or
Page 13
<PAGE>
competing private campgrounds. The Company also believes that its flexible
membership products give it a competitive advantage because they offer
consumers the ability to choose the type of membership most suitable to their
needs.
However, the Company's membership base has been declining. In response to this
decline, the Company has downsized its business by closing and disposing of
campgrounds and decreasing campground operating costs and general and
administrative expenses. The Company intends to continue to downsize its
business while its membership base declines. In this regard, the Company will
likely close and dispose of additional campgrounds and it will seek to
decrease other expenses. At the same time, the Company intends to expand its
sales and marketing efforts with a view to stopping the membership decline.
The Company believes that the ultimate size of its campground system and the
amounts realized from future asset sales will depend principally upon the
degree to which the Company can successfully implement this strategy.
CASH. On September 30, 1997, the Company had $958,000 of cash and cash
equivalents, a decrease of $385,000 from June 30, 1997. During the three
months ended September 30, 1997, the Company's operating activities used
$834,000, the Company made capital expenditures totaling $338,000, and the
Company made repayments under the Credit Agreement with Foothill totaling $4.9
million. These expenditures were substantially offset by $5.6 million of
proceeds from asset sales. The Company generally experiences negative cash
flow from operating activities during the first quarter of its fiscal year
because of the seasonal nature of its operations. The Company receives the
majority of the dues revenue from its members during the winter, while
incurring a higher level of operating expenses during the summer. In addition,
a majority of the Company's sales and marketing efforts occur during the
summer.
The Company's principal sources of operating cash for the three months ended
September 30, 1997, were $2.1 million in principal and interest collections on
contracts receivable, $12.8 million in dues collections and other campground
and resort revenues, and $1.0 million in cash collected from sales of
campground memberships and lots at the point of sale. Principal uses of
operating cash for the three months ended September 30, 1997, were $11.6
million in operating expenses, $2.6 million in administrative expenses
(including general and administrative expenses and corporate member services
costs), and $1.1 million in sales and marketing expenditures.
Under the Credit Agreement with Foothill, as of September 30, 1997, the
Company had a revolving loan in the maximum amount of $11.4 million, of which
$9.2 million was outstanding and $2.2 million was available for borrowing. The
Company must use all collections of principal and interest on the contracts
receivable and all proceeds from asset sales to reduce borrowings under the
Credit Agreement. In addition, the Company must make specified principal
reductions on these borrowings over time based on a monthly calculation of
eligible contracts receivable and an amortization schedule set forth in the
Credit Agreement. The maximum amount of the revolving loan declines as these
principal reductions are made. The Credit Agreement must be paid in full on
July 16, 1999.
As of November 12, 1997, only $1.9 million was available for borrowing under
the revolving loan. However, as the Company receives the dues revenue from its
members during the winter months, these funds will be applied to reduce
borrowings under the revolving loan, which will increase availability. Based
upon its current business plan, the Company believes that future cash flows
provided from operations, asset sales, and borrowings available under the
revolving loan will be adequate for the Company's operating and other cash
requirements during the remaining term of the Credit Agreement. All cash held
by the Company and its wholly owned subsidiaries is generally deposited in
accounts that are controlled by and pledged to Foothill.
Page 14
<PAGE>
MATERIAL CHANGES IN FINANCIAL CONDITION
Total assets decreased by $3.9 million during the three months ended September
30, 1997. Cash decreased by $385,000 as discussed above. Contracts receivable
decreased by $1.2 million due primarily to $1.5 million in cash collections
partially offset by new financed sales and amortization of the allowances for
interest discount, collection costs, and valuation discount. Buildings and
equipment decreased by $360,000 due primarily to depreciation, and land held
for sale decreased by $2.2 million due primarily to the sale of certain
campgrounds during the period.
Total liabilities decreased by $9.9 million during the three months ended
September 30, 1997. Accounts payable decreased by $465,000 due primarily to
the seasonal nature of the business. Accrued interest declined by $795,000 due
primarily to the issuance on July 15, 1997, of $1.8 million of PIK Notes in
lieu of cash interest, partially offset by $774,000 of non-cash interest
accruing on the PIK Notes for the period from July 16, 1997, through September
30, 1997. The Company's outstanding debt decreased by $3.1 million during the
period due to repayments on the Credit Agreement and mortgage notes, partially
offset by additional the PIK Notes issued in lieu of cash interest. In
addition, deferred revenue decreased by $5.4 million due to the recognition of
$5.6 million of dues revenue in excess of cash collections during the period,
partially offset by a $246,000 net increase in deferred sales revenue.
