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As filed with the Securities and Exchange Commission on February 28, 1997.
Registration No.: 333 19357
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
THOUSAND TRAILS, INC.
CO-REGISTRANTS ARE LISTED ON THE FOLLOWING PAGE.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 709 75-2138671
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Classification Identification No.)
Code Number)
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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 the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 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 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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The following direct and indirect wholly-owned subsidiaries of the Company have
guaranteed the Senior Subordinated Pay-In-Kind Notes Due 2003 and are co-
registrants under the Registration Statement on Form S-1: Beech Mountain Lakes
Corporation, a Pennsylvania corporation; Carolina Landing Corporation, a South
Carolina corporation; Carriage Manor Corporation, a North Carolina corporation;
Cherokee Landing Corporation, a Tennessee corporation; Chief Creek Corporation,
a Tennessee corporation; Dixie Resort Corporation, a Mississippi corporation;
Foxwood Corporation, a South Carolina corporation; GL Land Development, Inc., an
Oklahoma corporation; Lake Royale Corporation, a North Carolina corporation;
Lake Tansi Village, Inc., a Delaware corporation; LML Resort Corporation, an
Alabama corporation; Natchez Trace Wilderness Preserve Corporation, a Tennessee
corporation; National American Corporation, a Nevada corporation; Quail Hollow
Plantation Corporation, a Tennessee corporation; Quail Hollow Village, Inc., a
Pennsylvania corporation; Recreation Land Corporation, a Pennsylvania
corporation; Recreation Properties, Inc., a Mississippi corporation; Resort Land
Corporation, an Arkansas corporation; Resort Parks International, Inc., a
Georgia corporation; Tansi Resort, Inc., a Tennessee corporation; The Kinston
Corporation, a South Carolina corporation; The Villas of Hickory Hills, Inc., a
Mississippi corporation; Thousand Trails (Canada) Inc., a British Columbia
corporation; TT Offshore, Ltd., a Virginia corporation; UST Wilderness
Management Corporation, a Nevada corporation; Western Fun Corporation, a Texas
corporation; Westwind Manor Corporation, a Texas corporation; and Wolf Run Manor
Corporation, a Pennsylvania corporation. The transfer of the Subsidiary
Guarantees incident to the transfer of the PIK Notes has also been registered
under the Registration Statement.
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CROSS REFERENCE SHEET SHOWING LOCATION
IN THE PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-1
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ITEM LOCATION IN PROSPECTUS
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1. Forepart of Registration Statement and Outside Facing Page of Registration Statement; 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 Reports to Security Holders; Table of Contents
3 Summary Information, Risk Factors and Ratio Prospectus Summary; The Company; Risk Factors;
of Earnings to Fixed Charges Consolidated Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. 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 PIK Notes
10. Interests of Named Experts and Counsel *
11. Information With Respect to the Registrant
(a) Description of Business Prospectus Summary; Risk Factors; The Company;
Business; Selected Financial Data; Management's
Discussion and Analysis of Financial Condition
and Results of Operations; Consolidated Financial
Statements
(b) Description of Property Business
(c) Legal Proceedings Business; Legal Proceedings
(d) Market Price of and Dividends on the *
Registrant's Common Equity and
Related Stockholder Matters
(e) Financial Statements Consolidated Financial Statements
(f) Selected Financial Data Selected Financial Data
(g) Supplementary Financial Information *
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ITEM LOCATION IN PROSPECTUS
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(h) Management's Discussion and Management's Discussion and Analysis of
Analysis of Financial Condition and Financial Condition and Results of Operations
Results of Operations
(i) Changes in and Disagreements with *
Accountants on Accounting and
Financial Disclosure
(j) Directors and Executive Officers Management
(k) Executive Compensation Executive Compensation
(l) Security Ownership of Certain Security Ownership
Beneficial Owners and Management
(m) Certain Relationships and Related Management; Executive Compensation; Certain
Transactions Transactions
12. Disclosure of Commission Position on *
Indemnification for Securities Act Liabilities
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_____________
*Not applicable or answer thereto is negative.
ii
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SUBJECT TO COMPLETION, DATED FEBRUARY 28, 1997
PROSPECTUS
THOUSAND TRAILS, INC.
CO-REGISTRANTS ARE LISTED ON INSIDE COVER PAGE.
$38,042,000 SENIOR SUBORDINATED PAY-IN-KIND
NOTES DUE 2003
The selling security holders (the "Selling Security Holders") may offer from
time to time Senior Subordinated Pay-In-Kind Notes Due 2003 (the "PIK Notes") of
Thousand Trails, Inc. (the "Company") in the principal amount of up to
$38,042,000 plus additional PIK Notes that have been or may be from time to time
received under the pay-in-kind feature of the PIK Notes. The PIK Notes were
issued in a private placement in July 1996 as part of a restructuring (the
"Restructuring") of the Company's 12% Secured Notes due 1998 (the "Secured
Notes"). Offers and sales of PIK Notes 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." The
Company will not receive any of the proceeds from any sales of PIK Notes by the
Selling Security Holders.
Cash interest at the rate of 5 1/2% per annum on the PIK Notes for the
period ending January 15, 1998 has been prepaid. Interest at the rate of 12% per
annum on the PIK Notes is payable on January 15 and July 15 of each year
commencing January 15, 1997. On January 15, 1997, $2,372,862 principal amount of
additional PIK Notes were issued in payment of the interest on the then
outstanding PIK Notes due on such date. All interest will be payable in cash or
additional PIK Notes, at the Company's option, through July 15, 2000 and in cash
thereafter. The Company's Loan and Security Agreement, dated as of July 10,
1996, as amended (the "Loan Agreement"), prohibits the payment of interest on
the PIK Notes in cash while the indebtedness under the Loan Agreement is
outstanding. The PIK Notes mature on July 15, 2003 and are redeemable at any
time at the election of the Company, in whole or in part, at 100% of the
principal amount thereof plus accrued interest thereon. The Company's
obligations under the PIK Notes are unconditionally guaranteed, jointly and
severally, by all subsidiaries of the Company (other than an immaterial utility
subsidiary). The PIK Notes and the guarantee (the "Subsidiary Guarantee") are
subordinated to the indebtedness under the Loan Agreement and rank pari passu
with all other existing and future unsecured indebtedness of the Company and its
subsidiaries and certain refundings thereof, and senior to any subordinated
indebtedness of the Company and its subsidiaries. The indenture for the PIK
Notes (the "Indenture") permits the Company and its subsidiaries to incur the
indebtedness under the Loan Agreement and certain additional secured
indebtedness. At December 31, 1996, the Company and its subsidiaries had $17.8
million of such secured indebtedness, including the indebtedness under the Loan
Agreement. The PIK Notes and the Subsidiary Guarantee are currently unsecured.
Upon repayment in full of the indebtedness under the Loan Agreement, the PIK
Notes and the Subsidiary Guarantee will be secured by the same assets as then
secure the indebtedness under the Loan Agreement, other than cash and cash
equivalents and other assets required to secure any refinancing or replacement
of a portion of such indebtedness for working capital purposes. The indebtedness
under the Loan Agreement is presently secured by substantially all of the assets
of the Company and its subsidiaries other than certain excluded assets. In the
event of a Change of Control (as defined), each holder of PIK Notes will have
the right, at such holder's option, subject to the terms and conditions of the
Indenture, to require the Company to repurchase such holder's PIK Notes at a
cash price equal to 101% of the principal amount thereof, plus accrued interest
to the purchase date.
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Prior to the date of this Prospectus, there has been no public market for
the PIK Notes, and there can be no assurance that a trading market will develop.
SEE "RISK FACTORS," BEGINNING AT PAGE 4, FOR A DISCUSSION OF CERTAIN FACTORS
THAT PROSPECTIVE PURCHASERS SHOULD CONSIDER IN EVALUATING A PURCHASE OF
THE SECURITIES 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 FEBRUARY 28, 1997.
(ii)
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CO-REGISTRANTS
The following direct and indirect wholly-owned subsidiaries of
the Company are Subsidiary Guarantors and therefore co-registrants under the
Registration Statement on Form S-1 of which this Prospectus is a part (herein,
together with all amendments, exhibits and schedules thereto, the "Registration
Statement"): Beech Mountain Lakes Corporation, a Pennsylvania corporation;
Carolina Landing Corporation, a South Carolina corporation; Carriage Manor
Corporation, a North Carolina corporation; Cherokee Landing Corporation, a
Tennessee corporation; Chief Creek Corporation, a Tennessee corporation; Dixie
Resort Corporation, a Mississippi corporation; Foxwood Corporation, a South
Carolina corporation; GL Land Development, Inc., an Oklahoma corporation; Lake
Royale Corporation, a North Carolina corporation; Lake Tansi Village, Inc., a
Delaware corporation; LML Resort Corporation, an Alabama corporation; Natchez
Trace Wilderness Preserve Corporation, a Tennessee corporation; National
American Corporation, a Nevada corporation; Quail Hollow Plantation Corporation,
a Tennessee corporation; Quail Hollow Village, Inc., a Pennsylvania corporation;
Recreation Land Corporation, a Pennsylvania corporation; Recreation Properties,
Inc., a Mississippi corporation; Resort Land Corporation, an Arkansas
corporation; Resort Parks International, Inc., a Georgia corporation; Tansi
Resort, Inc., a Tennessee corporation; The Kinston Corporation, a South Carolina
corporation; The Villas of Hickory Hills, Inc., a Mississippi corporation;
Thousand Trails (Canada) Inc., a British Columbia corporation; TT Offshore,
Ltd., a Virginia corporation; UST Wilderness Management Corporation, a Nevada
corporation; Western Fun Corporation, a Texas corporation; Westwind Manor
Corporation, a Texas corporation; and Wolf Run Manor Corporation, a Pennsylvania
corporation. The transfer of the Subsidiary Guarantee incident to the transfer
of the PIK Notes has also been registered under the Registration Statement.
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 Securities and Exchange Commission (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.
ADDITIONAL INFORMATION
The Company has filed the Registration Statement with the
Commission under the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus 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.
(iii)
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REPORTS TO SECURITY HOLDERS
Whether or not the Company is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company is required
to deliver to the Trustee under the Indenture within 15 days after it is or
would have been required to file such with the Commission annual and quarterly
financial statements substantially equivalent to financial statements that would
have been included in reports filed with the Commission if the Company were
subject to the requirements of Section 13 or 15(d) of the Exchange Act, together
with a management's discussion and analysis of financial condition and results
of operations that would be so required.
(iv)
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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. Unless the context otherwise requires,
the term "the Company" refers to Thousands Trails, Inc., a Delaware corporation,
and its predecessors and subsidiaries.
THE COMPANY
The Company and its subsidiaries own and operate a system of 58
membership-based campgrounds located in 19 states and British Columbia, Canada,
serving 126,000 members as of December 31, 1996. Through a subsidiary, the
Company also provides a reciprocal use program for members of approximately 310
recreational facilities.
The Company's operations in the campground and resort business
commenced on June 30, 1991, when the Company acquired 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,
"TTI," unless the context otherwise requires), in connection with the
reorganization of the Company in a proceeding under Chapter 11 of the Bankruptcy
Code. The Company subsequently increased its ownership in TTI to 80% through a
tender offer and acquired the remaining 20% of the stock of TTI in a merger. In
July 1996, TTI was merged into the Company. Prior to the acquisitions of NACO
and TTI, the Company purchased contracts receivable generated principally by
NACO and TTI from the sale of campground memberships and resort interests on an
installment basis.
THE SELLING SECURITY HOLDERS
In connection with the Restructuring, the Company issued the PIK Notes
and provided other consideration in exchange for certain Secured Notes in a
transaction exempt from registration under the Securities Act. As part of the
transaction, the Company agreed to file a shelf registration statement
registering certain transfers of the PIK Notes. The Company has filed the
Registration Statement in accordance with such agreement.
THE OFFERING
Offering by
Selling Security Holders.... From time to time, the Selling Security Holders may
offer up to $38,042,000 principal amount of PIK
Notes, plus additional PIK Notes that have been or
may be from time to time received under the pay-in-
kind feature of the PIK Notes.
Use of Proceeds............. The Company will not receive any of the proceeds
from any sales of PIK Notes by the Selling Security
Holders.
THE PIK NOTES
Aggregrate Principal $40,218,000 principal amount of the PIK Notes
Amount...................... originally issued in the Restructuring, plus such
additional notes that have been or may be from time
to time issued under the pay-in-kind-feature of the
PIK Notes. $2,372,862 principal amount of the PIK
Notes were issued on January 15, 1997 to pay
interest due on such date.
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Stated Maturity............. July 15, 2003.
Interest.................... 17 1/2% per annum through January 15, 1998 and 12%
per annum thereafter. Interest at 5 1/2% per annum
through January 15, 1998 was prepaid in cash on the
date of issuance of the PIK Notes. All remaining
interest will be payable in cash or additional PIK
Notes, at the Company's option, through July 15,
2000 and in cash thereafter. The Loan Agreement
requires that interest (other than the prepaid
interest) be paid only in kind while the
indebtedness under the Loan Agreement is
outstanding.
Interest Payment Dates...... January 15 and July 15 of each year, commencing
January 15, 1997.
Subsidiary Guarantee........ The Company's obligations under the PIK Notes are
unconditionally guaranteed, jointly and severally,
by all subsidiaries of the Company (other than an
immaterial utility subsidiary), each of which is,
directly or indirectly, a wholly-owned subsidiary
of the Company, and all future wholly-owned
subsidiaries.
Ranking..................... The PIK Notes and the Subsidiary Guarantee are
subordinated to the indebtedness under the Loan
Agreement and rank pari passu with all existing and
future unsecured indebtedness of the Company and
its subsidiaries and certain refundings thereof,
and senior to any subordinated indebtedness of the
Company and its subsidiaries. The Indenture permits
the Company and its subsidiaries to incur the
indebtedness under the Loan Agreement and certain
additional secured indebtedness. At December 31,
1996, the Company and its subsidiaries had $17.8
million in principal amount of such secured
indebtedness outstanding, including $17.1 million
in principal amount of indebtedness under the Loan
Agreement.
Security.................... The PIK Notes and the Subsidiary Guarantee are
currently unsecured. Upon repayment in full of the
indebtedness under the Loan Agreement, the PIK
Notes and the Subsidiary Guarantee will be secured
by the same assets as then secure the indebtedness
under the Loan Agreement, other than cash and cash
equivalents and other assets required to secure any
refinancing or replacement of a portion of the
indebtedness under the Loan Agreement for working
capital purposes. The indebtedness under the Loan
Agreement is presently secured by substantially all
of the assets of the Company and its subsidiaries
other than certain excluded assets. A refinancing
or replacement of the indebtedness under the Loan
Agreement for working capital purposes is limited
to $10 million in principal amount.
Optional Redemption......... The PIK Notes are redeemable at the option of the
Company, in whole or in part, at any time, at 100%
of the principal amount thereof, plus accrued and
unpaid interest to the redemption date. The Company
is not required to make any sinking fund payments
on the PIK Notes.
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Change of Control........... In the event of a Change of Control (as defined),
each holder of PIK Notes will have the right, at
such holder's option, subject to the terms and
conditions of the Indenture, to require the Company
to repurchase all or any part of such holder's PIK
Notes at a cash price equal to 101% of the
principal amount thereof, plus accrued and unpaid
interest to the purchase date.
Certain Covenants........... The Indenture restricts, among other things, (i)
the incurrence of additional indebtedness, (ii) the
incurrence of liens, (iii) the payment of dividends
and distributions, (iv) the making of loans and
investments, (v) transactions with affiliates, (vi)
agreements restricting the ability of certain of
the Company's subsidiaries to pay dividends or make
other distributions on their capital stock, (vii)
the Company's ability to conduct other businesses,
(viii) the sale or other disposition of assets, and
(ix) certain mergers, consolidations and transfers
of all or substantially all of the assets of the
Company and its subsidiaries.
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 the PIK Notes. These risk factors, however,
may not be the only risks involved in connection with a purchase of such
securities.
BUSINESS STRATEGY UNCERTAINTY
History of Unprofitable Operations. The Company believes it has
stabilized its operations and achieved, beginning in fiscal 1996, a positive
contribution from operations. However, after emerging from bankruptcy in 1991
through fiscal year 1995, the Company experienced net losses, excluding
nonrecurring and extraordinary items, and negative cash flow from operating
activities, excluding the principal collections on the contracts receivable
portfolio. There can be no assurance that the stabilization that the Company has
recently achieved will continue.
Current Business Strategy. The Company's current strategy is to
improve its campground operations, stabilize its campground membership base
through increased sales and marketing efforts, and determine the appropriate
level for its ongoing campground operations. Consistent with this strategy, the
Company intends to downsize its business by implementing additional cost
reduction measures while its membership base declines. These cost reduction
measures will likely include the closure and disposition of additional
campgrounds and decreases in general and administrative expenditures. The
disposition of campgrounds will require 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 disposition opportunities
or the ability of the Company to realize recoveries from asset dispositions.
Moreover, the possibility of additional campground dispositions may adversely
affect the collection of dues and contracts receivable from members.
Membership Base. 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 Company's marketing efforts
require significant expense, and in the short term, the Company expects that its
selling and marketing expenses will continue to exceed its campground membership
sales revenue. The Company is working to increase the number of prospects that
attend its sales presentations, which has not met the Company's expectations in
fiscal 1997. Because the Company intends to keep its selling and marketing
expenses within a close relation to sales revenue, it is relying principally
upon member and recreational vehicle dealer referrals to increase the number of
sales prospects in the future. 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.
See "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
NET OPERATING LOSS CARRYFORWARDS
Risk of Ownership Change. For federal income tax purposes, the Company
has calculated net operating loss carryovers ("NOLs") available for its use to
be $58.1 million as of the commencement of the current fiscal year. 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 was structured to avoid an "ownership change" under Section 382 of
the Code. However, the issuance of the Company's common stock (the "Common
Stock") in the Restructuring resulted in a change 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
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estimates that it would not be entitled to use any 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. 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."
SIGNIFICANT LEVERAGE
The Company remains significantly leveraged. As of December 31, 1996,
the Company had outstanding indebtedness of approximately $58.3 million. In
addition, as a result of their pay-in-kind feature, the PIK Notes will increase
at the rate of 12% per annum, compounded semi-annually, at least until the
indebtedness under the Loan Agreement is repaid. Subject to the restrictions of
the Loan Agreement and 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 "Capitalization," "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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
will
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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" and "Description of PIK Notes - Events of Defaults and Remedies -
Remedies with Respect to Collateral."
SUBORDINATION; PROVISION OF COLLATERAL
The payment of principal, premium (if any) and interest on, and any
other amounts owing in respect of, the PIK Notes is subordinated in right of
payment to the indebtedness under the Loan Agreement. In the event of the
bankruptcy, liquidation, dissolution, reorganization or other winding up of the
Company, the assets of the Company will be available to pay obligations on the
PIK Notes only after the indebtedness under the Loan Agreement has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on the
PIK Notes. In addition, under certain circumstances, the Company may not pay
principal, premium (if any) or interest on, or any other amounts owing in
respect of, the PIK Notes or purchase, redeem or otherwise retire the PIK Notes
if a payment or nonpayment default exists with respect to the indebtedness under
the Loan Agreement. See "Description of PIK Notes - Ranking."
The Loan Agreement requires that the PIK Notes remain unsecured while
the indebtedness under the Loan Agreement remains outstanding. If the
indebtedness under the Loan Agreement remains outstanding for longer than
contemplated by the Loan Agreement, the provision of collateral for the PIK
Notes may be delayed materially and possibly indefinitely. Moreover, the
Indenture permits the Company to refinance or replace up to $10 million in
principal amount of the indebtedness under the Loan Agreement with a working
capital facility. Any assets required to secure such facility will not be
available to secure the PIK Notes , will likely be material and could represent
substantially all of the assets of the Company and its subsidiaries. See
"Description of PIK Notes -Security."
CERTAIN FRAUDULENT CONVEYANCE, PREFERENCE AND BANKRUPTCY CONSIDERATIONS
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if any subsidiary of the Company
that guarantees the PIK Notes (a)(i) is insolvent or rendered insolvent by
reason of the issuance of its guarantee or the liens securing the guarantee or
(ii) is engaged in a business or transaction or is about to engage in a business
or transaction for which the assets of such subsidiary constitute an
unreasonably small capital or (iii) intends to incur, or believes that it would
incur, debts beyond its ability to pay such debts as they mature and (b) such
subsidiary receives less than reasonably equivalent value or fair consideration
for its guarantee or such lien, the guarantee, and any liens securing such
guarantee, could be avoided. If any guarantee or lien were avoided, the holders
of the PIK Notes could lose the benefit of the guarantee and any collateral
therefor, and the holders of the PIK Notes could also be required to return to
such subsidiary or its estate the amount of any payment or foreclosure proceeds
received. In addition, if the guarantee of any subsidiary of the Company were to
be set aside, indebtedness permitted to be incurred by such subsidiary pursuant
to the Indenture could become, effectively, senior to the PIK Notes with respect
to such subsidiary, with the assets of such subsidiary being available for the
payment of the PIK Notes only after they are applied to the payment of such
indebtedness.
In the event that a bankruptcy is commenced by or against the Company
or any of its subsidiaries within 90 days after the Company or such subsidiary
makes a payment on or provides collateral to secure the PIK Notes or a person
becomes a guarantor, some or all of the payments received, or collateral
provided, during such 90-day period may be avoidable as a preference under the
United States Bankruptcy Code. Such 90-day period could be extended to one year
in certain cases. Neither the Company nor any of its subsidiaries will provide
collateral for the PIK Notes until the indebtedness under the Loan Agreement has
been repaid. In addition, the Indenture provides that subsidiaries formed or
acquired after the issuance of the PIK Notes will be required to guarantee the
PIK Notes and the stock and assets of such guarantors must be pledged as
security for such guarantees. Such pledges and guarantees
6
<PAGE>
may be avoidable as a preference if a bankruptcy case concerning the Company or
such subsidiaries, as applicable, were to be commenced within the applicable
statutory period. Any payment made, or collateral received, which is avoided as
a preference would be required to be returned to the bankruptcy estate of the
Company or such subsidiaries. See "Description of PIK Notes - Subsidiary
Guarantee" and "-Security."
POSSIBLE MANDATORY REPURCHASE OFFER
The Company will be required to offer to repurchase the PIK Notes and
the holders of the PIK Notes will have the right to require the Company to
repurchase all or any part of such holder's PIK Notes upon the occurrence of a
Change of Control (as defined in the Indenture). The Company's ability to
purchase the PIK Notes following a Change of Control will be limited by the
Company's financial resources and short-term financial obligations at the time
of the proposed purchase. See "Description of PIK Notes - Change of Control
Repurchase Offer."
LIMITATIONS OF SECURITY
Scope of Collateral. The PIK Notes and the Subsidiary Guarantee are
currently unsecured obligations of the Company and its subsidiaries. Upon
repayment in full of the indebtedness under the Loan Agreement, the PIK Notes
and the Subsidiary Guarantee will be secured by the same assets as then secure
the indebtedness under the Loan Agreement, other than cash or cash equivalents
and other assets required to secure any refinancing or replacement of up to $10
million principal amount of the indebtedness under the Loan Agreement for
working capital purposes. The indebtedness under the Loan Agreement is presently
secured by substantially all of the assets of the Company and its subsidiaries
other than (i) leasehold interests and other leased assets, (ii) certain
vehicles, trailers and other equipment; (iii) equipment subject to financing and
any newly acquired or leased assets financed with permitted indebtedness and
(iv) any assets subject to agreements, permits, licenses or the like that cannot
be subjected to a lien under the collateral documents without the consent of
third parties, which consent has not been obtained. Certain of these assets are
material to the continued operations of the campgrounds of the Company and its
subsidiaries. However, pursuant to the covenant described below under
"Description of PIK Notes - Certain Covenants - Limitation on Liens," neither
the Company nor any of its subsidiaries will be permitted to incur liens on such
excluded assets except to the limited extent described therein.
No assurance can be given that the value of the collateral, when
provided, will equal or exceed the principal amount of the PIK Notes or that any
proceeds that may be realized upon any foreclosure of the liens on any such
collateral would be sufficient to pay unpaid principal and interest on the PIK
Notes. See "Description of PIK Notes - Security," "- Certain Covenants -
Limitations on Liens" and "Certain Covenants - Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock."
Foreclosure Limitations. The ability to foreclose on any collateral
securing the PIK Notes will be subject to members rights under state law and
certain member contracts, procedural and other restrictions under state real
estate and commercial law, federal and state securities laws and other laws
affecting the rights of creditors generally in the jurisdictions applicable to
the collateral. See "Description of PIK Notes - Events of Default and Remedies -
Remedies with Respect to Collateral."
Bankruptcy Limitations. The ability to take possession and dispose of
any collateral directly or indirectly securing the PIK Notes upon acceleration
is also likely to be significantly impaired or delayed by applicable bankruptcy
laws if a bankruptcy case were to be commenced by or against the Company or the
subsidiary owning the collateral. Under applicable bankruptcy laws, the Trustee
and the holders of PIK Notes would be prohibited from taking possession or
disposing of the collateral absent bankruptcy court approval. Moreover, the
Company or subsidiary would be permitted to retain and use the collateral as
long as the Trustee and the holders are being provided "adequate protection" in
the form of periodic cash payments or substitute liens or in some other form
approved by the court in its discretion. While this requirement is generally
intended to protect the value of the security, it cannot be predicted what form
of "adequate protection" might be approved by the court in the particular case.
The court has broad discretionary powers in all these matters, including the
valuation of the collateral. In addition, since the
7
<PAGE>
collateral generally does not include cash and cash equivalents derived from
operations, the holders of the PIK Notes would not have any consent rights with
respect to the use of those funds by the Company or subsidiary during the
pendency of the proceedings. In view of these considerations, it is not possible
to predict for how long payments on the PIK Notes would be delayed following the
filing of a bankruptcy case, whether or when the Trustee could take possession
of or sell the collateral or to what extent the holders of the PIK Notes would
be compensated for any delay in payment or loss of value of the collateral.
MARKET CONDITIONS
The PIK Notes are not publicly traded, and a market for the PIK Notes
is not likely to develop. The Company does not intend to list the PIK Notes on
any national securities exchange. To the Company's knowledge, no broker intends
to make a market in the PIK Notes.
State and local securities laws may prohibit the trading of the PIK
Notes in certain jurisdictions. As a consequence the investment in the PIK Notes
may be illiquid for an indefinite period. If a market for the PIK Notes does
develop, the PIK Notes could trade at a substantial discount from their face
amount and liquidity may be limited. If such a market does not develop, holders
may be unable to resell the PIK Notes for an extended period of time, if at all.
CONCENTRATION OF OWNERSHIP
As of December 31, 1996, Mr. Andrew Boas, a director of the Company,
beneficially owned $15.7 million in principal amount of PIK Notes (representing
39.0% in principal amount of PIK Notes) and an aggregate of 46.5% of the
outstanding Common Stock. As a result, Mr. Boas will be in a position to
significantly influence the outcome of certain actions by the holders of the PIK
Notes. As a holder of Common Stock, the interests of Mr. Boas may not be wholly
aligned with the interests of other holders of PIK Notes. See "Description of
PIK Notes - Requirements for Certain Actions," "Security Ownership" and
"Selling Security Holders."
THE COMPANY
The Company owns and operates a system of 58 membership-based campgrounds
located in 19Estates and British Columbia, Canada, serving 126,000 members as
of December 31, 1996. Through a subsidiary, the Company also provides a
reciprocal use program for members of approximately 310 recreational
facilities. In November 1996, the Company disposed of its timeshare
management business, but continues to hold certain real estate at the resorts it
intends to sell over time. 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's operations in the campground and resort business commenced on
June 30, 1991, when the Company acquired 100% of the capital stock of NACO and
69% of the capital stock of TTI in connection with the reorganization of the
Company in a proceeding under Chapter 11 of the Bankruptcy Code. On June 3,
1992, the Company increased its ownership in TTI to 80% through a tender offer.
On March 29, 1994, the Company acquired the remaining 20% of the capital stock
of TTI in a merger, and on July 16, 1996, TTI was merged into the Company.
Prior to acquiring NACO and TTI, the Company purchased contracts receivable
generated principally by them from the sale of campground memberships and resort
interests on the installment basis.
The Company is a successor by merger to USTrails Inc. ("USTrails"), a Nevada
corporation that was incorporated in 1984. NACO was incorporated in 1967, and
TTI was incorporated in 1969.
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
8
<PAGE>
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 under which Foothill Capital Corporation ("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 Loan Agreement at any one time may not
exceed $35.0Emillion. A total of $32.0 million was drawn under the Loan
Agreement at closing of the Restructuring.
CURRENT BUSINESS STRATEGY
The Company's current business strategy is to improve its campground
operations, stabilize its campground membership base, and determine the
appropriate level for its ongoing campground operations. Consistent with this
strategy, the Company intends to downsize its business by implementing cost
reduction measures while its membership base declines. These cost reduction
measures will likely include the closure and disposition of additional
campgrounds and decreases in general and administrative expenditures. 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
dispositions will depend principally upon the degree to which the Company can
successfully implement this strategy.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
For purposes of computing the following ratios of earnings to fixed
charges, earnings represent income (loss) from continuing operations before
fixed charges and taxes, and fixed charges represent interest on indebtedness,
amortization of debt discount and one-third of rental expense relating to
operating leases, which management believes is representative of the interest
factor. The following table demonstrates the Company's historic operating
coverage and deficiencies as reflected in the consolidated ratios of earnings to
fixed charges.
<TABLE>
<CAPTION>
Six
months
ended Year ended June 30, Six months ended
--------------------------------- ---------------------------
Dec. 1996 1995 1994 1993 June 30, Dec. 31,
31, 1992 (1) 1991 (1)
1996
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings to Fixed Charges 1.38:1 1.03:1 (2) (2) (2) (2) 1.52:1
Ratio
Dollar Amount of N/A N/A ($11,668) ($5,967) ($9,781) ($23,195) N/A
Deficiency (in thousands)
</TABLE>
______________
(1) Applying the principles of "fresh start reporting," the Company's
operations for the year ended June 30, 1992 have been separated into two
periods, pre-emergence and post-emergence from bankruptcy. The Company
emerged from bankruptcy proceedings on December 31, 1991.
(2) As a result of losses incurred, the Company was unable to fully cover fixed
charges for the six months ended June 30, 1992, and fiscal years 1993
through 1995.
USE OF PROCEEDS
The Company will not receive any proceeds from sales by the Selling
Security Holders of the PIK Notes.
9
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated
capitalization of the Company as of December 31, 1996. Investors should read
this table in conjunction with the Company's consolidated financial statements
and the notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1996
<S> <C>
Borrowings under Loan Agreement $ 17,058
PIK Notes 40,502 (1)
Notes and Mortgages Payable, Due June 2009 704
TOTAL DEBT $ 58,264
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 (43,475)
Cumulative currency translation adjustment (137)
TOTAL STOCKHOLDERS' DEFICIT $(23,036)
</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.
10
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICAL
DATA)
<TABLE>
<CAPTION>
Predecessor
For the six months Entity
---------------------
ended December 31, For the year ended June 30, For the six months ended
------------------- ------------------------------------ ---------------------------------
June 30, December 31,
1996 1995 1996 1995 1994 1993 1992 1991
--------- -------- ---------- -------- ----------- ---------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(1)
STATEMENT OF OPERATIONS DATA:
Total revenue $39,654 $43,681 $ 91,996 $ 91,546 $100,922 $ 98,189 $ 54,310 $ 63,670
Membership dues 19,917 20,043 39,924 41,175 43,200 39,555 19,170 20,345
Other campground/resort revenues 10,286 12,954 22,288 23,506 23,524 26,856 13,224 13,401
Membership and resort interest sales 2,411 1,921 3,987 4,228 3,975 4,427 6,442 15,140
Interest income 1,995 3,404 6,756 9,935 12,202 16,345 11,780 12,090
Interest expense 5,078 9,041 17,693 20,960 21,446 22,249 11,947 13,578
Income (loss) from operations
before taxes, minority interest
and extraordinary item 2,288 (2,042) 488 (11,668) (5,967) (9,781) (23,195) 7,151
Extraordinary gain on debt
repurchases - - 1,390 - 671 2,507 - -
Net income (loss) 1,976 (1,885) 1,837 (11,923) (6,046) (7,582) (21,737) 6,276
Dividends paid (2) - - - - - - - -
Earnings (loss) per share data (3): (4)
Income (loss) before extraordinary
item .27 (.51) .12 (3.22) (1.81) (2.73) (5.88)
Extraordinary item - - .38 - .18 .68 -
Net income (loss) .27 (.51) .50 (3.22) (1.63) (2.05) (5.88)
Weighted average number of
shares outstanding 7,212 3,703 3,703 3,703 3,703 3,703 3,697 (4)
BALANCE SHEET DATA:
(AT END OF PERIOD)
Cash and cash equivalents (5) 2,403 30,105 37,403 50,596 50,059 44,359 32,989 43,233
Receivables, net 9,437 12,996 13,219 18,698 32,585 57,731 93,442 119,316
Campground properties 43,688 47,962 45,676 51,327 49,330 47,939 49,582 58,552
Resort properties 1,956 5,493 2,902 5,736 6,612 11,252 11,578 12,530
Total assets 67,585 107,508 109,754 135,886 148,164 170,067 196,788 242,567
Secured Notes, net - 98,955 94,350 115,490 110,854 115,389 123,511 113,095
Borrowings under Loan Agreement 17,058 - - - - - - -
Pay-in-Kind Notes 40,502 - - - - - - -
Other notes payable 704 1,991 1,102 4,753 5,503 7,558 12,960 29,588
Stockholders' equity (deficit) (23,036) (31,702) (27,991) (29,821) (17,912) (11,793) (4,151) 17,586
STATISTICAL DATA:
(AT END OF PERIOD)
Number of operating campgrounds 58 60 58 60 62 65 69 69
Number of campsites 19,300 19,400 19,300 19,400 20,000 20,400 21,600 21,600
Number of members 126,000 133,000 128,000 136,000 149,000 157,000 165,000 167,000
Average annual dues per member $343 $334 $335 $329 $315 $290 $246 $243
Average cost per camper night $16.93 $17.29 $18.03 $19.69 $18.36 $17.29 $16.55 $18.28
</TABLE>
_________________________
(1) "Fresh Start Reporting" under the provisions of SOP 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code," was
reflected as of December 31, 1991, in the above balance sheet captions. As
a result, information for the years ended June 30, 1996, 1995, 1994 and
1993, the six months ended June 30, 1992, and the six months ended
December 31, 1996 and 1995 was prepared as if the Company is a new reporting
entity and a black line is shown to separate it from prior period
information since it was not prepared on a comparable basis.
(continued)
11
<PAGE>
(Footnotes continued)
(2) The indenture for the Secured Notes, which was discharged in the
Restructuring on July 17, 1996, prohibited the Company from paying any cash
dividends until the Secured Notes were repaid. In addition, the Loan
Agreement prohibits the payment of any cash dividends without the consent
of Foothill until the borrowings under the Loan Agreement are repaid, and
the Indenture for the PIK Notes prohibits the payment of any cash dividends
until the PIK Notes are repaid.
(3) In the Restructuring on July 17, 1996, the Company issued a total of
3,680,550 additional shares of Common Stock, which represent approximately
50% of the shares of Common Stock currently outstanding.
(4) Income (loss) per share is not meaningful due to reorganization and
revaluation entries and the issuance of a material amount of Common Stock
in a stock split and bankruptcy reorganization. At December 31, 1996, there
were 7,383,276 shares of Common Stock outstanding, compared with 1,000
shares immediately before the consummation of the reorganization on
December 31, 1991. Outstanding warrants and stock options are excluded from
the net loss per share computation as they would reduce net loss per share,
which is anti-dilutive.
(5) Prior to the Restructuring, cash held by the Company and its wholly owned
subsidiaries, other than that required for operations, was generally
deposited in accounts that were pledged for the benefit of the holders of
the Secured Notes. Under the Loan Agreement, cash held by the Company and
its wholly owned subsidiaries is generally deposited in accounts that are
controlled by, and pledged to, Foothill.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In the following discussion, the Company makes certain statements as
to its expected financial condition, results of operations, and cash flows for
periods after December 31, 1996. All of these statements are forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These statements are not historical and involve
risks and uncertainties. The Company's actual financial condition, results of
operations, and cash flows for future periods may differ materially due to
several factors, including but not limited to the Company's 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 stated 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 Prospectus.
STABILIZED OPERATIONS
Since reorganizing under Chapter 11 on December 31, 1991, the Company's
annualized operating revenues have decreased by $21.3 million (23%). Over the
same period, the Company has decreased its annualized operating expenses by
$43.7 million (38%), and implemented a program under which certain campground
members voluntarily increased their annual dues by an aggregate of $2.1 million.
During this period, the Company has concentrated on increasing continuing
revenues and decreasing continuing expenses. The Company has closed eleven
campgrounds and has changed other campgrounds to seasonal operations, reduced
staff, consolidated its administrative functions, deferred maintenance, and
reduced service levels. The Company has also disposed of certain campgrounds and
other non-core assets. However, during this period, the Company's membership
base has declined from 167,000 at December 31, 1991 to 126,000 at December 31,
1996. The membership base is presently declining at the rate of 8% per year. The
Company attributes this continuing decline principally to its aging membership
base, approximately 50% of whom are senior citizens.
12
<PAGE>
During the year ended June 30, 1996, the Company stabilized its operations,
which it has been seeking to accomplish since emerging from Chapter 11
proceedings in 1991, and the Company achieved a positive contribution from
operations for the fiscal year of $4.8 million. This compares with a negative
contribution from operations of $3.9 million for the prior fiscal year. For the
six months ended December 31, 1996, the Company had a positive contribution from
operations of $5.3 million, compared with $2.7 million for the same period last
year. For this purpose, the contribution from operations is defined as operating
income before interest income and expense, gain (loss) on asset dispositions,
restructuring costs, nonrecurring income and expenses, taxes, and extraordinary
items. See the tables under "Results of Operations - Fiscal 1996, 1995 and
1994 -Net Income (Loss)" and "Six Months Ended December 31, 1996 and 1995 - Net
Income (Loss)" below for the elements of the contribution from operations and
the Company's operating income (loss) before taxes for the historical periods
presented.
CURRENT BUSINESS STRATEGY
The Company's current strategy is to improve its campground operations,
stabilize its campground membership base through increased sales and marketing
efforts, and determine the appropriate level for its ongoing campground
operations. The Company has conducted an extensive marketing study, redesigned
its membership products, and developed a sales and marketing operation.
Consistent with this strategy, the Company intends to downsize its business by
implementing additional cost reduction measures while its membership base
declines. These cost reduction measures will likely include the closure and
disposition of additional campgrounds and decreases in general and
administrative expenditures. The disposition of campgrounds will require
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 disposition opportunities or the ability of the Company to realize recoveries
from asset dispositions. Moreover, the possibility of additional campground
dispositions may adversely affect the collection of dues and contracts
receivable from members. See "The Company - Current Business Strategy."
1996 SECURED NOTE RESTRUCTURING
At June 30, 1996, the Company had outstanding $101.5 million principal
amount of Secured Notes. At that time, there was a substantial risk that the
resources available to the Company would be insufficient to cover its continuing
operating needs and the mandatory sinking fund and interest payments due on the
Secured Notes on July 15, 1996. In addition, the Company faced default under the
financial covenants in the indenture for the Secured Notes if waivers were not
obtained by September 30, 1996. On July 17, 1996, however, the Company
consummated the Restructuring, in which all of the Secured Notes were retired.
The Restructuring was intended to provide a new capital structure for the
Company. This new capital structure includes $40.2 million principal amount of
PIK Notes that do not require the cash payment of interest until fiscal 2001, do
not contain financial covenants, and mature on July 15, 2003 without earlier
scheduled principal payments. The new capital structure also includes the Loan
Agreement that, in addition to financing $32.0 million of the retirement of the
Secured Notes and related costs, provides the Company with a working capital
facility which reduces in availability through final maturity on July 16, 1999.
Availability of such working capital is subject to continued compliance by the
Company with the financial covenants, amortization schedule, and other
requirements of the Loan Agreement, including certain covenants respecting
minimum earnings before interest, taxes, depreciation and amortization, and
minimum tangible net worth.
CASH
On December 31, 1996, the Company had $2.4 million of cash and cash
equivalents, a decrease of $35.0 million during the six month period. 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 $14.9 million was used to repay borrowings
under the Loan Agreement. These expenditures were partially offset by $2.5
million of proceeds from asset sales.
