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As filed with the Securities and Exchange Commission on March 4, 1997.
Registration No.:
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
THOUSAND TRAILS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 709 75-2138671
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Identification No.)
Number)
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: [X]
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: [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================
Title of Each Class Number of Shares Proposed Maximum Proposed Maximum Amount of
of Securities to be Offering Price Aggregate Offering Registration
to be Registered Registered Per Share/(2)/ Price/(2)/ Fee
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<S> <C> <C> <C> <C>
Common Stock, par value 419,612/(1)/ $1.625 and $4.24 $1,752,561 $532
$.01 per share
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</TABLE>
/(1)/ These shares represent the number of shares of the Registrant's Common
Stock, par value $.01 per share (the "Common Stock"), issuable upon the
exercise of the Registrant's Common Stock Purchase Warrants (the
"Warrants"). The amount of shares to be registered includes any additional
shares that may be issuable upon the exercise of the Warrants by reason of
the antidilution provisions applicable thereto.
/(2)/ Calculated pursuant to Rule 457(g). The Common Stock is currently issuable
upon the exercise of the Warrants. The Warrants have exercise prices of
$1.625 (as to 10,170 shares) and $4.24 (as to 409,442 shares). As of
February 28, 1997, the average of the bid and asked prices of the
outstanding Common Stock was $1.53125.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CROSS REFERENCE SHEET SHOWING LOCATION
IN THE PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-1
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<CAPTION>
ITEM LOCATION IN PROSPECTUS
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<S> <C>
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 Available Information; Additional Information;
of Prospectus Table of Contents
3. Summary Information, Risk Factors and Ratio Prospectus Summary; Risk Factors; The Company
of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Determination of Offering Price
6. Dilution *
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Plan of Distribution
9. Description of Securities to be Registered Description of Common Stock
10. Interests of Named Experts and Counsel *
11. Information With Respect to the Registrant
(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 Market for Common Stock and Related Stockholder
on the Registrant's Common Matters
Equity and Related Stockholder
Matters
(e) Financial Statements Consolidated Financial Statements
(f) Selected Financial Data Selected Financial Data
(g) Supplementary Financial Information *
</TABLE>
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<TABLE>
<CAPTION>
ITEM LOCATION IN PROSPECTUS
---- ----------------------
<S> <C>
(h) Management's Discussion and Management's Discussion and Analysis of Financial
Analysis of Financial Condition Condition and Results of Operations
and 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
</TABLE>
__________________
*Not applicable or answer thereto is negative.
ii
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 4, 1997
PROSPECTUS
THOUSAND TRAILS, INC.
419,612 SHARES OF COMMON STOCK
Thousand Trails, Inc. (the "Company") is offering 10,170 shares of its
Common Stock, par value $.01 per share (the "Common Stock"), to the holders of
its Common Stock Purchase Warrants expiring March 31, 1999 (the "1994
Warrants"). The 1994 Warrants were issued in 1994 to holders of the 12% Secured
Notes due 1998 (the "Secured Notes") of the Company's predecessor, USTrails Inc.
("USTrails"), in connection with a consent solicitation that resulted in
indenture amendments affecting such notes, which have since been retired. The
Company will receive proceeds from the issuance of Common Stock upon the
exercise of the 1994 Warrants to the extent of their exercise price. The current
exercise price of the 1994 Warrants is $1.625 per share.
The selling security holders (the "Selling Security Holders") may offer
from time to time up to 409,442 shares of Common Stock issuable upon the
exercise of the Company's Common Stock Purchase Warrants expiring June 30, 1999
(collectively, the "1991/1992 Warrants"). Of these, warrants to purchase 194,521
shares of Common Stock (the "1991 Warrants") were issued in 1991 in connection
with the consummation of the Plan of Reorganization of USTrails, and warrants to
purchase 290,314 shares of Common Stock (the "1992 Warrants") were issued in
1992 in connection with the retirement of debt of a predecessor of the Company
that was then a subsidiary of USTrails. The current exercise price of the
1991/1992 Warrants is $4.24 per share. Offers and sales of the Common Stock
issuable upon exercise of the 1991/1992 Warrants may be made directly to other
purchasers, through agents or otherwise in negotiated or market transactions.