RESULTS OF OPERATIONS
The following discussion and analysis are based on the historical results of
operations of the Company for the three month periods ended September 30, 1997
and 1996, as restated (see "Change in Accounting Method"). The deferral of
historical sales revenues and expenses resulting from the change in accounting
method had no impact on the Company's liquidity or cash flows.
The financial information set forth below should be read in conjunction with
the Company's consolidated financial statements included in Item 1.
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NET INCOME. The Company reported net income of $6.0 million or $.72 per share
on revenues of $23.3 million for the three months ended September 30, 1997.
This compares with net income of $1.6 million or $.23 per share on revenues of
$22.4 million for the same period last year. The Company's results improved in
the current period due primarily to higher gains on asset sales and lower
expenses, principally campground operating costs and interest. In addition,
$897,000 of restructuring costs were incurred in the prior period. Although
operating revenues declined in the current period, these decreases were offset
by greater decreases in operating expenses.
The table on the following page shows separately the results of the campground
operations, Resort Parks International, and resort operations, without any
allocation of corporate expenses, as well as corporate expenses and other
revenues and expenses in the aggregate, for the three months ended September
30, 1997 and 1996, as restated (see "Change in Accounting Method").
Page 15
<PAGE>
THOUSAND TRAILS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
-------------------------------------
1997 1996
---------------- -------------------
(Restated)
<S> <C> <C>
CAMPGROUND OPERATIONS
Membership dues $ 9,697 $ 9,863
Campground revenues 6,238 5,926
Cost of campground revenues (2,748) (2,673)
Operating expenses (8,726) (9,141)
---------------- -------------------
Contribution from campground operations 4,461 3,975
---------------- -------------------
SALES
Sales revenues 691 742
Selling expenses (671) (734)
Marketing expenses (278) (340)
---------------- -------------------
Loss on sales (258) (332)
---------------- -------------------
RESORT PARKS INTERNATIONAL
Revenues 882 1,009
Expenses (432) (441)
---------------- -------------------
Contribution from RPI 450 568
---------------- -------------------
4,653 4,211
---------------- -------------------
RESORT OPERATIONS
Revenues 532 1,346
Expenses (450) (1,331)
---------------- -------------------
Contribution from resort operations 82 15
---------------- -------------------
4,735 4,226
---------------- -------------------
Other income 1,155 1,085
Corporate member services (384) (489)
General and administrative expenses (2,048) (2,154)
---------------- -------------------
OPERATING INCOME BEFORE INTEREST INCOME
AND EXPENSE, GAIN ON ASSET SALES,
RESTRUCTURING COSTS AND TAXES 3,458 2,668
---------------- -------------------
Interest income 647 1,120
Interest expense (1,365) (2,455)
Gain on asset sales 3,420 1,262
Restructuring costs (897)
---------------- -------------------
OPERATING INCOME BEFORE TAXES $ 6,160 $ 1,698
================ ===================
</TABLE>
Page 16
<PAGE>
CAMPGROUND OPERATIONS. The Company's operations are highly seasonal. The
Company receives the majority of the dues revenue from its members during the
winter, which are recognized as income ratably during the year. However, the
Company incurs a higher level of operating expenses during the summer. In
addition, a majority of the Company's sales and marketing efforts occur during
the summer.
Campground membership dues revenue was $9.7 million for the three months ended
September 30, 1997, compared with $9.9 million for the same period last year.
The decline in dues revenue was due primarily to the net loss of campground
members during the year, partially offset by the effect of the annual dues
increase.
Other campground revenues were $6.2 million for the three months ended
September 30, 1997, compared with $5.9 million for the same period last year.
The increase in other campground revenues in the current period was due
primarily to an increase in overnight fees from a section of one campground
that is open to the public on an overnight fee basis, and an increase in
revenue from the Company's campground management operations, as discussed
below. The related expenses were approximately $2.7 million for both periods.
Other campground operating expenses decreased by $415,000 to $8.7 million for
the three months ended September 30, 1997, from $9.1 million for the same
period last year. This decrease resulted primarily from the closure and sale
of certain campgrounds during fiscal 1997 and the three months ended September
30, 1997.
The Company intends to continue to downsize its campground operations while
its membership base declines. The Company will likely close and dispose of
additional campgrounds and it will seek to decrease other expenses. Although
the Company believes that the sale of campgrounds and other anticipated
changes should result in lower future operating expenses, no assurance can be
given that such changes will not reduce revenues by an amount in excess of the
expense reductions.