13
<PAGE>
On June 30, 1996, the Company had approximately $37.4 million of cash and
cash equivalents, a decrease of $13.2 million during fiscal 1996. The Company's
cash declined primarily because $18.6 million was used to make a mandatory
redemption of Secured Notes on July 15, 1995, and $5.3 million was used to
repurchase Secured Notes in January 1996. These expenditures were partially
offset by proceeds of $7.2 million from the sale of assets, and $5.6 million
provided by operating activities.
The Company's principal sources of operating cash for fiscal 1996 were
$18.5 million in principal and interest collections on contracts receivable and
invested cash, and $73.2 million in dues collections and other campground
revenues. Principal uses of operating cash for fiscal 1996 consisted of $49.6
million in operating expenses, $13.8 million in general and administrative
expenses (including corporate member services and restructuring costs), $5.4
million in sales and marketing expenses, $5.2 million in insurance premiums, and
$14.5 million in interest payments, principally related to the Secured Notes.
During fiscal 1996, the Company also spent $1.0 million on capital expenditures
and HUD-related improvements, and made $1.1 million in principal payments on
notes payable. Excluding $12.3 million of principal collections on its contracts
receivable, the Company had negative cash flow from operating activities of $6.7
million for the year ended June 30, 1996. The Company used collections on its
contracts receivable to fund its negative cash flow from operations during the
year.
The Company's principal sources of operating cash for the six months ended
December 31, 1996, were $6.0 million in principal and interest collections on
receivables and $30.4 million in dues collections and other campground and
resort revenues. Principal uses of operating cash for the six months ended
December 31, 1996, were $22.1 million in operating expenses, $7.8 million in
general and administrative expenses (including corporate member services and
restructuring costs), $2.3 million in sales and marketing expenditures, and $7.4
million in interest payments, $6.2 million of which was related to the Secured
Notes that were retired in the Restructuring.
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 Loan Agreement. The Company funded these cash payments
with $28.6 million of its cash and $32.0 million of new borrowings under the
Loan Agreement.
The indenture for the Secured Notes, which was discharged in the
Restructuring, limited, and the Loan Agreement limits, the type of investments
in which the Company can invest its available cash, resulting in a relatively
low yield. Under the terms of the Loan Agreement, the Company's cash receipts
are applied to the payment of the Company's obligations under the Loan
Agreement.
CONTRACTS RECEIVABLE
As of June 30, 1996, the Company on a consolidated basis owned $21.1
million of contracts receivable consisting of (i) $5.8 million of contracts
receivable associated with the NACO campgrounds, (ii) $12.6 million of contracts
receivable associated with the Thousand Trails campgrounds, (iii) $2.4 million
of contracts receivable associated with the NACO resorts, and (iv) $282,000 of
contracts receivable associated with SoPac Resort Properties, Inc., a former
affiliate. These contracts receivable have an average remaining term of
approximately two and one-half years. As of June 30, 1996, approximately 95% of
the Company's campground and resort members had paid for their membership or
resort interest in full.
Because of lower interest rates available in the marketplace during fiscal
1996 and 1995, some members chose to prepay their accounts, and the Company
received principal payments of $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.
14
<PAGE>
Allowance For Doubtful Accounts. The Company's allowance for doubtful
accounts was 30% of gross contracts receivable at June 30, 1996, compared with
39% of gross contracts receivable at June 30, 1995, and 32% at June 30, 1994.
The overall cancellation rate as a percentage of gross contracts receivable was
8% for fiscal 1996 and fiscal 1995, compared with 13% for fiscal 1994. Although
management does not anticipate a significant change, the cancellation rate could
increase in fiscal 1997 as a result of the expected closure and disposition of
additional campgrounds.
In fiscal 1996, the Company reduced the allowance for doubtful accounts on
the contracts receivable related to the campgrounds by $4.0 million. In
addition, in fiscal 1996, 1995, and 1994, the Company reduced the allowance for
doubtful accounts on the contracts receivable related to the full service
resorts by $1.1 million, $457,000 and $887,000, respectively. These adjustments
were made because the Company experienced lower contract losses than anticipated
in fiscal 1996 and 1995, and with respect to the resort contracts receivable, in
fiscal 1994. For the campground contracts receivable, in fiscal 1994, the
Company increased the related allowance for doubtful accounts by $1.9 million to
provide for additional future contract losses. This adjustment was made because
the cancellation rate on the campground contracts receivable had increased
compared with historical levels of approximately 8%, and the Company had
experienced higher contract losses than anticipated.
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 related to either the
campgrounds or resorts. 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 TTI, 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 TTI. Additionally, the Company recorded an allowance of $7.5 million
for future collection costs in connection with its purchase of NACO and TTI and
the Company's emergence from bankruptcy, 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 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.
15
<PAGE>
Changes In Receivables. The net balance of contracts receivable decreased
by $5.5 million during fiscal 1996, primarily due to $12.3 million in cash
collections on contracts receivable, offset by (i) a reduction of $5.1 million
in the allowance for doubtful accounts, and (ii) $1.1 million related to
scheduled amortization of the allowances for interest discount, collection
costs, and valuation discount.
CAMPGROUND AND RESORT REAL ESTATE
The Company's campground real estate consists of land, buildings, and other
equipment used in administration and operations as well as land held for sale.
Campground properties decreased by $5.7 million in fiscal 1996, as a result of
the sale of two non-operating campgrounds and certain other real estate, the
abandonment of two operating campgrounds, and depreciation on buildings and
equipment, partially offset by capital improvements at selected campgrounds.
The Company's resort real estate historically consisted of timeshare and
lot inventory, buildings and equipment used in operations, and land held for
sale. Resort real estate decreased by $2.8 million in fiscal 1996 primarily due
to the sale of the common amenities at one resort, the sale of excess acreage
and buildings at certain resorts, the sale of timeshare units and lots in the
normal course of business, and depreciation on buildings and equipment. In
November 1996, the Company sold its timeshare management business and related
timeshare interests.
The Company's campground and resort real estate requires significant annual
capital and maintenance expenditures, including commitments under HUD
obligations, a portion of which has been deferred. During fiscal 1996 and 1995,
the Company spent $4.0 million and $8.6 million, respectively, on major
maintenance, repairs, and improvements at the campgrounds, and $440,000 and $1.4
million, respectively, on major maintenance, repairs, and improvements at
certain resorts.
BORROWINGS
On June 30, 1996, the Company had outstanding $101,458,000 principal amount
of Secured Notes, which were retired in full on July 17, 1996, in the
Restructuring. See "1996 Secured Note Restructuring" above. The Restructuring
was accounted for as a Troubled Debt Restructuring, whereby the restructured
debt is recorded at the carrying value of the old debt, and no gain or loss is
recorded on the transaction.
Prior to the Restructuring, the Company repurchased certain 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. On
July 15, 1995, the Company made a mandatory redemption of $18.6 million
principal amount of Secured Notes. On June 6, 1994, the Company repurchased
$10.0 million principal amount of Secured Notes in a Dutch auction available to
all Secured Noteholders, at a cost of $8.5 million, including accrued interest.
The Company recognized a gain of $671,000 on this transaction.
Loan Agreement. In the Restructuring, the Company entered into the Loan
Agreement, 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 Loan
Agreement at any one time may not exceed $35.0 million. Under the Loan
Agreement, as of December 31, 1996, the Company had outstanding term loans
totaling $8.3 million, and a revolving loan in the maximum amount of $22.5
million, of which $8.8 million was outstanding and $13.7 million was available
for borrowing.
The Company must use all collections of principal and interest on the
contracts receivable, which are estimated to be $9.2 million in fiscal 1997, and
all proceeds from asset sales to reduce borrowings under the Loan 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
16
<PAGE>
these principal reductions are made. The remaining borrowings under the Loan
Agreement must be paid in full on July 16, 1999. During the balance of fiscal
1997, the Company is required to make mandatory principal reductions under the
term loans in the aggregate amount of $1.7 million, funded from collections of
principal and interest on the contracts receivable. To make the principal
reductions required by the Loan Agreement, the Company must successfully collect
the contracts receivable, sell assets, and downsize its business in the time
frame contemplated by the Loan Agreement. If these activities take longer than
contemplated by the Loan Agreement, the Company may not have sufficient cash
flow to make the required principal reductions, in which case the working
capital facility might cease to be available. Furthermore, availability of such
working capital is subject to continued compliance by the Company with the
financial covenants and other requirements of the Loan Agreement, including
certain covenants respecting minimum earnings before interest, taxes,
depreciation and amortization, and minimum tangible net worth. The Loan
Agreement prohibits the Company from borrowing from other sources in significant
amounts except for equipment purchases.
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 Loan 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.
The Company's cash flows are highly seasonal. The Company receives the
majority of the dues revenue from its members during the winter and incurs a
higher level of operating expenses during the summer. As a result of dues
receipts, as of February 7, 1997, the outstanding term loans under the Loan
Agreement had been reduced to $7.1 million and the outstanding revolving loan
had been reduced to $2.4 million. As of February 7, 1997, $19.7 million was
available for borrowing under the revolving loan.
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. The Indenture 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 Loan Agreement, 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 Loan 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 Loan
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.
DEFERRED MEMBERSHIP DUES
Deferred membership dues revenue of $17.6 million and $18.6 million at June
30, 1996 and 1995, respectively, consists of dues collections which relate to
future periods. The decrease was due primarily to the loss of 8,000 members
during fiscal 1996, and related decreases in membership dues collections.
SELF INSURANCE
During the year ended June 30, 1994, the Company began to self-insure
general liability losses up to $250,000 per occurrence, with a current annual
aggregate exposure to the Company of $2.0 million. The Company's liability
insurance program provides coverage, in excess of the $250,000 retention up to
an annual limit of $26.8 million per occurrence and in the aggregate. The
Company has
17
<PAGE>
provided a liability for estimated known and unknown claims related
to uninsured general liability risks of $1.8 million at December 31, 1996.
This liability is based on actuarial estimates.
1997 CHANGES IN FINANCIAL CONDITION
Total assets decreased by $42.2 million during the six months ended
December 31, 1996. Cash decreased by $35.0 million as discussed above. Contracts
receivable decreased by $3.8 million due primarily to $4.1 million in cash
collections offset by $372,000 related to the amortization of allowances for
interest discount and collection costs and valuation allowance. Inventory and
other current assets decreased by $1.6 million due primarily to the amortization
of insurance premiums for fiscal 1997 that were paid in June 1996. Campground
and resort properties decreased by a total of $2.9 million due primarily to the
sale of four campgrounds, the timeshare operations at the resorts and certain
other real estate at the campgrounds and resorts, and depreciation during the
period. In addition, restricted cash decreased by $1.1 million resulting
primarily from the payment of a one-time bonus to the Company's Chief Executive
Officer under the terms of his employment agreement with the Company. These
decreases were offset by a $2.4 million increase in other assets, due primarily
to $3.1 million of debt issuance costs incurred in connection with obtaining the
Loan Agreement, reduced by amortization during the period.
Total liabilities decreased by $47.1 million during the six months ended
December 31, 1996. The Company's total outstanding debt decreased by $37.2
million due primarily to the retirement of $101.5 million principal amount of
Secured Notes in the Restructuring, partially offset by the issuance of $40.2
million principal amount of PIK Notes and net borrowings under the Loan
Agreement. Accrued interest declined by $3.2 million due to the $6.2 million of
interest paid on the Secured Notes in July 1996, partially offset by $2.2
million of non-cash interest accruing on the PIK Notes, which amount was paid on
January 15, 1997, by issuing additional PIK Notes. In addition, deferred
membership dues revenue declined by $3.9 million due to revenue recognized in
excess of cash collections during the period.
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, 1996, 1995, and 1994,
and for the six months ended December 31, 1996 and 1995. The financial
information set forth below should be read in conjunction with the Company's
consolidated financial statements included in this Prospectus.
FISCAL 1996, 1995 AND 1994
NET INCOME (LOSS)
The Company reported net income of $1.8 million or $.50 per share on
revenues of $92.0 million for fiscal 1996, compared with a net loss of
$11.9Emillion or $3.22 per share on revenues of $91.5 million for fiscal 1995,
and a net loss of $6.0 million or $1.63 per share on revenues of $100.9 million
for fiscal 1994.
Excluding extraordinary gains, nonrecurring income and expenses, and
restructuring costs, the Company would have had a net loss of $2.1 million for
fiscal 1996, compared with a net loss of $14.6 million for fiscal 1995.
Excluding these items, the Company's results improved in the current fiscal
year, on relatively flat revenues, due primarily to decreases in expenses,
principally campground operating costs, general and administrative expenses, and
interest. Revenues were relatively stable from year to year, despite declining
membership dues revenue and interest income, due primarily to higher gains from
asset dispositions in fiscal 1996. Excluding these same items, the Company would
have had a net loss of $3.9 million for fiscal 1994.
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
18
<PAGE>
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 its 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 (see "Accrued Bonus" below).
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 results for fiscal 1994 include a $671,000 extraordinary gain on the
repurchase of Secured Notes and $4.5 million of nonrecurring income consisting
of $887,000 from a reduction in the allowance for doubtful accounts related to
the resort contracts receivable, $3.1 million from the reversal of accrued
resort disposition costs, and $500,000 from the settlement of a contractual
obligation. The fiscal 1994 results also include $3.3 million of restructuring
costs incurred in connection with an amendment to the indenture for the Secured
Notes, the TTI merger, and the relocation of the Company's corporate offices,
and the following other nonrecurring expenses: (i) a $1.9 million net increase
in the allowance for doubtful accounts related to the campground contracts
receivable, (ii) a $1.0 million charge to record a provision for certain
uncollectible membership dues receivable, and (iii) a $1.1 million write down of
the carrying value of net resort assets.
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<PAGE>
The following table summarizes the operating results of the Company's
campgrounds and resort operations, excluding allocations of corporate overhead
and other revenues and expenses, for the year ended June 30, 1996:
<TABLE>
<CAPTION>
Year Ended June 30, 1996
------------------------------------
Resort
Campgrounds Operations Total
----------- ---------- -----
<S> <C> <C> <C>
OPERATIONS
Membership dues $ 39,924 $ 39,924
Other campground/resort revenues 15,313 $ 6,975 22,288
Campground ancillary expenses (7,726) (7,726)
Operating expenses (35,211) (7,371) (42,582)
--------- -------- ---------
Profit (loss) on campground/resort operations 12,300 (396) 11,904
--------- -------- ---------
SALES
Memberships 2,630 2,630
Resort interests 1,357 1,357
--------- -------- ---------
Total sales 2,630 1,357 3,987
Selling costs (3,340) (926) (4,266)
Marketing expenses (1,294) (1,294)
--------- -------- ---------
Total expenses (4,634) (926) (5,560)
--------- -------- ---------
Profit (loss) on sales (2,004) 431 (1,573)
--------- -------- ---------
RESORT PARKS INTERNATIONAL
Fee income 4,579 4,579
Cost of operations (2,237) (2,237)
--------- -------- ---------
RPI net contribution 2,342 2,342
--------- -------- ---------
$ 12,638 $ 35 12,673
--------- -------- ---------
Other income 4,479
Corporate member services (1,843)
General and administrative expenses (10,473)
---------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET DISPOSITIONS, RESTRUCTURING
COSTS, NONRECURRING INCOME AND EXPENSES, TAXES
AND EXTRAORDINARY ITEM 4,836
---------
Interest income 6,756
Interest expense (17,693)
Gain on asset dispositions 4,038
Nonrecurring income 5,945
Nonrecurring expenses (2,270)
Restructuring costs (1,124)
---------
OPERATING INCOME BEFORE TAXES AND EXTRAORDINARY
ITEM $ 488
=========
</TABLE>
20
<PAGE>
The following table summarizes the operating results of the Company's
campgrounds and resort operations, excluding allocations of corporate overhead
and other revenues and expenses, for the year ended June 30, 1995:
<TABLE>
<CAPTION>
Year Ended June 30, 1995
----------------------------------
Resort
Campgrounds Operations Total
----------- ---------- -----
<S> <C> <C> <C>
OPERATIONS
Membership dues $ 41,175 $ 41,175
Other campground/resort revenues 15,411 $ 8,095 23,506
Campground ancillary expenses (8,150) (8,150)
Operating expenses (40,236) (8,711) (48,947)
--------- -------- ---------
Profit (loss) on campground/resort operations 8,200 (616) 7,584
--------- -------- ---------
SALES
Memberships 1,780 1,780
Resort interests 2,448 2,448
--------- -------- ---------
Total sales 1,780 2,448 4,228
Selling costs (1,985) (1,414) (3,399)
Marketing expenses (3,639) (3,639)
--------- -------- ---------
Total expenses (5,624) (1,414) (7,038)
--------- -------- ---------
Profit (loss) on sales (3,844) 1,034 (2,810)
--------- -------- ---------
RESORT PARKS INTERNATIONAL
Fee income 4,845 4,845
Cost of operations (2,727) (2,727)
--------- -------- ---------
RPI net contribution 2,118 2,118
--------- -------- ---------
$ 6,474 $ 418 6,892
--------- -------- ---------
Other income 3,485
Corporate member services (2,200)
General and administrative expenses (12,118)
---------
OPERATING LOSS BEFORE INTEREST INCOME AND EXPENSE, GAIN ON
ASSET DISPOSITIONS, RESTRUCTURING COSTS,
NONRECURRING INCOME AND EXPENSES, AND TAXES
(3,941)
---------
Interest income 9,935
Interest expense (20,960)
Gain on asset dispositions 658
Nonrecurring income 3,714
Nonrecurring expenses (437)
Restructuring costs (637)
---------
OPERATING LOSS BEFORE TAXES ($11,668)
=========
</TABLE>
21
<PAGE>
The following table summarizes the operating results of the Company's
campgrounds and resort operations, excluding allocations of corporate overhead
and other revenues and expenses, for the year ended June 30, 1994:
<TABLE>
<CAPTION>
Year Ended June 30, 1994
---------------------------------
Resort
Campgrounds Operations Total
----------- ---------- ------
<S> <C> <C> <C>
OPERATIONS
Membership dues $43,200 $ 43,200
Other campground/resort revenues 13,529 $ 9,995 23,524
Campground ancillary expenses (7,247) (7,247)
Operating expenses (38,276) (10,146) (48,422)
--------- --------- ----------
Profit (loss) on campground/resort operations 11,206 (151) 11,055
--------- --------- -----------
SALES
Memberships 1,457 1,457
Resort interests 2,518 2,518
--------- --------- -----------
Total sales 1,457 2,518 3,975
Selling costs (1,582) (1,974) (3,556)
Marketing expenses (1,282) (1,282)
--------- --------- -----------
Total (2,864) (1,974) (4,838)
--------- --------- -----------
Profit (loss) on sales (1,407) 544 (863)
--------- --------- -----------
RESORT PARKS INTERNATIONAL
Fee income 5,286 5,286
Cost of operations (3,055) (3,055)
--------- --------- -----------
RPI net contribution 2,231 2,231
--------- --------- -----------
$12,030 $ 393 12,423
========= ========= -----------
Other income 2,669
Corporate member services (2,165)
General and administrative expenses (12,403)
-----------
OPERATING INCOME BEFORE INTEREST INCOME AND
EXPENSE, GAIN ON ASSET DISPOSITIONS, RESTRUCTURING
COSTS, NONRECURRING INCOME AND EXPENSES, TAXES,
MINORITY INTEREST AND EXTRAORDINARY ITEM 524
-----------
Interest income 12,202
Interest expense (21,446)
Gain on asset dispositions 5,544
Nonrecurring income 4,522
Nonrecurring expenses (4,000)
Restructuring costs (3,313)
-----------
OPERATING LOSS BEFORE TAXES, MINORITY INTEREST, AND
EXTRAORDINARY ITEM ($5,967)
===========
</TABLE>
22
<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 year
ended June 30, 1996, compared with $41.2 million for the year ended June 30,
1995, and $43.2 million for the year ended June 30, 1994. The continuing decline
in dues revenue over the three years was due primarily to the net loss of
campground members, partially offset by the effect of annual dues increases. In
addition, in fiscal 1994, the Company recognized $900,000 of additional dues
revenue from the TTN Alliance Program (described below) that was deferred at
June 30, 1993.
From January 1, 1993 to March 31, 1995, the Company requested its
campground members to participate in the TTN Alliance Program under which
participating members agreed to increase their dues and campground fees
voluntarily. A total of 34,200 of the Company's members (27%) chose to
participate in the TTN Alliance Program, which has resulted in additional
ongoing dues revenue of $2.1 million per year. Under the TTN Alliance Program,
for each dollar that members' annual dues were increased voluntarily, the
Company made a one-time investment of one dollar in major repairs, renovations,
or capital improvements at the campgrounds. The Company completed these
expenditures, which exceeded $2.1 million, in fiscal 1995. Additional dues
revenue of $900,000 attributable to the six months ended June 30, 1993 was not
recognized in fiscal 1993 due to the uncertainty of the program's success at
that time. As a result, in fiscal 1994, the Company recognized additional dues
revenue from the program of $2.9 million for the 18 month period from January 1,
1993 to June 30, 1994.
Other campground revenues were $15.3 million for the year ended June
30, 1996, compared with $15.4 million for the year ended June 30, 1995, and
$13.5 million for the year ended June 30, 1994. The slight decrease in fiscal
1996 was due to the closure of four operating campgrounds during the year and
reductions in service levels at certain other campgrounds. The $1.9 million
increase in fiscal 1995 was due primarily to increases in guest fees, trailer
and cabin rentals, and revenues from special amenities offered at certain
campgrounds, reflecting the Company's focus on increasing its ancillary sources
of revenue at the campgrounds. The related campground ancillary expenses were
$7.7 million, $8.2 million, and $7.2 million for fiscal 1996, 1995, and 1994,
respectively. The improvement in the contribution from these programs in fiscal
1996 resulted primarily from better control of expenses.
Campground operating expenses were $35.2 million for the year ended
June 30, 1996, compared with $40.2 million for the year ended June 30, 1995, and
$38.3 million for the year ended June 30, 1994. The $5.0 million decrease in
fiscal 1996 was due to the operational changes made at the campgrounds in fiscal
1996, which included reducing campground management and personnel, closing and
disposing of four campgrounds, and changing to seasonal operations at additional
campgrounds with low usage during off-season periods. The $1.9 million increase
in fiscal 1995 was due primarily to higher labor and utility costs in selected
regions, and increased maintenance costs, related in part to the expenditure of
committed funds under the TTN Alliance Program.
For the years ended June 30, 1996, 1995, and 1994, campground
membership sales revenues were $2.6 million, $1.8 million, and $1.5 million,
respectively. For these same periods, selling and marketing expenses as a
percentage of sales were 176%, 316%, and 197%, respectively. These expenses have
exceeded revenues due to the suspension of new membership sales in April 1992,
the retention of certain marketing staff to develop new marketing programs and
products in anticipation of future sales, and the increased sales and marketing
efforts begun in May 1994.
Effective July 1, 1995, the Company discontinued its practice of
amortizing campground real estate by recording a cost of sales charge in
connection with new campground membership sales. The Company will discontinue
this practice as long as the number of membership cancellations exceeds the
number of new memberships sold, and the Company's membership base continues to
decline.
23
<PAGE>
CAMPGROUND MANAGEMENT
For the year ended June 30, 1996, the campground management operations
of Wilderness Management produced revenues of $853,000 with related expenses
(excluding certain shared administrative costs) of $831,000. This compares with
revenues for the prior year of $589,000 and related expenses (excluding certain
shared administrative costs) of $665,000.
RESORT PARKS INTERNATIONAL
Resort Parks International produced a net contribution of $2.3 million
for the year ended June 30, 1996, compared with $2.1 million for the year ended
June 30, 1995, and $2.2 million for the year ended June 30, 1994. Revenues of
Resort Parks International have declined over the three year period as a result
of declining sales in the membership camping industry generally. However,
Resort Parks International has been able to maintain and improve its positive
contribution by reducing its expenses.
RESORT OPERATIONS
The direct operating expenses of the resort operations exceeded
revenues by $396,000 for the year ended June 30, 1996, compared with $616,000
for the year ended June 30, 1995, and $151,000 for the year ended June 30, 1994.
The results for fiscal 1994 exclude losses of $618,000 that were applied against
the accrual for resort disposition costs instead of being reflected in operating
results. Without the exclusion of these losses, the operating results for fiscal
1996 and 1995 improved by $220,000 and $153,000, respectively, over the prior
fiscal year. These improvements resulted primarily from decreased administrative
costs in fiscal 1996, increased amenity fee income from certain resorts in
fiscal 1995 as a result of improved collection efforts, and from the sale of
certain operations at the resorts, which reduced operating costs by an amount
greater than the related decrease in resort revenues.
In fiscal 1994, the Company reassessed the net realizable value of its
resort assets and liabilities, and recorded a $1.1 million adjustment to reduce
the carrying value of the net assets to their net realizable value. Based on the
Company's disposition plan for the resort assets and its assessment of the
recoverability of the net resort assets, the Company also reversed the remaining
$3.1 million of its accrual for resort disposition costs.
During the periods presented, the Company's operations at the resorts
were limited primarily to timeshare management and timeshare and lot sales. The
revenues from the Company's timeshare management operations exceeded the related
expenses (excluding certain shared administrative costs) by $830,000 for the
year ended June 30, 1996, compared with $858,000 for the year ended June 30,
1995, and $890,000 for the year ended June 30, 1994. The net contribution has
declined because of a decrease in the management fee the Company charges certain
timeshare associations, which is based on the amount of dues collected, and
lower dues collections.
During the periods presented, the Company actively sold its timeshare
and lot inventory at substantially reduced prices in order to reduce the
carrying costs on the unsold inventory, increase management fees, and eliminate
the Company's requirement to pay annual fees to the timeshare associations on
unsold units. For the years ended June 30, 1996, 1995, and 1994, timeshare and
lot sales were $1.4 million, $2.4 million, and $2.5 million, respectively. The
decrease in fiscal 1996 resulted from the Company having less desirable
inventory available for sale and fewer existing timeshare owners who had not
been contacted previously about purchasing an additional timeshare. For the
years ended June 30, 1996, 1995, and 1994, the related selling expenses as a
percentage of sales (including cost of sales and bad debt expense) were 68%,
58%, and 78%, respectively. The lower percentage in fiscal 1995 resulted
primarily from the sale of a group of lots at one of the resorts without a sales
commission.
INTEREST INCOME AND EXPENSE
Interest income decreased by $3.2 million and $2.3 million for the
years ended June 30, 1996 and 1995, respectively, from the previous year, due
primarily to a decrease in interest earned on the
24
<PAGE>
Company's diminishing portfolio of contracts receivable, and in fiscal 1996,
also due to an $804,000 decrease in interest earned on lower cash balances. The
decrease in interest earned on the contracts receivable for fiscal 1995 was
partially offset by an $895,000 increase in interest earned on invested cash in
fiscal 1995 compared with the prior year due to higher cash balances in fiscal
1995 and rising interest rates. Also included in interest income is amortization
of the allowance for interest discount and valuation allowance related to the
contracts receivable, of which $607,000, $607,000, and $925,000 was amortized
during the years ended June 30, 1996, 1995, and 1994, respectively. See
"Liquidity and Capital Resources - Contracts Receivable" above.
Interest expense decreased by $3.3 million and $486,000 for the years
ended June 30, 1996 and 1995, respectively, from the previous year, due
primarily to a mandatory redemption of $18.6 million of Secured Notes in July
1995, the repurchases of $7.4 million and $10.0 million of Secured Notes in
January 1996 and June 1994, respectively, a $2.5 million reduction of notes
payable in connection with the abandonment of two operating campgrounds in the
Fall of 1995, and scheduled repayments of notes payable. Also included in
interest expense was Secured Note discount amortization of $4.2 million, $4.6
million, and $4.1 million for the years ended June 30, 1996, 1995, and 1994,
respectively. The discount on the Secured Notes was recorded to reduce the
carrying value of the Secured Notes to their estimated fair value at December
31, 1991, the date the Company emerged from bankruptcy. The discount, which
resulted in an effective interest yield of 18% for the Secured Notes, was
amortized as additional interest expense using the effective interest method
over the term of the Secured Notes through fiscal 1996. On July 17, 1996, the
balance of the discount was eliminated in connection with the retirement of the
Secured Notes in the Restructuring.
GAINS ON ASSET SALES
During the years ended June 30, 1996, 1995, and 1994, the Company sold
certain of its real estate assets and recognized related gains of $4.0 million,
$658,000, and $5.5 million, respectively. During fiscal 1996, the Company sold
the common amenities at one of the resorts, sold two non-operating campgrounds,
and disposed of two operating campgrounds that were abandoned. During fiscal
1995, the primary assets sold included excess acreage and buildings at the
resorts and unused buildings and trailers at the campgrounds. During fiscal
1994, the Company sold the common amenities at three of the resorts, the seven
utility companies associated with the resorts, and certain other real estate
holdings at the campgrounds and resorts.
OTHER INCOME
Other income consists principally of transfer fees received when
existing memberships are transferred in the secondary market without assistance
from the Company, settlements received on defaulted contracts, and subscription
fees received from members who subscribe to the Company's member magazine. In
addition, the Company has implemented an automated reservation system and,
effective June 1, 1996, has begun charging members for making more than five
operator-assisted reservations in a given year.
Other income was $4.5 million for the year ended June 30, 1996,
compared with $3.5 million for the year ended June 30, 1995, and $2.7 million
for the year ended June 30, 1994. The increase in fiscal 1996 and 1995 from the
previous year was due primarily to additional income of $1.3 million and
$685,000, respectively, from recoveries on canceled contracts and dues as a
result of increased use of outside collection agencies in those years.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $10.5 million for the year
ended June 30, 1996, compared with $12.1 million for the year ended June 30,
1995, and $12.4 million for the year ended June 30, 1994. The decrease in
fiscal 1996 from the prior years is primarily due to cost reductions implemented
in the last quarter of fiscal 1995 and the first quarter of fiscal 1996. The
Company
25
<PAGE>
anticipates that general and administrative expenses will be lower in fiscal
1997 than in fiscal 1996 due to additional cost reductions.
General and administrative expenses include costs related to the
collections of contracts receivable and membership dues of $3.0 million, $3.1
million, and $3.5 million for the years ended June 30, 1996, 1995, and 1994,
respectively. These collection costs were reduced by $513,000, $854,000, and
$1.5 million, 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" above. 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 $1.8 million for the
year ended June 30, 1996, compared with approximately $2.2 million for fiscal
1995 and 1994. The decrease in costs in fiscal 1996 was a result of cost
reductions implemented during the Fall of 1995.
NONRECURRING INCOME
Nonrecurring income was $5.9 million for fiscal 1996, compared with
$3.7 million and $4.5 million for fiscal 1995 and 1994, respectively.
Nonrecurring income for fiscal 1996 includes income of $5.1 million from the
reduction in the allowance for doubtful accounts, and $799,000 from the reversal
of a contingent liability. Nonrecurring income for fiscal 1995 includes income
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.
Nonrecurring income for fiscal 1994 includes income of $3.1 million from the
reversal of accrued resort disposition costs, $887,000 from a decrease in the
allowance for doubtful accounts related to the resort contracts receivable, and
$500,000 from the settlement of a contractual obligation.
NONRECURRING EXPENSES
Nonrecurring expenses were $2.3 million for fiscal 1996, compared with
$437,000 for fiscal 1995, and $4.0 million for fiscal 1994. 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. Nonrecurring expenses for fiscal 1994
include a $1.9 million net increase in the allowance for doubtful accounts
related to the campground contracts receivable, a $1.0 million charge to record
a provision for certain uncollectible membership dues receivable, and a $1.1
million write-down of the carrying value of net resort assets.
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) exceeded $75 million at the time he
elected to receive the bonus. The bonus would have been adversely affected by
the consummation of the Restructuring. As a result, prior to the Restructuring,
the CEO exercised his right to receive the bonus. The CEO is entitled to
$1,270,589, of which $952,927 was paid on July 9, 1996. The additional $317,662
will be payable on May 11, 1997, provided that the CEO is employed by the
Company on that date. The Company has obtained an irrevocable standby letter of
credit on which the CEO may draw this bonus if the Company fails to pay the
bonus after receiving a request from the CEO. A $1.5 million cash deposit
securing this letter of credit is included in restricted cash in the Company's
consolidated balance sheet at June 30, 1996. The amount of the cash deposit was
subsequently reduced to
26
<PAGE>
$317,662. 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.
RESTRUCTURING COSTS
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.
The Company incurred approximately $1.0 million of additional costs in July 1996
in connection with the consummation of the Restructuring which will be reflected
as restructuring costs in fiscal 1997. In connection with the Restructuring,
the Company also incurred $3.1 million of costs in connection with obtaining the
Loan Agreement, which will be capitalized as debt issue costs in fiscal 1997.
At June 30, 1994, the Company recorded $1.8 million of restructuring
costs for severance pay and moving expenses related to relocating certain of its
administrative functions to Dallas, Texas. Of this $1.8 million, $203,000 was
spent in fiscal 1994, and $1.6 million was spent in fiscal 1995 and applied
against the accrual. During fiscal 1995, the Company also incurred $922,000 of
additional 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.
In fiscal 1994, the Company also incurred $463,000 in legal and
financial advisory fees related to the TTI merger and $1.1 million in legal and
other expenses related to an amendment to the Indenture for the Secured Notes,
which were expensed as restructuring costs.
INCOME TAXES
The Company's provision for income taxes was $41,000, $255,000, and
$425,000 for the years ended June 30, 1996, 1995, and 1994, respectively. The
provision relates to state income taxes payable in the various states where the
Company conducts its operations. The Company does not have federal income taxes
payable on a consolidated basis due to its net operating tax loss carryforwards,
which the Company has calculated to be $58.1 million as of the commencement of
the current fiscal year, and expire in years 2007 through 2011.
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
NET INCOME (LOSS)
The Company reported net income of $2.0 million or $.27 per share on
revenues of $39.7 million for the six months ended December 31, 1996. This
compares with a net loss of $1.9 million or $.51 per share on revenues of $43.7
million for the same period last year. Although revenues declined during the
current period, there were greater decreases in expenses, principally campground
operating costs, general and administrative expenses, and interest, which were
primarily responsible for the improvement in results.
27
<PAGE>
The following table summarizes the operating results of the Company's
campgrounds (including Wilderness Management), resort operations, and Resort
Parks International, excluding allocations of corporate overhead and other
revenues and expenses, for the six months ended December 31, 1996:
<TABLE>
<CAPTION>
Six Months Ended December 31, 1996
------------------------------------
Campgrounds Resorts Total
----------- ------- -----
<S> <C> <C> <C>
CAMPGROUND/RESORT OPERATIONS
Membership dues $19,917 $ 19,917
Other campground/resort revenues 8,428 $ 1,858 10,286
Campground ancillary expenses (3,990) (3,990)
Other operating expenses (16,259) (2,019) (18,278)
-------- ------- ---------
Profit (loss) on campground/resort operations 8,096 (161) 7,935
-------- ------- ---------
SALES
Memberships 2,063 2,063
Resort interests 348 348
Total sales 2,063 348 2,411
-------- ------- ---------
Selling costs (1,591) (233) (1,824)
Marketing expenses (635) (635)
Total expenses (2,226) (233) (2,459)
Profit (loss) on sales (163) 115 (48)
-------- ------- ---------
RESORT PARKS INTERNATIONAL
Fee income 1,943 1,943
Cost of operations (937) (937)
-------- ----------
RPI net contribution 1,006 1,006
-------- -------- ----------
$8,939 ($46) 8,893
-------- -------- ----------
Other income 1,887
Corporate member services (812)
General and administrative expenses (4,711)
---------
OPERATING INCOME BEFORE INTEREST INCOME AND EXPENSE,
GAIN ON ASSET DISPOSITIONS, RESTRUCTURING COSTS, AND
TAXES 5,257
---------
Interest income 1,995
Interest expense and amortization of debt issuance
costs and deferred gain (5,078)
Gain on asset dispositions 1,215
Restructuring costs (1,101)
---------
OPERATING INCOME BEFORE TAXES $2,288
=========
</TABLE>
28
<PAGE>
The following table summarizes the operating results of the Company's
campgrounds (including Wilderness Management), resort operations, and Resort
Parks International, excluding allocations of corporate overhead and other
revenues and expenses, for the six months ended December 31, 1995:
<TABLE>
<CAPTION>
Six Months Ended December 31, 1995
-------------------------------------
Campgrounds Resorts Total
------------ ------- -----
<S> <C> <C> <C>
CAMPGROUND/RESORT OPERATIONS
Membership dues $20,043 $ 20,043
Other campground/resort revenues 9,059 $ 3,895 12,954
Campground ancillary expenses (4,618) (4,618)
Operating expenses (18,356) (4,191) (22,547)
---------- --------- -----------
Profit (loss) on campground/resort operations 6,128 (296) 5,832
---------- --------- -----------
SALES
Memberships 1,221 1,221
Resort interests 700 700
---------- ---------- -----------
Total sales 1,221 700 1,921
---------- ---------- -----------
Selling costs (1,323) (493) (1,816)
Marketing expenses (663) (663)
---------- --------- -----------
Total expenses (1,986) (493) (2,479)
--------- --------- -----------
Profit (loss) on sales (765) 207 (558)
--------- --------- -----------
RESORT PARKS INTERNATIONAL
Fee income 2,234 2,234
Cost of operations (1,173) (1,173)
--------- --------- ------------
RPI net contribution 1,061 1,061
--------- --------- ------------
$6,424 ($89) 6,335
========= ========= ============
Other income 2,207
Corporate member services (904)
General and administrative expenses (4,961)
---------
OPERATING INCOME BEFORE INTEREST INCOME AND EXPENSE, GAIN
ON ASSET DISPOSITIONS, AND TAXES 2,677
---------
Interest income 3,404
Interest expense and amortization of debt discount
and consent fees (9,041)
Gain on asset dispositions 918
----------
OPERATING LOSS BEFORE TAXES ($2,042)
==========
</TABLE>
CAMPGROUND OPERATIONS
Campground membership dues revenue was $19.9 million for the six
months ended December 31, 1996, compared with $20.0 million for the same period
last year. The slight decline in dues revenue was due primarily to the net loss
of campground members, substantially offset by the effect of the annual dues
increase.
Other campground revenues were $8.4 million for the six months ended
December 31, 1996, compared with $9.1 million for the same period last year. The
related campground ancillary expenses were $4.0 million for the six months ended
December 31, 1996, compared with $4.6 million for the same period last year. The
decreases in other campground revenues and the related ancillary expenses were
due primarily to the closure of four campgrounds during fiscal 1996 and
reductions in service levels at certain other campgrounds.
29
<PAGE>
Other campground operating expenses decreased by $2.1 million to
$16.3 million for the six months ended December 31, 1996, from $18.4
million for the same period last year. This decrease resulted primarily from the
operational changes made at the campgrounds in fiscal 1996, which included
reducing campground management and personnel, closing and disposing of four
campgrounds, and changing to seasonal operations at additional campgrounds with
low usage during off-season periods.
During the balance of fiscal 1997, the Company intends to continue to
evaluate its campground operations to determine the appropriate level for such
operations, and it expects to implement additional cost reduction measures while
its membership base declines. These cost reduction measures will likely include
the closure and disposition of additional campgrounds.
Campground membership sales revenue was $2.1 million for the six
months ended December 31, 1996, compared with $1.2 million for the same
period last year, reflecting a significantly higher volume of sales in the
current period, but at lower average prices. Sales of new campground memberships
increased from 1,399 during the six months ended December 31, 1995, to 2,162
during the six months ended December 31, 1996, while sales of upgrade
memberships increased from 123 during the six months ended December 31, 1995 to
1,332 during the six months ended December 31, 1996. The increase in sales was
due primarily to special promotional programs implemented in fiscal 1997. The
increase in sales revenue reflects the Company's focus on campground membership
sales, which must continue to increase significantly over current levels in
order to stop the continuing decline in the Company's membership base.
Although the Company's sales results are improving, its selling and
marketing expenses exceeded the related sales revenue by $163,000 and $765,000,
respectively, in the two periods. The Company's marketing efforts require
significant expense, and in the short term, the Company expects that its selling
and marketing expenses will continue to exceed its campground membership sales
revenue. The Company is working to increase the number of prospects that attend
its sales presentations, which has not met the Company's expectations in fiscal
1997. Because the Company intends to keep its selling and marketing expenses
within a close relation to sales revenue, it is relying principally upon member
and RV dealer referrals to increase the number of sales prospects in the future.
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.