The prices, terms and conditions of any sale will be determined at the time of
sale by the seller or as a result of negotiations between or on behalf of the
buyer and the seller. Expenses of any such sale will be borne by the parties to
the sale as they may agree. See "Selling Security Holders" and "Plan of
Distribution." On February 28, 1997, the high bid and low bid prices of the
Common Stock in the over-the-counter market were $1 9/16 and $1 1/2. See "Market
for Common Stock and Related Stockholder Matters." The Company will not receive
any proceeds from the sale of shares of Common Stock by the Selling Security
Holders; however, it will receive proceeds from the issuance of shares of Common
Stock upon the exercise of the 1991/1992 Warrants to the extent of their
exercise price.
SEE "RISK FACTORS," BEGINNING AT PAGE 3, FOR A DISCUSSION OF CERTAIN FACTORS
THAT PROSPECTIVE PURCHASERS SHOULD CONSIDER IN EVALUATING A PURCHASE OF THE
COMMON STOCK OFFERED HEREBY.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
______________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-1 (the
"Registration Statement") with the Securities and Exchange Commission (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.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Commission. The public may inspect and copy (at prescribed
rates) the Registration Statement as well as such reports, proxy and information
statements and other information that the Company has filed with the Commission
at the public reference facilities that the Commission maintains at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and at the Commission's regional
offices located at Room 3190, Northwest Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. In addition, the public may obtain such reports, proxy and information
statements and other information concerning the Company from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
The Commission also maintains a site accessible to the public by computer on the
World Wide Web, at http://www.sec.gov, that contains reports, proxy and
information statements and other information regarding the Company, which files
electronically with the Commission.
(ii)
<PAGE>
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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
The Selling Security Holders received their 1991/1992 Warrants in two
transactions, one in 1991 as part of the Company's reorganization and the other
in 1992 as part of the retirement of the debt of TTI. In each transaction,
recipients of the 1991/1992 Warrants became entitled to the benefits of
registration rights agreements, which included "piggyback" registration rights.
The Common Stock issuable upon exercise of the 1991/1992 Warrants is being
included in the Registration Statement to satisfy any obligations of the Company
under such agreements in connection with the registration of shares of Common
Stock offered by the Company under the 1994 Warrants.
THE OFFERINGS
Offering by the Company..... The Company is offering to holders of the 1994
Warrants 10,170 shares of Common Stock, subject to
certain antidilution provisions, issuable upon the
exercise of their 1994 Warrants. The current
exercise price of the 1994 Warrants is $1.625 per
share.
Offering by
Selling Security Holders..... From time to time, the Selling Security Holders
may offer up to 409,442 shares of Common Stock,
subject to certain antidilution provisions, that
are issuable upon the exercise of the 1991/1992
Warrants. The current exercise price of the
Warrants is $4.24 per share and the current
expiration date of the 1991/1992 Warrants is June
30, 1999. The 1991/1992 Warrants themselves are
not being offered by the Selling Security Holders.
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1
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Use of Proceeds.................. The Company will receive the proceeds of the
issuance of shares of Common Stock upon the
exercise of the 1994 Warrants to the extent
of their exercise price. The Company will not
receive any of the proceeds from any sales of
Common Stock by the Selling Security Holders;
however, it will receive proceeds from the
issuance of shares of Common Stock upon the
exercise of the 1991/1992 Warrants to the
extent of their exercise price.
COMMON STOCK OFFERED UNDER 1994 WARRANTS
- ----------------------------------------
Exercise Price of 1994 Warrants... $1.625 per share of Common Stock, subject to
certain antidilution provisions.
Number of Shares Issuable......... 10,170 shares of Common Stock, subject to
certain antidilution provisions.
Expiration Date................... 5:00 p.m., Eastern time, on March 31, 1999.
The holder of a 1994 Warrant, however, will
be unable to exercise his 1994 Warrant unless
a registration statement is in effect under
the Securities Act with respect to the
issuance of the Common Stock subject thereto
and such issuance has been registered or
qualified under the applicable state or other
securities laws or exemptions therefrom
exist. No assurance exists that the Company
can maintain the effectiveness of the
Registration Statement or any such state
qualifications or registrations as required
to permit the exercise of the 1994 Warrants.