The Company recognizes revenue from the sale of campground memberships that do
not convey a deeded interest in real estate on a straight-line basis over the
expected life of the memberships sold (see "Change in Accounting Method"). For
the three months ended September 30, 1997 and 1996, the Company recognized
campground membership sales revenues of $691,000 and $742,000, respectively.
These amounts include revenues of $561,000, and $476,000, respectively, that
were deferred in prior periods. Moreover, during these same periods, the
Company deferred revenues of $807,000 and $592,000, respectively, which will
be recognized in future periods.
Sales revenues declined in the current period due primarily to the net
deferral of more revenue in the current period. Excluding the net effect of
the deferral of sales revenues, sales in the current period increased slightly
over sales in the same period last year due primarily to a higher average
sales price. The higher average sales price in the current period resulted
from a recent price increase and the discontinuation of one lower-priced
membership, and certain special promotions that were offered in the prior
period.
Although the Company has expanded its sales and marketing efforts with a view
to stopping the decline in its membership base, the sales levels in fiscal
1997 and the first quarter of fiscal 1998 did not met the Company's
expectations. In an effort to improve its membership sales, the Company has
been working to increase the number of prospects that attend its sales
presentations. In this regard, the Company recently entered into a joint
marketing arrangement with Fleetwood Industries, Inc., the largest
manufacturer of recreational vehicles ("RVs"). Under this marketing
arrangement, purchasers of Fleetwood RVs receive a temporary membership and
are invited to visit one of the Company's campgrounds. In addition, the
Company has entered into a similar marketing agreement with a major RV
financing company, and plans to seek other similar alliances.
Page 17
<PAGE>
Selling expenses directly related to the sale of campground memberships are
deferred and recognized as expenses on a straight-line basis over the expected
life of the memberships sold. All other selling and marketing costs are
recognized as expenses in the period incurred. For the three months ended
September 30, 1997 and 1996, the Company recognized selling expenses of
$671,000 and $734,000, respectively. These amounts include expenses of
$126,000, and $105,000, respectively, that were deferred in prior periods.
Moreover, for these same periods, the Company deferred expenses of $210,000
and $141,000, respectively, which will be recognized in future periods.
Although the Company's sales results are improving, selling and marketing
expenses exceeded sales revenues by $258,000 and $332,000 for the three months
ended September 30, 1997 and 1996, respectively. These expenses exceeded sales
revenue because of the increased marketing activity, and the low volume of
sales, which did not cover fixed costs. In addition, the Company deferred more
sales revenue than selling expense during the periods presented.
The Company's selling and marketing efforts require significant expense, the
majority of which must be expensed in the current period, while the related
sales revenues are generally deferred and recognized on a straight-line basis
over the expected life of the memberships sold. As a consequence, the Company
expects that its selling and marketing expenses will continue to exceed its
campground membership sales revenue. This disparity will increase if the
Company is successful in growing campground membership sales. However, the
Company intends to keep the cash it expends on selling and marketing expenses
within a close relation to the cash it receives from campground membership
sales.
The Company must significantly increase its campground membership sales over
current levels in order to stop the continuing decline in the Company's
membership base. The success of the Company's business strategy over the long
term is dependent upon the Company's ability to market new memberships in
sufficient numbers on a cost-effective basis.
CAMPGROUND MANAGEMENT. Wilderness Management, a wholly owned subsidiary of the
Company, manages public campgrounds for the US Forest Service. For the three
months ended September 30, 1997, these operations produced revenues of
$848,000 with related expenses (excluding certain shared administrative costs)
of $644,000. This compares with revenues for the same period last year of
$732,000 and related expenses (excluding certain shared administrative costs)
of $580,000. The increase in revenues and expenses between periods is due to
new contracts entered into in fiscal 1997.
RESORT PARKS INTERNATIONAL. RPI charges its members a fee for a membership
that entitles them to use any of the participating facilities, subject to
certain limitations. For the three months ended September 30, 1997, RPI's
operations produced a net contribution of $450,000 on revenues of $882,000,
compared with a contribution of $568,000 on revenues of $1.0 million for the
same period last year. The decline in results between periods is due to lower
revenues in the current period that were not completely offset by expense
reductions. RPI's revenues have declined as a result of declining sales in the
membership camping industry generally. To maintain its net contribution in the
future, RPI is working to introduce new products to increase its revenues;
however, there is no assurance that it will be successful.