The Company reported previously that it was testing a new "cottage
membership" offering use of upscale park model trailers at four of its
campgrounds in California, Oregon, and Washington. The cottage membership was
designed to broaden the market for the Company's product by appealing to
families who do not generally consider themselves campers but who enjoy outdoor
activities. To date, the results from this program have been significantly
below expectations and the program may be discontinued.
CAMPGROUND MANAGEMENT
For the six months ended December 31, 1996, the campground management
operations of Wilderness Management produced revenues of $779,000 with related
expenses (excluding certain shared administrative costs) of $683,000. This
compares with revenues for the same period last year of $582,000 and related
expenses (excluding certain shared administrative costs) of $511,000.
RESORT PARKS INTERNATIONAL
For the six months ended December 31, 1996 and 1995, the operations
of Resort Parks International produced a net contribution of approximately
$1.0 million. Although revenues decreased between periods, the decrease was
offset by expense reductions. The revenues of Resort Parks International 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.
30
<PAGE>
RESORT OPERATIONS
During the periods presented, the Company's resort operations
consisted primarily of timeshare management and timeshare and lot sales. On
November 21, 1996, the Company sold its timeshare management operations and
timeshare inventory 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 and the balance is represented by a promissory note in the principal
amount of $800,000. The principal of the note is payable $300,000 on or before
May 15, 1997, and $500,000 on or before May 15, 1998. Interest accrues on the
note at the rate of 14 1/2% per annum and is payable at the time of 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 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 $397,000 was recorded in connection with this sale
which will be recognized on the installment method of accounting as payments on
the note are received. The deferred gain was netted against the principal amount
of the note, and the net balance is included in other current and long term
assets in the Company's consolidated balance sheet at December 31, 1996.
For the six months ended December 31, 1996 and 1995, the resort
operations had a negative contribution of $46,000 and $89,000, respectively. For
these same periods, the Company's timeshare management operations had a positive
contribution of $93,000 and $167,000, respectively, which were included in the
results above. The sale of the timeshare operations will significantly reduce
both the revenues and expenses from the resort operations in future
periods.
The Company's present interest in the resorts primarily consists of
approximately 600 residential lots and other miscellaneous real estate at the
resorts and certain amenities at one resort. The Company presently plans to
dispose of the remaining assets that it owns at the resorts over the next
several years. 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 was $2.0 million for the six months ended December
31, 1996, compared with $3.4 million for the same period last year. In these
periods, interest income included amortization of the allowance for interest
discount and valuation allowance related to the contracts receivable of $203,000
and $305,000, respectively. The $1.4 million decrease in interest income from
period to period was due primarily to a decrease in interest earned on the
Company's diminishing portfolio of contracts receivable and significantly
lower cash balances between years.
Interest expense was $5.1 million for the six months ended December
31, 1996, compared with $9.0 million for the same period last year. In the
current period, interest expense included amortization of $966,000 related to
the debt issuance costs incurred in connection with obtaining the Loan Agreement
with Foothill. The $4.0 million decrease in interest expense from period to
period was due primarily to the repurchase of $7.4 million principal amount of
Secured Notes in January 1996, a net $36.8 million reduction in the Company's
outstanding debt resulting from the Restructuring and subsequent repayments
under the Loan Agreement, a $2.5 million reduction in mortgage notes due to the
abandonment of two operating campgrounds in the Fall of 1995, and scheduled
repayments of notes payable.
As a result of the Restructuring, interest expense is expected to
decrease significantly for fiscal 1997 compared with fiscal 1996 due to the
reduction in the total amount of debt outstanding. Moreover, since the Company
is prohibited from paying cash interest on the PIK Notes until the borrowings
under the Loan Agreement are repaid, during the repayment period, a substantial
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
31
<PAGE>
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 DISPOSITIONS
The Company recognized a gain on the disposition of assets of $1.2
million for the six months ended December 31, 1996, compared with $918,000 for
the same period last year. The gain in the current period resulted primarily
from the sale of three campgrounds and certain other 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 undeveloped land and excess
acreage associated with the campgrounds. However, no assurance exists that the
Company will be able to locate a buyer for these assets or that sales on
acceptable terms can be effected.
OTHER INCOME
For the six months ended December 31, 1996, other income was $1.9
million, compared with $2.2 million for the same period last year. The decrease
in the current period was due primarily to a decrease in income from recoveries
on canceled contracts and dues through the use of outside collection
agencies.
OTHER EXPENSES
General and administrative expenses were $4.7 million for the six
months ended December 31, 1996, compared with $5.0 million for the same period
last year, reflecting the Company's continuing efforts to lower its
administrative costs.
Corporate member services costs were $812,000 for the six months ended
December 31, 1996, compared with $904,000 for the same period last year. The
decrease in the current period was due primarily to staff reductions and other
cost-cutting measures implemented during fiscal 1996, including implementation
of an automated reservation system.
The Company incurred $1.1 million of restructuring costs during the
six months ended December 31, 1996, related to the Restructuring. In addition,
the Company incurred debt issuance costs of $3.1 million, including $570,000 of
prepaid interest, related to obtaining the Loan Agreement with Foothill. These
costs, which include legal costs, financial advisory fees, and other direct
costs of obtaining the loans, were capitalized and are reflected in other assets
in the Company's consolidated balance sheet as of December 31, 1996.
BUSINESS
GENERAL
The Company and its subsidiaries own and operate a system of 58
membership-based campgrounds located in 19 states and British Columbia, Canada,
serving 126,000 members as of December 31, 1996. Through a subsidiary, the
Company also provides a reciprocal use program for members of approximately 310
recreational facilities.
CURRENT BUSINESS STRATEGY
The Company's current business strategy is to improve its campground
operations, stabilize its campground membership base, and determine the
appropriate level for its ongoing campground operations. Consistent with this
strategy, the Company intends to downsize its business by implementing cost
reduction measures while its membership base declines. These cost reduction
measures will likely include the closure and disposition of additional
campgrounds and decreases in general and administrative
32
<PAGE>
expenditures. 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 dispositions will depend principally upon the degree
to which the Company can successfully implement this strategy.
CAMPGROUND OPERATIONS
Campgrounds. The Company and its subsidiaries own and operate a
network of 58 membership-based campgrounds located in 19 states and British
Columbia, Canada. The Company owns and operates a network of 35 of these
campgrounds under the Thousand Trails logo, and NACO owns and operates a network
of 23 of these campgrounds under the NACO logo. The 58 campgrounds contain a
total of approximately 19,300 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, 1996,
there were approximately 80,000 campground members in the Thousand Trails system
and 46,000 campground members in the NACO system. However, approximately 32% of
the NACO campground members and approximately 48% 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
38%). Large numbers of campground members also reside in Florida, Oregon, Texas,
and Washington.
Memberships permit the member's family to use the campgrounds, but do
not convey an ownership interest in the Company or the campgrounds with the
exception of six campgrounds in which members have purchased 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.
Membership Sales. Prior to April 1992, the Company sold new campground
memberships on an installment basis at sales prices up to $8,000. 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, as part of its focus on
ongoing revenues from campground operations, the Company determined that it
should increase its sales and marketing efforts in order to replenish its
campground membership base. As a result, in May 1994, the Company instituted a
new sales program under which 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 for the summer of 1995.
The Company has focused its membership sales efforts primarily on guests
referred by existing members and RV dealers, whom management believes are more
likely to purchase memberships.
The new 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 $595 to $2,495. In addition, the new
membership products offer a choice of annual dues levels ranging from $219 for
15 nights of use to $1,095 for 365 nights of use. The member is charged a
nightly fee for camping
33
<PAGE>
more days than are included in the dues option selected. The Company does not
finance sales with prices of less than $1,195. For sales with prices of $1,195
and higher, the Company requires a down payment of at least 33% of the sales
price and will finance the balance over a period of up to 12 months. During
fiscal 1996, the Company sold approximately 3,100 new memberships at an average
sales price of $779 and an average annual dues level of $306.
The Company has the capacity to sell approximately 65,000 additional
new campground memberships in the future, assuming the sale of ten memberships
for each existing campsite. Any 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, and increased by approximately 10% per year in 1994 and 1995.
Although RV sales were flat in 1995 and 1996 , the Company believes that the
aging of the baby boomers should have a positive effect on RV sales and 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. Campground members pay annual dues ranging from $60 to $1,095.
The annual dues collected from campground members constitute general revenue of
the Company. Although the Company uses the dues to fund its operating expenses,
including corporate expenses and the maintenance and operation of the
campgrounds, 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
$335 for the year ended June 30, 1996. This same average was $329 and $315 for
the years ended June 30, 1995 and 1994, respectively. The increases resulted
from the TTN Alliance Program (discussed below), and the regular increase in
dues implemented by the Company each year in accordance with the terms of the
membership agreements. These regular annual increases averaged 2%, 4%, and 6%
per member for the years ended June 30, 1996, 1995, and 1994, respectively.
From January 1, 1993 to March 31, 1995, the Company requested its
campground members to participate in the TTN Alliance Program under which
participating members agreed to increase their dues and campground fees
voluntarily. A total of 34,200 of the Company's members (27%) chose to
participate in the TTN Alliance Program, which has resulted in additional
ongoing dues revenue of $2.1 million per year. Under the TTN Alliance Program,
for each dollar that members' annual dues were increased voluntarily, the
Company made a one-time investment of one dollar in major repairs, renovations,
or capital improvements at the campgrounds. The Company completed these
expenditures, which exceeded $2.1 million, in fiscal 1995.
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
34
<PAGE>
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 a
significant amount of maintenance, repairs, and improvements, which has been
deferred, in part, as a result of general cost-cutting measures. During fiscal
1996, the Company spent $4.0 million on major maintenance, repairs, and
improvements at the campgrounds. The Company anticipates that it will spend an
additional $4.2 million during fiscal 1997 on such maintenance, repairs, and
improvements.
Reciprocal Use. 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 ("RPI"). A wholly owned
subsidiary of the Company operates the RPI program, which offers a reciprocal
program for members of approximately 320 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 December 31, 1996, there were approximately 91,000 RPI members, of which
approximately 68,000 were members of campgrounds that are not affiliated with
the Company.
Campground Management. During fiscal 1994, Wilderness Management, a
wholly owned subsidiary of the Company, began to manage public campgrounds for
the U.S. Forest Service. As of December 31, 1996, Wilderness Management had
entered into management contracts covering 36 campgrounds containing a total of
approximately 1,500 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 Forest Service.
Operational Changes. During fiscal 1996, the Company made significant
operational changes at the campgrounds to reduce operating costs. These changes
included reducing campground management and campground personnel, closing and
disposing of four campgrounds, and changing to seasonal operations at additional
campgrounds with low usage during off-season periods. The Company also reduced
corporate personnel to reduce its general and administrative costs.
RESORT OPERATIONS
Over the past several years, NACO has been selling the assets it owns
at eight full service resorts located in seven states. NACO currently owns and
operates the resort amenities at one of these locations, and has sold the resort
amenities at the other locations. In November 1996, NACO sold its timeshare
management operations at the resorts and all of its remaining timeshare
inventory. NACO's interest in the resorts presently consists of approximately
600 residential lots and other miscellaneous real estate at the resorts and
certain amenities at one resort.
At December 31, 1996, NACO had obligations to spend $2.9 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, the Company spent $300,000 in fiscal 1996, and plans
to spend approximately $100,000 in fiscal 1997, 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 NACO and could seek damages from NACO or rescission of the
lot purchase. Approximately 1,400 persons purchased lots from NACO when the HUD
reports in effect described improvements that NACO has not yet constructed. An
insignificant number of persons have asserted claims against NACO for the
failure to make these improvements.
ASSET SALES
The sale of excess assets is a key component of the Company's current
business strategy. During fiscal 1996, 1995, and 1994, the Company sold certain
of its real estate assets and received proceeds of $7.2 million, $1.1 million,
and $10.4 million, respectively. During this three-year period, the
35
<PAGE>
Company sold the country club and golf operations at five of the full service
resorts, the seven utility companies associated with the resorts, and certain
other real estate holdings at the resorts. In addition, the Company sold unused
buildings and trailers, certain undeveloped land, and excess acreage associated
with the campgrounds. Over the next several years, the Company intends to
dispose of a substantial portion of its remaining assets at the resorts, any
campgrounds that are closed as the Company downsizes, and other undeveloped land
and excess acreage associated with the campgrounds. However, no assurance exists
that the Company will be able to locate a buyer for these assets or that sales
on acceptable terms can be effected. In addition, the disposition of campgrounds
will require 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 disposition opportunities or the ability of the
Company to realize recoveries from asset dispositions.
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. The collection of these contracts receivable
is a key component of the Company's current business strategy.
The Company charges interest 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 December 31, 1996. Monthly installment payments
range from $38 to $182 over the term of the contracts receivable, which can be
up to ten years. The terms of most newer contracts receivable, however, do not
exceed five years and contract terms under the Company's present campground
membership sales program are limited to one year. At December 31, 1996,
approximately 95% of the Company's campground and resort members had paid for
their membership or resort interest in full.
As of December 31, 1996, the Company owned contracts receivable from
campground and resort members with an aggregate principal balance of $16.4
million, consisting of $4.4 million of contracts receivable associated with the
NACO campgrounds, $10.1 million of contracts receivable associated with the
Thousand Trails campgrounds, $1.7 million of contracts receivable associated
with the NACO resorts, and $185,000 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 this Prospectus.
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.
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 and resorts
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 and resorts, 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.
36
<PAGE>
In addition, to construct improvements at its campgrounds and resorts,
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 and resorts are also subject to a variety of
federal and state environmental statutes and regulations. Certain environmental
issues may exist at some of the campgrounds and resorts 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 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 10Ememberships 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.
37
<PAGE>
COMPETITION
There are approximately 16,000 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 426,000
members, of which 126,000 are the Company's members.
Several companies compete directly with the Company's campground
operations. For example, Rank Anhert, Inc. which does business as Outdoor World,
sells memberships to its system of 15 campgrounds, Thousand Adventures, Inc.
sells memberships to its system of 58 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 other types of recreational land
developments that do not involve camping.
Coast to Coast Resorts, RPI's primary competition and the largest
reciprocal use system, has a reciprocal system of approximately 450 campgrounds
and in excess of 250,000 members. Both RPI and Coast to Coast operate vacation
clubs offering travel and lodging discounts and services to their members.
Other organizations and individuals compete directly with the
Company's resort operations by managing resorts and selling timeshare interests
and lots.
Campgrounds attract campers by the quality of the facilities and
services offered at the campground, as well as by location because campers tend
to prefer a campground within one day's travel from their home. The resorts
compete for members through amenities offered at the resorts, and the pricing of
timeshare interests and lots.
EMPLOYEES
As of December 31, 1996, the Company had 890 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.
PROPERTIES
Offices. The Company leases office space at 2711 Lyndon B. Johnson
Freeway, Suite 200, Dallas, Texas 75234. NACO leases office space at 2325
Highway 90, Gautier, Mississippi 39553.
Campgrounds. The Company currently operates 58 campgrounds in 19
states and British Columbia, Canada. The locations of these campgrounds are
shown on the map on page 40. The amenities presently available at each
campground are indicated on the chart on page 41. The Company owns 57 of these
campgrounds and leases the LaConner campground and a portion of the Lake
Tawakoni campground. Six of the campgrounds are open seasonally and 23 are open
year-round but provide only limited services during the off-season period. In
addition, the Company has one additional campground which is closed.
38
<PAGE>
Resorts. The Company currently owns certain real estate at eight full-
service resorts located in seven states. The Company currently owns and operates
the resort amenities at one of the locations, and has sold the resort amenities
at the other locations.
Encumbrances. The Company has granted liens on substantially all of
its assets to secure its obligations under the Loan Agreement between the
Company and Foothill. Under the Loan Agreement, 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 Loan Agreement at any one time may not exceed $35.0
million. Total outstanding borrowings under the Loan Agreement were $17.1
million as of December 31, 1996. The Company's subsidiaries other than an
immaterial utility subsidiary have guaranteed the Company's obligations under
the Loan 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 $29.2 million at December 31, 1996. These security
interests were subordinated to the security interests securing the guarantees of
the Loan Agreement. The indebtedness that these security interests secure,
however, is pledged by the Company to Foothill to secure its obligations under
the Loan Agreement, and these security interests have been collaterally assigned
to Foothill. Furthermore, the subsidiaries of NACO each guaranteed their
parent's indebtedness to the Company and granted security interests in
substantially all of their assets to secure such guarantees.
The PIK Notes that were issued in the Restructuring are 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 Loan Agreement, the PIK Notes will be secured by the same
assets as then secure the Loan Agreement other than cash and cash equivalents
and other assets required to secure any refinancing or replacement of the
borrowings provided by the Loan 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.
Two of the Thousand Trails campgrounds and two of the NACO campgrounds
are also subject to mortgages in favor of the party from whom the Company or
NACO purchased the property.
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 Loan 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 disposition opportunities or the
ability of the Company or lienholder to realize recoveries from asset
dispositions.
39
<PAGE>
THOUSAND TRAILS, INC.
CAMPGROUNDS
[A MAP OF THE UNITED STATES OF AMERICA 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
Lake Conroe Rainier
WASHINGTON Colorado River Black Point VIRGINIA
- ---------- Lake Whitney Long Beach --------
LaConner Lake Texoma Virginia Landing
Mt. Vernon Lake Tawakoni
Chehalis OREGON
Leavenworth ------ NEW JERSEY
ILLINOIS South Jetty ----------
-------- Chestnut Lakes
OREGON Fox River
- ------ CALIFORNIA
Bend ---------- MISSOURI
Pacific City MICHIGAN Lake Minden --------
-------- Russian River Jefferson Resort
St. Clair Snowflower
CALIFORNIA Turtle Beach
- ---------- Yosemite
Donner Pass INDIANA Windsor
Lake of the Springs ------- Rancho Oso
San Jose Horseshoe Lake Wilderness Lakes
San Benito
Soledad
Idyllwild VIRGINIA TEXAS
Pio Pico -------- -----
Oakzanita Springs Lynchburg Bay Landing
Palm Springs Chesapeake Bay
MISSISSIPPI
NEVADA North Carolina -----------
- ------ -------------- Indian Point
Las Vegas Forest Lake
SOUTH CAROLINA
Arizona --------------
- ------- Carolina Landing
Verde Valley
Tennessee
Florida ---------
- ------- Natchez Trace
Orlando Cherokee Landing
40
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
Campground Family Trailers
Facilities and Partial Tent Adult Center/ Tennis Athletic Vehicle Restrooms/ (Seasonal Horseshoe
Amenities Cottages Hookups Sites Lodge Pavillion Pool Court Court Storage Showers Availability) Pits
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Thousand Trails
Bend 4 301 10 1 1 2 2 1 1 6 17 4
Chehalis 325 1 1 2 2 2 1 8 9 7
Chesapeake Bay 355 19 1 1 2 1 1 1 4 50 6
Colorado River 128 1 1 1 1 1 1 2 10 4
Cultus Lake 345 12 1 1 1 2 2 1 4 5 2
Donner Pass 405 6 1 2 2 1 8 18 6
Forest Lake 262 12 1 1 2 2 1 1 3 14 4
Fox River 185 20 1 1 1 1 1 1 4 25 7
Galveston Island 122 1 1 1 1 1 10 2
Hershey 313 1 1 1 1 1 1 3 38 4
Horseshoe Lake 118 1 1 2 1 1 2 10 4
Idyllwild 4 287 38 1 1 1 3 1 6 35 4
Kenisee Lake 108 10 1 1 1 1 2 8 2
LaConner 293 1 1 1 1 6 18 6
Lake Conroc 333 1 1 1 2 2 1 4 25 8
Lake Of The
Springs 540 12 1 1 1 1 2 1 12 25 8
Lake Tawakoni 318 1 1 1 2 1 1 5 30 8
Lake Texoma 241 2 1 1 2 1 1 6 34 6
Lake Whitney 229 3 1 1 2 1 1 1 5 22 8
Las Vegas 214 2 1 1 2 1 3 10 2
Leavenworth 4 272 1 1 2 4 2 1 8 7 5
Lynchburg 224 1 1 1 2 6 1 5 20 7
Medina Lake 387 1 1 1 1 1 4 34 4
Mt. Vernon 245 3 1 1 1 1 1 6 4 4
Oakzanita Springs 121 30 1 1 1 1 1 2 15 4
Orlando 735 1 1 2 2 1 7 30 6
Pacific City 4 316 1 1 1 1 2 1 5 16 12
Palm Springs 397 1 1 1 1 1 4 24 4
Pio Pico 440 12 1 1 2 5 3 8 20 12
San Benito 518 51 1 1 2 1 1 7 32 4
San Jose 318 28 1 1 1 1 1 1 7 27 4
Soledad Canyon 850 9 1 1 2 2 3 1 14 45 13
Saint Clair 101 8 1 1 1 1 3 13 2
Verde Valley 339 6 2 1 1 2 3 12 8
Wilmington 126 1 1 1 1 2 1 2 10 2
NACO
Bay Landing 283 1 1 1 1 2 24 6
Birch Bay 220 8 1 1 1 1 3 8 2
Black Point 350 50 1 1 1 13 3
Carolina Landing 229 1 2 2 1 1 4 4
Cherokee Landing 296 1 1 1 1 1 3 3
Chestnut Lake 235 1 1 1 1 1 23 2
Indian Lakes 1120 50 2 1 3 2 2 1 5 12 8
Indian Point 119 1 2 1 2 3 1
Jefferson 98 10 1 2 1 2 1 1 2 4
Lake Minden 162 161 1 1 1 3 13 2
Little Diamond 541 100 1 4 1 1 1 5 4 3
Long Beach 156 20 1 1 1 2 6 2
Natchez Trace 526 1 2 1 1 5 1
Rainier 704 300 1 1 1 1 10 9 8
Rancho Oso 111 50 1 1 1 1 1 3 25 4
Russian River 125 30 1 4 7 2
Snowflower 294 10 1 1 11 7 3
South Jetty 214 10 1 1 1 1 5 18 3
Turtle Beach 66 120 1 2 6 2
Virginia Landing 210 1 1 1 3 10 2
Wilderness Lakes 529 5 1 1 2 1 1 1 8 34 6
Windsor 95 25 1 1 1 1 8 3
Yosemite Lakes 431 131 1 1 1 8 33 4
<CAPTION>
==================================================================================================================================
Campground Children's Boat
Facilities and Play Trading Miniature Shuffle Launch/ Laundry Cabins/ Public
Amenities Area Post Golf Board Spa Volleyball Marina Facility Lodging Camping
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Thousand Trails
Bend 2 1 1 1 1 1 3
Chehalis 1 1 1 1 1 1 1 1
Chesapeake Bay 3 1 1 2 1 1 1 1 18
Colorado River 2 1 1 1 1 2 1 1
Cultus Lake 2 1 2 1 1
Donner Pass 2 1 8 1 1 1 6
Forest Lake 2 1 1 2 2 1 1 18
Fox River 4 1 1 6 2 1 1 18
Galveston Island 1 1 1
Hershey 1 1 1 1 1
Horseshoe Lake 10 1 2 1 1
Idyllwild 3 1 1 2 1 3
Kenisee Lake 2 1 1 1 1 1
LaConner 3 1 1 3 1 1 1 1 17
Lake Conroc 2 1 1 2 1 2 1 2
Lake Of The
Springs 3 1 1 1 1 1 1
Lake Tawakoni 2 1 1 8 2 2 1 1
Lake Texoma 2 1 1 2 2 1 1 1 18
Lake Whitney 2 1 1 2 1 2 1
Las Vegas 1 1 1 1 3
Leavenworth 2 1 1 4 1 2 4
Lynchburg 2 1 1 2 1 2 1
Medina Lake 3 1 1 4 1 2 1 1
Mt. Vernon 2 1 1 1 1 1 1
Oakzanita Springs 3 1 1 2 1 1 1
Orlando 2 1 1 16 1 1 1 4
Pacific City 2 1 1 1 1 1
Palm Springs 1 2 1 3
Pio Pico 3 1 1 8 2 2 2
San Benito 4 1 1 6 2 2 1
San Jose 3 1 1 4 1 1
Soledad Canyon 7 1 1 8 1 4 1
Saint Clair 2 1 1 1 1 1 2
Verde Valley 3 1 2 1 1 1
Wilmington 2 1 2 1 1 1
NACO
Bay Landing 1 1 1 4 1 1 1 34 X
Birch Bay 1 1 1 1
Black Point 1 2 1
Carolina Landing 1 1 1 1 1 18 X
Cherokee Landing 1 1 1 2 1 1 30 X
Chestnut Lake 1 1 1 2 1 1 X
Indian Lakes 3 1 1 2 3 1 3 54 X
Indian Point 1 1 1 1 1 1 16
Jefferson 1 1 1 2 1 2 1 18 X
Lake Minden 1 1 1 1
Little Diamond 3 1 2 2 1 1 1
Long Beach 2 1 1 1
Natchez Trace 4 1 1 1 1 1 58 X
Rainier 2 1 1 1 1
Rancho Oso 1 1 1 2 2
Russian River 1 1
Snowflower 1 2 1 1 4 X
South Jetty 1 1 2 1 1
Turtle Beach 1 1 1 1 1
Virginia Landing 2 1 1 2 1 1 1 19 X
Wilderness Lakes 2 1 1 3 3 1 4
Windsor 1 1 1
Yosemite Lakes 1 1 1 1 1 2 32 X
</TABLE>
41
<PAGE>
LEGAL PROCEEDINGS
An action (Johnnie Lacy v. Thousand Trails, Inc.) was filed February
1, 1996, in the United States District Court for the Northern District of
California, and purports to be a class action. The plaintiff alleges that the
Company has failed to comply with the Americans with Disabilities Act and
related California statutes with respect to certain of its campgrounds. The
plaintiff alleges that the Company has failed to remove barriers to access by
persons with disabilities where such barrier removal is readily achievable. The
plaintiff seeks unspecified damages and injunctive relief. Although this case is
still in the early stages of development, management does not believe that it
will have a material adverse impact on the Company's operations or financial
position.
The Company is involved in other claims and litigation arising in the
normal course of business. Management believes that the eventual outcome of
these other claims and litigation will not have a material adverse impact on the
Company's operations or financial position.
MANAGEMENT
DIRECTORS
The Company has six directors who serve until the election and
qualification of their successors. Each director 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
NAME AGE WITH THE COMPANY SINCE
- ------------------ ----- --------------------- ---------
<S> <C> <C> <C>
Andrew M. Boas 41 None December 1991
William P. Kovacs 50 None December 1991
Donald R. Leopold 46 None December 1995
H. Sean Mathis 49 None December 1991
Douglas K. Nelson 53 None December 1991
William J. Shaw 53 Chairman of the Board, May 1995
Chief Executive
Officer, and President
</TABLE>
Andrew M. Boas became a director of the Company in December 1991 upon
the Company's emergence from its proceedings under Chapter 11 of the Bankruptcy
Code. Since November 1986, Mr. Boas has been a general partner of CM Management,
an advisory and management firm that is the general partner of investment
partnerships and managed accounts specializing in investments in troubled
companies. Since May 1994, he has also been President of Carl Marks Offshore
Management, Inc. Mr. Boas also has been (i) a Managing Director of Carl Marks &
Co., Inc., a broker-dealer firm, since December 1977, (ii) a director of CMCO
Inc., an investment banking firm, since March 1988, (iii) a director of Sport
and Health, LLC, an operator of fitness centers, since October 1993 and (iv) a
director of Vertientes Camaguey Sugar Company, a holding company, since November
1994. Mr. Boas also served as: a director of American Corp. Limited, an
Australian company that invests in the securities of companies located in the
United States, from January 1988 to February 1992; a director of Smith Newcourt,
Carl Marks, Inc., a broker-dealer firm, from March 1988 to June 1990; a director
of Herman's Sporting Goods, Inc., from March 1993 to March 1996; and a director
of Pratt & Lambert United, Inc., a manufacturer of consumer and industrial
coatings, from August 1994 to January 1996.
42
<PAGE>
William P. Kovacs became a director of the Company in December 1991
upon the Company's emergence from its Chapter 11 proceedings and served as a
director until December 3, 1992. From December 3, 1992 to December 2, 1993, Mr.
Kovacs served as an advisory director of the Company at the pleasure of the
Board of Directors. As an advisory director, Mr. Kovacs attended and
participated in meetings of the Board of Directors and committees thereof, but
did not vote on matters presented. Since December 2, 1993, Mr. Kovacs has served
as a director of the Company. From October 1989 to August 1995, Mr. Kovacs was a
Vice President and Assistant Secretary of Kemper Financial Services, Inc., the
investment management subsidiary of Kemper Corp. From June 1981 to September
1989, Mr. Kovacs held various legal positions with the Principal Financial
Group, Des Moines, Iowa. Mr. Kovacs also was a director of United Gas Holding
Company from February 1991 to July 1993, and an officer of 625 Liberty Avenue
Holding Corporation from November 1993 to August 1995.
Donald R. Leopold became a director of the Company in December 1995.
Since September 1991, Mr. Leopold has been a senior partner of Sherbrooke
Associates, Inc., a marketing, strategic planning and organization development
consulting firm. From May 1994 to September 1995, Sherbrooke Associates, Inc.
performed consulting services for the Company with respect to its marketing and
sales operations, and Mr. Leopold was primarily responsible for the consulting
work performed for the Company. From 1984 to September 1991, Mr. Leopold was
President of Game Plan, Inc., a management consulting firm. He is also a
director of Jullian's Entertainment Corporation.
H. Sean Mathis became a director of the Company in December 1991 in
connection with the Company's emergence from its Chapter 11 proceedings. Mr.
Mathis is Chairman and a director of Universal Gym Equipment Inc., a privately
owned company. He is also Chairman of the Board of Allis Chalmers, Inc., an
industrial manufacturer, whose main asset is a net operating loss carryforward.
From 1991 to 1993, Mr. Mathis was President of RCL, the predecessor firm of
Allied Digital Technologies Corp., a manufacturing company, and from 1993 to the
present served as a director. From 1993 to 1995 Mr. Mathis was President and a
director of RCL Capital Corporation, which was merged into DISC Graphics in
November 1995. From 1988 to October 1993, Mr. Mathis was a director and Chief
Operating Officer of Ameriscribe Corporation, a national provider of
reprographic and related facilities management services whose stock was traded
on the New York Stock Exchange. From August 1992 to May 1994, Mr. Mathis acted
as the Federal Court Appointed Trustee for International Wire News Service
Liquidation Corp., formerly United Press International ("UPI"). From November
1991 through July 1992, Mr. Mathis was Vice Chairman and a director of UPI (then
a news syndication service.) In August 1991, as a part of a restructuring
program, UPI filed for protection under the federal bankruptcy laws. He is also
a director of Canadian's Corp., a specialty retailer.
Douglas K. Nelson became a director of the Company in December 1991 in
connection with the Company's emergence from its Chapter 11 proceedings. From
February 1970 through March 1976, Mr. Nelson was an associate with McKinsey and
Co., Inc., a management consulting firm. Since April 1976, Mr. Nelson has been
President of Strategic Directions, a management consulting firm which focuses on
business in the areas of leisure, sports, and entertainment.
William J. Shaw joined the Company in May 1995 as its President, Chief
Executive Officer and a director. In July 1995, Mr. Shaw became Chairman of the
Board of Directors, and President and Chief Executive Officer of the Company's
two principal operating subsidiaries, TTI (until it was merged into the Company
in July 1996) and NACO. From February 1989 to October 1993, Mr. Shaw was a
director and the President and Chief Executive Officer of Ameriscribe Management
Services Corporation, a national provider of reprographic and related facilities
management services. Ameriscribe Management Services Corporation was sold to
Pitney Bowes in November 1993. From 1983 to January 1989, Mr. Shaw was President
and Chief Executive Officer of Grandy's, a Dallas-based chain of fast service
restaurants.
43
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth the current executive officers of the
Company. Although each of the executive officers has an employment agreement
with the Company, each of them also serves at the pleasure of the Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE OFFICES
- ------------------ -------- --------------------------------------------
<S> <C> <C>
William J. Shaw 53 Chairman of the Board, President and Chief
Executive Officer
Harry J. White, Jr. 42 Vice President, Chief Financial Officer,
Chief Accounting Officer and Treasurer
R. Gerald Gelinas 50 Vice President, Sales and Marketing
Walter B. Jaccard 43 Vice President, General Counsel and Secretary
</TABLE>
William J. Shaw is also a director of the Company and his business
experience is described under "Directors."
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 TTI and
NACO. In September 1992, Mr. White became a director and the Chief Accounting
Officer of TTI and NACO. In June 1995, Mr. White became the Company's Treasurer.
From September 1988 through May 1992, Mr. White was the Chief Financial Officer
of Cosmo World Corporation and its subsidiaries. During this period, Cosmo World
Corporation was a holding company that owned Ben Hogan Company, a manufacturer
of golf equipment, Pebble Beach Company, the owner and operator of golf courses
and hotels in Pebble Beach, California, and other companies that owned
residential and golf course developments. Cosmo World of Nevada, Inc., a
subsidiary of Cosmo World Corporation, filed a Chapter 11 petition in December
1991. From June 1976 through August 1988, Mr. White practiced public accounting
with the firm of Deloitte Haskins & Sells, now known as Deloitte & Touche. Mr.
White is a Certified Public Accountant.
R. Gerald Gelinas joined the Company in September 1995 as Vice
President, Sales and Marketing for the Company, TTI and NACO. From January 1988
through June 1995, Mr. Gelinas served as Senior Vice President, Marketing, for
Club Corporation of America ("CCA"), an owner and manager of country clubs and
golf courses. While with CCA, Mr. Gelinas also served as Chairman for two CCA
subsidiaries, Associate Clubs International ("ACI") and Associate Club
Publications ("ACPI"), from January 1992 through June 1995. ACI operates a fee-
based network which provides members with various services including access to
other CCA and non-CCA clubs, hotels, and resorts. ACPI produces and distributes
a bi-monthly magazine to CCA members. From May 1984 through September 1988, Mr.
Gelinas served as Senior Vice President, Marketing, for Ramada, Inc., which owns
and manages hotel facilities.
Walter B. Jaccard has been Vice President, General Counsel, and
Secretary of the Company since December 1992. Mr. Jaccard has been a director of
TTI (until its merger into the Company) and NACO since February 1992. He had
previously been Vice President and General Counsel of TTI since January 1987 and
Secretary since January 1988. He served as Associate General Counsel from 1983
to 1986. Mr. Jaccard has also been Vice President and Assistant Secretary of
NACO since August 1989, and he served as a director of TTI and NACO from May
1991 to June 1991.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended June 30,
1996, 1995 and 1994, the cash compensation that the Company and its subsidiaries
paid, as well as other compensation paid for these years, to the Company's Chief
Executive Officer, to the three other executive officers of the Company
44
<PAGE>
on June 30, 1996, and to the most highly compensated officer of the Company's
subsidiaries, who is not considered an executive officer for reporting purposes.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- ------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
POSITION YEAR ($) ($) ($) (#)/1/ ($)/2/
----------------- ------ ------- ---------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William F. Dawson, 1996 169,750 40,000/3/ -0- 35,000 2,783
CEO of Resort Parks 1995 163,750 78,900 6,000/4/ -0- 4,316
International and Vice 1994 163,750 84,400 6,000/4/ -0- -0-
President of NACO
R. Gerald Gelinas, 1996 107,600/5/ 30,000 -0- 20,000 -0-
Vice President, 1995
Sales and Marketing 1994
Walter B. Jaccard, 1996 140,000 15,000 -0- 30,000 2,869
Vice President, 1995 140,000 -0- -0- -0- 1,290
General Counsel and 1994 140,000 -0- -0- -0- -0-
Secretary
William J. Shaw, 1996 250,000 -0- -0- -0- 952,927/6/
Chairman of the 1995 29,800/7/ -0- -0- -0- -0-
Board, President, and 1994
CEO
Harry J. White, Jr., 1996 124,032 30,000 -0- 40,000 3,127
Vice President, CFO, 1995 124,032 15,000 -0- -0- 36,454/8/
CAO and Treasurer 1994 124,032 30,000 -0- -0- -0-
</TABLE>
__________
(1) Awards are grants of stock options pursuant to the Company's 1991 Employee
Plan and 1993 Employee Plan, including options granted in May 1996 at an
exercise price of $0.59 per share contingent upon the termination of an
equal number of existing options that were granted in fiscal 1993 at an
exercise price of $2.50 per share, as follows: Mr. Dawson, 25,000 shares;
Mr. Jaccard, 15,000 shares; Mr. White 25,000 shares.
(2) Amounts include matching contributions by the Company under its 401(k) Plan
for fiscal 1996 and 1995, respectively, as follows: Mr. Dawson, $2,783 and
$4,316; Mr. Jaccard, $2,869 and $1,290; and Mr. White, $3,127 and $2,654.
The amounts do not include compensation payable to the named executive
officers under their employment agreement upon the termination of their
employment if their employment has not terminated because no amounts have
been paid or accrued therefor. See "Employment Contracts" below.
(3) An additional bonus of $20,000 earned during fiscal 1995 was paid to Mr.
Dawson in August 1995.
(4) Mr. Dawson was paid a car allowance of $500 per month.
(5) Mr. Gelinas became the Company's Vice President of Sales and Marketing in
September 1995.
(6) Amount represents the vested portion of a one-time bonus, fully accrued at
June 30, 1996, that was paid to Mr. Shaw in July 1996 under the terms of
his employment agreement with the Company. An additional $317,662 will be
payable on May 11, 1997, provided Mr. Shaw is employed by the Company on
that date.
(7) Mr. Shaw became the Company's President and Chief Executive Officer on May
11, 1995.
(8) During the year ended June 30, 1995, the Company reimbursed Mr. White
$33,800 for moving expenses he incurred during his relocation to Dallas,
Texas.
45
<PAGE>
EMPLOYMENT CONTRACTS
The Company has entered into an employment agreement dated as of May
11, 1995, with Mr. Shaw. Under this employment agreement, Mr. Shaw's salary is
not less than $250,000 per year. If the Company terminates Mr. Shaw's
employment, other than for cause, the Company must pay Mr. Shaw a severance
payment equal to one year of his base salary.
Mr. Shaw's employment agreement provided that he would receive a one-
time bonus equal to between 4% and 6% of the amount by which the enterprise
value of the Company (including the value of its debt and equity securities)
exceeded $75 million at the time he elected to receive the bonus. Prior to
consummation of the Restructuring, Mr. Shaw exercised his right to receive such
bonus. Mr. Shaw is entitled to a payment of $1,270,589, of which $952,927 has
been paid. The additional $317,662 will be payable on May 11, 1997, provided
that Mr. Shaw is employed by the Company on that date.
On September 14, 1995, the Company entered into an employment
agreement with Mr. Gelinas. Under this employment agreement, Mr. Gelinas' base
salary is not less than $130,000 per year, and he may receive a bonus each year
at the discretion of the Company's Chief Executive Officer. If the Company
terminates Mr. Gelinas' employment, other than for cause, the Company must pay
Mr. Gelinas a severance payment equal to one year of his base salary.
On September 10, 1992, TTI, NACO and Resort Parks International
entered into an employment agreement with Mr. Dawson. Under this employment
agreement, Mr. Dawson's base salary is not less than $169,750 per year, and he
may receive a bonus each year at the discretion of the Company's Chief Executive
Officer. If the Company terminates Mr. Dawson's employment, other than for
cause, the Company must pay Mr. Dawson a severance payment equal to six months
of his base salary.
On December 3, 1992, the Company entered into an employment agreement
with Mr. Jaccard. Under this employment agreement, Mr. Jaccard's base salary is
not less than $140,000 per year and he may receive a bonus each year at the
discretion of the Company's Chief Executive Officer. If the Company terminates
Mr. Jaccard's employment, other than for cause, the Company must pay Mr. Jaccard
a severance payment equal to one year of his base salary.
On October 21, 1993, the Company entered into an employment agreement
with Mr. White. Under this employment agreement, Mr. White's base salary is not
less than $124,032 per year, and he may receive a discretionary bonus of up to
$30,000 per year. If the Company terminates Mr. White's employment other than
for cause, the Company must pay Mr. White a severance payment equal to one year
of his base salary.
STOCK OPTION PLANS
1991 Employee Plan. In connection with its emergence from Chapter 11
proceedings in 1991, the Company adopted the 1991 Employee Stock Incentive Plan
(as amended, the "1991 Employee Plan") to enable the Company and its
subsidiaries to attract, retain, and motivate their officers, employees, and
directors. Awards under the 1991 Employee Plan may take various forms, including
(i) shares of 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.