Common Stock...................... The Common Stock (including the common stock
of USTrails for which the Common Stock was
exchanged in USTrails' reincorporation merger
into the Company) has traded in the over-the-
counter market since 1992. Trading in the
Common Stock is light, and an established
public trading market may not exist. It is
unclear whether the market for the Common
Stock will be adversely affected by transfer
restrictions applicable to the Common Stock
that are intended to help reduce the risk of
an "ownership change" (within the meaning of
Section 382 of the Internal Revenue Code of
1986), which could materially limit the
availability of the Company's substantial net
operating loss carry forwards.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that
prospective purchasers should consider in evaluating a purchase of the
securities offered hereby.
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2
<PAGE>
RISK FACTORS
Prospective purchasers should review the risk factors discussed below
when considering whether to purchase shares of Common Stock. These risk
factors, however, may not be the only risks involved in connection with a
purchase of such securities.
BUSINESS STRATEGY UNCERTAINTY
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 in which the Secured Notes were retired in July 1996 (the
"Restructuring") was structured to avoid an "ownership change" under Section 382
of the Code. However, the issuance of shares of Common Stock in the
Restructuring resulted in a change 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
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<PAGE>
change," the Company 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, including the 1991/1992 Warrants
and the 1994 Warrants. Further, while the Company believes that the Transfer
Restrictions are enforceable as to all of the Common Stock, there can be no
assurance that a court would so determine. Moreover, while the Company believes
that the remedial provisions in the Transfer Restrictions are generally
sufficient, it is possible that the relevant tax authorities will take the
position that the Transfer Restrictions do not provide adequate remedies for tax
purposes with respect to every transaction that the Transfer Restrictions
purport to prevent. Further, there can be no assurance a court would enforce
every remedial provision set forth in the Transfer Restrictions if the binding
nature of such provision were challenged. Therefore, even with the Transfer
Restrictions in place, it is possible that transactions could occur that would
limit the Company's ability to utilize the NOLs. There can be no assurance that
legislation will not be adopted that would limit the Company's ability to
utilize the NOLs in future periods. However, the Company is not aware of any
proposed legislation for changes in the tax laws that could impact the ability
of the Company to utilize the NOLs.
Use of NOLs. The extent of the actual future utilization of the NOLs
is subject to inherent uncertainty inasmuch as the utilization depends on the
amount of otherwise-taxable income against which the Company will be able to
utilize the NOLs in future years. Accordingly, even though the Transfer
Restrictions reduce the risk that an "ownership change" will occur that could
limit the Company's ability to use the NOLs, there can be no assurance that the
Company will have sufficient taxable income in future years to actually use the
NOLs before they would otherwise expire.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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 Company's Senior
Subordinated Pay-In-Kind Notes due 2003 (the "PIK Notes"), which were issued in
the Restructuring, will increase at the rate of 12% per annum, compounded semi-
annually, at least until the indebtedness under the Company's Loan and Security
Agreement, dated as of July 10, 1996, as amended (the "Loan Agreement"), with
Foothill Capital Corporation ("Foothill") is repaid. Subject to the
restrictions of the Loan Agreement and the indenture for the PIK Notes (the
"Indenture"), the Company may incur additional indebtedness from time to time.
This leverage increases the risk inherent in the Company's business strategy and
may limit the Company's ability to respond to variances from the results sought,
as well as changing business and economic conditions. Required payments of
principal and interest are expected to be financed from operating cash flow,
collections of contracts receivables and proceeds from the disposition of non-
core assets. The Company's ability to generate such cash is subject to many
factors, including stabilizing the Company's membership base and the amount of
asset sales to be effected as the Company downsizes. See "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
4
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the ability of an owner to sell or close, or a lienholder to foreclose a lien
on, a campground. In certain states, these statutes permit sale, closure or
foreclosure if the holders of related memberships receive access to a comparable
campground. Moreover, the campground mortgages that could secure the PIK Notes
in the future will contain similar nondisturbance provisions. Certain of these
limitations purport to survive any rejection of member contracts in a
bankruptcy, and the United States Bankruptcy Code may provide additional
protections of member rights. As a consequence, although the Company may be able
to sell or close some of its campgrounds as it has done in the past, a sale or
closure of significant numbers of campgrounds in addition to those currently
contemplated will likely be limited by state law or the membership contracts
themselves, and foreclosure of the campground liens in significant numbers will
also likely be limited. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business - Government Regulation" and
" Properties."