RESORT OPERATIONS. The Company's operations at the resorts presently consist
of the sale of residential lots and the rental of a small number of
condominium units. Prior to November 21, 1996, the Company also managed the
timeshare facilities and sold timeshare interests at the resorts. The sale of
these timeshare operations on November 21, 1996, significantly decreased the
revenues and expenses from the resort operations.
For the three months ended September 30, 1997, the resort operations produced
a net contribution of $82,000, compared with a net contribution of $15,000 for
the same period last year. The Company does not expect a positive contribution
from the resort operations in the future as its continues its efforts to sell
the remaining assets it owns at the resorts. These assets
Page 18
<PAGE>
consist primarily of approximately 200 residential lots and other
miscellaneous real estate. There is no assurance, however, that the Company
will be able to locate a buyer for any of these assets or that sales on
acceptable terms can be effected.
INTEREST INCOME AND EXPENSE. Interest income was $647,000 for the three months
ended September 30, 1997, compared with $1.1 million for the same period last
year. During these periods, interest income included amortization of the
allowance for interest discount and valuation allowance related to the
contracts receivable of $125,000 and $201,000, respectively. The $473,000
decrease in interest income between periods was due primarily to a decrease in
interest earned on the Company's diminishing portfolio of contracts
receivable.
Interest expense was $1.4 million for the three months ended September 31,
1997, compared with $2.5 million for the same period last year. The $1.1
million decrease in interest expense between periods was due to a net $46.7
million reduction in the Company's outstanding debt in July 1996 resulting
from the Restructuring, subsequent repayments of borrowings under the Credit
Agreement, a reduced interest rate on the amended Credit Agreement, and
scheduled repayments of notes and mortgages payable.
Interest expense is expected to continue to decrease during the balance of
fiscal 1998 due to the continued repayment of borrowings under the Credit
Agreement. In addition, since the Company is prohibited from paying cash
interest on the PIK Notes until the borrowings under the Credit Agreement with
Foothill are repaid, during the repayment period, a significant portion of the
Company's interest expense will represent non-cash interest on the PIK Notes.
The payment-in-kind feature of the PIK Notes will decrease the Company's cash
interest costs over this period. However, the payment-in-kind feature of the
PIK Notes will also increase the principal amount of PIK Notes outstanding at
the rate of 12% per year, compounded semi-annually, which will increase
interest expense in the future and also decrease the rate at which the Company
is able to retire its total debt outstanding.
GAIN ON ASSET SALES. The Company recognized a gain on the sale of assets of
$3.4 million for the three months ended September 30, 1997, compared with $1.3
million for the same period last year. The increase in the current period was
due to the timing of asset sales. During the current period, the Company sold
certain campgrounds and other excess real estate at the campgrounds and
resorts. Over the next several years, the Company intends to dispose of the
remaining assets that it owns at the resorts, any campgrounds that are closed
as the Company downsizes, and other excess acreage associated with the
campgrounds. The sale of campgrounds requires addressing the rights of members
associated with such campgrounds. The impact of these rights is uncertain and
could adversely affect the availability or timing of sale opportunities or the
ability of the Company to realize recoveries from asset sales. In addition,
although the Company has recently been successful in selling assets, no
assurance exists that the Company will be able to locate a buyer for any of
the remaining assets or that sales on acceptable terms can be effected.
OTHER INCOME. Other income generally consists of transfer fees received when
existing memberships are transferred in the secondary market without
assistance from the Company, settlements received on defaulted contracts,
subscription fees received from members who subscribe to the Company's member
magazine, and fees received from members who make more than five operator-
assisted reservations in a given year, rather than use the Company's automated
reservation system. Other income was approximately $1.1 million for the three
month periods ended September 30, 1997 and 1996.
OTHER EXPENSES. Administrative expenses, including corporate member service
costs and general and administrative expenses, were $2.4 million for the three
months ended September 30, 1997, compared with $2.6 million for the same
period last year, reflecting the Company's continuing efforts to lower costs.
During the three months ended September 30, 1996, the Company incurred
$897,000 of restructuring costs in connection with the consummation of the
Restructuring. The Company
Page 19
<PAGE>
also incurred $3.1 of costs in connection with obtaining the Credit Agreement
with Foothill, which were capitalized as debt issue costs. In May 1997, the
unamortized balance of these debt issue costs was charged to expense upon
amendment of the Credit Agreement.