46
<PAGE>
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 under the
Securities Act 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 December 1, 1996, 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 33 1/3% 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 under the
Securities Act 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 options under the 1993 Employee Plan at an exercise price of $0.59 per
share, contingent upon the termination of an equal number of options granted
under the 1991 Employee Plan at an exercise price of $2.50 per share. In
September 1996, the Company granted key employees ISOs covering 175,000 shares
with an exercise price of $0.80 per share. As of December 31, 1996, all of these
options were fully vested and none had been exercised.
Director Plan. On December 2, 1993, the Company adopted the 1993
Director Stock Option Plan, as amended (the "Director Plan"), which provides for
the grant of stock options to non-employee directors of the Company. The Company
reserved 50,000 shares of 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, after approval by the Board of Directors, the non-
employee directors voluntarily terminated options granted in 1994, and under the
terms of the Director Plan were granted Non-qualified Options covering 25,000
47
<PAGE>
shares with an exercise price of $1.08 per share. As of December 31, 1996, all
of these options were 100% vested and none of them had been exercised.
The Director Plan is designed to be a "formula plan," pursuant to
which each non-employee director automatically received a grant of Non-qualified
Options to purchase 5,000 shares of Common Stock on the day immediately after
each annual meeting of the stockholders at which directors were elected,
beginning with the annual meeting held in December 1993. The exercise price of
each Non-qualified Option is required to equal the fair market value on the date
of grant of such Option as determined under the Director Plan. Generally, the
Director Plan specifies that such fair market value is the average trading price
of the Common Stock during the period beginning 45 days before the date of grant
and ending 15 days before the date of grant.
STOCK OPTION AGREEMENT
At their annual meeting on November 19, 1996, the stockholders of the
Company 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"), approved
by the Special Committee in connection with the Restructuring. The exercise
price under the Stock Option Agreement represents 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 judgment of the
Special Committee and the Board of Directors, reflected 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. Options to purchase 144,927 shares
of Common Stock are intended to be eligible for treatment as ISOs and the
remaining options are Non-qualified Options. The Company is filing 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 will be exercisable for one year thereafter, or for
"cause," in which case the options will terminate immediately. However, Mr. Shaw
will not be permitted to exercise the options if, and to the extent that, such
exercise would cause an increase in the amount of "ownership change." In the
event options would otherwise expire at a time Mr. Shaw is not permitted to
exercise all or a portion of the options because to do so would increase the
amount of "ownership change" (the "Exercise Restriction"), generally the term of
the options will be extended with respect to that portion of the options which
would cause an increase in order to ensure that Mr. Shaw will have at least a 90
day period after such limitations cease within which to exercise such options.
However, solely with respect to that portion of the options intended to be
incentive stock options, the Exercise Restrictions will not apply during the
last 90 days of the ten year term, and, if unexercised at the end of such ten
year term, such options will expire. Neither the options, nor any interest
therein, may be assigned or transferred except by will or the laws of descent
and distribution.
The exercise price is payable in cash, except that with the prior
approval of the committees administering the Stock Option Agreement, the
exercise price may instead be paid in whole or in part by the delivery to the
Company of a certificate or certificates representing shares of 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.
48
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding options
to purchase Common Stock granted in fiscal 1996 to the five individuals named in
the Summary Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------
Percentage
of Total
Number of Options/ POTENTIAL REALIZABLE VALUE AT
Securities SARs ASSUMED ANNUAL RATES OF
underlying Granted to Exercise STOCK PRICE APPRECIATION
Option/ Employees Price -----------------------------
SARs in Fiscal ($ per Expiration 5% 10%
Name Granted (#) Year Share) Date ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William J. Shaw 0 0 N/A N/A N/A N/A
William F. Dawson 10,000 4.3 0.625 9/13/05 10,181 16,211
25,000 10.6 0.59 4/30/06 24,026 38,258
R. Gerald Gelinas 20,000 8.5 0.625 9/13/05 20,361 32,422
Walter B. Jaccard 15,000 6.4 0.625 9/13/05 15,271 24,316
15,000 6.4 0.59 4/30/06 14,416 22,955
Harry J. White, Jr. 15,000 6.4 0.625 9/13/05 15,271 24,316
25,000 10.6 0.59 4/30/06 24,026 38,258
</TABLE>
AGGREGATE OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR END OPTIONAL VALUES
The following table sets forth certain information concerning options
to purchase Existing Common Stock held by the five individuals named in the
Summary Compensation Table. No options were exercised by the named individuals
in the fiscal year ended June 30, 1996.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY OPTIONS/SARS
NAME UNEXERCISED OPTIONS/SARS AT FY-END (#) AT FY-END ($)
- ------------------ ----------------------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------- ------------------- ------------- --------------
<S> <C> <C> <C> <C>
William J. Shaw 0 0 0 0
William F. Dawson 25,000 10,000 2,450 630
R. Gerald Gelinas 0 20,000 0 1,260
Walter B. Jaccard 15,000 15,000 1,470 945
Harry J. White, Jr. 25,000 15,000 2,450 945
</TABLE>
LONG TERM INCENTIVE PLANS
As of June 30, 1996, the Company's long term incentive plans consisted
of the employment agreement with Mr. Shaw discussed under "Employment Contracts"
above, and the Company's Employees Savings Trust (the "401(k) Plan"), which was
adopted July 1, 1994, for the purpose of establishing a contributory employee
savings plan exempt under Section 401(k) of the Code. An eligible employee
participating in the 401(k) Plan may contribute up to 10% of his or her annual
salary, subject to certain limitations. In addition, the Company may make
discretionary matching contributions as determined annually by the Company. The
Company made matching contributions totaling approximately $205,000
49
<PAGE>
for the year ended June 30, 1996, and has committed to make matching
contributions for the year ending June 30, 1997, in an amount equal to 45% of
the voluntary contribution made by each participant up to 4% of the
participant's annual compensation (a maximum of 1.8% of the participant's annual
compensation). Employer contributions are subject to a seven-year vesting
schedule.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive a retainer of
$24,000 per year and $500 for each day that they attend a meeting of the Board
of Directors or a committee thereof. The Company also reimburses such directors
for their travel and lodging expenses when attending meetings. The following
table summarizes amounts paid to each member of the Board of Directors during
fiscal l996, excluding reimbursements of travel and lodging expenses.
<TABLE>
<CAPTION>
AMOUNT PAID FOR STOCK OPTIONS
NAME ANNUAL RETAINER MEETINGS GRANTED
- ----------------- ----------------- ---------------- --------------
<S> <C> <C> <C>
Andrew M. Boas $24,000 $3,000 0
William P. Kovacs 24,000 3,000 5,000
Donald R. Leopold 24,000 1,000 5,000
H. Sean Mathis 24,000 3,000 5,000
Douglas K. Nelson 24,000 3,000 5,000
William J. Shaw1 0 0 0
</TABLE>
____________
(1) Mr. Shaw did not receive additional compensation for serving as director of
the Company.
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. Mr. Boas served as a member of the
Compensation Committee with Messrs. Leopold and Mathis until January 1996 and
with Mr. Shaw, the President and Chief Executive Officer of the Company, from
January 1996 until September 1996. As described under "Security Ownership," Mr.
Boas is deemed to own beneficially 46.5% of the Common Stock. Mr. Boas and
certain of his affiliates participated in the private exchange offer that was
part of the Restructuring approved by the Special Committee of the Board of
Directors (the "Special Committee"), consisting of Messrs. Kovacs, Mathis and
Nelson. Mr. Boas' affiliates, CM Strategic and CM Strategic II, exchanged
$18,806,000 principal amount of Secured Notes for $7,522,400 in cash, $9,252,552
principal amount of PIK Notes and 846,270 shares of Common Stock. Carl Marks
Offshore Management, Inc., of which Mr. Boas is an executive officer, exchanged
$3,053,000 principal amount of Secured Notes for $1,221,200 in cash, $1,502,000
principal amount of PIK Notes and 137,385 shares of Common Stock. In addition,
Mr. Boas and certain trusts of which he is co-trustee exchanged $187,000
principal amount of Secured Notes for $74,800 in cash, $92,000 principal amount
of PIK Notes and 8,415 shares of Common Stock. Such persons also received
accrued interest on their Secured Notes through the date of the exchange. In
connection with the Restructuring, which would have adversely affected Mr.
Shaw's bonus arrangements, Mr. Shaw was granted, subject to stockholder approval
(which was obtained on November 19, 1996), options to purchase 664,495 shares of
Common Stock at $0.69 per share. Such shares constitute approximately 9% of the
Common Stock outstanding after the Restructuring. The exercise price of the
option represents 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 effective date of the
Restructuring. The option was approved by the Special Committee, at a meeting of
the full Board of Directors. In connection with the Restructuring, the Special
Committee performed some of the functions usually exercised by the Compensation
Committee.
50
<PAGE>
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 TTI
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 TTI
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.
CERTAIN TRANSACTIONS
RESTRUCTURING
Under the terms of the Restructuring, the Company offered certain
holders of the Secured Notes the opportunity to exchange the Secured Notes held
by them in a private exchange offer for, in each case per $1,000 in principal
amount of Secured Notes, $400 in cash, $492 in principal amount of newly issued
PIK Notes and 45 shares of 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
multiple funds that exchanged $1,680,000 in principal amount of Secured Notes
and (ii) exercises investment discretion over advisory accounts that exchanged
$1,373,000 in principal amount of Secured Notes. In addition, (i) Mr. Boas and
certain trusts of which he is co-trustee exchanged $187,000 in principal amount
of Secured Notes; and (ii) Mr. Ruocco exchanged $10,000 in principal amount of
Secured Notes. In the
51
<PAGE>
aggregate, these persons exchanged $22,056,000 principal amount of Secured Notes
for $8,822,400 in cash, $10,852,000 principal amount of PIK Notes and 992,520
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 SC Fundamental Value BVI, Inc., a
Delaware corporation ("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., a foreign company of which BVI is the managing
partner of the investment manager and which is principally engaged in the
business of investing in securities, exchanged an aggregate of $5,172,000 in
principal amount of Secured Notes, and SC Fundamental Value Fund LP BVI Ltd., a
company engaged in the business of investing in securities and which has its
principal place of business in the Cayman Islands, exchanged an aggregate of
$1,270,000 in principal amount of Secured Notes. In the aggregate, these persons
exchanged $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.
The Company entered into an agreement with the Trustee at the time of
the Restructuring 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
connection with USTrails' reincorporation merger into the Company. The
Registration Statement was filed in accordance with the agreement.
CONSULTING SERVICES
For consulting services with respect to the Company's marketing and
sales operations from May 1994 to September 1995, Sherbrooke Associates, Inc.
was paid $894,600 by the Company. Mr. Leopold is a senior partner of such
consulting firm but was not a director of the Company while such services were
being performed.
SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tables sets forth the persons and groups who
beneficially own more than 5% of the Common Stock as of December 31, 1996. The
Company compiled this information from its stock records, the Schedules 13D
filed with the Company and other information available to the Company. Unless
otherwise indicated, these persons possess sole voting and investment power with
respect to the shares that they beneficially own.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING SHARES
- -------------------------------------- ---------------------- ---------------------
<S> <C> <C>
Andrew M. Boas 3,530,833/1/ 46.5%
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/ 42.0%
135 East 57th Street
New York, New York 10022
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING SHARES
- -------------------------------------- ---------------------- ---------------------
<S> <C> <C>
Carl Marks Strategic Investments, L.P. 2,668,765/1/ 35.2%
c/o Carl Marks Management Co., L.P.
135 East 57th Street
New York, New York 10022
Carl Marks Strategic Investments II, L.P. 510,926/1/ 6.9%
c/o Carl Marks Management Co., L.P.
135 East 57th Street
New York, New York 10022
Peter M. Collery 1,308,498/2/ 17.7%
c/o Siegler & Collery & Co.
712 Fifth Avenue
New York, New York 10019
Robert C. Ruocco 3,496,676/1/ 46.1%
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%
712 Fifth Avenue
New York, New York 10019
SC Fundamental Value BVI, Inc. 361,990/2/ 4.9%
712 Fifth Avenue
New York, New York 10019
William J. Shaw 866,490/3/ 10.8%
Thousand Trails, Inc.
2711 Lyndon B. Johnson Freeway, Suite 200
Dallas, Texas 75234
Gary N. Siegler 1,308,498/2/ 17.7%
c/o Siegler & Collery & Co.
712 Fifth Avenue
New York, New York 10019
The SC Fundamental Value Fund, L.P. 946,508/2/ 12.8%
712 Fifth Avenue
New York, New York 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
53
<PAGE>
$0.79 per share, 5,000 shares at a price of $0.80 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
of these shares is as follows: (i) CM Strategic - sole voting and investment
power over 2,668,765 shares, CM Strategic II - sole voting and investment
power over 510,926 shares, (ii) CM Management - sole voting and investment
power over 3,179,691 shares, (iii) Mr. Boas - sole voting and investment
power over 31,569 shares and shared voting and investment power over
3,496,676 shares and (iv) Mr. Ruocco - shared voting and investment power
over 3,496,676 shares.
The following table shows the beneficial ownership of the shares of
Common Stock described in this footnote:
<TABLE>
<CAPTION>
CM CM CM MR. MR.
STRATEGIC STRATEGIC II MANAGEMENT BOAS RUOCCO
--------------- ----------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Shares owned by CM 2,474,244 2,474,244 2,474,244 2,474,244
Strategic
Warrants owned by CM 194,521 194,521 194,521 194,521
Strategic
Shares owned by CM 510,926 510,926 510,926 510,926
Strategic II
Shares over which an 316,985 316,985
investment management
company affiliated with
Messrs. Boas and
Ruocco possesses
investment discretion
Shares owned by Mr. 11,569
Boas
Options owned by Mr. 20,000
Boas
Shares held in trust 2,588
over which Mr. Boas is
a co-trustee ------------- ------------- --------------- ----------
TOTAL 2,668,765 510,926 3,179,691 3,530,833 3,496,676
------------ ------------- --------------- ----------- ----------
Percentage of 35.2% 6.9% 42.0% 46.5% 46.1%
Outstanding Shares
</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 the Common Stock
that the Fund owns. 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 Existing
Common Stock that the Fund and BVI own.
(3) The shares of Common Stock owned by Mr. Shaw include (i) vested stock
options under the Stock Option Agreement 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 exercises investment power.
54
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of Common Stock
that are beneficially owned, as of December 31, 1996, by each director and
executive officer of the Company and all directors and executive officers of the
Company as a group. The Company obtained this information from its directors and
executive officers. Unless otherwise indicated, these persons possess sole
voting and investment power with respect to the shares that they beneficially
own.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME BENEFICIALLY OWNED OUTSTANDING SHARES
- ----------------------------------------------- --------------------- --------------------
<S> <C> <C>
Andrew M. Boas 3,530,833/1/,/2/ 46.5%
William F. Dawson 33,3332 *
R. Gerald Gelinas 56,6672 *
Walter B. Jaccard 60,0002 *
William P. Kovacs 70,0002 *
Donald R. Leopold 10,000 *
H. Sean Mathis 20,0002 *
Douglas K. Nelson 20,0002 *
William J. Shaw 866,4902,3 10.8%
Harry J. White, Jr. 92,5002 *
All directors and executive officers as a group 4,759,823/2/ 55.9%
(10 individuals)
</TABLE>
____________
*Less than 1%
(1) See footnote 1 to the preceding table for a description of Mr. Boas'
beneficial ownership of Common Stock.
(2) The shares of Common Stock beneficially owned by the following individuals
include vested stock options for the number of shares following their names:
Mr. Boas, 20,000; Mr. Dawson, 33,333; Mr. Gelinas, 36,667; Mr. Jaccard,
50,000; Mr. Kovacs, 20,000; Mr. Leopold: 10,000; Mr. Mathis, 20,000; Mr.
Nelson, 20,000; Mr. Shaw, 664,495; Mr. White, 60,000; and all directors
and executive officers as a group, 934,495.
(3) Includes 10,000 shares held by Mr. Shaw's children and grandchildren, as to
which Mr. Shaw exercises investment power.
SELLING SECURITY HOLDERS
The following table sets forth certain information regarding the
Selling Security Holders' ownership, by class, of the PIK Notes as of December
31, 1996. Each of the Selling Security Holders has registered and may sell up to
the entire amount of PIK Notes that such Selling Security Holder holds as set
forth opposite each Selling Security Holder's name below. The Selling Security
Holders may also sell additional PIK Notes that have been or may be issued from
time to time pursuant to the pay-in-kind feature. It is not currently possible
to predict the amount of PIK Notes, if any, which will be sold or the price,
terms or conditions of their sale. See "Plan of Distribution." Pursuant to the
Registration Rights Agreement, the Company has agreed to register the resale of
all "Restricted PIK Notes" (as defined in the Registration Rights Agreement) in
accordance with the terms and conditions of such agreement. Therefore, the
information set forth below and elsewhere in this Prospectus may be amended from
time to time in accordance with applicable law and regulations, to include
additional PIK Notes.
55
<PAGE>
<TABLE>
<CAPTION>
SELLING SECURITY HOLDERS PIK NOTES PIK NOTES AFTER
OFFERING
- ------------------------------------------------- ----------------------------------------- -----------------
Principal Amount/1/ Percentage of Class
------------------- --------------------
<S> <C> <C> <C>
Jerry Abeles $ 9,000 * 0
The Beker Foundation 179,000 * 0
Andrew M. Boas/2/ 75,000 * 0
Marjorie M. Boas 96,000 * 0
The Canyon Value Realization Fund (Cayman), Ltd. 98,000 * 0
Carl Marks Strategic Investments, L.P./2/ 7,608,000 18.9% 0
Carl Marks Strategic Investments II, L.P./2/ 7,000,000 7.4% 0
Mark L. Claster 185,000 * 0
Collins Distressed Securities Limited Liability 3,000 * 0
Company
Collins Group Trust V 11,000 * 0
Continental Casualty Company 1,745,000 4.3% 0
GRS Partners II 24,000 * 0
Hallie Boas Trust/2/ 9,000 * 0
Highbridge International LDC 7,000 * 0
The Institute for Aegean Pre-History 73,000 * 0
Linda B. Katz 30,000 * 0
The Malcolm H. Wiener Foundation 129,000 * 0
Edwin S. Marks 351,000 * 0
Linda B. Marks 30,000 * 0
Millburn MCo Partners, L.P. 226,000 * 0
The Millburn Profit Sharing and Savings Trust 15,000 * 0
M.J. Whitman, Inc. 3,000 * 0
Murray Partners, L.P. 74,000 * 0
Robert J. Myers 4,000 * 0
Bernard Nash 21,000 * 0
Phyllis Nash 4,000 * 0
Post Balanced Fund 2,873,000 7.1% 0
Post Total Return Fund 300,000 * 0
Prospect Street High Income Portfolio Inc. 419,000 1.0% 0
Mira Rabin 25,000 * 0
Rebecca Boas Trust/2/ 7,000 * 0
ReCap International (BVI) Ltd. 139,000 * 0
SC Fundamental Value Fund BVI Ltd. 3,233,000 8.0% 0
SC Fundamental Value Fund, L.P. 8,066,000 20.0% 0
TCW Shared Opportunity Fund II L.P. 1,404,000 3.5% 0
Third Avenue Value Fund, Inc. 1,422,000 3.5% 0
Third Point Partners, L.P. 399,000 1.0% 0
Uranus Fund, Ltd./2/ 1,000,000 2.5% 0
The Value Realization Fund, L.P. 123,000 * 0
James Q. Whitman 20,000 * 0
Martin J. Whitman 578,000 1.4% 0
Thomas I. Whitman 25,000 * 0
----------- ---------
TOTAL $38,042,000 94.5% 0
=========== =========
</TABLE>
__________
* Less than 1%
** Assumes that all securities offered hereby are sold.
(1) The Selling Security Holders may also sell additional PIK Notes that have
been or may be issued from time to time pursuant to the pay-in-kind
feature. On January 15, 1997, the Company paid interest to holders of the
PIK Notes as of January 1, 1997 through the issuance of additional PIK
Notes. Additional PIK Notes issued in such connection are not reflected in
this table.
(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. and Carl Marks Strategic Investments II, L.P.
In addition, Mr. Boas is an executive officer of an investment management
company which exercises investment discretion with respect to the PIK Notes
held by Uranus Fund, L.P. Mr. Boas is also a co-trustee of the Hallie Boas
Trust and the Rebecca Boas Trust.
56
<PAGE>
PLAN OF DISTRIBUTION
The Selling Security Holders may offer and sell the PIK Notes 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 the PIK Notes 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 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 promulgated thereunder.
Under a registration rights agreement, the Company is obligated to
maintain the Registration Statement until the earlier of July 16, 1999 or the
date when all of the PIK Notes have been transferred or otherwise cease to be
registerable securities thereunder. Although the Company is obligated 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. In such connection, the Selling
Security Holders have entered into agreements with the Company requiring that
they (i) will deliver to the Company a written notice at least 10 days, but not
more than 20, business days before engaging in any selling efforts for a
designated selling period in order to allow the Company and others, if
necessary, to cease any trading activity in accordance with Rule 10b-6 or
Regulation M under the Exchange Act, (ii) will not engage in stabilizing
transactions in violation of Rule 10b-7 or Regulation M under the Exchange Act,
and (iii) 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 PIK NOTES
The PIK Notes were issued pursuant to an Indenture dated as of July
17, 1996 (as supplemented, the "Indenture"), among the Company, the Guarantors
and Fleet National Bank, as Trustee. The Indenture was supplemented on November
20,1996, to evidence the assumption of the Indenture, the PIK Notes and the
other Note Documents by the Company, as successor by merger to its predecessor
corporation. The terms of the PIK Notes include those stated in the Indenture
and those made a part of the Indenture by reference to the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act").
Set forth below is a summary of certain provisions of the PIK Notes.
The following summary of certain provisions of the PIK Notes and the Indenture
does not purport to be complete and is qualified in its entirety by reference to
the PIK Notes and the Indenture, which have been included as exhibits to the
Registration Statement. These are available for inspection at the corporate
trust office of the Trustee and as described under "Additional Information."
Certain defined terms used in the following description have the
meanings set forth in this description under "Certain Definitions" below.
References to the Company in this section of the Prospectus do not include the
Company's subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
The PIK Notes are limited to an aggregate principal amount of
$40,241,000, excluding the Secondary Notes (as defined below), and mature July
15, 2003. Interest on the PIK Notes accrues at
57
<PAGE>
the rate of 17 1/2% per annum through and including January 15, 1998, and at the
rate of 12% per annum thereafter. Interest at 5 1/2% per annum for the period
through and including January 15, 1998 was prepaid to the initial holders of the
PIK Notes at the time of issuance. All remaining interest will be payable semi-
annually on January 15 and July 15 of each year, commencing January 15, 1997, to
holders of record on the immediately preceding January 1 and July 1, in cash or
additional PIK Notes (the "Secondary Notes"), at the Company's option, through
July 15, 2000 and in cash thereafter. However, the Indenture requires that
interest payments on or prior to July 15, 2000 be paid only in Secondary Notes
so long as the Senior Indebtedness is outstanding. The interest rate is subject
to increase under certain circumstances if the Company is not in compliance with
its obligations under the Registration Rights Agreement. Interest on the PIK
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from July 18, 1996 (or, in the case of Secondary
Notes, from the relevant interest payment date). Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months.
The PIK Notes are payable both as to principal and interest at the
office or agency of the Company maintained for such purpose or, if the Company
and the holder agree, payment of interest may be made by check or through
certificates mailed to a holder of the PIK Notes at its respective address set
forth in the register of holders of the PIK Notes. The PIK Notes have been
issued in registered form, without coupons, and in denominations of $1,000 and
integral multiples thereof, except that Secondary Notes (or PIK Notes issued
upon transfer thereof) may be issued in denominations of other than $1,000.
SUBSIDIARY GUARANTEE
The Company's obligations under the PIK Notes and the other Note
Documents are unconditionally guaranteed, jointly and severally, pursuant to the
Subsidiary Guarantee by all existing Subsidiaries of the Company (other than an
immaterial utility subsidiary), each of which is Wholly Owned, and all future
Wholly Owned Subsidiaries of the Company. The Subsidiary Guarantee is limited in
amount to an amount not to exceed the maximum amount that can be guaranteed by
each Guarantor without rendering the Subsidiary Guarantee, as it relates to such
Guarantor, voidable under the United States Bankruptcy Code relating to
fraudulent conveyances or fraudulent transfers or similar state laws.
So long as an Event of Default has not occurred and the PIK Notes have
not been accelerated, the PIK Note Indenture and the Subsidiary Guarantee
provides that Guarantors may be released from their obligations under the
Subsidiary Guarantee without obtaining any consent or release from the Trustee
when they are disposed of in compliance with the requirements of the Senior
Subordinated PIK Note Indenture.
RANKING
The indebtedness represented by the PIK Notes is subordinated in right
of payment, as set forth in the Indenture, to the payment in full of the Senior
Indebtedness. The payment of the obligations of the Guarantors under the
Subsidiary Guarantee is also subordinated in right of payment, as set forth in
the Subsidiary Guarantee, to the payment in full of the Senior Indebtedness. The
outstanding principal amount of the Senior Indebtedness was $17.1 million as of
December 31, 1996.
Only the Senior Indebtedness ranks senior to the PIK Notes or the
Subsidiary Guarantee in accordance with the provisions of the PIK Note Indenture
and the Subsidiary Guarantee. The PIK Notes and the Subsidiary Guarantee in all
respects rank pari passu with all other Indebtedness of the Company and the
Subsidiaries, other than Subordinated Indebtedness, and rank senior to any
Subordinated Indebtedness permitted by the Indenture. However, the Indenture
permits a limited amount of Permitted Purchase Money Indebtedness, Capitalized
Lease Obligations and certain secured Indebtedness existing on the Issue Date,
as well as the Working Capital Replacement Facility that may refinance or
replace up to $10 million of the Senior Indebtedness for working capital
purposes. The Indenture provides that neither the Company nor a Subsidiary will
incur, directly or indirectly, any Indebtedness, other than the indebtedness
permitted above, which is subordinate or junior in ranking in any respect to the
Senior Indebtedness unless such Indebtedness is expressly subordinated in right
of payment to the PIK Notes.
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The Company may not pay principal of, premium (if any) or interest
(other than interest payable in kind) on, the PIK Notes or make any deposit
pursuant to the provisions described under "Defeasance" below and may not
otherwise purchase or retire any PIK Notes (collectively, "pay the PIK Notes"),
and no Guarantor may pay any amount on the Subsidiary Guarantee, if (i) any of
the Senior Indebtedness is not paid when due or (ii) any other default on the
Senior Indebtedness occurs and the maturity of the Senior Indebtedness is
accelerated in accordance with its terms unless, in either case, the default has
been cured or waived and any such acceleration has been rescinded or the Senior
Indebtedness has been paid in full; provided, that the Company may pay the PIK
Notes without regard to the foregoing if the Company and the Trustee receive
written notice approving such payment from the Representative of the Senior
Indebtedness with respect to which either of the events in clause (i) or (ii) of
this sentence has occurred and is continuing. During the continuance of any
default (other than a default described in clause (i) or (ii) of the second
preceding sentence) with respect to the Senior Indebtedness pursuant to which
the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, neither the Company nor any
Guarantor may pay the PIK Notes (other than interest payable in kind) or pay any
amount on the Subsidiary Guarantee, as the case may be, for a period (a "Payment
Blockage Period") commencing upon the receipt by the Trustee (with a copy to the
Company) of written notice (a "Blockage Notice") of such default from the
Representative of the Senior Indebtedness specifying an election to effect a
Payment Blockage Period and ending 179 days thereafter (or earlier if such
Payment Blockage Period is terminated (i) by written notice to the Trustee and
the Company from such Representative; (ii) because the default giving rise to
such Blockage Notice is no longer continuing or (iii) because the Senior
Indebtedness has been repaid in full). Notwithstanding the provisions described
in the immediately preceding sentence, unless the lenders under the Senior
Indebtedness or the Representative of such lenders has accelerated the maturity
of the Senior Indebtedness, the Company and the Guarantors may resume payments
on the PIK Notes or on the Subsidiary Guarantee, as the case may be, after the
end of such Payment Blockage Period. Not more than one Blockage Notice may be
given in any consecutive 360-day period, irrespective of the number of defaults
with respect to the Senior Indebtedness during such period. In no event may the
total number of days during which any Payment Blockage Period is in effect
exceed 179 days in the aggregate during any 360 consecutive day period.
Upon any payment or distribution of the assets of the Company or any
Guarantor, upon a total or partial liquidation or dissolution or reorganization
of or similar proceeding relating to the Company or any Guarantor, or any of
their respective property, the lenders under the Senior Indebtedness will be
entitled to receive payment in full of the Senior Indebtedness before the
holders of the PIK Notes are entitled to receive any payment and until the
Senior Indebtedness is paid in full in cash, any payment or distribution to
which holders of PIK Notes would be entitled but for the subordination
provisions of the Indenture and the Subsidiary Guarantee will be made to the
lenders under the Senior Indebtedness. If a distribution is made to holders of
PIK Notes that due to the subordination provisions should not have been made to
them, such holders will be required to hold it in trust for the lenders under
the Senior Indebtedness and pay it over to them as their interests may appear.
If payment of the PIK Notes is accelerated because of an Event of
Default, the Company or the Trustee shall promptly notify the lenders under the
Senior Indebtedness or the Representative of such lenders of the acceleration.
The Company may not pay the PIK Notes until five Business Days after such
lenders or the Representative of the Senior Indebtedness receives notice of such
acceleration and, thereafter, may pay the PIK Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture
and the Subsidiary Guarantee, in the event of insolvency, creditors of the
Company or the Guarantors who are lenders under the Senior Indebtedness may
recover more, ratably, than the holders of PIK Notes, and creditors of the
Company who are not lenders under the Senior Indebtedness or holders of the PIK
Notes may recover less, ratably, than lenders under the Senior Indebtedness and
may recover more, ratably, than the holders of PIK Notes.
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SECURITY
Generally. The PIK Notes and the Subsidiary Guarantee are currently
unsecured obligations of the Company and the Guarantors. Upon repayment in full
of the Senior Indebtedness, the PIK Notes and the Subsidiary Guarantee will be
secured by the same assets as then secure the Senior Indebtedness, other than
cash and other Cash Equivalents and other assets required to secure any Working
Capital Replacement Facility. Currently, the Loan Agreement is secured by
substantially all of the assets of the Company and the Subsidiaries other than
(i) certain leasehold interests and other leased assets, (ii) certain vehicles,
trailers and other equipment; (iii) equipment subject to financing and any newly
acquired or leased assets financed with Permitted Indebtedness and (iv) any
agreements, permits, licenses or the like that cannot be subjected to a Lien
without the consent of third parties, which consent has not been obtained.
Subject to the continuing collateral requirements of any Working
Capital Replacement Facility, the assets available to secure the PIK Notes and
the Subsidiary Guaranty after repayment of the Senior Indebtedness, include, as
of the date hereof, the following: (i) the capital stock of the Company's
subsidiaries, including NACO and its subsidiaries, RPI, and Wilderness
Management, (ii) campgrounds and common amenities at one resort owned by a
Subsidiary, together with related improvements, certain equipment, and certain
other tangible personal property located there to the extent existing mortgages
do not prohibit such Liens, (iii) the closed campgrounds and other real estate
that the Subsidiaries own and are in the process of selling, (iv) the contracts
receivable that the Company and the Subsidiaries own and (v) all indebtedness
owed to the Company by its Subsidiaries, together with any related Liens.
Disposition of Collateral. So long as an Event of Default has not
occurred and the PIK Notes have not been accelerated, the Indenture provides
that the Company and the Subsidiaries may dispose of their properties free from
the Liens of the Collateral Documents without obtaining any consent or release
from the Trustee; provided that the Company complies with the requirements of
the Indenture and any applicable appraisal and other requirements of the Trust
Indenture Act.
OPTIONAL REDEMPTION
The PIK Notes are redeemable at the option of the Company, in whole or
in part, at any time upon not less than 30 nor more than 60 days' notice to each
holder of PIK Notes, at the redemption price of 100% of principal amount, plus
accrued interest to the redemption date. The Company is not required to make
sinking fund payments with respect to the PIK Notes.
If less than all of the PIK Notes are to be redeemed, the particular
PIK Notes or portions thereof to be redeemed shall be determined on a pro rata
basis, by lot or by such other method determined by the Trustee to be fair and
appropriate subject to compliance with the requirements of any securities
exchange or trading system on which the PIK Notes are then listed or approved
for trading. Notice of redemption shall be given to each holder of PIK Notes to
be redeemed not less than 30 nor more than 60 days prior to the Redemption Date.
CHANGE OF CONTROL REPURCHASE OFFER
In the event that a Change of Control (as defined below) has occurred,
each holder of PIK Notes has the right, at such holder's option, subject to the
terms and conditions of the Indenture, to require the Company to repurchase all
or any part of such holder's PIK Notes at a cash price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest to the purchase date.
Within 30 days following a Change of Control, in the event the terms of the
Senior Indebtedness prohibit the repurchase of PIK Notes after a Change of
Control, the Company will be required to (i) notify the lenders under the Senior
Indebtedness that a Change of Control has occurred and (ii) either (1) repay in
full the Senior Indebtedness or offer to repay in full all such Indebtedness and
repay the Indebtedness held by each lender who has accepted such offer or (2)
obtain the requisite consent under the Senior Indebtedness to permit the
repurchase of the PIK Notes.
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Within 15 Business Days after fulfilling such obligation, the Company
is required to give written notice of a Change of Control to the Trustee. Within
15 days after the Trustee receives such notice, the Trustee is required to send
a copy of such notice to each holder of PIK Notes.
"Change of Control" means (i) the sale, lease or transfer of all or
substantially all of the Company's assets to any "person" or "group" (as such
terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act)
other than the Existing Affiliates, (ii) the liquidation or dissolution of the
Company, (iii) the time that the Company first determines or reasonably should
have known that any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) other
than the Existing Affiliates is or becomes the "beneficial owner" (as such term
is used in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such "person" has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 50% of the total voting power in the
aggregate of all classes of Capital Stock then outstanding of the Company
normally entitled to vote in elections of directors or (iv) during any period of
12 consecutive months after the Issue Date, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together with any
new directors whose election by such Board or whose nomination for election by
the stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
Except as described above with respect to a Change of Control, the
holders of the PIK Notes will not be able to require the Company to repurchase
or redeem the PIK Notes in the event of a takeover, recapitalization or similar
restructuring. The Change of Control purchase feature may in certain
circumstances make more difficult or discourage a takeover of the Company, and
thus the removal of incumbent management. The Company has no knowledge of any
specific effort to accumulate the Company's stock or to obtain control of the
Company by means of a merger, tender offer, solicitation or otherwise. Subject
to the limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could affect the Company's capital structure.
A holder may exercise its rights with respect to such a repurchase
offer by delivering to the Paying Agent, at the office of the Paying Agent, a
written notice prior to the close of business on the third Business Day prior to
the repurchase date set forth in the Company's offer. Any holder may withdraw
such notice at any time prior to the close of business on the third Business Day
prior to the repurchase date specified in the Company's offer by delivering a
written notice of withdrawal to the Paying Agent. The delivery of the PIK Notes
to be sold by the holder (together with any necessary endorsements) to the
Paying Agent at the office of the Paying Agent will be a condition to the
receipt by the holder of the purchase price therefor.
The notice mailed by the Company in respect of a repurchase offer will
contain all instructions and materials necessary to enable the holders of PIK
Notes to tender their PIK Notes to the Company, and each such repurchase offer
will be conducted in compliance with applicable federal and state securities
laws.
In the case of any repurchase offer where all of the PIK Notes are not
being repurchased at any time, selection of the PIK Notes to be repurchased will
be made by the Trustee from and among the outstanding PIK Notes in the same
manner as described under "Optional Redemption" where PIK Notes are redeemed in
part.
CERTAIN COVENANTS
Limitation on Restricted Payments. The Indenture provides that the
Company will not, and will not cause or permit any of its Subsidiaries to, make,
directly or indirectly, any Restricted Payment; provided, however, that the
foregoing does not prohibit:
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(a) the redemption, repurchase or other acquisition or retirement of
Capital Stock from the substantially concurrent sale of Qualified
Capital Stock or Capital Stock that is common stock; or
(b) the defeasance, redemption, repurchase or other acquisition or
retirement of Subordinated Indebtedness with the Net Proceeds received
by the Company from the substantially concurrent sale of Qualified
Capital Stock or Subordinated Indebtedness of the Company or in
exchange for Qualified Capital Stock or Subordinated Indebtedness of
the Company, which Subordinated Indebtedness (i)(A) is at least as
subordinated in ranking to the PIK Notes as, (B) has an Average Life
not shorter than, and (C) has no installment (contingent or otherwise)
of principal or liquidation amount (including upon the happening of an
event or the passage of time) due before any installment of principal
of, the Subordinated Indebtedness being so defeased, redeemed,
repurchased, acquired or retired and (ii) has a principal amount (or,
if such Indebtedness is issued at less than its principal amount, has
an original issue price, as determined in accordance with GAAP) not to
exceed the sum of (A) the lesser of (x) the principal amount of such
Subordinated Indebtedness being so defeased, redeemed, repurchased,
acquired or retired in exchange therefor and (y) if such Subordinated
Indebtedness being acquired was issued with an original issue
discount, the accreted value thereof (as determined in accordance with
GAAP) at the time of such transaction, plus (B) the out-of-pocket
expenses incurred by the Company or Subsidiary in connection with the
acquisition or retirement of such Subordinated Indebtedness or the
sale of or its exchange for such Qualified Capital Stock or
Subordinated Indebtedness, including without limitation any
redemption, prepayment or similar premium paid with respect to such
acquisition or retirement.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that neither the Company nor any of its
Subsidiaries will, directly or indirectly, create, assume or suffer to exist any
consensual encumbrance or restriction on the ability of any Subsidiary to pay
dividends or make other distributions on the Capital Stock of such Subsidiary or
pay any obligation to the Company or any of its Subsidiaries or otherwise
transfer assets or make or pay loans or advances to the Company or any of its
Subsidiaries, except (a) restrictions imposed by the PIK Notes, the Indenture
and the Collateral Documents, (b) encumbrances and restrictions imposed by the
Senior Indebtedness, (c) customary non-assignment provisions restricting
subletting or assignment of any lease entered into in the ordinary course of
business, consistent with industry practices, (d) rights of members and other
customers arising in the ordinary cause of business from memberships, rights to
use or related or similar interests in campgrounds, resorts or other facilities
(whether arising from the holding of such memberships, rights to use or related
or similar interests, by applicable law or otherwise), (e) restrictions under
any agreement relating to any property, assets or business acquired by the
Company or its Subsidiaries, which restrictions existed at the time of
acquisition, were not put in place in anticipation of such acquisition and are
not applicable to any Person, other than the Person acquired or to any property,
assets or business other than the property, assets and business of the Person so
acquired, (f) any such contractual encumbrance imposed by or in connection with
the incurrence of any Permitted Purchase Money Indebtedness and Capitalized
Lease Obligations permitted pursuant to clause (d) of the covenant "Limitation
on Incurrence of Additional Indebtedness and Disqualified Capital Stock,"
provided such encumbrance does not have the effect of restricting (otherwise
than upon foreclosure) the payment of dividends to the Company or any Guarantor
or the payment of Indebtedness owed to the Company or any Guarantor or reducing
the amount of any such dividends or payments, (g) any such contractual
encumbrance or restriction in existence as of the Issue Date, (h) any
restrictions with respect to Capital Stock or assets, respectively, of a
Subsidiary imposed pursuant to an agreement that has been entered into for the
sale or disposition of all or substantially all of the Capital Stock or assets
of such Subsidiary and (i) replacements of restrictions imposed pursuant to
clauses (a) through (h) that are no more restrictive than those being replaced.
Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock. The Indenture provides that, except as set forth below, the
Company will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, issue, assume, Guarantee, incur, or otherwise become
directly or indirectly liable with respect to (including as a result of an
acquisition, merger or consolidation), or
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otherwise become responsible for, contingently or otherwise (individually and
collectively, to "incur," or, as appropriate, an "incurrence of"), any
Indebtedness or any Disqualified Capital Stock from and after the Issue Date.
The exceptions set forth below are not exclusive of one another.
(a) The Company and the Subsidiaries may incur Existing Indebtedness.
(b) The Company and the Subsidiaries may incur Indebtedness under the Note
Documents.
(c) The Company and the Subsidiaries may incur the Senior Indebtedness and
any Working Capital Replacement Facility.