MARKET CONDITIONS
Trading in the Common Stock is light, and an established market in the
Common Stock may not exist. Moreover, it is unclear whether the market for the
Common Stock will be adversely affected by the Transfer Restrictions. As a
consequence, the investment in the Common Stock may be illiquid for an
indefinite period. See "Market for Common Stock and Related Stockholder
Matters" and "Description of Common Stock."
In the Restructuring, the Company issued, in a private transaction
with certain holders of Secured Notes, an aggregate of 3,680,550 shares of
Common Stock in partial consideration for the retirement of the Secured Notes.
These shares represent approximately 50% of the shares of Common Stock currently
outstanding. These shares were registered under the applicable securities laws
in connection with USTrails' reincorporation merger into the Company, which was
effected on November 20, 1996. It is uncertain whether these shares will
adversely affect any market for the Common Stock.
CONCENTRATION OF OWNERSHIP
As of December 31, 1996, Mr. Andrew Boas, a director of the Company,
beneficially owned an aggregate of 46.5% of the outstanding Common Stock and
$15.7 million in principal amount of PIK Notes (representing 39.0% in principal
amount of PIK Notes). As a result, Mr. Boas, will be in a position to
significantly influence the outcome of certain actions by the Company's
stockholders. As a holder of PIK Notes, the interests of Mr. Boas may not be
wholly aligned with the interests of other holders of Common Stock. See
"Security Ownership" and "Selling Security Holders."
THE COMPANY
The Company owns and operates 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. 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.
5
<PAGE>
The Company is a successor by merger to 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 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 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. 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.
USE OF PROCEEDS
The Company will receive the proceeds of the issuance of shares of
Common Stock upon the exercise of the 1994 Warrants to the extent of their
exercise price. The 1994 Warrants were issued in 1994 to holders of the Secured
Notes in connection with a consent solicitation that resulted in indenture
amendments affecting such notes.
The Company will not receive any of the proceeds from any sales of
Common Stock by the Selling Security Holders; however, it will receive proceeds
from the issuance of shares of Common Stock upon the exercise of the 1991/1992
Warrants to the extent of their exercise price. The 1991 Warrants were issued
in 1991 in connection with the consummation of the Plan of Reorganization of
USTrails. The 1992 Warrants were issued in 1992 in connection with the
retirement of debt of TTI.
Any proceeds received by the Company, net of the expenses of the
offerings borne by the Company, will be added to the Company's working capital.
See "Plan of Distribution."
DETERMINATION OF OFFERING PRICE
The exercise price of the 1994 Warrants offered, which is $1.625, was
established by agreement between the Company and a committee of former holders
of Secured Notes.
The Company has no knowledge of whether or when a sale of any of the
shares of Common Stock offered by the Selling Security Holders will occur or
what price, terms or conditions may be offered by the Selling Security Holders.
See "Plan of Distribution." As described under "Market Prices," the reported
bid prices for the Common Stock since the date of issuance of the 1991/1992
6
<PAGE>
Warrants have been significantly below $4.24 per share, the current exercise
price of the 1991/1992 Warrants.