INFLATION. During the periods presented, the Company's results were not
affected materially by inflation. However, should the rate of inflation
increase in the future, the Company's expenses are likely to increase at a
greater rate than it can increase the annual dues paid by the campground
members because the Company cannot increase the dues on existing contracts of
senior citizens and disabled members who notify the Company of their age or
disability and request that their dues be frozen. At the present time,
approximately 35% of the members have requested that their dues be frozen
because of their age or disability.
NEW ACCOUNTING PRONOUNCEMENT. In February 1997, the the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," ("SFAS 128"), which establishes standards for computing
and presenting earnings per share for entities with publicly held common
stock. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Earlier application
is not permitted. Accordingly, the Company will adopt SFAS 128 in the second
quarter of fiscal 1998. Under SFAS 128, the Company will report basic and
diluted earnings per common share (as defined in SFAS 128) rather than primary
and fully diluted earnings per common share. Had SFAS 128 been in effect for
the first quarter of fiscal 1998, the Company would have reported basis
earnings per common share (as defined in SFAS 128) of $.82 rather than primary
earnings per common share of $.72. Diluted earnings per common share of $.72
would have been reported which approximates fully diluted earnings per common
share.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Johnnie Lacy v. Thousands Trails, Inc., Civil Action No C-96 004411, filed
- --------------------------------------
February 1, 1996, in the United States District Court for the Northern
District of California. In this action, the plaintiffs allege that the
Company's campgrounds in California fail to comply with the Americans with
Disabilities Act and related California statutes (collectively, the "ADA"). On
July 23, 1997, the Court certified a class of plaintiffs and tentatively
approved a settlement agreement between the Company and the representative of
the class. On November 4, 1997, the Court gave final approval of the
settlement agreement following a "fairness hearing." The settlement agreement
requires the Company to bring its campgrounds in California into compliance
with the ADA by spending $75,000 on such campgrounds every 18 months,
commencing May 1998, until the campgrounds comply fully with the ADA. The
settlement agreement also requires the Company to pay $10,500 to the
representative of the class of plaintiffs, $10,000 to a disability rights
foundation, and $39,500 to the plaintiffs' attorneys. Management does not
believe that the settlement agreement will have a material adverse impact on
the Company's operations or financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following documents are filed as exhibits to this report.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
11.1 Statement re: Computation of Per Share Earnings.
27.1 Financial Data Schedule.
</TABLE>
REPORTS ON FORM 8-K
On July 8, 1997, the Company filed a Current Report on Form 8-K relating to
its repurchase of $13.4 million principal amount of PIK Notes on June 25,
1997. The Company made these repurchases in a Dutch auction available to all
holders of PIK Notes.
Page 21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THOUSAND TRAILS, INC.
s/Harry J. White, Jr.
Date: November 13, 1997 By: __________________________________________
Harry J. White, Jr.
Vice President, Chief Financial Officer,
and Chief Accounting Officer
Page 22
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-2 of our report dated
September 11, 1997, included in Thousand Trails, Inc.'s Form 10-K for the year
ended June 30, 1997, and to all references to our Firm included in this
Registration Statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Dallas, Texas
December 10, 1997
<PAGE>
EXHIBIT 99.3
April 30, 1997
To Selling Security Holders of
Thousand Trails, Inc.'s Common Stock
issuable upon the exercise of Thousand
Trails, Inc.'s Common Stock Purchase Warrants
Re: Supplement to the Blue Sky Memorandum for Thousand Trails, Inc.'s
Common Stock issuable upon the exercise of the Company's Common Stock
Purchase Warrants (the "Warrants")
Attached is a copy of the Supplemental Blue Sky Memorandum updating the
status of the Blue Sky qualification process for the Warrants. Qualification
has now been completed in California, Kansas, Illinois, and New York.
In addition, please be advised that in view of the recent adoption of
Regulation M under the Securities Exchange Act of 1934 (the "Exchange Act"),
Thousand Trails, Inc. (the "Company") will no longer require advance
notification by Selling Security Holders, other than "affiliates" of the
Company, before the commencement of selling efforts. Selling Security Holders
are reminded, however, of their obligations under the Exchange Act, including
Regulation M, when engaging in a distribution of the Warrants.
Walter B. Jaccard, General Counsel and Secretary of the Company, can be
reached at 972-488-5007 or 206-881-1882 to address any questions concerning the
foregoing.
Very truly yours,
THOUSAND TRAILS, INC.
By: Walter B. Jaccard
General Counsel and Secretary