(d) The Company and its Subsidiaries may incur (i) Permitted Purchase
Money Indebtedness and Capitalized Lease Obligations not exceeding
$9,000,000 in principal amount (excluding Existing Indebtedness and
any Refinancing Indebtedness in respect thereof) at any time
outstanding and (ii) unsecured Indebtedness not exceeding $500,000 in
principal amount (excluding Existing Indebtedness and any Refinancing
Indebtedness in respect thereof) at any time outstanding.
(e) The Company may incur Subordinated Debt, provided that the Net Cash
Proceeds thereof are used for the substantially concurrent redemption,
repurchase or other acquisition or retirement of PIK Notes or the
Senior Indebtedness.
(f) The Company and the Subsidiaries may incur Refinancing Indebtedness
with respect to any Indebtedness permitted by this covenant, other
than clause (c) or (d) above.
(g) The Company may incur Indebtedness (i) in respect of bankers'
acceptances, letters of credit and performance bonds (to the extent
that such incurrence does not result in the incurrence of any
obligation for the payment of borrowed money of others), all in the
ordinary course of business, in amounts and for the purposes customary
in the Company's industry, (ii) arising under any appeal or
reimbursement obligations with respect to any judgment, which judgment
does not constitute a Default or (iii) constituting reimbursement
obligations with respect to letters of credit in respect of workers'
compensation claims, provided that the aggregate principal amount
outstanding of such Indebtedness (including any Existing Indebtedness
of like kind and any Refinancing Indebtedness with respect to such
Indebtedness) shall at no time exceed $5,000,000.
(h) The Company may incur Indebtedness to any Wholly Owned Subsidiary of
the Company, and any Wholly Owned Subsidiary of the Company may incur
Indebtedness to any other Wholly Owned Subsidiary or to the Company;
provided that such obligations, in each case, shall either be (i)
unsecured and subordinated in all respects to the prior payment in
full in cash of the Company's or such Subsidiary's obligations
pursuant to the Note Documents (other than with respect to payment of
principal or interest if no Default or Event of Default shall have
occurred and be continuing at the time of any payment of or with
respect thereto) or (ii) a Permitted Intercompany Secured Loan;
provided that any such Indebtedness of a Subsidiary that is not a
Guarantor shall comply with all requirements for a Permitted
Intercompany Secured Loan.
(i) The Company and its Subsidiaries may incur Indebtedness representing
the balance deferred and unpaid of the purchase price of any property
or services used in the ordinary course of their business that would
constitute ordinarily a trade payable to trade creditors (other than
accounts payable or other obligations to trade creditors arising in
the ordinary course of business that have remained unpaid for greater
than 90 days, unless such payable or obligation is being contested in
good faith and adequate reserves therefor have been established in
accordance with GAAP).
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Limitation on Liens. The Indenture provides that the Company will not,
and will not permit its Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien in or on any right, title or interest to any
of their properties or assets, except,
(a) Permitted Liens,
(b) Liens that secure the Senior Indebtedness or any Working Capital
Replacement Facility,
(c) Liens created by the Collateral Documents, and
(d) Liens that secure Permitted Purchase Money Indebtedness and
Capitalized Lease Obligations permitted to be incurred under clause
(d) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," which Liens shall not
attach to any assets other than the assets financed thereby.
Limitation on Sales of Assets and Subsidiary Stock. The Indenture
provides that neither the Company nor any of its Subsidiaries will, in one
transaction or a series of related transactions, (i) convey, sell, lease,
transfer, assign or otherwise dispose of, directly or indirectly, any of its
property, business or assets or (ii) engage in any sale or other transfer or
issuance of any Capital Stock of any Subsidiary of the Company, whether by the
Company or a Subsidiary of the Company, or through the issuance, sale or
transfer of Capital Stock by a Subsidiary of the Company (an "Asset Sale"),
unless (A) within 180 days after the date of such Asset Sale, the Net Cash
Proceeds therefrom are (x) applied to the repayment of the Senior Indebtedness
or (y) either applied to the repurchase of the PIK Notes (which may be made in
any manner selected by the Company, including, without limitation, open market
purchases, privately negotiated transactions, redemptions or repurchases), or
invested in assets or property directly related to a Related Business of the
Company or such Subsidiary (or the Company or such Subsidiary shall have entered
into a binding obligation to make such an investment), (B) in the case of any
Asset Sale (or series of related Asset Sales) for Net Proceeds in excess of
$1,250,000, at least 80% of the value of such consideration for such Asset Sale
consists of U.S. Legal Tender or Cash Equivalents, (C) no Default or Event of
Default shall have occurred and be continuing at the time of, or would occur
after giving effect to such Asset Sale and (D) the Board of Directors of the
Company determines in good faith that the Company or such applicable Subsidiary
receives fair market value for such Asset Sale.
Notwithstanding the provisions of the foregoing paragraph:
(i) the Company and its Subsidiaries may in the ordinary course of
business and consistent with past practices, convey, sell, lease,
transfer, assign or otherwise dispose of assets acquired and held for
resale in the ordinary course of business;
(ii) the Company and its Subsidiaries may convey, sell, lease, transfer or
otherwise dispose of assets pursuant to and in accordance with the
covenant "Limitation on Merger, Sale or Consolidation";
(iii) the Company and its Subsidiaries may sell damaged, worn out or other
obsolete property or abandon property in the ordinary course of
business so long as such property is no longer necessary for the
proper conduct of the business of the Company or such Subsidiary, as
applicable; and
(iv) the Company and its Subsidiaries may convey, sell, lease, transfer,
assign, or otherwise dispose of assets at no less than their fair
value to the extent that the Net Cash Proceeds for any Asset Sale (or
series of related Asset Sales) does not exceed $1,000,000.
Limitation on Transactions with Affiliates. The Indenture provides
that, subject to the last sentence of this paragraph, neither the Company nor
any of its Subsidiaries will be permitted to enter into or extend or renew any
transaction or series of related transactions with any Affiliate (an "Affiliate
Transaction"), unless (A) the Affiliate Transaction is on terms at least as
favorable to the Company or such
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Subsidiary, as the case may be, as those that could have been obtained in a
comparable transaction with an unaffiliated third party; (B) in the case of an
Affiliate Transaction with a value to either party in excess of $1,000,000, a
majority of the independent directors of the Company determines that such
transaction complies with clause (A); and (C) in the case of any Affiliate
Transaction (including any series of related transactions) with an aggregate
value (to either party) in excess of $5,000,000, the Company or such Subsidiary
must in addition, prior to the consummation thereof, obtain a written favorable
opinion as to the fairness of such transaction to the Company from a financial
point of view from any national or regional independent investment banking firm.
The foregoing shall not apply to (i) transactions between one or more Guarantors
or between the Company and one or more Guarantors, (ii) Restricted Payments
permitted to be made under the covenant "Limitations on Restricted Payments,"
(iii) customary directors' fees and other compensation, stock option grants and
indemnities, (iv) extensions of and payments made with respect to Permitted
Intercompany Loans or unsecured subordinated Indebtedness permitted to be
incurred under clause (h) of the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock" or (v) employment,
consulting and related agreements entered into by the Company or any of the
Subsidiaries with their respective officers, employees or directors in the
ordinary course of business.
Maintenance of Insurance. The Indenture provides that the Company and
its Subsidiaries will have in effect customary insurance against such risks, on
terms, with deductibles (or self-insurance), and in amounts as are customarily
carried by similar businesses.
Limitation on Merger, Sale or Consolidation. The Indenture provides
that none of the Company or any Subsidiary will consolidate with or merge with
or into another Person or, directly or indirectly, sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets (computed on a consolidated basis), whether in a single transaction or
a series of related transactions, to another Person or group of affiliated
Persons, other than the Company or a Subsidiary, unless (i) either (a) the
Company or such Subsidiary, as the case may be, is the continuing entity or (b)
the resulting, surviving or transferee entity is a corporation organized under
the laws of the United States, any state thereof or the District of Columbia and
expressly assumes by supplemental indenture or other appropriate document all of
the obligations of the Company or such Subsidiary, as the case may be, in
connection with the Note Documents to which the Company or the Subsidiary, as
the case may be, was a party (including any Liens thereunder); (ii) no Default
or Event of Default shall exist or shall occur immediately after giving effect
to such transaction; and (iii) immediately after giving effect to such
transaction on a pro forma basis, the Consolidated Net Worth of the surviving or
transferee entity is at least equal to the Consolidated Net Worth of the Company
or such Subsidiary, as the case may be, immediately prior to such transaction
(exclusive of amounts paid in respect of dissenters' rights). Notwithstanding
the foregoing, the Company and its Subsidiaries may effect Asset Sales that
comply with the covenant "Limitation on Sales of Assets and Subsidiary Stock"
(or are expressly excluded from compliance with such covenant by the provisions
thereof) without complying with the foregoing covenant, provided that no such
Asset Sale (or series of related Asset Sales) involves all or substantially all
of the properties or assets of the Company and its Subsidiaries taken as a
whole.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company or such Subsidiary to which the
foregoing is applicable, the successor corporation formed by such consolidation
or into which the Company or such Subsidiary, as the case may be, is merged or
to which such transfer is made, shall succeed to, and be substituted for, and
may exercise every right and power of, the Company or such Subsidiary, as the
case may be, under the Note Documents to which the Company or Subsidiary is a
party with the same effect as if such successor corporation had been named
therein as the Company or such Subsidiary, as the case may be. Any such Person
will be required to ensure, by executing and delivering appropriate instruments
and opinions of counsel, that the Trustee continues to hold any Lien on any
Collateral for the benefit of the holders of the PIK Notes to the extent then
required by the Note Documents.
Limitation on Lines of Business. The Indenture provides that neither
the Company nor any Subsidiary will directly or indirectly engage in any line or
lines of business activity other than in a Related Business.
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Financial Reports. Whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will be required to deliver to the Trustee under the Indenture within 15 days
after it is or would have been required to file such with the SEC, for delivery
to each holder of PIK Notes, annual and quarterly financial statements
substantially equivalent to financial statements that would have been included
in reports filed with the SEC if the Company were subject to the requirements of
Section 13 or 15(d) of the Exchange Act, together with a management's discussion
and analysis of financial condition and results of operations that would be so
required.
In addition, the Company will be required to deliver to the Trustee
quarterly an Officers' Certificate regarding the absence of any Default or Event
of Default or specifying the nature of any such Default or Event of Default, the
period of existence thereof and any steps the Company or the relevant Subsidiary
proposes to take with respect thereto.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its
Subsidiaries shall directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any PIK Notes for or as an inducement to any consent, waiver or amendment of any
of the provisions of the Indenture or the other Note Documents unless such
consideration is offered to be paid or agreed to be paid to all holders of the
PIK Notes that consent, waive or agree to amend in the time frame set forth in
the solicitation documents relating to such consent, waiver or agreement.
EVENTS OF DEFAULT AND REMEDIES
Events of Default. The Indenture defines an Event of Default to
include (i) the failure by the Company to pay any installment of interest on the
PIK Notes as and when due and payable and the continuance of any such failure
for 30 days, (ii) the failure by the Company to pay all or any part of the
principal, or premium, if any, on the PIK Notes when and as the same become due
and payable at maturity, redemption, by acceleration or otherwise, including
without limitation failure to make any payment required upon a Change of Control
Offer or Asset Sale, as and when due, (iii) the failure by the Company or any
Subsidiary to observe or perform any other covenant or agreement contained in
the Note Documents and, subject to certain exceptions, the continuance of such
failure for a period of 30 days after written notice is given to the Company by
the Trustee or to the Company and the Trustee by the holders of at least 30% in
aggregate principal amount of the PIK Notes outstanding, (iv) certain events of
bankruptcy, insolvency or reorganization in respect of the Company or any
Material Subsidiary, (v) default under (a) the Senior Indebtedness or (b) any
indenture, loan agreement, mortgage, bond, promissory note or other agreement or
instrument under which there may be issued or by which there may be secured or
evidenced any other Indebtedness by the Company or any Subsidiary, or the
payment of which is guaranteed by the Company or any Subsidiary, and such
default is either (i) caused by a failure to pay when due principal or interest
on such Indebtedness within any grace period applicable thereto or (ii) results
in or requires the prepayment, repurchase, redemption, or defeasance of any such
Indebtedness prior to its express maturity, or requires that the Company or any
Subsidiary offer to take any of the foregoing actions and, in each case in
respect of clause (b), the principal amount of such indebtedness, together with
the principal amount of any other such indebtedness under which there has been a
payment default or with respect to which there has been an acceleration,
aggregates $2,000,000 or more, (vi) final unsatisfied judgments not covered by
insurance aggregating at least $2,000,000 at any one time rendered against the
Company or any of its Subsidiaries and not stayed, bonded or discharged within
60 days and (vii) the repudiation by any Subsidiary of its obligations under the
Subsidiary Guarantee, or any judgment or decree by a court or governmental
agency of competent jurisdiction declaring the unenforceability of the payment
obligations under the Subsidiary Guarantee or any of the Collateral Documents
(subject to a 10-day grace period in the case of any Collateral Document). The
Trustee may withhold from the holders of PIK Notes notice of any continuing
Event of Default (except any Event of Default in payment of principal or
interest on the PIK Notes) if the Trustee determines that withholding such
notice is in the best interest of the holders of the PIK Notes.
Acceleration. If an Event of Default occurs and is continuing (other
than an Event of Default specified in clause (iv) above), then in every such
case unless the principal of all of the PIK Notes
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shall have already become due and payable, either the Trustee or the holders of
30% in aggregate principal amount of the PIK Notes then outstanding, by notice
in writing to the Company, and to the Trustee if given by such holders, may
declare all principal and accrued interest thereon to be due and payable
immediately. If an Event of Default specified in clause (iv) above relating to
the Company or any of its Material Subsidiaries occurs, all principal and
accrued interest will be immediately due and payable on all outstanding PIK
Notes without any declaration or other act on the part of the Trustee or the
holders of PIK Notes. The holders of no less than a majority in aggregate
principal amount of PIK Notes generally are authorized to rescind such
acceleration if all existing Events of Default, other than the non-payment of
the principal on the PIK Notes that became due as a result of the acceleration,
have been cured or waived.
The holders of a majority in aggregate principal amount of the PIK
Notes at the time outstanding may waive on behalf of all such holders any
Default or Event of Default, except a Default in the payment of principal of or
interest on any PIK Note not yet cured, or a Default or Event of Default with
respect to any covenant or provision that cannot be modified or amended without
the consent of the holder of each outstanding PIK Note affected.
Remedies with Respect to Collateral
In General. Specific rights and remedies of the Trustee under the
Collateral Documents ultimately include the right of the Trustee to sell the
Collateral and to apply the net proceeds to the PIK Notes in accordance with the
terms of the Indenture and the Collateral Documents.
Limitations on Foreclosure. Some states, including California, Oregon
and Washington, have non-disturbance statutes that place limitations on the
ability of the owner of a campground to close the campground or a lienholder to
foreclose its lien. In certain states, these statutes permit the owner of a
campground to close the campground or a lienholder to foreclose its lien if the
holders of memberships at the campground receive access to a comparable
campground. The Mortgages on the campgrounds included in any Collateral will
contain non-disturbance provisions that limit the ability of the Lienholder to
foreclose its Lien unless the holders of the related memberships receive access
to a comparable campground. The impact of the rights of members under these laws
and non-disturbance provisions is uncertain and could adversely effect the
implementation of, and the benefits or recoveries that may be available from,
foreclosures in respect of such Collateral.
Other General Restrictions. The Trustee's ability to foreclose upon
and sell any campgrounds, stock of Subsidiaries, any loans from the Company to
its Subsidiaries ("Affiliate Loans") or other Collateral will be subject to the
procedural and other restrictions of the relevant state's real estate law or
Uniform Commercial Code. The Collateral includes stock of Subsidiaries that is
not publicly traded and may only be sold in compliance with applicable Federal
and state securities laws.
As regards proceeding against any Guarantor and its assets, the
Trustee may either foreclose upon any Affiliate Loans outstanding to such
Guarantor included in the Collateral or proceed under the Subsidiary Guarantee.
If the Trustee chose to foreclose upon Affiliate Loans, the necessity of first
foreclosing on the pledge of the Affiliate Loans might result in delay and
increase the risk that a petition for relief under bankruptcy or insolvency law
could be filed by or against any one or more of the Company and the Guarantors.
If, on the other hand, the Trustee chose to proceed by demand and foreclosure
under the Subsidiary Guarantee, its ability to realize upon the Collateral could
be limited by the invocation of state-law suretyship defenses and laws relating
to fraudulent conveyances or fraudulent transfers or similar laws affecting the
rights of creditors generally.
Additional Foreclosure Limitations. The laws of the jurisdictions
where the Company's campgrounds are located contain limitations on foreclosure
that could delay or prevent realization pursuant to the Collateral Documents or
discourage bidders at a foreclosure sale. These limitations may include, among
others, (i) the right to reinstate the debt after commencement of foreclosure
proceedings by paying any delinquent installments, costs and expenses incurred
by the Trustee; (ii) the right to redeem the property after it has been sold in
a foreclosure sale; (iii) "one-action" rules which require a creditor to pursue
its remedies against a defaulting debtor in a single action, and which, after a
creditor determines to
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pursue a particular remedy, will deny that creditor any other remedy that it may
have; and (iv) anti-deficiency statutes which prohibit a creditor from seeking a
deficiency judgment following a non-judicial foreclosure sale.
MODIFICATION OF THE INDENTURE AND COLLATERAL DOCUMENTS
The Indenture provides that the Indenture and the Collateral Documents
may be modified by a vote of holders of 66 % in aggregate principal amount of
the PIK Notes, except in certain circumstances that require unanimous consent
including, without limitation, changes with respect to payment of principal,
premium and interest (upon redemption, maturity or otherwise) and the release of
Guarantors or Collateral, except as otherwise provided by the Indenture.
The Indenture also provides that the Company and the Trustee may
modify the Indenture or the Collateral Documents without the consent of the
holders of PIK Notes to, among other things, (i) add covenants, conditions and
restrictions for the protection of the holders of PIK Notes or to surrender any
right or power of the Company or any Guarantor, (ii) cure any ambiguity or
correct any inconsistency that does not adversely affect the legal or other
rights of holders of PIK Notes or (iii) modify, eliminate or add to the
provisions to the extent necessary to qualify the Indenture under or otherwise
comply with the Trust Indenture Act or other applicable statutes. In addition,
Collateral may be released or modified as permitted in the Indenture and in the
Collateral Documents (including in connection with any Asset Sale) or a
Subsidiary ceasing to be a Guarantor as permitted under the Note Documents.
REQUIREMENTS FOR CERTAIN ACTIONS
The Indenture provides that for the purposes of any modification of
the Indenture or the Note Documents, the requisite 66 % in principal amount of
outstanding PIK Notes will take into account PIK Notes held by Affiliates
controlling the Company in the absence of a Default or Event of Default.
However, the majority in principal amount of outstanding PIK Notes required for
any waivers or certain other actions after a Default or Event of Default, and
the 30% in principal amount required for notices of default or acceleration,
will disregard PIK Notes held by Affiliates controlling the Company.
FURTHER ASSURANCES
The Indenture provides that the Company will, and will cause each of
its Subsidiaries to, execute, acknowledge, deliver, record, re-record, file, re-
file, register and re-register, any and all such further acts, deeds,
conveyances, security agreements, mortgages, assignments, estoppel certificates,
financing statements and continuations thereof, termination statements, notices
of assignment, transfers, certificates, assurances and other instruments as
reasonably may be required from time to time in order (i) to carry out more
effectively the purposes of the Collateral Documents, (ii) to subject to the
Liens created by any of the Collateral Documents any of the properties, rights
or interests required to be encumbered thereby, (iii) to perfect and maintain
the validity, effectiveness and priority of any of the Collateral Documents and
the Liens intended to be created thereby, and (iv) to better assure, convey,
grant, assign, transfer, preserve, protect and confirm to the Trustee any of the
rights granted or now or hereafter intended by the parties thereto to be granted
to the Trustee or the Company under the Collateral Documents or under any other
instrument executed in connection therewith.
DISCHARGE OF THE INDENTURE
The Indenture will be discharged upon payment or redemption of all of
the PIK Notes issued thereunder. In addition, the Indenture will be discharged
(subject, among other things, to the rights of the holders of PIK Notes to
receive payment in respect of the principal, premium, if any, and interest on
the PIK Notes) 90 days after (i) irrevocable deposit by the Company with the
Trustee of U.S. Legal Tender and/or U.S. government obligations that will
provide money in an amount sufficient to pay the principal of, and premium, if
any, and each installment of interest on the outstanding PIK Notes and (ii)
delivery to the Trustee of a satisfactory opinion of counsel regarding Federal
income tax consequences to the holders of the PIK Notes.
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The Company alternatively may omit to comply with certain restrictive
covenants (but must continue to otherwise comply with the Indenture) and such
omission shall not be deemed an Event of Default under the Indenture and the PIK
Notes if, among other things, the Company (i) makes the above-described deposit
and (ii) delivers to the Trustee a satisfactory opinion of counsel regarding the
absence of adverse Federal income tax consequences to the holders of the PIK
Notes.
In order for any discharge to be effective as described above, (i)
there can be no Default or Event of Default that has occurred and is then
continuing, and (ii) such act cannot result in a default under any agreement to
which the Company or any Subsidiary is a party or by which it is bound.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions with the Company; provided, however, if the Trustee acquires
any conflicting interest (as defined in the Senior Subordinated PIK Note
Indenture) and a default exists under the Indenture, the Trustee must eliminate
such conflict or resign.
The holders of 66 2/3% in aggregate principal amount of the PIK Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Senior Subordinated PIK Note Indenture will provide that
in case an Event of Default occurs and is not cured, the Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
Person in similar circumstances in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no duty to exercise any of its rights
or powers under the Indenture at the request of any holder of PIK Notes, unless
such holder shall have offered to the Trustee security and indemnity
satisfactory to the Trustee.
CERTAIN DEFINITIONS
"Affiliate" means (i) any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or any
of its Subsidiaries, (ii) any spouse, immediate family member, or other relative
who has the same principal residence of any Person described in clause (i)
above, and (iii) any trust in which any Person described in clause (i) or (ii)
above has a beneficial interest. For purposes of this definition, the term
"control" means (a) the power to direct the management and policies of a Person,
directly or through one or more intermediaries, whether through the ownership of
voting securities, by contract, or otherwise, (b) the beneficial ownership of
10% or more of the voting Capital Stock of a Person (on a fully diluted basis)
or of warrants or other rights to acquire such voting Capital Stock (whether or
not exercisable) in respect of the covenant "Limitation on Transactions with
Affiliates" or (c) the beneficial ownership of 25% or more of such voting
Capital Stock or warrants or other rights in respect of all other provisions of
the Indenture.
"Average Life" means, as of the date of determination, with respect to
any security or instrument, the quotient obtained by dividing (i) the sum of the
products of the number of years from the date of determination to the dates of
each successive scheduled principal (or redemption) payment of such security or
instrument multiplied by the amount of such principal (or redemption) payment by
(ii) the sum of all such principal (or redemption) payments.
"Business Day" means any day other than a Saturday, Sunday or a legal
holiday in the states of Connecticut, New York, Texas or any other relevant
State.
"Capitalized Lease Obligation" of a Person means any obligation that
is required to be classified and accounted for as a capital lease on the face of
a balance sheet of such Person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP; the stated maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the
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lessee without payment of a penalty, and any refinancing or replacement of such
obligation; and such obligation shall be deemed secured by a Lien on any
property or assets to which such lease relates.
"Capital Stock" means, with respect to any Person, any and all shares
of stock, partnership or other interests, participations or other equivalents of
or interests in (however designated) such Person, including each class of common
stock and preferred stock of such Person, but excluding convertible
Indebtedness.
"Cash Equivalents" means (i) any evidence of Indebtedness with a
maturity of two years or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof,
provided that the full faith and credit of the United States of America is
pledged in support thereof; (ii) demand and time deposits and certificates of
deposit or acceptance with a maturity of 180 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $250,000,000; (iii)
commercial paper with a maturity of 270 days or less issued by a corporation
that is not an Affiliate of the Company and is organized under the laws of any
state of the United States or the Director of Columbia and rated at least A-1 by
S&P or at least P-1 by Moody's; (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clause
(i) above entered into with any commercial bank meeting the specifications of
clause (ii) above; (v) overnight bank deposits and bankers acceptances at any
commercial bank meeting the qualifications specified in clause (ii) above; (vi)
deposits available for withdrawal on demand with any commercial bank not meeting
the qualifications specified in clause (ii) above but which is a local
depository bank, provided all deposits in the local depository bank do not
exceed $100,000 in the aggregate at any one time; (vii) deposits available for
withdrawal on demand with any commercial bank not meeting the qualifications
specified in clause (ii) above but which is a lender (or bank affiliate thereof)
under the Senior Indebtedness or any Working Capital Replacement Facility,
provided all such deposits do not exceed $5,000,000 in the aggregate at any one
time; (viii) demand and time deposits and certificates of deposit with any
commercial bank organized in the United States not meeting the qualifications
specified in clause (ii) above, provided that such deposits and certificates
support bond, letter of credit and other similar types of obligations incurred
in the ordinary course of business; and (ix) investments in money market or
other mutual funds substantially all of whose assets comprise securities of the
types described in clauses (i) through (v) above.
"Collateral" means any assets of the Company, the Guarantors or any of
their respective Subsidiaries securing the Senior Indebtedness on the date it is
satisfied and discharged in full and defined as Collateral in any of the
Collateral Documents.
"Collateral Documents" means, collectively, the Company Pledge
Agreement, the Company Security Agreement, the Subsidiary Pledge Agreement, the
Subsidiary Security Agreement, the Mortgages and any other security document
entered into by the Company or any Subsidiary to secure its obligations under
the Note Documents, in each case as amended from time to time as permitted by
the Indenture.
"Company Pledge Agreement" means the Company Pledge Agreement, dated
as of the date of the Indenture, between the Company and the Trustee, securing
the Company's obligations under the Note Documents and substantially in the form
attached to the Indenture, as amended from time to time as permitted by the
Indenture.
"Company Security Agreement" means the Company Security Agreement,
dated as of the date of the Indenture, between the Company and the Trustee,
securing the Company's obligations under the Note Documents and substantially in
the form attached to the Indenture, as amended from time to time as permitted by
the Indenture.
"Consolidated Net Worth" of any Person at any date means the aggregate
of capital, surplus and retained earnings of such Person (plus amounts of equity
attributable to preferred stock) and its Consolidated Subsidiaries, as would be
shown on the consolidated balance sheet of such Person prepared in accordance
with GAAP, adjusted to exclude (to the extent included in calculating such
equity) the amount
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of capital, surplus and accrued but unpaid dividends attributable to any
Disqualified Capital Stock or treasury stock.
"Consolidated Subsidiary" means, for any Person, each Subsidiary of
such Person (whether now existing or hereafter created or acquired), the
financial statements of which shall be (or should have been) consolidated for
financial statement reporting purposes with the financial statements of such
Person in accordance with GAAP.
"Default" means any event that is, or after notice or passage of time
would be, an Event of Default.
"Disqualified Capital Stock" means, with respect to any Person,
Capital Stock of such Person that, by its terms or by the terms of any security
into which it is convertible or exchangeable, is, or upon the happening of an
event or the passage of time would be, required to be redeemed or repurchased
(including at the option of the holder thereof) by such Person or any of its
Subsidiaries, in whole or in part, on or prior to a date that is 91 days after
the Maturity Date.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Affiliate" means any Affiliate of the Company as of June 1,
1996, together with such Affiliate's Affiliates as of such date.
"Existing Indebtedness" means Indebtedness of the Company or its
Subsidiaries in existence on the Issue Date and listed on a schedule to the
Indenture.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means any guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness or other obligation. "Guarantee", when used as a verb, has a
correlative meaning.
"Guarantor" means any Person that has executed and delivered the
Subsidiary Guarantee. Guarantor shall include each present and future Wholly
Owned Subsidiary of the Company, except as otherwise provided in the Indenture
regarding the release of Guarantors under certain circumstances.
"Indebtedness" means, without duplication, (a) all liabilities and
obligations, contingent or otherwise, of or with respect to any Person, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
(iv) evidenced by bankers' acceptances or similar instruments issued or accepted
by banks, (v) for the payment of money relating to a Capitalized Lease
Obligation, or (vi) evidenced by a letter of credit or a reimbursement
obligation of such Person with respect to any letter of credit; (b) all
obligations of such Person under "interest rate swap," "cap" or "collar"
obligations, foreign currency hedges and similar agreements; (c) all liabilities
of others of the kind described in the preceding clause (a) or (b) that such
Person has Guaranteed or that is otherwise its legal liability and all
obligations to purchase, redeem or acquire any Capital Stock; and (d) all
obligations secured by a Lien (other than a Permitted Lien not described in
clause (g) of the definition of "Permitted Lien") not securing any liability or
obligation that would itself constitute Indebtedness to which the property or
assets (including, without limitation, leasehold interests and any other
tangible or intangible property rights) of such Person are subject, whether or
not the obligations secured thereby shall have been assumed by or shall
otherwise be
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such Person's legal liability, provided that the amount of such obligations
shall be limited to the lesser of the fair market value of the assets or
property to which such Lien attaches and the amount of the obligation so
secured; and (e) any and all deferrals, renewals, extensions, refinancings and
refundings (whether direct or indirect) of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a), (b), (c) or (d), or this clause (e), whether or not between or
among the same parties.
"Investment" by any Person in any other Person means (without
duplication) (a) the acquisition by such Person (whether for cash, property,
services, securities or otherwise) of Equity Interests, bonds, notes,
debentures, partnership or other ownership interests or other securities of such
other Person or any agreement to make any such acquisition; (b) the making by
such Person of any deposit with, or advance, loan or other extension of credit
to, such other Person (including the purchase of property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such other Person) or any commitment to make any such advance,
loan or extension; (c) the entering into by such Person of any Guarantee of, or
other contingent obligation with respect to, Indebtedness or other liability of
such other Person; or (d) the making of any capital contribution by such Person
to such other Person.
"Issue Date" means July 18, 1996.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge or encumbrance of any kind with respect to such asset (including any
agreement to give any Lien). For the purposes of the Indenture, a Person shall
be deemed to own subject to a Lien any asset that it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreements, Capitalized Lease Obligation or other title retention agreement
relating to such asset.
"Material Subsidiary" means a Consolidated Subsidiary representing at
least 5% of the book value of the total assets of the Company and its
Consolidated Subsidiaries determined in accordance with GAAP.
"Maturity Date" means July 15, 2003, the Stated Maturity of the PIK
Notes.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Mortgage" means a mortgage or deed of trust and related assignment of
rents between the Company or any Subsidiary that owns or leases any campground
or other significant real estate asset and the Trustee, granting a Lien on such
campground or other real estate securing such Subsidiary's obligations under the
Note Documents (including under the Subsidiary Guarantee (in the case of a
Guarantor) and any Permitted Intercompany Loans) and substantially in the form
attached to the Indenture, as amended from time to time as permitted by the
Indenture.
"Net Cash Proceeds" means the aggregate amount of U.S. Legal Tender
and Cash Equivalents received by the Company or any Subsidiary in respect of an
Asset Sale or the sale of Capital Stock or Subordinated Debt, less the sum of
all reasonable fees, commissions and other out-of-pocket expenses incurred in
connection with such Asset Sale or sale, including the amount (estimated
reasonably and in good faith by the Company) of income, franchise, sales and
other applicable taxes to be paid by the Company or such Subsidiary in
connection with such Asset Sale or sale (as reasonably determined by the Company
in good faith based upon then applicable average tax rates and giving effect to
all applicable deductions, credits and other allowances and payments under tax
sharing agreements), and after giving effect to the repayment of all
Indebtedness secured by, and which became due and payable as a result of the
sale of the subject assets or such sale of Capital Stock or Subordinated Debt,
other than the Senior Indebtedness and the PIK Notes, provided that Net Cash
Proceeds shall in no event be less than zero.
"Net Proceeds" means the aggregate Net Cash Proceeds and fair market
value of property (valued at the fair market value thereof at the time of
receipt in good faith by the Board of Directors of the
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Company), other than securities of the Company or any of its Subsidiaries,
received by the Company after the payment of expenses, taxes, commissions,
discounts and the like incurred in connection therewith.
"Note Documents" means, collectively, the PIK Notes, the Indenture
(including the Subsidiary Guarantee) and the Collateral Documents, in each case
as amended from time to time as permitted by the Indenture.
"Permitted Intercompany Secured Loan" means any loan made by the
Company to any Subsidiary that (i) is evidenced by a promissory note, (ii) is
secured by a Lien on substantially all assets of such Subsidiary other than
assets of the kind not required to be pledged as Collateral pursuant to the
Indenture, which Lien shall be subject only to a prior Lien on the same assets,
if any, securing the Senior Indebtedness or, after the date the Collateral
Documents are executed and delivered to the Trustee, the Subsidiary Guarantee,
and (iii) together with a promissory note and any related Collateral and Liens,
is pledged to secure the Senior Indebtedness or, after the date the Collateral
Documents are executed and delivered to the Trustee, the Trustee for the benefit
of the holders of the PIK Notes.
"Permitted Investments" means any (i) Investments in the Company, (ii)
Investments in a Wholly Owned Subsidiary or in a Person engaged in a Related
Business which, upon the making of such Investment, will become a Wholly Owned
Subsidiary, provided that such Subsidiary is not subject to any encumbrance or
restriction (other than under the Senior Indebtedness) that has the effect of
restricting the payment by such Subsidiary of dividends to the Company or any
Guarantor or the payment by such Subsidiary of Indebtedness owed to the Company
or any Guarantor or reducing the amount of any such dividends or payments, (iii)
Investments in another Person engaged in a Related Business in connection with a
consolidation, merger or disposition of assets permitted by the covenant
"Limitation on Merger, Sale or Consolidation" and "Limitations on Sales of
Assets and Subsidiary Stock," (iv) Investments in another Person engaged in a
Related Business which is not, or will not (upon the making of such Investment)
become a Wholly-Owned Subsidiary, provided that the aggregate amount invested in
all such Persons shall not exceed $1,000,000 at any time outstanding, (v)
Investments in Cash Equivalents, (vi) any securities received in connection with
Asset Sales to the extent permitted by the covenant "Limitation on Sales of
Assets and Subsidiary Stock," (vii) Investments paid for with Qualified Capital
Stock in a Person engaged in a Related Business, (viii) payments required under
Article IX of the Company's Certificate of Incorporation and (ix) payments in
respect of dissenters' rights to holders of not more than 5% of the Company's
Capital Stock.
"Permitted Liens" means any of the following:
(a) Liens arising by reason of any judgment, decree or order of any court
only to the extent for an amount and for a period not resulting in an
Event of Default with respect thereto and so long as such Lien is
being contested in good faith and is adequately bonded, and any
appropriate legal proceedings that may have been duly initiated for
the review of such judgment, decree or order shall not have been
finally adversely terminated or the period within which such
proceedings may be initiated shall not have expired;
(b) Security for the performance of bids, tenders, trade, contracts (other
than contracts for the payment of money) or leases, surety bonds,
performance bonds and other obligations of a like nature incurred in
the ordinary course of business or appeal bonds, and public and
statutory bonds;
(c) Liens (other than Liens arising under Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) for taxes, assessments or
other governmental charges not yet due or which are being contested in
good faith and by appropriate proceedings if adequate reserves with
respect thereto are maintained on the books of the Company in
accordance with GAAP ;
(d) Liens of carriers, warehousemen, mechanics, landlords, materialmen,
repairmen or other like Liens arising by operation of law in the
ordinary course of business (other than Liens
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arising under ERISA) and consistent with industry practices and Liens
on deposits made to obtain the release of such Liens if (i) the
underlying obligations are not overdue for a period of more than 90
days or (ii) such Liens are being contested in good faith and by
appropriate proceedings and adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; and
banker's liens and rights of set off arising in the ordinary cause of
business;
(e) Easements, rights of way, zoning and similar restrictions and other
similar encumbrances or title defects incurred in the ordinary course
of business and consistent with industry practices that, in the
aggregate, are not substantial in amount, and that do not in any case
materially detract from the value of the property subject thereto (as
such property is used by the Company or a Subsidiary) or interfere
with the ordinary conduct of the business of the Company or any of its
Subsidiaries; provided that any such Liens are not incurred in
connection with any borrowing of money or any commitment to loan any
money or to extend any credit;
(f) Rights of members and other customers arising in the ordinary cause of
business from memberships, rights to use or related or similar
interests in campgrounds, resorts, or other facilities (whether
arising from the holding of such memberships, rights to use or related
or similar interests, by applicable law or otherwise);
(g) Leases, subleases, permits or other rights to use or occupy property
owned or hereafter acquired by the Company or any of its Subsidiaries
other than Capitalized Lease Obligations;
(h) Pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security legislation;
(i) Liens, incurred in connection with the incurrence of Refinancing
Indebtedness in compliance with the Indenture with respect to
Indebtedness secured by Liens, provided (i) such Liens do not extend
to any additional property or assets and (ii) such Liens are no more
adverse to the interests of holders of the PIK Notes than the Liens
replaced or extended thereby;
(j) Such Liens and items described in paragraph (e) above in existence and
outstanding on the Issue Date as permitted under the terms of the
Senior Indebtedness;
(k) Liens that secure Indebtedness of any Person existing at the time such
Person becomes a Subsidiary of the Company or is merged or
consolidated into or with the Company or a Subsidiary of the Company,
provided that such Liens do not extend to or cover any other property
or assets and were not put in place in anticipation of such
acquisition;
(l) Liens in favor of the Trustee (or, in the case of Liens securing
Permitted Intercompany Loans, the Company or any Guarantor) under the
Collateral Documents;
(m) Liens in favor of the Company or any Guarantor, which are assigned to
the Trustee as Collateral for the PIK Notes or the Subsidiary
Guarantee, as applicable; and
(n) Liens of the Company or its Subsidiaries in existence on the Issue
Date, and set forth in Schedule 101B to the Indenture.
"Permitted Purchase Money Indebtedness" means Indebtedness that is
incurred to finance the acquisition or lease after the Issue Date of newly
acquired or leased trailers, vehicles and other movable equipment, fixtures and
other equipment used in connection with the operation of any campground, resort
or other asset, and any refinancing or replacement of such Indebtedness.
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"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated association, government or any agency or political subdivision
thereof or any other entity.
"Qualified Capital Stock" means any preferred stock of the Company
that is not Disqualified Capital Stock.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital
Stock (a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed the sum of
(i) the reasonable and customary fees and expenses incurred in connection with
such Refinancing, including any prepayment premium or penalty, plus (ii) the
lesser of (A) the principal amount or, in the case of Disqualified Capital
Stock, liquidation preference, of the Indebtedness or Disqualified Capital Stock
so Refinanced and (B) if such Indebtedness being Refinanced was issued with an
original issue discount, the accreted value thereof (as determined in accordance
with GAAP) at the time of such Refinancing; provided that (1) Refinancing
Indebtedness of any Subsidiary of the Company shall only be used to Refinance
outstanding Indebtedness or Disqualified Capital Stock of such Subsidiary, (2)
Refinancing Indebtedness shall (x) not have an Average Life shorter than the
Indebtedness or Disqualified Capital Stock to be so refinanced at the time of
such refinancing and (y) in all respects, be no less subordinated, if
applicable, to the rights of holders of the PIK Notes than was the Indebtedness
or Disqualified Capital Stock to be refinanced, (3) such Refinancing
Indebtedness shall have no installment of principal (or redemption) scheduled to
come due earlier than the scheduled maturity of any installment of principal of
the Indebtedness (or Disqualified Capital Stock) to be so refinanced that was
scheduled to come due prior to the Maturity Date and (4) such Refinancing
Indebtedness shall have no installment of interest payable in cash without the
Company's option to pay such interest in kind earlier than the installments of
cash interest on the Indebtedness to be refinanced.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of July 17, 1996, between the Company and Fleet National
Bank, as Trustee.
"Related Business" means the ownership, operation or management of
campgrounds (whether or not membership based), resorts or other facilities in
the vacation or recreation industry, and the provision of reservations or other
services related thereto, as well as sales and marketing activities related
thereto, conducted or proposed in good faith to be conducted by the Company or
any of its Subsidiaries and any and all materially related businesses conducted
or proposed in good faith to be conducted by the Company or any of its
Subsidiaries in support of and ancillary to the foregoing.
"Representative" means the trustee, agent or representative (if any)
for an issue of Indebtedness.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Payment" means, with respect to any Person, (a) the
declaration or payment of any dividend or other distribution in respect of
Equity Interests of such Person or any Subsidiary of such Person (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Capital Stock) of the Company, dividends or distributions payable to the Company
or any Subsidiary and pro rata dividends or distributions payable to a minority
stockholder of a Subsidiary), (b) any payment on account of the purchase,
redemption or other acquisition or retirement for value of Equity Interests of
such Person or any Subsidiary of such Person other than any such Equity
Interests owned by the Company or any Subsidiary (but excluding (i) payments
required by Article IX of the Company's Certificate of Incorporation and (ii)
payments in respect of dissenters' rights to holders of not more than 5% of the
Company's Capital Stock), (c) any purchase, redemption or other acquisition or
retirement for value of, or any payment in respect of any defeasance of, any
Subordinated Indebtedness, directly or indirectly, by such
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Person or a Subsidiary of such Person prior to the scheduled maturity, any
scheduled repayment of principal, or scheduled sinking fund payment, as the case
may be, of such Indebtedness and (d) any Restricted Investment by such Person.
"S&P" means Standard & Poor's Corporation and its successors.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" means the indebtedness under the Loan Agreement
(including, without limitation, all credit, guarantee and collateral documents
in respect thereof) whether outstanding on the Issue Date or incurred thereafter
(as the same may be amended, modified, extended, refinanced or replaced from
time to time, provided that the final maturity thereof is not extended more than
one year after the initial final maturity thereof). Any Subordinated
Indebtedness, the proceeds of which are used to refinance the Senior
Indebtedness, shall not be included within this definition.
"Stated Maturity," means, with respect to any security, the date
specified in such security as the fixed date on which the principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof).
"Subordinated Indebtedness" means all Indebtedness of the Company or
of its Subsidiaries that (a) is unsecured, (b) is subordinated in right of
payment to the prior payment in full in cash of the PIK Notes or the Subsidiary
Guarantee or Permitted Intercompany Secured Loans owing by such Subsidiary to
the same extent as the PIK Notes and the Subsidiary Guarantee are subordinated
to the Senior Indebtedness, (c) provides that interest thereon may be paid in
cash only after July 15, 2000, (d) matures after the Maturity Date and (e) has
an Average Life not shorter than that applicable to the PIK Notes.
"Subsidiary," with respect to any Person, means (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such Person,
by such Person and one or more Subsidiaries of such Person or by one or more
Subsidiaries of such Person or (ii) any other Person (other than a corporation)
in which such Person, one or more Subsidiaries of such Person, or such Person
and one or more Subsidiaries of such Person, directly or indirectly, at the date
of determination thereof has at least a majority ownership interest. Unless
otherwise specified, "Subsidiary" means any Subsidiary of the Company.
"Subsidiary Guarantee" means the unconditional and irrevocable
Guarantees by the Guarantors of the obligations of the Company under the PIK
Notes and the other Note Documents, as contained in the Indenture, as amended
from time to time as permitted by the Indenture.
"Subsidiary Pledge Agreement" means the Subsidiary Pledge Agreement,
dated as of the date of the Indenture, among the Subsidiaries (other than Yuba)
and the Trustee, securing such Subsidiaries' respective obligations under the
Note Documents (including under the Subsidiary Guarantee and Permitted
Intercompany Loans) and substantially in the form attached to the Indenture, as
amended from time to time as permitted by the Indenture.
"Subsidiary Security Agreement" means the Subsidiary Security
Agreement, dated as of the date of the Indenture, among the Subsidiaries (other
than Yuba) and the Trustee, securing the Subsidiaries' respective obligations
under the Note Documents (including under the Subsidiary Guarantee and Permitted
Intercompany Loans) and substantially in the form attached to the Indenture, as
amended from time to time as permitted by the Indenture.
"Trustee" means Fleet National Bank.
"U.S. Legal Tender" means any lawful money of the United States of
America.
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"Wholly Owned" means, with respect to any Subsidiary of the Company,
that all the issued and outstanding Capital Stock of such Subsidiary is owned by
the Company, directly or through other Wholly Owned Subsidiaries, as the case
may be.
"Working Capital Replacement Facility" means a credit facility for
working capital purposes (including, without limitation, all credit, guarantee
and collateral documents in respect thereof) not exceeding $10,000,000 in
principal amount at any time outstanding that refinances or replaces the Senior
Indebtedness (as such credit facility for working capital purposes may be
amended, modified, extended, refinanced or replaced from time to time).
"Yuba" means Yuba Investment Company.
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 PIK
Notes. 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 discussion assumes that holders of the PIK Notes hold their PIK
Notes as "capital assets" (generally property held for investment) within the
meaning of Section 1221 of the Code. Further, this discussion assumes that the
PIK Notes will be treated as debt and not equity for federal income tax
purposes. There can, however, be no assurance that the Internal Revenue Service
(the "Service") would not successfully assert that the PIK Notes were equity of
the Company, in which event the Company would not be allowed a deduction for
original issue discount ("OID") accrued on the PIK Notes. Furthermore, the
Service takes the position that a corporate holder would not be entitled in such
an event to a dividends received deduction.
No rulings from the Service have been or will be requested with
respect to any of the tax issues discussed herein. Moreover, as noted in the
discussion, certain of the issues material to the income tax consequences of
certain transactions are inherently factual in nature, and other issues involve
areas of the law that are ambiguous or with respect to which legal authority is
lacking and as to which the Company is able to offer only limited guidance.
Accordingly, there can be no assurance that the Service will not challenge one
or more of the tax consequences described herein.
THE COMPANY URGES EACH HOLDER OF PIK NOTES 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 PIK NOTES.
OID WITH RESPECT TO THE PIK NOTES
In general, subject to a de minimis rule, a debt obligation will be
treated as being issued with OID if the "stated redemption price at maturity" of
the instrument exceeds such instrument's "issue price."
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The stated redemption price at maturity of a debt obligation is the
aggregate of all payments due to the holder under such debt obligation at or
prior to its maturity date, other than interest that is actually and
unconditionally payable in cash or property (other than debt instruments of the
issuer) at a single fixed (or a qualified floating) rate (or a permitted
combination of the two) at least annually ("QSIPs"). During the first four years
of the PIK Notes, interest is payable on a semiannual basis commencing on
January 15, 1997, either in cash or (at least in part) by the issuance of
additional PIK Notes ("Payment-In-Kind Notes"). Because interest on the Notes
may be paid through the issuance of additional Payment-In-Kind Notes, none of
the interest payments on the PIK Notes will qualify as QSIPs, so the stated
redemption price at maturity of the PIK Notes will include all payments of
principal and interest required under the PIK Notes. Furthermore, under the
regulations issued pursuant to the OID provisions of the Code (the "OID
Regulations"), a PIK Note and any Payment-In-Kind Notes issued with respect
thereto are treated as part of the same debt instrument. Accordingly, the
adjusted issue price of the combined PIK Note and Payment-In-Kind Note will not
be reduced upon the issuance of the Payment-In-Kind Note, and the stated
redemption price at maturity of the combined PIK Note and Payment-In-Kind Note
will not change upon the issuance of the Payment-In-Kind Note and will include
the interest payable under the Payment-In-Kind Note.
Assuming that neither the Secured Notes nor the PIK Notes are traded
on an established securities market within the meaning of the OID provisions of
the Code and the regulations thereunder, the Company believes that the issue
price of each PIK Note equals its stated principal amount, which for purposes of
the OID Regulations is reduced by the prepaid interest paid at the time of the
Restructuring with respect to the PIK Note. (If any of the Secured Notes or the
PIK Notes received in exchange therefor had been traded on an established
securities market within the 30-day period before and after the date of the
exchange of Secured Notes for PIK Notes pursuant to the Restructuring (the
"Exchange"), the investment unit consisting of the PIK Notes and the Common
Stock received on the Exchange would have an issue price equal to its fair
market value, and the issue price of the PIK Notes would be determined by
allocating the issue price of the investment unit between the PIK Notes and the
Common Stock based on their relative fair market values.)
Since the stated redemption price at maturity exceeds the stated
principal amount of the PIK Notes, the PIK Notes were issued with OID.
CONSEQUENCES AS A RESULT OF THE PIK NOTES BEING ISSUED WITH OID
Because the PIK Notes were issued with OID, a holder of PIK Notes,
subject to the adjustments discussed below, will be required to include in gross
income for federal income tax purposes the sum of the daily portions of OID for
each day during the taxable year or portion thereof during which the holder
holds the PIK Notes, whether or not the holder actually receives a payment
relating to OID in such year. The daily portion is determined by allocating to
each day of the relevant "accrual period" a pro rata portion of an amount equal
to (a) the product of (i) the "adjusted issue price" of the PIK Notes at the
beginning of each accrual period, multiplied by (ii) the yield to maturity of
the PIK Notes (determined by semi-annual compounding) less (b) the sum of any
QSIPs during the accrual period. The "adjusted issue price" of a PIK Note at
any given time is its issue price increased by all accrued OID for prior accrual
periods (without regard to the acquisition premium rules discussed below) and
decreased by the amount of any payment previously made on the PIK Notes other
than a QSIP. The accrual period for a PIK Notes (except for any initial short
period) is each six-month period which ends on the day in each calendar year
corresponding to the maturity date of the PIK Notes or the date six months
before such maturity date. As discussed above, none of the payments on the PIK
Notes will qualify as QSIPs. (See "--OID with Respect to the PIK Notes.")
A holder of PIK Notes is required to include OID in income as such OID
accrues, regardless of the holder's method of accounting and regardless of when
such holder receives cash payments relating to the OID. A holder's tax basis in
PIK Notes will be increased by the amount of OID included in the holder's income
and reduced by the amount of all interest payments (other than payments in the
form of Payment-In-Kind Notes) received on the PIK Notes.
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The computation of OID and adjusted issue price with respect to the
combined PIK Notes and Payment-In-Kind Notes will take into account accruals and
payments with respect to both instruments, with the result that the holder of
PIK Notes generally will be required to include in income as OID the interest
that accrues under both the PIK Note and any Payment-In-Kind Note issued in
respect thereof, regardless of whether any cash payments are received. Since
each holder of a PIK Note will recognize, as ordinary income, through the
accrual of OID, the full amount of interest with respect to the PIK Notes (as
well as with respect to any Payment-In-Kind Notes issued with respect to such
Notes), such holder generally should not recognize additional ordinary income
upon receipt of a Payment-In-Kind Note or a cash payment of stated interest.
Upon a disposition of a PIK Note or a Payment-In-Kind Note issued in
respect thereof, the holder will be required (unless it disposes of a PIK Note
together with all Payment-In-Kind Notes issued in respect thereof) to allocate
adjusted issue price, stated redemption price at maturity and acquisition
premium (discussed below), if any, of the combined PIK Note and Payment-In-Kind
Note among the instruments retained and the instruments disposed of in order to
determine OID with respect to the retained instruments. Although it is not
clear, it is likely that the adjusted tax basis and adjusted issue price of a
PIK Note would be allocated between such PIK Note and any Payment-In-Kind Notes
issued with respect thereto at the time of such issuance, based on their
respective principal amounts. OID on the Payment-In-Kind Notes will accrue in
the same manner as described above in respect of the PIK Notes.
A purchaser of a PIK Note who purchases the note at a cost less than
the remaining stated redemption price at maturity but greater than its adjusted
issue price (a purchase at an "acquisition premium") also will be required to
include in gross income the sum of the daily portions of OID on that PIK Note.
(For purposes of these rules, a "purchase" is any acquisition of a debt
instrument.) In computing the daily portions of OID for such a purchaser,
however, the daily portion is reduced by the amount that would be the daily
portion for such day (computed in accordance with the rules set forth above)
multiplied by a fraction, the numerator of which is the amount, if any, by which
the purchaser's basis in the PIK Note on the date of purchase exceeds the
adjusted issue price of the PIK Note at that time, and the denominator of which
is the sum of the daily portions for that PIK Notes for all days beginning on
the date after the purchase date and ending on the maturity date.
Since the PIK Notes will be subject to the AHYDO rules discussed
below, a portion of the OID on the PIK Notes will be taxed as a stock
distribution. See "--Application of High Yield Debt Obligation Rules."
The Company will furnish annually to the Service, and to each U.S.
holder of PIK Notes to whom it is required to report, information relating to
the OID accruing during the calendar year. Holders will be required to determine
for themselves whether, by reason of the rules described above, they are
eligible to report a reduced amount of OID for federal income tax purposes.
MARKET DISCOUNT
A holder of a PIK Note generally will be required to treat any gain
recognized on the sale, exchange, redemption or other disposition of the PIK
Note as ordinary income to the extent of any accrued market discount. The
market discount rules also provide that a holder who acquires a PIK Note at a
market discount may be required to defer the deduction of a portion of any
interest expense that may otherwise be deductible on any indebtedness incurred
or maintained to purchase or carry such PIK Note until the holder disposes of
the PIK Note in a taxable transaction. Accrued market discount on an Secured
Note that was not recognized on the Exchange will carry over and be treated as
accrued market discount on the PIK Note received in the Exchange.
"Market discount" generally is the excess of the stated redemption
price at maturity of a PIK Note (adjusted to exclude any unaccrued OID) over the
holder's tax basis in the PIK Note immediately after its acquisition. In
addition, under a de minimis exception, the amount of market discount is
considered to be zero if it is less than the product of .25% of the stated
redemption price of the PIK Note at maturity multiplied by the number of
complete years from acquisition to maturity. Market discount
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generally will accrue ratably during the period from the date of acquisition to
the maturity date of the PIK Note, unless the holder elects to accrue such
discount on the basis of the constant yield method.
A holder of a PIK Note acquired at a market discount may elect to
include the market discount in income as interest as it accrues, in which case
the foregoing rules would not apply. This election would apply to all debt
instruments with market discount acquired by the electing holder on or after the
first day of the first taxable year to which the election applies. The election
may be revoked only with the consent of the Service.
Pursuant to the OID Regulations, holders of debt instruments are
permitted to elect to include all interest, discount (including de minimis
market discount) and premium on a debt instrument in income currently on a yield
to maturity basis. Such election would constitute an election to include market
discount currently in income on all market discount bonds held by such holders.
Holders of PIK Notes are urged to consult their own tax advisors regarding the
availability and advisability of making such an election.
SALE, EXCHANGE OR REDEMPTION
Upon the sale, exchange or redemption of a PIK Note, a holder
generally will recognize gain or loss in an amount equal to the difference
between the amount of cash and the fair market value of the property received
and the holder's adjusted tax basis in the PIK Note. Such gain or loss will be
capital gain or loss, except to the extent of any accrued market discount (see
"Market Discount" above), and will be long-term capital gain or loss if the
holder's holding period for the PIK Note exceeds one year at the time of the
sale or exchange, or redemption.
As noted above, the OID Regulations treat a PIK Note and any Payment-
In-Kind Notes issued with respect thereto as a part of the same debt instrument.
If, however, a holder disposes of a PIK Note or a Payment-In-Kind Note
separately, in order to determine the amount of its gain or loss recognized the
holder will be required to allocate adjusted issue price and acquisition premium
of the combined PIK Note and the Payment-In-Kind Notes issued with respect
thereto among the debt instruments retained and disposed of, using the methods
described above. See "Consequences as a Result of a PIK Notes Being Issued With
OID" above.
Under the OID Regulations, an unscheduled payment made on a debt
instrument such as a PIK Note prior to maturity that results in a substantially
pro rata reduction of each payment of principal and interest remaining on the
instrument is treated as a payment in retirement of a portion of the instrument,
which may result in gain or loss to the holder. The gain or loss is calculated
by treating the debt obligation as consisting of two instruments, one that is
retired and one that remains outstanding, and by allocating the adjusted issue
price and the holder's adjusted basis between the two instruments based upon the
relative principal amount of the portion of the obligation that is treated as
retired by the pro rata prepayment. The stated redemption price at maturity of
the OID on the remaining instrument will be determined according to the same
principles discussed earlier. See "-- OID With Respect to the PIK Notes;" " --
Consequences as a Result of the PIK Notes Being Issued with OID."
APPLICATION OF HIGH YIELD DEBT OBLIGATION RULES
As noted above, the PIK Notes were issued with original issue discount
for federal income tax purposes. Under the "AHYDO" rules contained in Sections
163(e) and (i) of the Code, if a debt obligation with a term of more than five
years has "significant" OID, and has a yield to maturity of five percentage
points or more in excess of the "applicable federal rate" (which is announced
monthly by the Service and is generally based on the U.S. Treasury note rate for
instruments of similar maturities), interest deductions with respect to OID
accruing on such instrument may be deferred until such OID is paid in cash, or,
if the yield to maturity exceeds six percentage points above the specified rate,
the deduction for such excess will be denied completely and the OID with respect
to such excess will be treated as dividend income, rather than interest income,
to the holder (provided the issuer has adequate earnings and profits to support
such a dividend).
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The PIK Notes were issued with significant OID. Furthermore, assuming
that neither the Secured Notes or the PIK Notes are traded on an established
securities market, the resulting yield to maturity of the PIK Notes of
approximately 13.39% exceeded the July 1996 applicable federal rate of 6.63% by
more than six percentage points (the yield in excess of 12.63% is referred to as
the "disqualified yield"). As a result, the PIK Notes are subject to the AHYDO
rules, and the Company's deduction of OID on the PIK Notes is deferred until the
OID is paid in cash. Furthermore, a portion of the OID (the "disqualified
portion") equal to the portion of the total return on the PIK Note that bears
the same ratio to the total return as the disqualified yield bears to the yield
to maturity on the PIK Note will not be allowed to the Company as a deduction. A
holder of a PIK Note will treat the disqualified portion as a dividend to the
extent that it would have been treated as a dividend if distributed by the
Company with respect to stock in the Company, and for corporate holders any
amount so treated as a dividend is eligible for the dividends received deduction
permitted under the Code.
THE REGISTRATION RIGHTS AGREEMENT
The Registration Rights Agreement entered into between the Company and
the Trustee should not, absent a default under such agreement (a "Registration
Default"), have a material effect on the terms of the PIK Notes. However, if the
Company causes a Registration Default with respect to the PIK Notes, the
interest rate on the PIK Notes will increase, thereby creating additional OID on
the PIK Notes. Furthermore, any such increase could increase the yield to
maturity of the PIK Notes for the time period during which the increased
interest rate applied to the PIK Notes such that an additional portion of the
OID on the PIK Notes would be treated as dividend income. See " -- Application
of High Yield Debt Obligation Rules." The Company urges each holder to consult
its tax advisor to determine the federal income tax consequences to it with
respect to the possible increased interest rate caused by a Registration
Default.
BACKUP WITHHOLDING
Under the Code, a holder of a PIK Note may be subject, under certain
circumstances, to "backup withholding" at a rate of 31% with respect to payments
in respect of interest and OID thereon or the gross proceeds from the
disposition thereof. This withholding generally applies only if the holder (i)
fails to furnish his or her social security or other taxpayer identification
number ("TIN"), (ii) furnishes an incorrect TIN, (iii) is notified by the
Service that he or she has failed to report properly payments of interest and
dividends and the Service has notified the Company that he or she 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
its correct number and that 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 Service. Holders of PIK Notes 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 included 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 PIK Notes offered hereby has been passed upon for
the Company by Gibson, Dunn & Crutcher LLP, Dallas, Texas.
81
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of June 30, 1995 and 1996 (audited)
and December 31, 1996 (unaudited)......................................... F-3
Consolidated Statements of Operations for the years ended June 30,
1994, 1995 and 1996 (audited) and for the six months
ended December 31, 1995 and 1996 (unaudited).............................. F-4
Consolidated Statements of Stockholders' Deficits for the years
ended June 30, 1994, 1995 and 1996 (audited) and for the six
months ended December 31, 1996 (unaudited)................................ F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1994, 1995 and 1996 (audited) and the six
months ended December 31, 1995 and 1996 (unaudited)....................... F-6
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<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,
1995 and 1996, and the related consolidated statements of operations,
stockholders' deficit and cash flows for each of the three years in the period
ended June 30, 1996. 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. (formerly
USTrails Inc.) and subsidiaries as of June 30, 1995 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1996, 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.
Arthur Andersen LLP
Dallas, Texas,
September 12, 1996 (except with respect to
the matter discussed in Note 16 as to which
the date is November 20, 1996)
F-2
<PAGE>
THOUSAND TRAILS, INC. (FORMERLY USTRAILS INC.) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
June 30, June 30, December 31,
------------------------
ASSETS 1995 1996 1996 1996
------ -------- -------- -------- --------
CURRENT ASSETS (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 50,596 $ 37,403 $ 9,618 $ 2,403
Current portion of receivables, net of
allowances and discount of $5.3
million in 1995 and $2.7 million in 1996 5,376 4,270 4,270 3,459
Accounts and dues receivable, net 3,017 522 522 301
Inventory and other current assets 2,353 4,672 5,590 3,112
-------- -------- -------- --------
Total Current Assets 61,342 46,867 20,000 9,275
Restricted cash 1,629 2,912 2,912 1,841
Receivables, net of allowances and
discount of $11.4 million in 1995
and $5.4 million in 1996 13,322 8,949 8,949 5,978
Campground real estate 15,331 13,468 13,468 13,452
Resort real estate 1,352 1,159 1,159 595
Buildings and equipment, net of
accumulated depreciation of $8.4
million in 1995 and $10.4 million in 1996 32,039 27,130 27,130 25,442
Land held for sale 8,341 6,821 6,821 6,155
Other assets 2,530 2,448 4,013 4,847
-------- -------- -------- --------
Total Assets $135,886 $109,754 $ 84,452 $ 67,585
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable $ 3,740 $ 3,030 $ 3,030 $ 1,726
Accrued interest 7,008 5,617 2,388
Other accrued liabilities 8,140 9,329 9,329 7,879
Current portion of long-term debt 21,935 28,530 6,701 1,807
Accrued construction costs 3,454 3,154 3,154 2,942
Deferred membership dues revenue 18,622 17,599 17,599 13,697
-------- -------- -------- --------
Total Current Liabilities 62,899 67,259 39,813 30,439
Long term debt 98,308 66,922 66,922 56,457
Other liabilities 4,500 3,564 3,564 3,725
-------- -------- -------- --------
Total Liabilities 165,707 137,745 110,299 90,621
-------- -------- -------- --------
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, 3,702,726 shares issued and outstanding
at June 30, 1995 and 1996, 7,383,276 shares issued and
outstanding at December 31, 1996 (unaudited) 37 37 74 74
Additional paid-in capital 17,549 17,549 20,502 20,502
Accumulated deficit subsequent to December 31,
1991, date of emergence from bankruptcy
(total deficit eliminated $51,752) (47,288) (45,451) (46,297) (43,475)
Cumulative foreign currency translation adjustment (119) (126) (126) (137)
-------- -------- -------- --------
Total Stockholders' Deficit (29,821) (27,991) (25,847) (23,036)
-------- -------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $135,886 $109,754 $ 84,452 $ 67,585
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
THOUSAND TRAILS, INC. (FORMERLY USTRAILS INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the six months
For the years ended June 30, ended December 31,
------------------------------------- -------------------
1994 1995 1996 1995 1996
--------- --------- -------- -------- --------
REVENUES (unaudited)
<S> <C> <C> <C> <C> <C>
Membership dues $ 43,200 $ 41,175 $39,924 $20,043 $ 19,917
Other campground/resort revenue 23,524 23,506 22,288 12,954 10,286
Membership and resort interest sales 3,975 4,228 3,987 1,921 2,411
RPI membership fees 5,286 4,845 4,579 2,234 1,943
Interest income 12,202 9,935 6,756 3,404 1,995
Gain on asset dispositions 5,544 658 4,038 918 1,215
Nonrecurring income 4,522 3,714 5,945
Other income 2,669 3,485 4,479 2,207 1,887
--------- --------- -------- -------- --------
Total Revenues $100,922 $ 91,546 $91,996 43,681 39,654
--------- --------- -------- -------- --------
EXPENSES
Campground/resort operating expenses 55,669 57,097 50,308 27,165 22,268
Selling expenses 3,556 3,399 4,266 1,816 1,824
Marketing expenses 1,282 3,639 1,294 663 635
RPI membership expenses 3,055 2,727 2,237 1,173 937
Corporate member services 2,165 2,200 1,843 904 812
Interest expense and amortization of debt
discount and consent fees 21,446 20,960 17,693 9,041 5,078
General and administrative expenses 12,403 12,118 10,473 4,961 4,711
Nonrecurring expenses 4,000 437 2,270
Restructuring costs 3,313 637 1,124 1,101
--------- --------- -------- -------- --------
Total Expenses 106,889 103,214 91,508 45,723 37,366
--------- --------- -------- -------- --------
INCOME (LOSS) BEFORE TAXES, MINORITY
INTEREST AND EXTRAORDINARY ITEM (5,967) (11,668) 488 (2,042) 2,288
Income tax (provision) benefit (425) (255) (41) 157 (312)
--------- --------- -------- -------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST
AND EXTRAORDINARY ITEM (6,392) (11,923) 447 (1,885) 1,976
Minority interest (325)
--------- --------- -------- -------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM (6,717) (11,923) 447 (1,885) 1,976
Extraordinary gain on debt repurchases 671 1,390
--------- --------- -------- -------- --------
NET INCOME (LOSS) ($6,046) ($11,923) $ 1,837 ($1,885) $ 1,976
========= ========= ======== ======== ========
PRIMARY AND FULLY DILUTED NET INCOME
(LOSS) PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ($1.81) ($3.22) $.12 ($.51) $.27
EXTRAORDINARY ITEM .18 .38
--------- --------- -------- -------- --------
NET INCOME (LOSS) ($1.63) ($3.22) $.50 ($.51) $.27
========= ========= ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 3,703 3,703 3,703 3,703 7,212
========= ========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
THOUSAND TRAILS, INC. (FORMERLY USTRAILS 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, 1993 3,702,506 $37 $17,549 ($29,319) ($60) ($11,793)
Issuance of common shares 220
Foreign currency translation
adjustment (73) (73)
Net loss (6,046) (6,046)
---------- ------ ---------- ----------- ----------- ---------
Balance, June 30, 1994 3,702,726 37 17,549 (35,365) (133) (17,912)
Foreign currency translation
adjustment 14 14
Net loss (11,923) (11,923)
---------- ------ ---------- ----------- ----------- ---------
Balance, June 30, 1995 3,702,726 37 17,549 (47,288) (119) (29,821)
Foreign currency translation
adjustment (7) (7)
Net income 1,837 1,837
---------- ------ ---------- ----------- ----------- ---------
Balance, June 30, 1996 3,702,726 37 17,549 (45,451) (126) (27,991)
Issuance of common stock in
Restructuring (unaudited) 3,680,550 37 2,953 2,990
Foreign currency translation
adjustment (unaudited) (11) (11)
Net income for the six months
ended December 31, 1996
(unaudited) 1,976 1,976
---------- ------ ---------- ----------- ----------- ---------
Balance, December 31, 1996
(unaudited) $7,383,276 $74 $20,502 ($43,475) ($137) ($23,036)
========== ====== ========== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
THOUSAND TRAILS, INC. (FORMERLY USTRAILS INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the six months
For the years ended June 30, ended December 31,
------------------------------------- -------------------
1994 1995 1996 1995 1996
--------- --------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Collections of principal on receivables $ 26,256 $ 16,678 $ 12,251 $6,434 $ 4,246
Interest received 10,216 9,270 6,202 3,028 1,796
Interest paid (17,798) (15,873) (14,545) (7,757) (7,360)
General and administrative, corporate
member services and restructuring costs (17,366) (18,233) (13,827) (6,466) (7,842)
Cash collected from operations, including
deferred revenue 75,537 77,231 73,220 34,843 30,420
Cash from sales of memberships and resort
interests at the point of sale 3,893 4,036 3,789 1,816 2,311
Expenditures for property operations (52,955) (56,768) (49,627) (27,338) (22,146)
Expenditures for sales and marketing (4,213) (5,645) (5,370) (2,486) (2,514)
Expenditures for insurance premiums (5,013) (4,553) (5,176) (2,926) (158)
Refund (payment) of income taxes (243) (256) (41) 120 (311)
Reduction of (deposit made to secure)
standby letter of credit (1,500) (1,500) 1,182
Other, net 927 221 394 (47)
--------- --------- -------- -------- --------
Net cash provided by (used in) operating
activities 19,241 5,887 5,597 (1,838) (423)
--------- --------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital and HUD-related expenditures (4,548) (5,732) (1,022) (637) (586)
Proceeds from asset sales 10,394 1,132 7,239 827 2,536
Trails acquisition (7,497)
--------- --------- -------- -------- --------
Net cash provided by (used in) investing
activities (1,651) (4,600) 6,217 190 1,950
--------- --------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial borrowings under Credit Agreement 32,000
Payment of debt issue costs (3,132)
Retirement of Secured Notes (50,169)
Net repayments under Credit Agreement (14,942)
Mandatory redemption of Secured Notes (18,599) (18,599)
Repurchase of Secured Notes (8,000) (5,275)
Repayments of notes and mortgages (2,280) (369) (1,133) (244) (284)
Retirement of capital lease (381)
Payment of consent fees to Secured
Noteholders (1,610)
--------- --------- -------- -------- --------
Net cash used in financing activities (11,890) (750) (25,007) (18,843) (36,527)
--------- --------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,700 537 (13,193) (20,491) (35,000)
CASH AND CASH EQUIVALENTS:
Beginning of period 44,359 50,059 50,596 50,596 37,403
--------- --------- -------- -------- --------
End of period $ 50,059 $ 50,596 $ 37,403 $30,105 $ 2,403
========= ========= ======== ======== ========
(continued)
</TABLE>
F-6
<PAGE>
THOUSAND TRAILS, INC. (FORMERLY USTRAILS INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
For the six months ended
For the years ended June 30, December 31,
------------------------------------------ ------------------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Net income (loss) ($6,046) ($11,923) $ 1,837 ($1,885) $ 1,976
---------- ---------- ---------- ---------- ----------
ADJUSTMENTS TO RECONCILE NET INCOME
(LOSS) TO NET CASH PROVIDED BY (USED
IN) OPERATING ACTIVITIES-
Depreciation 2,457 2,591 2,866 1,444 1,389
Provision for doubtful accounts, net
of adjustments 2,121 (434) (4,122) 11 10
Cost of sales 657 667 193 97 29
Amortization of interest discount,
collection costs and valuation
allowance (2,378) (1,461) (1,120) (578) (372)
Amortization of debt discount, consent
fees and debt issue costs and
deferred gain 4,136 5,060 4,565 2,252 947
Gain on asset dispositions (5,544) (658) (4,038) (918) (1,215)
Extraordinary gain on debt repurchases (671) (1,390)
Reversal of contingent liabilities (500) (2,717) (799)
Reduction of allowance for collection
costs (540)
Decrease (increase) in restricted cash 273 (404) (1,283) (1,334) 1,071
Decrease in receivables 26,513 16,322 11,721 6,269 4,144
Decrease (increase) in other assets (455) 29 (747) (277) 1,158
Increase (decrease) in other
liabilities 1,059 (633) (2,084) (6,930) (9,549)
Minority interest 325
Reversal of accrued resort disposition
costs (3,135)
Losses charged against accrued resort
disposition costs (618)
Provision for loss on carrying value
of assets 1,113
Other, net (66) (12) (2) 11 (11)
---------- ---------- ---------- ---------- ----------
Total adjustments 25,287 17,810 3,760 47 (2,399)
---------- ---------- ---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 19,241 $ 5,887 $ 5,597 ($1,838) ($423)
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
THOUSAND TRAILS, INC. (FORMERLY USTRAILS 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").
Thousand Trails and its subsidiaries (the "Company") own and operate a system of
58 membership-based campgrounds located in 19 states and British Columbia,
Canada. In addition, the Company manages timeshare facilities and owns certain
real estate at eight full service resorts located in seven states and owns and
operates the resort amenities at one of these locations. The Company also
provides a reciprocal use program for members of approximately 320 recreational
facilities as of June 30, 1996. The campground segment represents the most
significant portion of the Company's business comprising 83% of the Company's
operating revenues in fiscal 1996. The full service resort and reciprocal use
segments provide the remaining 17%. 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.
Effective 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 (see Note 16).
The accompanying consolidated financial statements include the accounts of
Thousand Trails, Inc. (successor by merger to USTrails) and the following wholly
owned subsidiaries: National American Corporation and its subsidiaries ("NACO");
until July 16, 1996, Thousand Trails, Inc. and its subsidiaries ("Trails");
Shorewood Corporation, which does business as Resort Parks International
("RPI"); and UST Wilderness Management Corporation ("Wilderness Management"). On
June 30, 1991, the Company acquired 100% of the capital stock of NACO and 69% of
the capital stock of Trails. On June 3, 1992, the Company increased its
ownership in Trails to 80% through a tender offer. On March 29, 1994, the
Company acquired the remaining 20% of the capital stock of Trails in a merger.
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 became a direct subsidiary
of the Company effective September 10, 1992, prior to which it was a wholly
owned subsidiary of NACO. 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 (see Notes 6
and 9). 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, 1994, 1995 and 1996, and as of and for the six month periods ending
December 31, 1995 and 1996.
The accompanying consolidated financial statements were prepared in conformity
with generally accepted accounting principles ("GAAP"). The preparation of
financial statements in conformity with GAAP
F-8
<PAGE>
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 those estimates.
The accompanying consolidated balance sheets include a pro forma balance sheet
prepared as if the Restructuring completed on July 17, 1996 (see Note 6)
occurred on June 30, 1996. The pro forma presentation has been included as an
integral part of the Company's consolidated financial statements due to the
significance of the Restructuring on the Company's financial condition.
The accompanying consolidated financial statements as of and for the six month
periods ended December 31, 1995 and 1996 have not been examined by independent
public accountants. In management's opinion, however, the unaudited interim
consolidated 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. Certain
information and footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission's rules and regulations. The results of operations for the interim
periods presented are not necessarily indicative of the results to be expected
for the full year.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
effective for fiscal years beginning after December 15, 1995. This statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has not adopted the principles of this statement
within the accompanying consolidated financial statements; however, it is not
anticipated that it will have a material effect on the carrying value of the
Company's long-lived assets.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," effective for fiscal years beginning after December 15, 1995.
This statement defines a fair value method of accounting for employee stock
options and encourages entities to adopt that method of accounting for its stock
compensation plans. SFAS No. 123 allows an entity to continue to measure
compensation costs for those plans using the intrinsic value based method of
accounting prescribed by Accounting Pronouncement Bulletin Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has not adopted the
principles of this statement within the accompanying consolidated financial
statements; however, it is not anticipated that it will have a material effect
on the Company's financial position or results of operations.
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform to the current year presentation.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
- -------------------
Campground members are assessed annual dues which are used to fund campground
maintenance and operations, member services and general and administrative
expenses. Certain membership contracts provide for an annual adjustment of dues
to reflect increases in the Consumer Price Index. Other membership contracts
provide for an annual adjustment not greater than 10% or the percentage increase
in the Consumer Price Index. Annual dues are recognized as revenue ratably over
12 months and are
F-9
<PAGE>
recorded net of an allowance to provide for uncollectible amounts. Dues paid in
advance are deferred as unearned revenue.
Campground membership sales include contracts that give purchasers the right to
use one or more of the Company's campgrounds and undivided interests that give
purchasers an undivided fractional interest in certain campground facilities.
Resort interest sales include interval ownerships ("timeshares") that give
purchasers exclusive use of fully furnished vacation homes in weekly intervals
and fee simple ownership of lots located at the resorts. Sales revenue is
recognized upon execution of a sales contract and receipt of a down payment of
at least 10% of the sales price. Under the Company's current sales program, the
majority of campground membership and resort interest sales are not financed.
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 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.
Allowance for Collection Costs
- ------------------------------
In connection with the Company's acquisition of NACO and Trails and its
emergence from bankruptcy, 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.
F-10
<PAGE>
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 and Resort Real Estate
- ---------------------------------
Campground and resort real estate, consisting of land and improvements and
timeshare property, is recorded at the lower of cost or estimated net realizable
value. Historically, campground properties were charged to cost of membership
sales based on the relationship of memberships sold to total memberships which
the Company estimates it will ultimately sell. Effective July 1, 1995, the
Company made the decision to discontinue its practice of amortizing campground
real estate by recording a cost of sales charge in connection with new
campground membership sales. The Company will discontinue this practice as long
as the number of membership cancellations exceeds the number of new memberships
sold, and the Company's membership base continues to decline. Resort timeshare
property is charged to cost of sales based on the value of a timeshare week sold
in relation to total sellable weeks at the property.
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 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 have been
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 the Restructuring on July 17, 1996 (see Note 6).
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 6).
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 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.
F-11
<PAGE>
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 -- RESTRUCTURING COSTS
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,
which are presented as restructuring costs in the accompanying consolidated
statement of operations. The Company incurred additional costs in July 1996 in
connection with the consummation of the Restructuring (see Note 6), which were
reflected as restructuring costs in fiscal 1997. In connection with the
Restructuring, the Company also incurred $3.1 million of costs in connection
with obtaining a credit facility with Foothill Capital Corporation, which were
capitalized as debt issue costs in fiscal 1997.
At June 30, 1994, the Company recorded $1.8 million of restructuring costs for
severance pay and moving expenses related to relocating certain of its
administrative functions to Dallas, Texas, which are included in restructuring
costs in the accompanying consolidated statement of operations. Of this $1.8
million, $203,000 was spent in fiscal 1994 and $1.6 million was spent in fiscal
1995 and applied against the accrual. During fiscal 1995, the Company also
incurred $922,000 of additional 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.
On March 29, 1994, the Company acquired the 20% of Trails' capital stock then
held by public shareholders in a merger at a cost of $7.5 million including
legal costs, and Trails became a wholly owned subsidiary of the Company. The
Company incurred $463,000 in legal and financial advisory fees related to the
merger which were reflected as restructuring costs in the accompanying
consolidated statement of operations. In fiscal 1994, the Company also incurred
$1.1 million in legal and other expenses related to an amendment of the
Indenture for the Secured Notes. These costs are also included in restructuring
costs in the accompanying consolidated statement of operations.
NOTE 4 -- RECEIVABLES
CONTRACTS RECEIVABLE
Contracts receivable are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
----------------------
1995 1996 1996
-------- -------- -----------
<S> <C> <C> <C>
(unaudited)
Contracts receivable --
Memberships/undivided interests $ 30,245 $18,689 $14,706
Timeshares and lots 4,931 2,440 1,653
-------- -------- -----------
35,176 21,129 16,359
Allowance for doubtful accounts (13,806) (6,290) (5,584)
Allowance for interest discount (1,079) (722) (584)
Allowance for collection costs (1,291) (778) (610)
Valuation allowance (512) (262) (196)
-------- -------- -----------
18,488 13,077 9,385
Interest receivable 210 142 52
</TABLE>
F-12
<PAGE>
<TABLE>
<S> <C> <C> <C>
$ 18,698 $13,219 $ 9,437
======== ======== ===========
</TABLE>
Contracts Receivable
- --------------------
Contracts receivable bear interest at rates which generally range from 9.5% to
16.0%, with a weighted average stated rate of 12.9% at June 30, 1996 and 1995.
The net recorded value of the contracts receivable had a weighted average yield
of approximately 13% at June 30, 1996 and 1995. The obligor's weighted average
equity in the contracts receivable at June 30, 1996 and 1995, was 65% and 61%,
respectively. As of June 30, 1996, approximately 95% of the Company's
campground and resort members 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.
Allowance for Doubtful Accounts
- -------------------------------
In fiscal 1996, the Company reduced the allowance for doubtful accounts on the
contracts receivable related to the campgrounds by $4.0 million. In addition,
in fiscal 1996, 1995 and 1994, the Company reduced the allowance for doubtful
accounts on the contracts receivable related to the resorts by $1.1 million,
$457,000 and $887,000, 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 fiscal 1996 and 1995, and with respect to the resort contracts
receivable, in fiscal 1994. For the campground contracts receivable, in fiscal
1994, the Company increased the related allowance for doubtful accounts by
$1.9 million to provide for additional future contract losses. This amount is
included in nonrecurring expenses in the accompanying consolidated statement of
operations. This adjustment was made because the cancellation rate on the
campground contracts receivable had increased, and the Company had experienced
higher contract losses than anticipated.
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
F-13
<PAGE>
on the contracts receivable related to either the campgrounds or full service
resorts. 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 $1.1 million and
$722,000 at June 30, 1995 and 1996, respectively, and $584,000 at December 31,
1996. Amortization of the allowance for interest discount totaled $846,000,
$486,000 and $357,000 for the years ended June 30, 1994, 1995 and 1996,
respectively, and $175,000 and $138,000 for the six month periods ended December
31, 1995 and 1996, respectively, which increased interest income.
Allowance for Collection Costs
- ------------------------------
The allowance for collection costs had a remaining balance of $1.3 million and
$778,000 at June 30, 1995 and 1996, respectively, and $610,000 at December 31,
1996. Amortization of the allowance for collection costs totaled $1.5 million,
$854,000 and $513,000 for the years ended June 30, 1994, 1995 and 1996,
respectively, and $269,000 and $168,000 for the six month periods ended December
31, 1995 and 1996, 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 $512,000 and $262,000 at June 30, 1995
and 1996, respectively, and $196,000 at December 31, 1996. Amortization of the
valuation allowance totaled $79,000, $121,000 and $250,000 for the years ended
June 30, 1994, 1995 and 1996, respectively, and $134,000 and $66,000 for the six
month periods ended December 31, 1995 and 1996.
At June 30, 1996, scheduled future receipts on contracts receivable are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Memberships /
Undivided Timeshares
Interests and Lots Total
<S> <C> <C> <C>
1997 $ 5,582 $1,199 $ 6,781
1998 4,770 670 5,440
1999 4,041 322 4,363
2000 2,873 154 3,027
2001 1,207 63 1,270
Thereafter 216 32 248
---------- -------- ---------
Total $18,689 $2,440 $21,129
========== ======== =========
</TABLE>
The Company operates 58 campgrounds located in 19 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 38%). As of June 30, 1996, the
Company's contracts receivable from members who purchased memberships in the
state of California totaled approximately $7.9 million.
F-14
<PAGE>
MEMBERSHIP DUES RECEIVABLE
In fiscal 1996 and fiscal 1994, the Company increased the allowance for
uncollectible dues by $1.0 million, related to certain aged dues accounts that
were determined uncollectible in those years. These charges are included in
nonrecurring expenses in the accompanying consolidated statements of operations.
NOTE 5 -- CAMPGROUND AND RESORT PROPERTIES
Campground properties consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
--------------------- ---------------
1995 1996 1996
--------------------- ---------------
(unaudited)
<S> <C> <C> <C>
Land held for sale $ 6,287 $ 5,339 $ 4,866
Land inventory 15,331 13,468 13,452
Property and equipment 35,280 37,138 36,602
Construction in progress 2,331 67 288
Accumulated depreciation (7,902) (10,336) (11,520)
-------- -------- --------
$51,327 $ 45,676 $43,688
======== ========= ========
</TABLE>
Resort properties consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
----------------------- ---------------
1995 1996 1996
---------- --------- ---------------
(unaudited)
<S> <C> <C> <C>
Land held for sale $ 2,054 $ 1,482 $ 1,289
Land, timeshare and lot inventory 1,352 1,159 595
Property and equipment 2,733 311 80
Construction in progress 97 24
Accumulated depreciation (500) (74) (8)
-------- --------- ---------
$ 5,736 $ 2,902 $1,956
======== ========= =========
</TABLE>
The campground and resort properties are encumbered by certain borrowings as
described in Note 6.
The resort operations have historically generated operating losses. At June 30,
1992, the Company planned to dispose of four of the eight resorts and was
pursuing discussions with potential purchasers for certain of these resorts. As
a result, at June 30, 1992, the Company accrued $4.5 million for the estimated
operating losses of the four resorts through the disposition period and the
related disposition costs. Related resort losses of $618,000 were applied
against this accrual during fiscal 1994. The Company determined subsequently
that it was not feasible to sell entire resorts, and began to focus on the sale
of individual resort assets. Since June 30, 1992, the Company has sold the
common amenities at five resorts, the seven utility companies associated with
the resorts, and certain other real estate holdings at the resorts for which it
received total net cash proceeds through June 30, 1996, of $12.9 million plus
the purchasers' assumption of net obligations of the Company with an estimated
cost of up to $1.6 million. The Company presently plans to dispose of the
remaining resort assets over the next several years. However, no assurance
exists 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.
F-15
<PAGE>
In fiscal 1994, the Company reassessed the net realizable value of its resort
assets and liabilities, and recorded a $1.1 million adjustment to reduce the
carrying value of the net assets. This charge is included in nonrecurring
expenses in the accompanying consolidated statement of operations, and consists
of the following (in thousands):
Timeshare inventory $ 438
Receivables from timeshare 280
associations
Operating assets to be transferred 59
to a timeshare association
Additional HUD-related improvements 94
Deferred maintenance and other 242
costs
------
$1,113
======
Based on the Company's disposition plan for the resorts and its assessment of
the recoverability of the net resort assets, in fiscal 1994, the Company also
reversed the remaining $3.1 million accrual for resort disposition costs. This
amount is included in nonrecurring income in the accompanying consolidated
statement of operations.
The Company believes that the continued operation of the resorts is critical to
the collection of the contracts receivable generated from resort sales, which
had a remaining balance of $2.4 million at June 30, 1996.
NOTE 6 -- LONG TERM DEBT
SECURED NOTES
In connection with its emergence from Chapter 11, on December 31, 1991, the
Company issued $141.4 million of Secured Notes. On June 12, 1992, the Company
issued $10.7 million of Additional Series Secured Notes in exchange for certain
indebtedness of a subsidiary, resulting in a total of $152.1 million principal
amount of Secured Notes outstanding. The Secured Notes were recorded net of a
$30.2 million discount to yield an effective rate of 18%. During the years ended
June 30, 1994, 1995 and 1996, $4.1 million, $4.6 million, and $4.2 million,
respectively, of this discount was amortized as additional interest expense.
Amortization for the six month period ended December 31, 1995 totaled $2.1
million.
The Secured Notes, including the additional series, bore interest at 12% per
annum, payable semi-annually on January 15 and July 15 of each year. The
Indenture required the Company to redeem $18.6 million of 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 June 30, 1996, the Company had outstanding $101,458,000 principal amount of
Secured Notes which were retired in full on July 17, 1996 in the Restructuring
(see "Secured Note Restructuring" below). Prior to the Restructuring, the
Company had repurchased certain 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. On July 15, 1995, the Company made a
mandatory redemption of $18.6 million principal amount of Secured Notes. On
June 6, 1994, the Company repurchased $10.0 million principal amount of Secured
Notes in a Dutch auction available to all Secured Noteholders, at a cost of $8.5
million, including accrued interest. The Company recognized a gain of $671,000
on this transaction. These gains have been presented as extraordinary items in
the accompanying consolidated statements of operations. No taxes were provided
as cancellation of debt income is not included in taxable income to the extent
that the
F-16
<PAGE>
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 a restructuring (the "Restructuring"),
in which all of the $101,458,000 principal amount of Secured Notes 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 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 obtained new senior secured financing through
Foothill Capital Corporation ("Foothill").
The Restructuring was accounted for as a Troubled Debt Restructuring, whereby
the restructured debt is recorded at the carrying value of the old debt (in the
event that future expected cash payments are greater than the carrying amount of
the old debt), and no gain or loss is recorded on the transaction. The
$40,218,000 principal amount of PIK Notes issued in the exchange were recorded
with a deferred gain of $303,000. This deferred gain will be amortized as a
reduction of interest expense using the effective interest method over the term
of the notes.
In addition to the $1.1 million of costs incurred by the Company during fiscal
1996 in connection with its efforts to restructure the Secured Notes (see Note
3), the Company incurred additional legal expenses and other direct costs in
fiscal 1997 in connection with the completion of the Restructuring, which were
reflected as restructuring costs in fiscal 1997.
Credit Agreement with Foothill
- ------------------------------
In the Restructuring, the Company entered into a new three-year credit agreement
(the "Credit Agreement"), dated as of July 10, 1996, 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 may not exceed $35.0 million. A total of $32.0 million was drawn under the
Credit Agreement at closing of the Restructuring. As of September 12, 1996, the
total borrowings outstanding under the Credit Agreement were $22.3 million, and
the amount available for borrowing under the revolving portion of the Credit
Agreement was $12.7 million.
The borrowings under the Credit Agreement bear interest at a rate which will
provide Foothill an internal rate of return of 14.5% over the term of the Credit
Agreement. Interest is payable monthly at the prime rate plus 2 3/4 percentage
points (with a minimum rate of 9% per annum), with any additional interest
required to fulfill Foothill's internal rate of return requirement payable upon
the termination of the Credit Agreement. The Company does not anticipate that
the amount of this residual interest payment will be material, due primarily to
$570,000 of prepaid interest paid to Foothill at the closing of 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
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. The Credit Agreement contains various restrictive
covenants governing the Company, including certain financial covenants related
to calculations, measured
F-17
<PAGE>
as of the end of each fiscal quarter, of (i) Earnings Before Interest, Taxes and
Depreciation and Amortization, and (ii) 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. 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.
The Company incurred debt issue costs of $3.1 million, including $570,000 of
prepaid interest, related to obtaining the Credit Agreement. These costs, which
include legal costs, financial advisory fees and other direct costs of obtaining
the loans, are capitalized in the Company's December 31, 1996 consolidated
balance sheet and are being amortized over the term of the Credit
Agreement.
PIK Notes
- ---------
In the Restructuring, the Company issued $40,218,000 principal amount of Senior
Subordinated Pay-In-Kind Notes Due 2003 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 will be paid 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
will be paid in cash.
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.
F-18
<PAGE>
NOTES AND MORTGAGES PAYABLE
Notes and mortgages payable consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31
-----------------
1995 1996 1996
------ ------ ---------------
(unaudited)
<S> <C> <C> <C>
Real estate mortgages, interest
payable at fixed rates ranging
from 7.0% to 17.3% due through $4,538 $ 867 $481
May 2012
Note payable with interest at
escalating rates ranging from
8.9% to 10.4%, semi-annual 215 235 223
payments due through February 2008
-------- -------- -------
$4,753 $1,102 $704
======== ======== =======
</TABLE>
Real estate mortgages totaling $2.5 million were eliminated in connection with
the abandonment of two operating campgrounds in the Fall of 1995.
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, 1995 and 1996,
December 31, 1996, and on a pro forma basis as if the Restructuring had occurred
on June 30, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
June 30, Pro Forma December 31,
-----------------
1995 1996 June 30, 1996 1996
-------- -------- -------------- ----------
CURRENT PORTION OF LONG TERM DEBT : (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Secured Notes, net of discount of $.2
million
in 1995, and $7.1 million in 1996 $ 18,398 $28,264
Borrowings under Credit Agreement $ 6,435 $1,674
Notes and mortgages payable 3,537 266 266 133
-------- ------- ------- --------
$ 21,935 $28,530 $ 6,701 $1,807
======== ======= ======= ========
LONG TERM DEBT:
Secured Notes, net of discount of $11.7
million
in 1995 $ 97,092 $66,086
Borrowings under Credit Agreement $25,565 $15,384
PIK Notes, including deferred gain of
$.3 million 40,521 40,502
Notes and mortgages payable 1,216 836 836 571
-------- ------- ------- ---------
$ 98,308 $66,922 $66,922 $56,457
======== ======= ======= =========
Total long term debt $120,243 $95,452 $73,623 $58,264
======== ======= ======= =========
</TABLE>
F-19
<PAGE>
The following table presents scheduled maturities of the principal amount of the
Company's outstanding debt as of June 30, 1996, and a pro forma description of
scheduled maturities of the Company's restructured debt as if the Restructuring
had occurred on June 30, 1996 (dollars in thousands):
Pro Forma
Year ending June 30, June 30,
June 30, 1996 1996
------------------------- --------- -----------
(unaudited)
1997 $ 18,865 $ 6,701
1998 18,673 7,874
1999 64,341 9,381
2000 187 8,652
2001 94 94
Thereafter 400 40,618
----------- -----------
102,560 73,320
Adjustment for
deferred gain (discount) (7,108) 303
----------- -----------
$ 95,452 $ 73,623
=========== ===========
NOTE 7 -- 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% (80% for Trails through March 29,
1994) of any tax amounts that would have been due or refundable, calculated as
if the subsidiary were a stand-alone taxpayer.
The differences, expressed as a percentage of pretax loss, between statutory and
effective federal income tax rates are as follows:
For the years ended June 30,
--------------------------------------
1994 1995 1996
---------- --------- ---------
Statutory tax rate (34.0)% (34.0)% 34.0%
Provision for state income taxes 7.6 2.2 2.2
Net operating loss 34.0 34.0 (34.0)
---------- --------- ---------
Effective tax rate 7.6% 2.2% 2.2%
========== ========= =========
At June 30, 1996, the Company had a net operating tax loss carryforward of $54.5
million, expiring in years 2007 through 2011.
F-20
<PAGE>
Components of deferred income taxes are as follows (dollars in thousands):
June 30,
--------------------------
1995 1996
DEFERRED TAX LIABILITIES: ----------- -----------
Property Basis Differences ($2,316) ($2,658)
Purchase Discount Amortization (532) (342)
Secured Note Discount (3,983)
Bad Debt Provision (198) (1,956)
----------- -----------
(7,029) (4,956)
DEFERRED TAX ASSETS: ----------- -----------
Secured Note Offering Costs 619 305
and Consent Fee Amortization
Deferred Gain on Secured Notes 1,231
Unpaid Expenses 3,924 4,387
Restructuring Costs 1,229 1,936
Deferred Revenue 480 536
Net Operating Loss 18,648 19,917
Other 469 516
----------- ----------
25,369 28,828
----------- ----------
Net Deferred Tax Asset 18,340 23,872
Valuation Account (18,340) (23,872)
----------- ----------
Net Deferred Tax Asset $0 $0
=========== ===========
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, 1995 or 1996, or December 31,
1996.
NOTE 8 -- 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, 1996, the Company's future
obligations under non-cancelable operating leases were as follows (dollars in
thousands):
Year ending
June 30, Amount
-------------- ----------
1997 $773
1998 307
1999 162
2000 129
2001 120
Accrued Construction Costs
- --------------------------
At June 30, 1996 and September 30, 1996, the Company had a recorded liability of
$3.2 million and $3.0 million, respectively, 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
F-21
<PAGE>
costs of such improvements are based upon engineering estimates and are
classified as a current liability in the accompanying consolidated balance
sheets.
CONTINGENCIES
Self Insurance
- --------------
During the year ended June 30, 1994, the Company began to self-insure general
liability losses up to $250,000 per occurrence, with an annual aggregate of $2.8
million. The Company has insurance policies which provide excess coverage up to
$27.0 million per occurrence and aggregate. The Company has provided a liability
for estimated known and unknown claims related to uninsured general liability
risks of $1.6 million at June 30, 1995 and 1996, and $1.8 million at December
31, 1996, which is included in other liabilities in the accompanying
consolidated balance sheets. This liability is determined based on actuarial
estimates.
Workers' Compensation Insurance
- -------------------------------
In fiscal 1996, the Company improved 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.
CEO Bonus Accrual and Stock Options
- -----------------------------------
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) exceeded $75.0 million at the time he 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. The CEO is entitled to $1,270,589, of
which $952,927 was paid on July 9, 1996. The additional $317,662 will be payable
on May 11, 1997, provided that the CEO is employed by the Company on that date.
The Company has obtained an irrevocable standby letter of credit on which the
CEO may draw this bonus if the Company fails to pay the bonus after receiving a
request from the CEO. A $1.5 million cash deposit securing this letter of credit
is included in restricted cash in the Company's consolidated balance sheet at
June 30, 1996. The amount of the cash deposit was subsequently reduced to
$317,662. 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.
Upon consummation of the Restructuring, the Company's CEO was granted, subject
to stockholder approval (see Note 16), options to purchase 664,495 shares of
Common Stock at $0.69 per share. The options 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, are subject to restrictions so
as to prevent an "ownership change" for federal tax purposes.
Declining Membership Base
- -------------------------
The Company derives a significant portion of its ongoing operating revenue from
its campground members (83% in fiscal 1996). The Company's membership base has
declined from 167,000 at December 31, 1991 to 128,000 at June 30, 1996 (23%),
and 126,000 at December 31, 1996, and the membership base is expected to decline
further. The Company attributes this continuing decline principally to its aging
membership base, of whom approximately 50% are senior citizens. 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. As a
result, the success of the Company's business strategy over the long term will
be dependent upon the Company being able to market new memberships in sufficient
numbers on a cost-effective basis.
F-22
<PAGE>
Environmental Issues
- --------------------
Certain environmental issues may exist at some of the Company's campgrounds and
resorts 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
- ----------
Oregon and California Attorneys General Matters. During fiscal 1994, the
- -----------------------------------------------
Attorneys General of Oregon and California threatened to commence lawsuits
against the Company as a result of its practice of charging a cancellation fee
in connection with the cancellation of paid-in-full memberships. The Attorneys
General alleged that paid-in-full memberships may be terminated by the member at
any time by simply giving notice to the Company, and that it is an unlawful
trade practice for the Company to insist upon payment of a cancellation fee. In
September 1994, the Company agreed to change its practice and no longer require
a cancellation fee. The Company has entered into an Assurance of Voluntary
Compliance with the Oregon Attorney General regarding its cancellation policy.
The Company has also entered into a Stipulated Judgment with the California
Attorney General regarding its cancellation policy, and also agreed to refund
certain amounts to members.
During fiscal 1996, the California Attorney General also threatened to commence
a lawsuit against the Company as a result of its closure of two campgrounds in
California during the Fall of 1995. The Attorney General alleged that the
Company failed to provide a comparable substitute campground as required by
California law. The Stipulated Judgment discussed above also covers this matter
and provides that the Company will make certain benefits available, and/or
refund certain amounts to, affected members. Management does not believe that
the resolution of these matters will have a material adverse impact on the
Company's operations or financial position.
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, which purports to be a class action, the
plaintiff alleges that the Company has failed to comply with the Americans with
Disabilities Act and related California statutes with respect to certain of its
campgrounds. The plaintiff alleges that the Company has failed to remove
barriers to access by persons with disabilities where such barrier removal is
readily achievable. The plaintiff seeks unspecified damages and injunctive
relief. Although this case is still in the early stages of development,
management does not believe that it 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.
NOTE 9 -- STOCKHOLDERS' EQUITY (DEFICIT)
In connection with its emergence from Chapter 11, the Company issued 3,703,726
shares of Common Stock (including shares issued in lieu of issuing Secured Notes
in denominations of less than $1,000, of which 220 such shares were issued in
fiscal 1994). As discussed in Note6, a total of 3,680,550 additional shares of
Common Stock were issued in the Restructuring on July 17, 1996.
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. The Company's Common Stock is subject to certain
restrictions on transfer (see Note 16).
F-23
<PAGE>
In connection with its emergence from Chapter 11, the Company issued warrants to
acquire up to 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 key employees and non-employee directors (see Note 13).
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.
NOTE 10 -- 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 year ended
June 30, 1996 (dollars in thousands):
1996
------------
Abandonment of two operating campgrounds and elimination of $2,518
related nonrecourse obligations (see Note 6)
The Company did not have any non-cash investing or financing activities during
the years ended June 30, 1995 or 1994.
NOTE 11 -- SUPPLEMENTAL EARNINGS PER SHARE INFORMATION
As discussed in Note 9, 3,680,550 additional shares of Common Stock were issued
in the Restructuring on July 17, 1996. The following earnings per share data
reflects the pro forma effect of the issuance of these shares as if the
additional shares had been issued as of the beginning of each period presented
(shares in thousands):
Pro Forma
Year Ended June 30,
-------------------------------------
1994 1995 1996
--------- ---------- --------
PRIMARY AND FULLY DILUTED NET INCOME
(LOSS) PER SHARE:
Income (loss) before extraordinary ($.91) ($1.61) $.06
item
Extraordinary item .09 .19
--------- ---------- --------
Net Income (Loss) ($.82) ($1.61) $.25
========= ========== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 7,383 7,383 7,383
========= ========== ========
F-24
<PAGE>
NOTE 12 -- 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, 1995 and 1996, and on
a pro forma basis as if the Restructuring had occurred as of June 30, 1996, are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
Pro Forma
June 30, 1995 June 30, 1996 June 30, 1996
------------------- ------------------- -------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS: (unaudited)
Cash and
Cash Equivalents $ 50,596 $50,596 $37,403 $37,403 $ 9,618 $ 9,618
Restricted Cash 1,629 1,629 2,912 2,912 2,912 2,912
Contracts Receivable 35,386 21,271 21,271
Less: allowances and
discount (16,688) (8,052) (8,052)
-------- -------- --------
18,698 21,000 13,219 13,600 13,219 13,600
FINANCIAL LIABILITIES:
Secured Notes, net of
discount 115,490 93,000 94,350 80,743
Borrowings under Credit
Agreement 32,000 32,000
PIK Notes 40,521 30,365
Notes and Mortgages
Payable 4,753 5,000 1,102 1,000 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, 1995 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 is 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 is 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.
PIK Notes
- ---------
The PIK Notes were issued in a private transaction, and as a result, there is no
public trading market for the PIK Notes. As of September 12, 1996, management
was not aware of any transaction involving the
F-25
<PAGE>
PIK Notes. For purposes of SFAS No. 107, management estimates that the fair
value of the PIK Notes is 75.5% of face value. This estimate is based on
information obtained from holders of the PIK Notes who believe that, if a public
trading market for the PIK Notes existed, trades could be anticipated at
approximately 75% to 76% of face value.
Notes and Mortgages Payable
- ---------------------------
The fair value of notes and mortgages payable 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.
NOTE 13 -- EMPLOYEE BENEFITS
EMPLOYEE STOCK PLANS
In connection with its emergence from Chapter 11, 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 of the Board of Directors (the "Compensation
Committee") 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. Set forth below is a summary of awards made under the 1991
Employee Plan for the years ended June 30, 1994, 1995 and 1996, and awards
outstanding as of the end of those years:
<TABLE>
<CAPTION>
Years ended June 30,
-------------------------------------
1994 1995 1996
--------- --------- --------
<S> <C> <C> <C>
ISOs outstanding, beginning of year 285,000 285,000 246,000
ISOs granted 160,000
ISOs canceled (39,000) (246,000)
ISOs exercised
--------- --------- ----------
ISOs outstanding, end of year 285,000 246,000 160,000
========= ========= ==========
ISOs exercisable, end of year 232,667 246,000 20,000
========= ========= ==========
Shares available for grant, end of year 6,780 45,780 131,780
========= ========= ==========
</TABLE>
F-26
<PAGE>
The 285,000 ISOs outstanding at the beginning of fiscal 1994 were granted to key
employees in fiscal 1993 with an exercise price of $2.50 per share. Of these
285,000 ISOs, 39,000 and 151,000 were canceled in fiscal 1995 and fiscal 1996,
respectively, 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 the 1993 Stock Option and Restricted Stock Purchase Plan as
discussed below. The 160,000 ISOs granted in fiscal 1996 include 140,000 ISOs
granted to key employees in September 1995 with an exercise price of $.625 per
share and 20,000 Non-Qualified Options granted to non-employee directors in
January 1996 with an exercise price of $.81 per share. The ISOs granted to key
employees in September 1995 have a three-year vesting schedule, and the ISOs
granted to directors in January 1996 were fully vested on the date of grant. To
date, none of these options have been exercised.
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 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 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. The ISOs granted in May 1996
were fully vested on the date of grant. To date, none of these ISOs have been
exercised.
DIRECTOR STOCK OPTION 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, all of which were issued as
Non-Qualified Options to the non-employee directors of the Company, 25,000 in
fiscal 1994 with an exercise price of $2.75 per share and 25,000 in fiscal 1995
with an exercise price of $0.79 per share. As of June30,1996, these options
were fully vested and none had been exercised.
The Director Plan is designed to be a "formula plan," pursuant to which each
non-employee director will automatically received 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. The exercise price of
each Non-Qualified Option is
F-27
<PAGE>
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.
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 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 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 USTrails 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 $205,000 for the year ended June 30, 1996, and has
committed to make matching contributions for the year ended June 30, 1997, 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 14 -- 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 business includes operations at eight full service
resorts which primarily consist of the sale of timeshare interests in fully
furnished vacation homes, management of the timeshare facilities, and the sale
of lots at certain resorts. In addition, the Company operates the common
amenities at one resort. The Company plans to dispose of the remaining material
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
F-28
<PAGE>
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. 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 table shows sales, operating earnings (loss), and other financial
information by industry segment for the years ended June 30, 1994, 1995 and 1996
(in thousands):
<TABLE>
<CAPTION>
Year ended June 30, 1994
------------------------
Corporate and
Campgrounds Resorts Other Consolidated
----------- ------- ------------- ------------
<S> <C> <C> <C> <C>
Operating revenues $62,015 $ 9,995 $ 72,010
Sales 1,457 2,518 3,975
Operating earnings (loss) 9,143 393 ($15,503) (5,967)
Identifiable assets 83,041 12,227 52,896 148,164
Depreciation 1,853 218 386 2,457
Capital expenditures 2,174 1,553 821 4,548
<CAPTION>
Year ended June 30, 1994
------------------------
Corporate and
Campgrounds Resorts Other Consolidated
----------- ------- ------------- ------------
<S> <C> <C> <C> <C>
Operating revenues $ 61,431 $ 8,095 $ 69,526
Sales 1,780 2,448 4,228
Operating earnings (loss) 6,474 418 ($18,560) (11,668)
Identifiable assets 74,933 9,012 51,941 135,886
Depreciation 1,940 165 486 2,591
Capital expenditures 3,984 998 750 5,732
<CAPTION>
Year ended June 30, 1994
------------------------
Corporate and
Campgrounds Resorts Other Consolidated
----------- ------- ------------- ------------
<S> <C> <C> <C> <C>
Operating revenues $ 59,816 $ 6,975 $ 66,791
Sales 2,630 1,357 3,987
Operating earnings (loss) 12,638 35 ($12,185) 488
Identifiable assets 65,076 4,705 39,973 109,754
Depreciation 2,209 123 534 2,866
Capital expenditures 621 366 35 1,022
</TABLE>
NOTE 15 -- INDEMNIFICATION ARRANGEMENTS
Under its Articles of Incorporation, 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
F-29
<PAGE>
to believe that their conduct was unlawful). In connection with this
indemnification obligation, the Company has entered into indemnification
agreements with its directors and officers.
The Company must advance funds to these individuals to enable them to defend any
such threatened or pending action, suit or proceeding. The Company cannot
release such funds, however, until it receives an undertaking by or on behalf of
the requesting individual to repay the amount if a court of competent
jurisdiction ultimately determines that such individual is not entitled to
indemnification. In connection with this obligation, the Company and Trails
established trusts (the "Indemnification Trusts") that will reimburse their
present and former directors and officers for any indemnifiable damages and
expenses that they incur and that will advance to them defense funds. 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 approximately $1.3 million at June 30, 1996 and
December 31, 1996, are included in other assets in the accompanying
consolidated balance sheets.
NOTE 16 -- SUBSEQUENT EVENTS
Reincorporation Merger and Transfer Restrictions on Common Stock
On November 19, 1996, the stockholders of USTrails approved the merger (the
"Merger") of USTrails into the Company, a newly formed, wholly-owned Delaware
subsidiary, pursuant to the Agreement and Plan of Merger dated as of October 1,
1996, between USTrails and the Company (the "Merger Agreement"). The Merger was
consummated on November 20, 1996. Pursuant to the terms of the Merger Agreement,
the Company is the surviving corporation. Each share of USTrails common stock,
par value $.01 per share ("USTrails Common Stock"), outstanding prior to the
Merger was converted into the right to receive one share of the Company's common
stock, par value $.01 per share ("Company 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 Company Common Stock. The principal purposes of the Merger were to
implement the transfer restrictions described below and to change USTrails'
state of incorporation to Delaware.
Transfer of Company 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), direct
or indirect transfer of Company 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 Company Common Stock of any person who at any time
during the preceding three-year period did not own more than 4.75% of the
Company Common Stock, (ii) increase the percentage of Company Common Stock owned
by any person that during the preceding three-year period owned more than 4.75%
of the Company 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
F-30
<PAGE>
(iii) cause an "ownership change" of the Company. Article IX provides that any
direct or indirect transfer of Company 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 owned in violation of Article IX
for any purpose, including for purposes of voting and receiving dividends or
other distributions in respect of Company Common Stock. Any shares purportedly
acquired in violation of Article IX will be transferred to a trustee who will be
required to sell them. See the Company's Proxy Statement/Prospectus, dated
October 3, 1996 (the "Proxy Statement/Prospectus"), in which the terms of such
restrictions were previously reported.
CEO Stock Options
- -----------------
At the 1996 Annual Meeting of Stockholders, the stockholders of USTrails also
approved the grant of options to purchase 664,495 shares of Common Stock at
$0.69 per share to the Company's Chief Executive Officer. The options are
exercisable for a period of ten years while the Chief Executive Officer is in
the employ of the Company, subject to certain exceptions. These options are
fully vested. However, the exercise of the options is subject to restrictions
designed to prevent an "ownership change" for federal tax purposes.
NOTE 17 -- CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following financial statements present the Company's condensed consolidating
balance sheets as of June 30,1996 and 1995, and the Company's condensed
consolidating statements of operations and cash flows for the years ended June
30, 1996, 1995 and 1994. RPI was acquired by the Company from NACO on September
10, 1992, prior to which RPI was owned by NACO. As a result, RPI's results of
operations and financial position as of and for the years presented, have been
reflected in a separate column. Wilderness Management commenced operations in
January 1994. Since the assets and operations of Wilderness Management are not
material, its results of operations and financial position as of and for the
years presented have been combined with the balances of RPI for purposes of the
following presentation.
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.
F-31
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
RPI AND
USTRAILS TRAILS NACO WILDERNESS(E) ELIMINATIONS 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 2,032 22,571 1,687 5,388 (27,006)b 4,672
--------- ------- --------- ------ ------------- ---------
Total current assets 41,251 24,890 2,389 5,477 (27,140) 46,867
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 22,364 26,030 80 48,578
Investment in subsidiaries 21,081 (21,081)d
Other assets 2,420 1,503 1,238 199 5,360
--------- ------- --------- ------ ------------- ---------
Total assets $ 96,525 $54,470 $ 30,860 $5,756 ($77,857) $109,754
========= ======= ========= ====== ============= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES --
Accounts payable and accrued liabilities $ 6,077 $ 7,969 $ 4,486 $ 753 ($1,309)a,b $ 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 membership dues revenue 10,782 5,641 1,176 17,599
--------- ------- --------- ------ ------------- ---------
Total current liabilities 58,089 18,983 14,886 2,307 (27,006) 67,259
Notes payable to parent 1 29,416 (29,417)c
Long term debt 66,086 346 490 66,922
Other liabilities 353 1,554 2,010 (353) 3,564
--------- ------- --------- ------ ------------- ---------
Total liabilities 124,528 20,884 46,802 2,307 (56,776) 137,745
--------- ------- --------- ------ ------------- ---------
STOCKHOLDERS' EQUITY (DEFICIT) (28,003) 33,586 (15,942) 3,449 (21,081) (27,991)
--------- ------- --------- ------ ------------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 96,525 $54,470 $ 30,860 $5,756 ($77,857) $109,754
========= ======= ========= ====== ============= =========
</TABLE>
a Entry to eliminate the dealer holdback liability to subsidiaries.
b Entry to eliminate other intercompany accounts.
c Entry to eliminate intercompany debt and related interest.
d Entry to record subsidiaries' results on a consolidated basis.
e Includes Wilderness Management assets of $325,000.
F-32
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
RPI AND
USTRAILS TRAILS NACO WILDERNESS(E) ELIMINATIONS TOTAL
---------- --------- ---------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS --
Cash and cash equivalents $ 49,267 $ 435 $ 852 $ 42 $ 50,596
Current portion of receivables, net 4,364 2,801 155 ($1,944)a 5,376
Accounts and dues receivable, net 1,834 1,183 3,017
Other current assets 634 10,128 1,023 3,801 (13,233)b 2,353
---------- --------- ---------- -------------- -------------- -----------
Total current assets 54,265 15,198 3,213 3,843 (15,177) 61,342
Receivables, net 5,287 8,722 167 (854)a 13,322
Notes receivable from affiliates 33,504 (33,504)c
Real estate and property, net 169 26,193 30,597 104 57,063
Investment in subsidiaries 11,827 (11,827)d
Other assets 2,029 1,047 872 211 4,159
---------- --------- ---------- -------------- -------------- -----------
Total assets $107,081 $51,160 $ 34,849 $4,158 ($61,362) $135,886
========== ========= ========== ============== ============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES --
Accounts payable and accrued
liabilities $ 9,298 $ 5,968 $ 5,230 $ 695 ($2,303)a,b $ 18,888
Due to affiliates 11,279 1,238 357 (12,874)b
Current portion of long-term debt 18,398 2,520 1,017 21,935
Current portion of accrued
construction costs 3,454 3,454
Deferred membership dues revenue 10,938 6,637 1,047 18,622
---------- --------- ---------- -------------- -------------- -----------
Total current liabilities 38,975 19,426 17,576 2,099 (15,177) 62,899
Notes payable to parent 1 33,503 (33,504)c
Long term debt 97,092 838 378 98,308
Other liabilities 854 1,906 2,594 (854)a 4,500
---------- --------- ---------- -------------- -------------- -----------
Total liabilities 136,921 22,171 54,051 2,099 (49,535) 165,707
---------- --------- ---------- -------------- -------------- -----------
STOCKHOLDERS' EQUITY (DEFICIT) (29,840) 28,989 (19,202) 2,059 (11,827) (29,821)
---------- --------- ---------- -------------- -------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $107,081 $51,160 $ 34,849 $4,158 ($61,362) $135,886
========== ========= ========== ============== ============== ===========
</TABLE>
a Entry to eliminate the dealer holdback liability to subsidiaries.
b Entry to eliminate other intercompany accounts.
c Entry to eliminate intercompany debt and related interest.
d Entry to record subsidiaries' results on a consolidated basis.
e Includes Wilderness Management assets of $325,000.
F-33
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
RPI AND
USTRAILS TRAILS NACO WILDERNESS(D) ELIMINATIONS 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 real estate sales 2,028 1,959 3,987
Interest income $ 6,445 3,446 1,219 267 ($4,621)a 6,756
Income from subsidiaries 9,254 (9,254)c
Other income 66 4,669 10,977 4,585 (1,256)b 19,041
---------- --------- ---------- -------------- -------------- -----------
Total Revenue 15,765 45,054 40,636 5,672 (15,131) 91,996
---------- --------- ---------- -------------- -------------- -----------
EXPENSES
Campground/resort operating
expenses 25,647 23,865 796 50,308
Selling and marketing 3,652 1,715 5,367
Interest expense 17,346 146 4,822 (4,621)a 17,693
General and administrative 1,604 3,813 6,312 (1,256)b,c 10,473
Restructuring costs 1,124 1,124
Other expenses 3,721 585 2,237 6,543
---------- --------- ---------- -------------- -------------- -----------
Total Expenses 20,074 36,979 37,299 3,033 (5,877) 91,508
---------- --------- ---------- -------------- -------------- -----------
Operating income (loss) (4,309) 8,075 3,337 2,639 (9,254) 488
Income tax (provision) benefit 4,756 (3,471) (77) (1,249) (41)
Extraordinary gain 1,390 1,390
---------- --------- ---------- -------------- -------------- -----------
Net Income (Loss) $ 1,837 $ 4,604 $ 3,260 $ 1,390 ($9,254) $ 1,837
========== ========= ========== ============== ============== ===========
</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.
F-34
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
RPI AND
USTRAILS TRAILS NACO WILDERNESS(D) ELIMINATIONS TOTAL
---------- --------- ---------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Membership dues and other
campground/resort revenue $36,261 $ 28,385 $ 554 ($519)a $ 64,681
Membership and real estate sales 1,102 3,126 4,228
Interest income $ 8,509 3,961 1,698 188 (4,421)b 9,935
Other income 660 1,891 7,155 4,845 (1,849)a 12,702
---------- --------- ---------- -------------- -------------- -----------
Total Revenue 9,169 43,215 40,364 5,587 (6,789) 91,546
---------- --------- ---------- -------------- -------------- -----------
EXPENSES
Campground/resort operating expenses 29,789 27,214 613 (519)a,c 57,097
Selling and marketing 3,371 3,000 6,371
Interest expense 20,370 449 4,562 (4,421)b 20,960
General and administrative 2,239 4,777 6,951 (1,849)a,c 12,118
Restructuring costs 124 308 205 637
Loss from subsidiaries 926 (926)c
Other expenses 2,231 1,074 2,726 6,031
---------- --------- ---------- -------------- -------------- -----------
Total Expenses 23,659 40,925 43,006 3,339 (7,715) 103,214
---------- --------- ---------- -------------- -------------- -----------
Operating income (loss) (14,490) 2,290 (2,642) 2,248 926 (11,668)
Income tax (provision) benefit 2,567 (1,656) (38) (1,128) (255)
---------- --------- ---------- -------------- -------------- -----------
Net Income (Loss) ($11,923) $ 634 ($2,680) $ 1,120 $ 926 ($11,923)
========== ========= ========== ============== ============== ===========
</TABLE>
a Entry to eliminate servicing fee income earned on affiliate receivable
portfolios.
b Entry to eliminate intercompany interest.
c Entry to record subsidiaries' results on a consolidated basis.
d Includes Wilderness Management revenues and expenses of $554,000 and
$613,000, respectively.
F-35
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1994
(dollars in thousands)
<TABLE>
<CAPTION>
RPI AND
USTRAILS TRAILS NACO WILDERNESS(D) ELIMINATIONS TOTAL
---------- --------- ---------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Membership dues and other
campground/resort revenue $36,873 $30,153 $ 153 ($455)a $ 66,724
Membership and real estate sales 978 2,997 3,975
Interest income $10,039 4,899 2,409 (5,145)b 12,202
Income from subsidiaries 4,414 (4,414)c
Other income 38 4,219 10,636 5,286 (2,158)a 18,021
---------- --------- ---------- -------------- -------------- -----------
Total Revenue 14,491 46,969 46,195 5,439 (12,172) 100,922
---------- --------- ---------- -------------- -------------- -----------
EXPENSES
Campground/resort operating expenses 28,210 27,644 270 (455)a, 55,669
Selling and marketing 1,752 2,429 4,181
Interest expense 20,624 1,426 4,541 (5,145)b 21,446
General and administrative 2,784 5,077 6,700 (2,158)a, 12,403
Restructuring costs 1,101 1,285 927 3,313
Other expenses 6,037 785 3,055 9,877
---------- --------- ---------- -------------- -------------- -----------
Total Expenses 24,509 43,787 43,026 3,325 (7,758) 106,889
---------- --------- ---------- -------------- -------------- -----------
Operating income (loss) (10,018) 3,182 3,169 2,114 (4,414) (5,967)
Income tax (provision) benefit 3,301 (2,051) (374) (1,301) (425)
Minority interest (325)c (325)
---------- --------- ---------- -------------- -------------- -----------
Net income (loss) before extraordinary
item (6,717) 1,131 2,795 813 (4,739) (6,717)
Extraordinary gain 671 671
---------- --------- ---------- -------------- -------------- -----------
Net Income (Loss) ($6,046) $ 1,131 $ 2,795 $ 813 ($4,739) ($6,046)
========== ========= ========== ============== ============== ===========
</TABLE>
a Entry to eliminate servicing fee income earned on affiliate receivable
portfolios.
b Entry to eliminate intercompany interest.
c Entry to record subsidiaries' results on a consolidated basis and
reflect minority interest.
d Includes Wilderness Management revenues and expenses of $153,000 and
$270,000, respectively.
F-36
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
RPI AND
USTRAILS TRAILS NACO WILDERNES TOTAL
------------ --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Collections of receivables $ 5,306 $ 5,106 $ 1,839 $ 12,251
Interest received 1,577 3,446 912 $ 267 6,202
Interest paid (14,174) (146) (225) (14,545)
Intercompany interest 4,621 (4,621)
Receipts from sales and operations 66 39,329 32,084 5,530 77,009
Management fees, net (597) 3,561 (2,964)
Refund of excess dealer holdback (1,925) 496 1,429
Deposit for Letter of Credit (1,500) (1,500)
Expenditures for:
Property operations (24,467) (22,121) (3,039) (49,627)
Sales and marketing (3,649) (1,721) (5,370)
General and administrative (2,065) (7,466) (4,296) (13,827)
Insurance premiums (155) (2,836) (2,185) (5,176)
Income tax refund (payment) 4,756 (3,471) (77) (1,249) (41)
Other, net (851) 1,069 3 221
------------ --------- ---------- ----------- ---------
Net operating activities (4,941) 10,972 (1,943) 1,509 5,597
------------ --------- ---------- ----------- ---------
INVESTING ACTIVITIES:
Capital and HUD-related
expenditures 155 (851) (16) (1,022)
Proceeds from the sale of assets 3 308 6,916 12 7,239
------------ --------- ---------- ----------- ---------
Net investing activities 3 153 6,065 (4) 6,217
------------ --------- ---------- ----------- ---------
FINANCING ACTIVITIES:
Mandatory redemption of Secured
Notes (18,599) (18,599)
Repurchase of Secured Notes (5,275) (5,275)
Repayments of intercompany debt,
net 4,087 (4,087)
Advances to parent 12,756 (11,298) (1,458)
Repayments of notes payable (262) (871) (1,133)
------------ --------- ---------- ----------- ---------
Net financing activities (7,031) (11,560) (4,958) (1,458) (25,007)
------------ --------- ---------- ----------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (11,969) (435) (836) 47 (13,193)
CASH AND CASH EQUIVALENTS:
Beginning of year 49,267 435 852 42 50,596
------------ --------- ---------- ----------- ---------
End of year $ 37,298 $ 0 $ 16 $ 89 $ 37,403
============ ========= ========== =========== =========
</TABLE>
F-37
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
RPI AND
USTRAILS TRAILS NACO WILDERNESS TOTAL
---------- --------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Collections of receivables $8,133 $6,550 $1,995 $16,678
Interest received 4,020 3,969 1,281 9,270
Interest paid (15,290) (440) (143) (15,873)
Intercompany interest 4,421 (9) (4,412)
Receipts from sales and operations 37 39,370 36,181 $5,679 81,267
Management fees, net (331) 2,788 (2,457)
Refund of excess dealer holdback (1,729) 1,729
Expenditures for:
Property operations (27,316) (25,855) (3,597) (56,768)
Sales and marketing (2,723) (2,922) (5,645)
General and administrative (2,640) (9,703) (5,890) (18,233)
Insurance premiums (217) (2,484) (1,830) (22) (4,553)
Income tax refund (payment) 2,795 (1,840) (62) (1,149) (256)
Other, net (33) (756) 1,009 (220)
---------- --------- --------- ------------ -----------
Net operating activities (834) 7,406 (1,376) 691 5,887
---------- --------- --------- ------------ -----------
INVESTING ACTIVITIES:
Capital and HUD-related expenditures (30) (2,765) (2,885) (52) (5,732)
Proceeds from the sale of assets 9 91 1,032 1,132
---------- --------- --------- ------------ -----------
Net investing activities (21) (2,674) (1,853) (52) (4,600)
---------- --------- --------- ------------ -----------
FINANCING ACTIVITIES:
Repayments of intercompany debt, net (3,425) 3,425
Advances to parent 4,588 (4,106) 161 (643)
Repayments of notes payable (308) (61) (369)
Retirement of capital lease (381) (381)
---------- --------- --------- ------------ -----------
Net financing activities 1,163 (4,795) 3,525 (643) (750)
---------- --------- --------- ------------ -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 308 (63) 296 (4) 537
CASH AND CASH EQUIVALENTS:
Beginning of year 48,959 498 556 46 50,059
---------- --------- --------- ------------ -----------
End of year $49,267 $435 $852 $42 $50,596
========== ========= ========= ============ ===========
</TABLE>
F-38
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1994
(dollars in thousands)
<TABLE>
<CAPTION>
RPI AND
USTRAILS TRAILS NACO WILDERNESS TOTAL
------------- ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Collections of receivables $15,142 $8,374 $2,740 $26,256
Interest received 4,738 4,087 1,391 10,216
Interest paid (16,961) (628) (209) (17,798)
Intercompany interest 5,152 (790) (4,362)
Receipts from sales and operations 39,692 34,243 $5,495 79,430
Management fees, net (981) 2,250 (1,269)
Expenditures for:
Property operations (24,948) (24,933) (3,074) (52,955)
Sales and marketing (2,907) (1,306) (4,213)
General and administrative (3,838) (7,111) (6,417) (17,366)
Insurance premiums (14) (2,350) (2,647) (2) (5,013)
Income tax refund (payment) 4,410 (3,071) (162) (1,420) (243)
Other, net 240 109 578 927
------------- ------------ ------------- ----------- -----------
Net operating activities 7,888 12,707 (2,353) 999 19,241
------------- ------------ ------------- ----------- -----------
INVESTING ACTIVITIES:
Capital and HUD-related expenditures (140) (1,450) (2,927) (31) (4,548)
Proceeds from the sale of assets 4,167 6,227 10,394
Acquisition of remaining 20%
minority interest in Trails (7,497) (7,497)
------------- ------------ ------------- ----------- -----------
Net investing activities (7,637) 2,717 3,300 (31) (1,651)
------------- ------------ ------------- ----------- -----------
FINANCING ACTIVITIES:
Repayments of intercompany debt, net 10,546 (10,168) (378)
Advances to parent 4,699 (3,765) (934)
Repayments of notes payable (1,480) (800) (2,280)
Repurchase of Secured Notes (8,000) (8,000)
Payment of consent fees to Secured
Noteholders (1,610) (1,610)
------------- ------------ ------------- ----------- -----------
Net financing activities 5,635 (15,413) (1,178) (934) (11,890)
------------- ------------ ------------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 5,886 11 (231) 34 5,700
CASH AND CASH EQUIVALENTS:
Beginning of year 43,073 487 787 12 44,359
------------- ------------ ------------- ----------- -----------
End of year $48,959 $498 $556 $46 $50,059
============= ============ ============= =========== ===========
</TABLE>
F-39
<PAGE>
SCHEDULE II
THOUSAND TRAILS, INC (FORMERLY USTRAILS INC) AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Description: Balance at Balance at
the the
Valuation and qualifying accounts Year beginning of beginning of
deducted from assets ended the year Additions Deductions the year
------------------------------------- -------- -------------- --------------- ------------- --------------
<S> <S> <S> <C> <C> <C>
Allowance for doubtful accounts 6/30/96 $13,806 $24 $7,540 a $6,290
6/30/95 17,495 546 b 4,235 13,806
6/30/94 26,710 1,122 c 10,337 17,495
Allowance for uncollectible dues 6/30/96 $4,008 $4,754 d $4,096 $4,666
receivable 6/30/95 4,611 4,400 5,003 4,008
6/30/94 4,045 4,050 d 3,484 4,611
Allowance for interest discount, 6/30/96 $2,882 $ 0 $1,120 $1,762
collection costs and valuation 6/30/95 4,333 550 e 2,001 f 2,882
discount 6/30/94 6,711 0 2,378 4,333
Deferred tax valuation allowance 6/30/96 $18,340 $5,532 $0 $23,872
6/30/95 15,548 2,792 0 18,340
6/30/94 6,754 8,794 0 15,548
Other
-----
Accrued resort disposition costs 6/30/94 $3,753 $0 $3,753 g $0
</TABLE>
a Includes a reduction in the allowance for doubtful accounts of $5,146.
b Includes an 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 doubtful accounts of $1,000.
d Includes a reduction in the allowance for uncollectible dues receivable
of $1,000.
e Represents a valuation allowance of $550 recorded in connection with
the repurchase of contracts receivable from a third party.
f Includes a reduction in the allowance for collection costs of $540.
g Includes the reversal of accrued resort disposition costs of $3,135.
F-40
<PAGE>
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.
_________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Co-Registrants............................................................ (iii)
Available Information..................................................... (iii)
Additional Information.................................................... (iii)
Reports to Security Holders............................................... (iv)
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 4
The Company............................................................... 8
Consolidated Ratios of Earnings to Fixed Charges.......................... 9
Use of Proceeds........................................................... 10
Capitalization............................................................ 10
Selected Financial Data................................................... 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................... 12
Business.................................................................. 32
Legal Proceedings......................................................... 42
Management................................................................ 42
Executive Compensation.................................................... 43
Certain Transactions...................................................... 51
Security Ownership........................................................ 52
Selling Security Holders.................................................. 55
Plan of Distribution...................................................... 57
Description of PIK Notes.................................................. 57
Certain Federal Income Tax Considerations................................. 77
Experts................................................................... 81
Legal Matters............................................................. 81
Consolidated Financial Statements......................................... F-1
</TABLE>
THOUSAND TRAILS, INC.
$38,042,000
SENIOR SUBORDINATED
PAY-IN-KIND
NOTES DUE 2003
PROSPECTUS
DATED FEBRUARY 28, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses (other than registration and NASD filing fees)
are estimated. 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.. $ 14,569
Blue Sky fees and expenses........................... 35,000
Printing............................................. 5,000
Accountants' fees and expenses....................... 7,500
Legal fees and expenses.............................. 80,000
Registrar fees and expenses.......................... 9,000
Miscellaneous........................................ 3,931
Total...................................... $150,000
========
</TABLE>
ITEM 14. 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
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<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 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Securities issued in Private Exchange. On July 17, 1996, the
-------------------------------------
Registrant's predecessor, its former parent company, consummated a debt
restructuring (the "Restructuring") whereby all of the $101,458,000 principal
amount of its 12% Secured Notes Due 1998 (the "Secured Notes") were retired. As
part of the Restructuring, the Registrant's predecessor issued $40,218,000
principal amount of its Senior Subordinated Pay-In-Kind Notes Due 2003 (the "PIK
Notes") and 3,680,550 shares of its Common Stock, par value $.01 per share (the
"Old 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 Old 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 "Securities Act"). The PIK Notes were
assumed by the Registrant as the result of a reincorporation merger (the
"Reincorporation Merger"), in which the Registrant's predecessor was merged into
the Registrant. The PIK Notes are also guaranteed by all of the Respondent's
wholly-owned subsidiaries (other than an immaterial utility subsidiary). The
Old Common Stock was converted on a share for share basis into Common Stock, par
value $.01 per share (the "New Common Stock") of the Registrant in the
Reincorporation Merger. The Reincorporation Merger, which became effective on
November 20, 1996, was approved by stockholders after solicitation in accordance
with Regulation 14A under the Securities Exchange Act of 1934, as amended, and
the registration of the New Common Stock through a registration statement on
Form S-4 under the Securities Act. The PIK Notes are currently the subject of
the Registration Statement in which this Item 15 is included.
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<PAGE>
(b) Stock Option Agreement. On November 19, 1996, the stockholders of
----------------------
the Registrant's predecessor approved the grant to William J. Shaw, the
Registrant's Chairman, President and Chief Executive Officer, of options to
purchase 664,495 shares of Old Common Stock at $.069 per share. The options
became exercisable for New Common Stock as a result of the Reincorporation
Merger.
The options are evidenced by a stock option agreement, dated as of
August 1, 1996 (the "Stock Option Agreement"), approved by the Special Committee
of the Board of Directors in connection with the Restructuring. The exercise
price under the Stock Option Agreement represents the average closing bid
quotation for the Old Common Stock as quoted through the NASD OTC Bulletin Board
and National Quotation Bureau's Pink Sheets for the ten business days
immediately following the date the Restructuring was consummated and, in the
judgment of the Special Committee and the Board of Directors, reflected the fair
market value of the Old Common Stock as of the date the Restructuring was
consummated in view of the fact that the Old Common Stock was lightly traded.
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
Registrant and for a 90-day period thereafter except in the event of the
termination of Mr. Shaw's employment due to death or permanent disability, in
which case the options will be exercisable for one year thereafter, or for
"cause," in which case the options will terminate immediately. However, Mr.
Shaw will not be permitted to exercise the options if, and to the extent that,
such exercise would cause an increase in the amount of "ownership change" (for
federal income 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 such limitations cease
within which to exercise such options. However, solely with respect to that
portion of the options intended to be incentive stock options, the Exercise
Restrictions will not apply during the last 90 days of the ten year term, and,
if unexercised at the end of such ten year term, such options will expire.
Neither the options, nor any interest therein, may be assigned or transferred
except by will or the laws of descent and distribution.
The exercise price is payable in cash, except that with the prior
approval of the Board committees administering the Stock Option Agreement, the
exercise price may instead be paid in whole or in part by the delivery to the
Registrant of a certificate or certificates representing shares of New Common
Stock, provided that the Registrant is not then prohibited by the terms of any
contractual obligation or legal restriction from purchasing or acquiring such
shares of New Common Stock.
The Options were issued to Mr. Shaw in a private placement exempt from
the registration requirements of the Securities Act by Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 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).
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<PAGE>
2.3 Offer to Purchase for Cash USTrails' 12% Secured Notes Due 1998 and
Additional Series 12% Secured Notes Due 1998 by USTrails, dated June
5, 1996 (the "Offer to Purchase") (incorporated by reference to
Exhibit 99.2 to USTrails' Current Report on Form 8-K filed with the
SEC on June 7, 1996).
2.4 Supplement to the Offer to Purchase, dated June 21, 1996 (incorporated
by reference to Exhibit 2.5 to USTrails' Annual Report on Form 10-K
filed with the SEC for the year ended June 30, 1996).
2.5 Private Placement Memorandum by USTrails offering to exchange
USTrails' 12% Secured Notes Due 1998 and Additional Series 12% Secured
Notes Due 1998 to certain holders of such notes, dated June 28, 1996
(the "Private Placement Memorandum") (incorporated by reference to
Exhibit 2.6 to USTrails' Annual Report on Form 10-K filed with the SEC
for the year ended June 30, 1996).
2.6 Letter of Transmittal pertaining to the transmittal of USTrails' 12%
Secured Notes Due 1998 and Additional Series 12% Secured Notes Due
1998 by certain holders of such notes pursuant to the exchange offer
made by USTrails in the Private Placement Memorandum (incorporated by
reference to Exhibit 2.7 to USTrails' Annual Report on Form 10-K filed
with the SEC for the year ended June 30, 1996).
2.7 Supplement to the Private Placement Memorandum, dated July 15, 1996
(incorporated by reference to USTrails' Annual Report on Form 10-K
filed with the SEC for the year ended June 30, 1996).
3.1 Restated Certificate of Incorporation of the Registrant (incorporated
by reference to the proxy statement/prospectus filed with the SEC on
October 3, 1996 as part of the 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).
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).
5.1 Opinion of Gibson, Dunn & Crutcher LLP, counsel to the Registrant, as
to the validity of the securities being registered.
II-4
<PAGE>
10.1 Credit 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).
10.2 First Amendment to Credit 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).
10.3 Second Amendment to Credit 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).
10.4 Third Amendment to Credit Agreement, dated as of July 1, 1996, between
NACO and the Registrant.
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.
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.
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).
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).
10.9 Release under Credit Agreement and Security Agreement, dated as of May
31, 1993, among certain subsidiaries of USTrails, USTrails, and
Shawmut Bank Connecticut, National Association, as Trustee
(incorporated by reference to Exhibit 10.57 to USTrails' Registration
Statement No. 33-571261 on Form S-2, originally filed with the SEC on
January 15, 1993).
10.10 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).
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).
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
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<PAGE>
Exhibit 10.55 to USTrails' Registration Statement No. 33-571261 on
Form S-2, originally filed with the SEC on January 15, 1993).
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).
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).
10.15 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).
10.16 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).
10.17 Form of Pledge and Security Agreement, dated as of July 10, 1996,
between USTrails and Foothill Capital Corporation, and schedule of
documents substantially identical to the form of Pledge and Security
Agreement (incorporated by reference to Exhibit 10.22 to USTrails'
Annual Report on Form 10-K filed with the SEC for the year ended June
30, 1996).
10.18 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).
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 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).
10.20 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).
10.21 USTrails' 1991 Employee Stock Incentive Plan (incorporated by
reference to Exhibit 10.40 to USTrails' Annual Report on Form 10-K for
the year ended June 30, 1992).
10.22 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).
II-6
<PAGE>
10.23 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).
10.24 Amendment No. 1 to USTrails' 1991 Employee Stock Incentive Plan
(incorporated by reference to Exhibit 10.8 to USTrails' Quarterly
Report on Form 10-Q for the period ending September 30, 1996).
10.25 Amendment No. 1 to USTrails' 1993 Stock Option and Restricted Stock
Purchase Plan (incorporated by reference to Exhibit 10.9 to USTrails'
Quarterly Report on Form 10-Q for the period ending September 30,
1996).
10.26 Amendment No. 1 to USTrails' 1993 Director Stock Option Plan
(incorporated by reference to Exhibit 10.10 to USTrails' Quarterly
Report on Form 10-Q for the period ending September 30, 1996).
10.27 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).
10.28 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).
10.29 Employment Agreement, dated as of May 11, 1995, between USTrails and
William J. Shaw, and related Standby Letter of Credit, dated September
22, 1995, issued by The Bank of California, N.A., for the benefit of
Mr. Shaw, and Letter, dated September 20, 1995, from The Wyatt
Company, regarding Mr. Shaw's Employment Agreement (incorporated by
reference to Exhibit 10.25 to USTrails' Annual Report on Form 10-K for
the year ended June 30, 1995).
10.30 Letter dated June 29, 1996, from William J. Shaw to USTrails,
regarding Mr. Shaw's election to receive the Enterprise Bonus payable
under his Employment Agreement, and Letter, dated July 8, 1996, from
Deloitte & Touche LLP, regarding the computation of the amount of the
Enterprise Bonus payable to Mr. Shaw under his Employment Agreement
(incorporated by reference to Exhibit 10.30 to USTrails' Annual Report
on Form 10-K for the year ended June 30, 1996).
10.31 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), 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).
10.32 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
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<PAGE>
amendment dated November 15, 1994 (incorporated by reference to
Exhibit 10.30 to USTrails' Annual Report on Form 10-K for the year
ended June 30, 1995), and amendment dated December 7, 1995
(incorporated by reference to Exhibit 10.1 to USTrails' Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995).
10.33 Amended and Restated Employment Agreement, dated as of October 21,
1993, between USTrails and Harry J. White, Jr. (incorporated by
reference to Exhibit 99.3 to USTrails' Quarterly Report on Form l0-Q
for the quarter ended September 30, 1993), and amendment dated
December 7, 1995 (incorporated by reference to Exhibit 10.2 to
USTrails' Quarterly Report on Form 10-Q for the quarter ended December
31, 1995).
10.34 Employment Agreement, dated as of August 31, 1995, between USTrails
and R. Gerald Gelinas (incorporated by reference to Exhibit 10.32 to
USTrails' Annual Report on Form 10-K for the year ended June 30,
1995).
10.35 Indemnification Agreement, dated as of February 18, 1992, between
USTrails and Andrew Boas (incorporated by reference to Exhibit 10.23
to USTrails' Annual Report on Form 10-K for the year ended June 30,
1992), and schedule of substantially identical Indemnification
Agreements (incorporated by reference to Exhibit 10.33 to USTrails'
Annual Report on Form 10-K for the year ended June 30, 1995).
10.36 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).
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 USTrails' Annual Report on Form 10-K filed with the SEC for the
year ended June 30, 1996).
10.38 Indemnification Agreement, dated as of May 8, 1991, between USTrails
and Donald W. Hair, and schedule of substantially identical
Indemnification Agreements (incorporated by reference to Exhibit 10.38
to USTrails' Annual Report on Form 10-K filed with the SEC for the
year ended June 30, 1996).
10.39 Indemnification Agreement, dated as of November 20, 1996, between the
Registrant and William J. Shaw and schedule of substantially identical
Indemnification Agreements.
10.40 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).
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
USTrails' Annual Report on Form 10-K for the year ended June 30,
1994).
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 Old Trails (the "Old Trails Trust
II-8
<PAGE>
Agreement") (incorporated by reference to USTrails' Annual Report on
Form 10-K for the year ended June 30, 1992, File No. 0-9246).
10.43 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.
10.44 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.
10.45 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).
10.46 Grantor Trust Agreement, dated May 8, 1991, between USTrails and Texas
Commerce Bank, N.A. (the "TCB Trust Agreement") (incorporated by
reference to Exhibit 10.41 to USTrails' Annual Report on Form 10-K for
the year ended June 30, 1992).
10.47 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).
10.48 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).
10.49 Trust Agreement, dated as of July 22, 1992, establishing USTrails'
Flexible Benefits Plan Trust Fund (incorporated by reference to
Exhibit 10.45 to USTrails' Annual Report on Form 10-K for the year
ended June 30, 1992).
10.50 USTrails Inc. Employee Savings Trust, dated as of July 1, 1994,
between USTrails and its subsidiaries and The Bank of California,
N.A., as trustee (incorporated by reference to Exhibit 10.42 to
USTrails' Annual Report on Form 10-K for the year ended June 30,
1994).
10.51 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).
10.52 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).
10.53 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).
II-9
<PAGE>
10.54 Sample form of current Membership Contract (incorporated by reference
to Exhibit 10.20 to USTrails' Annual Report on Form 10-K filed with
the SEC for the year ended June 30, 1996).
10.55 Form of Subordination Agreement, dated as of July 10, 1996, between
USTrails and Foothill Capital Corporation, subordinating the security
interests under the credit agreement between USTrails and NACO to the
security interests under the Credit Agreement with Foothill, and
schedule of documents substantially identical to the form of
Subordination Agreement (incorporated by reference to Exhibit 10.25 to
USTrails' Annual Report on Form 10-K for the year ended June 30,
1996).
11.1 Statement re: Computation of Earnings
12.1 Statement of computation of ratio of earnings to fixed charges.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Anderson LLP.
24.1 Power of Attorney (see signature page of this Registration Statement).
25.1 Statement of Eligibility of the Trustee on Form T-1.
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.
(b) Financial Statement Schedules.
Schedule
Number Description
- ------------- ----------------------------------
Schedule II Valuation and Qualifying Accounts.
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, and the
Co-Registrants named below have duly caused this Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of Dallas, State of Texas, on the ____ day of February, 1997.
THOUSAND TRAILS, INC.,
A DELAWARE CORPORATION
By: /s/ William J. Shaw
------------------------------------------
Name: William J. Shaw
Title: President and Chief Executive
Officer
CO-REGISTRANTS:
--------------
BEECH MOUNTAIN LAKES CORPORATION CAROLINA LANDING
CORPORATION
CARRIAGE MANOR CORPORATION
CHEROKEE LANDING CORPORATION
CHIEF CREEK CORPORATION
DIXIE RESORT CORPORATION
FOXWOOD CORPORATION
G L LAND DEVELOPMENT, INC.
LAKE ROYALE CORPORATION
LAKE TANSI VILLAGE, INC.
LML RESORT CORPORATION
NATCHEZ TRACE WILDERNESS PRESERVE
CORPORATION
NATIONAL AMERICAN CORPORATION
QUAIL HOLLOW PLANTATION CORPORATION
QUAIL HOLLOW VILLAGE, INC.
RECREATION LAND CORPORATION
RECREATION PROPERTIES, INC.
RESORT LAND CORPORATION
TANSI RESORT, INC.
THE KINSTON CORPORATION
THE VILLAS OF HICKORY HILLS, INC.
THOUSAND TRAILS (CANADA) INC.
TT OFFSHORE, LTD.
UST WILDERNESS MANAGEMENT
CORPORATION
WESTERN FUN CORPORATION
II-12
<PAGE>
WESTWIND MANOR CORPORATION
WOLF RUN MANOR CORPORATION
By: /s/ William J. Shaw
--------------------------------------------
Name: William J. Shaw
Title: President and Chief Executive Officer
RESORT PARKS INTERNATIONAL, INC.
By: /s/ William F. Dawson*
---------------------------------------------
Name: William F. Dawson
Title: Chief Executive Officer
*By: /s/ William J. Shaw
----------------------
William J. Shaw
Attorney-in-fact
II-13
<PAGE>
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 February 27, 1997.
REGISTRANT OFFICERS AND DIRECTORS
Signature Title
--------- -----
/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
II-14
<PAGE>
CO-REGISTRANT OFFICERS AND DIRECTORS (OTHER THAN SHOREWOOD CORPORATION)
Signature Title
--------- -----
/s/ William J. Shaw Director, President
- ---------------------------
William J. Shaw
/s/ Harry J. White, Jr.* Director/*/, Vice President and Assistant Secretary
- ---------------------------
Harry J. White, Jr.
/s/ Kenneth E. Hendrycy* Director, Vice President and Secretary or
- ---------------------------
Kenneth E. Hendrycy Assistant Secretary
/s/ Walter B. Jaccard* Director, Vice President and Secretary or
- ---------------------------
Walter B. Jaccard Assistant Secretary
/s/ David A. McCrum* Treasurer
- ---------------------------
David A. McCrum
_________________
/*/ National American Corporation only
*By: /s/ William J. Shaw
------------------------
William J. Shaw
Attorney-in-fact
RESORT PARKS INTERNATIONAL, INC.
Signature Title
--------- -----
/s/ William J. Shaw Director, Vice President
- ---------------------------
William J. Shaw
/s/ Harry J. White, Jr.* Vice President and Assistant Secretary
- ---------------------------
Harry J. White, Jr.
/s/ William F. Dawson* Chief Executive Officer
- ---------------------------
William F. Dawson
/s/ Kenneth E. Hendrycy* Director, Vice President and Assistant Secretary
- ---------------------------
Kenneth E. Hendrycy
/s/ Walter B. Jaccard* Director, Vice President and Secretary
- ---------------------------
Walter B. Jaccard
/s/ Richard D. Kemp* President and Chief Operations Officer
- ---------------------------
Richard D. Kemp
/s/ David A. McCrum* Treasurer
- ---------------------------
David A. McCrum
II-15
<PAGE>
*By: /s/ William J. Shaw
----------------------
William J. Shaw
Attorney-in-fact
II-16
<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).
2.3 Offer to Purchase for Cash USTrails' 12% Secured Notes Due 1998 and
Additional Series 12% Secured Notes Due 1998 by USTrails, dated June
5, 1996 (the "Offer to Purchase") (incorporated by reference to
Exhibit 99.2 to USTrails' Current Report on Form 8-K filed with the
SEC on June 7, 1996).
2.4 Supplement to the Offer to Purchase, dated June 21, 1996 (incorporated
by reference to Exhibit 2.5 to USTrails' Annual Report on Form 10-K
filed with the SEC for the year ended June 30, 1996).
2.5 Private Placement Memorandum by USTrails offering to exchange
USTrails' 12% Secured Notes Due 1998 and Additional Series 12% Secured
Notes Due 1998 to certain holders of such notes, dated June 28, 1996
(the "Private Placement Memorandum") (incorporated by reference to
Exhibit 2.6 to USTrails' Annual Report on Form 10-K filed with the SEC
for the year ended June 30, 1996).
2.6 Letter of Transmittal pertaining to the transmittal of USTrails' 12%
Secured Notes Due 1998 and Additional Series 12% Secured Notes Due
1998 by certain holders of such notes pursuant to the exchange offer
made by USTrails in the Private Placement Memorandum (incorporated by
reference to Exhibit 2.7 to USTrails' Annual Report on Form 10-K filed
with the SEC for the year ended June 30, 1996).
<PAGE>
2.7 Supplement to the Private Placement Memorandum, dated July 15, 1996
(incorporated by reference to USTrails' Annual Report on Form 10-K
filed with the SEC for the year ended June 30, 1996).
3.1 Restated Certificate of Incorporation of the Registrant (incorporated
by reference to the proxy statement/prospectus filed with the SEC on
October 3, 1996 as part of the 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).
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).
**5.1 Opinion of Gibson, Dunn & Crutcher LLP, counsel to the Registrant, as
to the validity of the securities being registered.
10.1 Credit 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).
2
<PAGE>
10.2 First Amendment to Credit 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).
10.3 Second Amendment to Credit 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).
10.4 Third Amendment to Credit Agreement, dated as of July 1, 1996, between
NACO and the Registrant.
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.
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.
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).
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).
10.9 Release under Credit Agreement and Security Agreement, dated as of May
31, 1993, among certain subsidiaries of USTrails, USTrails, and
Shawmut Bank Connecticut, National Association, as Trustee
(incorporated by reference to Exhibit 10.57 to USTrails' Registration
Statement No. 33-571261 on Form S-2, originally filed with the SEC on
January 15, 1993).
10.10 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
3
<PAGE>
reference to Exhibit 10.31 to USTrails' Annual Report on Form 10-K for
the year ended June 30. 1992).
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).
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).
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).
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).
10.15 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).
10.16 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).
4
<PAGE>
10.17 Form of Pledge and Security Agreement, dated as of July 10, 1996,
between USTrails and Foothill Capital Corporation, and schedule of
documents substantially identical to the form of Pledge and Security
Agreement (incorporated by reference to Exhibit 10.22 to USTrails'
Annual Report on Form 10-K filed with the SEC for the year ended June
30, 1996).
10.18 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).
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 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).
10.20 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).
10.21 USTrails' 1991 Employee Stock Incentive Plan (incorporated by
reference to Exhibit 10.40 to USTrails' Annual Report on Form 10-K for
the year ended June 30, 1992).
10.22 USTrails' 1993 Stock Option and Restricted Stock Purchase Plan
(incorporated by reference to Exhibit 10.22 to USTrails' Registration
Statement No. 33-73284 on Form S-2, originally filed with the SEC on
December 22, 1993).
10.23 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).
5
<PAGE>
10.24 Amendment No. 1 to USTrails' 1991 Employee Stock Incentive Plan
(incorporated by reference to Exhibit 10.8 to USTrails' Quarterly
Report on Form 10-Q for the period ending September 30, 1996).
10.25 Amendment No. 1 to USTrails' 1993 Stock Option and Restricted Stock
Purchase Plan (incorporated by reference to Exhibit 10.9 to USTrails'
Quarterly Report on Form 10-Q for the period ending September 30,
1996).
10.26 Amendment No. 1 to USTrails' 1993 Director Stock Option Plan
(incorporated by reference to Exhibit 10.10 to USTrails' Quarterly
Report on Form 10-Q for the period ending September 30, 1996).
10.27 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).
10.28 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).
10.29 Employment Agreement, dated as of May 11, 1995, between USTrails and
William J. Shaw, and related Standby Letter of Credit, dated September
22, 1995, issued by The Bank of California, N.A., for the benefit of
Mr. Shaw, and Letter, dated September 20, 1995, from The Wyatt
Company, regarding Mr. Shaw's Employment Agreement (incorporated by
reference to Exhibit 10.25 to USTrails' Annual Report on Form 10-K for
the year ended June 30, 1995).
10.30 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
6
<PAGE>
reference to Exhibit 10.30 to USTrails' Annual Report on Form 10-K for
the year ended June 30, 1996).
10.31 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), 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).
10.32 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), and
amendment dated December 7, 1995 (incorporated by reference to Exhibit
10.1 to USTrails' Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995).
10.33 Amended and Restated Employment Agreement, dated as of October 21,
1993, between USTrails and Harry J. White, Jr. (incorporated by
reference to Exhibit 99.3 to USTrails' Quarterly Report on Form l0-Q
for the quarter ended September 30, 1993), and amendment dated
December 7, 1995 (incorporated by reference to Exhibit 10.2 to
USTrails' Quarterly Report on Form 10-Q for the quarter ended December
31, 1995).
10.34 Employment Agreement, dated as of August 31, 1995, between USTrails
and R. Gerald Gelinas (incorporated by reference to Exhibit 10.32 to
USTrails' Annual Report on Form 10-K for the year ended June 30,
1995).
10.35 Indemnification Agreement, dated as of February 18, 1992, between
USTrails and Andrew Boas (incorporated by reference to Exhibit 10.23
to USTrails' Annual Report on Form 10-K for the year ended June 30,
1992), and schedule of substantially identical Indemnification
Agreements (incorporated by reference to Exhibit 10.33 to USTrails'
Annual Report on Form 10-K for the year ended June 30, 1995).
7
<PAGE>
10.36 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).
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 USTrails' Annual Report on Form 10-K filed with the SEC for the
year ended June 30, 1996).
10.38 Indemnification Agreement, dated as of May 8, 1991, between USTrails
and Donald W. Hair, and schedule of substantially identical
Indemnification Agreements (incorporated by reference to Exhibit 10.38
to USTrails' Annual Report on Form 10-K filed with the SEC for the
year ended June 30, 1996).
**10.39 Indemnification Agreement, dated as of November 20, 1996, between the
Registrant and William J. Shaw and schedule of substantially identical
Indemnification Agreements.
10.40 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).
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
USTrails' Annual Report on Form 10-K for the year ended June 30,
1994).
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 Old Trails (the "Old Trails Trust Agreement") (incorporated
by reference to USTrails' Annual Report on Form 10-K for the year
ended June 30, 1992, File No. 0-9246).
**10.43 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.
8
<PAGE>
**10.44 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.
10.45 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).
10.46 Grantor Trust Agreement, dated May 8, 1991, between USTrails and Texas
Commerce Bank, N.A. (the "TCB Trust Agreement") (incorporated by
reference to Exhibit 10.41 to USTrails' Annual Report on Form 10-K for
the year ended June 30, 1992).
10.47 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).
10.48 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).
10.49 Trust Agreement, dated as of July 22, 1992, establishing USTrails'
Flexible Benefits Plan Trust Fund (incorporated by reference to
Exhibit 10.45 to USTrails' Annual Report on Form 10-K for the year
ended June 30, 1992).
10.50 USTrails Inc. Employee Savings Trust, dated as of July 1, 1994,
between USTrails and its subsidiaries and The Bank of California,
N.A., as trustee (incorporated by reference to Exhibit 10.42 to
USTrails' Annual Report on Form 10-K for the year ended June 30,
1994).
10.51 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).
9
<PAGE>
10.52 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).
10.53 Tax Allocation Agreement, dated as of October 29, 1993, between
USTrails and Wilderness Management (incorporated by reference to
Exhibit 10.46 to USTrails' Annual Report on Form 10-K for the year
ended June 30,1994).
10.54 Sample form of current Membership Contract (incorporated by reference
to Exhibit 10.20 to USTrails' Annual Report on Form 10-K filed with
the SEC for the year ended June 30, 1996).
10.55 Form of Subordination Agreement, dated as of July 10, 1996, between
USTrails and Foothill Capital Corporation, subordinating the security
interests under the credit agreement between USTrails and NACO to the
security interests under the Credit Agreement with Foothill, and
schedule of documents substantially identical to the form of
Subordination Agreement (incorporated by reference to Exhibit 10.25 to
USTrails' Annual Report on Form 10-K for the year ended June 30,
1996).
*11.1 Statement re: Computation of Earnings
*12.1 Statement of computation of ratio of earnings to fixed charges.
*21.1 Subsidiaries of the Registrant.
**23.1 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
*23.2 Consent of Arthur Anderson LLP.
**24.1 Power of Attorney (see signature page of this Registration
Statement).
**25.1 Statement of Eligibility of the Trustee on Form T-1.
**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.
____________________
* Filed herewith.
** Previously filed with the January 7, 1997 Registration Statement.
10
<PAGE>
Exhibit 11.1
------------
THOUSAND TRAILS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(DOLLARS AND COMMON SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
December 31, December 31,
1996 1996
---------------- ----------------
<S> <C> <C>
PRIMARY:
Weighted average number of common shares outstanding 7,041 3,703
Weighted average common stock equivalents (vested options) 171
---------------- ----------------
Weighted average number of common shares outstanding 7,212 3,703
================ ================
Net income (loss) allocable to common shareholders $1,976 ($1,885)
================ ================
Primary net income (loss) per common share $0.27 ($0.51)
================ ================
FULLY DILUTED:
Weighted average number of common shares outstanding 7,041 3,703
Weighted average common stock equivalents (vested options) 220
---------------- ----------------
Weighted average number of common share outstanding 7,261 3,703
================ ================
Net income (loss) allocable to common shareholders $1,976 ($1,885)
================ ================
Fully diluted net income (loss) per common share $0.27 ($0.51)
================ ================
</TABLE>
<PAGE>
THOUSAND TRAILS, INC.
STATEMENT OF COMPUTATION OF RATIO
OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Six Months
6 Months Year Ended Year Ended Year Ended Year Ended Ended Ended
31-Dec-96 30-Jun-96 30-Jun-95 30-Jun-94 30-Jun-93 30-Jun-92 31-Dec-91
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before taxes $1,976 $488 ($11,668) ($5,967) ($9,781) ($23,195) $7,151
Plus:
Interest expense 4,130 13,128 15,900 17,310 18,403 10,259 12,745
Amortization of debt dsct,
defd gain, DICosts 948 4,565 5,060 4,136 3,846 1,688 833
Interest portion of rental
expense (a) 154 319 386 450 503 301 301
-----------------------------------------------------------------------------------------------
Total Earnings (Loss) $7,208 $18,500 $9,678 $15,929 $12,971 ($10,947) $21,030
===============================================================================================
Fixed Charges:
Interest costs (both
expensed and capitalized) $4,130 $13,128 $15,900 $17,310 $18,403 $10,259 $12,745
Amortization of debt
discount 948 4,565 5,060 4,136 3,846 1,688 833
Interest portion of rental
expense 154 319 386 450 503 301 301
------------------------------------------------------------------------------------------------
Total Fixed Charges $5,232 $18,012 $21,346 $21,896 $22,752 $12,248 $13,879
================================================================================================
Earnings to Fixed Charges
Ratio 1.38:1 1.03:1 0.45:1 0.73:1 0.57:1 (0.89):1 1.52:1
================================================================================================
Deficiency N/A N/A $11,668 $5,967 $9,781 $23,195 N/A
================================================================================================
</TABLE>
(a) One-third of rental expenses relating to
operating leases that has been designated as the
interest portion thereof. Management believes this
is a reasonable approximation of the interest
factor.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
STATE OF
COMPANY NAME INCORPORATION
- ------------ -------------
Beech Mountain Lakes Corporation Pennsylvania
Carolina Landing Corporation South Carolina
Carriage Manor Corporation North Carolina
Cherokee Landing Corporation Tennessee
Chief Creek Corporation Tennessee
Dixie Resort Corporation Mississippi
Foxwood Corporation South Carolina
GL Land Development, Inc. Oklahoma
Lake Royale Corporation North Carolina
Lake Tansi Village, Inc. Delaware
LML Resort Corporation Alabama
Natchez Trace Wilderness Preserve Corporation Tennessee
National American Corporation Nevada
Quail Hollow Plantation Corporation Tennessee
Quail Hollow Village, Inc. Pennsylvania
Recreation Land Corporation Pennsylvania
Recreation Properties, Inc. Mississippi
Resort Land Corporation Arkansas
Resort Parks International, Inc. Georgia
Tansi Resort, Inc. Tennessee
The Kinston Corporation South Carolina
The Villas of Hickory Hills, Inc. Mississippi
Thousand Trails (Canada) Inc. British Columbia
TT Offshore, Ltd. Virginia
UST Wilderness Management Corporation Nevada
Western Fun Corporation Texas
Westwind Manor Corporation Texas
Wolf Run Manor Corp. Pennsylvania
Yuba Investment Corp. California
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
included in or made a part of this registration statement, and to all references
to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
February ___, 1997
<PAGE>
EXHIBIT 99.2
To the Holders of Certain Senior
Subordinated Pay-In-Kind
Notes Due 2003
of Thousand Trails, Inc.
Re: Supplement to the Compliance Agreements between Thousand Trails, Inc.
(the "Company") and the Selling Security Holders Party Thereto
("Compliance Agreements") for Proposed Secondary Offerings of the
Company's Senior Subordinated Pay-In-Kind Notes Due 2003 (the "PIK
Notes")
Please be advised that the Securities and Exchange Commission has recently
adopted Regulation M ("Regulation M") under the Securities Exchange Act of 1934
(the "Exchange Act"). This new regulation will become effective March 4, 1997.
Regulation M contains successor provisions to Rules 10b-6 and 10b-7 of the
Exchange Act. As a consequence, following the effectiveness of Regulation M, the
provisions of the Compliance Agreements will be supplemented by these successor
provisions.
As applied to the procedures set out in the Compliance Agreements regarding
the secondary offering of PIK Notes, Regulation M permits the reduction in the
number of Business Days immediately prior to the date a Selling Security Holder
commences selling efforts that the Selling Security Holder and its "affiliated
purchasers" are restricted from bidding for or purchasing the PIK Notes. The
restriction under Rule 10b-6 applies for nine(9) Business Days before the
commencement date; under Regulation M, this period will be shortened to five (5)
Business Days. The Compliance Agreements will be, therefore, deemed amended to
reflect such five (5) Business Day Period from and after the effective date of
Regulation M.
Resales of PIK Notes may not be effected under the Company's Registration
Statement relating to the proposed offering, which was filed January 7, 1997,
until it has been declared effective by the Securities and Exchange Commission.
The Company will notify you when that occurs. Until then, resales may only be
effected pursuant to an available exemption from the registration requirements
of the Securities Act of 1933, as amended, and applicable state securities laws.
<PAGE>
Selling Security Holders
February 26, 1997
Page 2
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.
Dated: February 25, 1997
Very truly yours,
THOUSAND TRAILS, INC.
By: Walter B. Jaccard
General Counsel and Secretary