MARKET FOR COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
MARKET AND TRADING
The Common Stock (including the common stock of USTrails for which the
Common Stock was exchanged in USTrails' reincorporation merger into the Company)
has been publicly traded in the over-the-counter market under the symbol USTQ
from 1992 through November 20, 1996 and under the symbol TRLS thereafter. Since
the Common Stock does not trade every day and the trading volume is often small,
the Common Stock may not be deemed to be traded in an established public trading
market. The following table sets forth for the fiscal periods indicated, the
high and low bid quotations as quoted through the National Quotation Bureau's
Pink Sheets. Such quotations reflect inter-dealer prices, without retail mark-
up, mark-down or commission, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
High Bid Low Bid
------------- -------------
<S> <C> <C>
1997:
First Quarter 1 1/8 1/2
Second Quarter 1 7/16 15/16
Third Quarter
(through 02/28/97) 1 9/16 1 5/16
1996:
First Quarter 5/8 1/4
Second Quarter 5/8 1/4
Third Quarter 3/4 1/4
Fourth Quarter 5/8 1/4
1995:
First Quarter 1 3/4 1 1/4
Second Quarter 1 5/8 1/2
Third Quarter 5/8 1/4
Fourth Quarter 1/2 1/4
</TABLE>
On February 28, 1997, the high bid and the low bid prices of the
Common Stock were $1 9/16 AND $1 1/2. As of February 28, 1997, the Common Stock
was held by 92 holders of record. Moreover, security position listings available
to the Company listed approximately 586 beneficial holders of Common Stock.
ABSENCE OF DIVIDENDS
Since inception, the Company has not paid any dividends. The Loan
Agreement prohibits the payment of any cash dividends on the Common Stock,
without the consent of Foothill, until the borrowings under the Loan Agreement
are repaid. In addition, the Indenture prohibits the payment of any cash
dividends on the Common Stock until the PIK Notes are repaid.
7
<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.
8
<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
-------- -------- -------- -------- -------- -------- --------- ------------
(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
9
<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
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.
LIQUIDITY AND CAPITAL RESOURCES
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.
10
<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.
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
11
<PAGE>
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.
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
12
<PAGE>
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.
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,
13
<PAGE>
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 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
14
<PAGE>
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 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.
15
<PAGE>
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
$11.9 million 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 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).
16
<PAGE>
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.
17
<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>
18
<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>
19
<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>
20
<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.
21
<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
22
<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
23
<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
24
<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.
25
<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 10,286
Campground ancillary expenses (3,990) $ 1,858 (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>
26
<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, 1996
---------------------------------------------
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.
27
<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.
28
<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
29
<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
30
<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 June 30, 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
31
<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
32
<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 310 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
33
<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.
34
<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 10 memberships per campsite. At the present time, these
restrictions do not preclude the Company from selling memberships in any state.
However, these restrictions may limit the Company's ability to downsize by
closing campgrounds and reassigning members to other campgrounds.
In a decision to which the Company was not a party, the Mississippi
Supreme Court ruled that the Mississippi Timeshare Rules apply to the sale of
campground memberships in Mississippi. The Company has discussed the
ramifications of this decision with the Mississippi state agency responsible for
the administration of these rules. The Company does not believe that the agency
will require the Company to rescind any sales of campground memberships because
of the decision; however, the agency has the power to do so. The Company has
sold $15.9 million of campground memberships in Mississippi.
35
<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 38. The amenities presently available at each
campground are indicated on the chart on page 39. 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.
36
<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.
37
<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
38
<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>
39
<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.
40
<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.
41
<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
42
<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
SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL 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.
43
<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.
44
<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
45
<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.
46
<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 POTENTIAL REALIZABLE VALUE AT
Number of Options/ ASSUMED ANNUAL RATES OF
Securities SARs STOCK PRICE APPRECIATION
underlying Granted to Exercise ---------------------------------
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 UNEXERCISABLE 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
47
<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. Shaw/1/ 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.
48
<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 aggregate, these persons
49
<PAGE>
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 for the PIK
Notes 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.
A registration statement for resales of the PIK Notes has been 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
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
</TABLE>
50
<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 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 1991 Warrants to acquire 194,521 shares of Common
Stock. 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 $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
51
<PAGE>
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 Strategic 2,474,244 2,474,244 2,474,244 2,474,244
1991 Warrants owned by CM Strategic 194,521 194,521 194,521 194,521
Shares owned by CM Strategic II 510,926 510,926 510,926 510,926
Shares over which an investment 316,985 316,985
management company affiliated with
Messrs. Boas and Ruocco possesses
investment discretion
Shares owned by Mr. Boas 11,569
Options owned by Mr. Boas 20,000
Shared held in trust over which Mr. 2,588
Boas is a co-trustee --------- ------- --------- --------- ---------
TOTAL 2,668,765 510,926 3,179,691 3,530,833 3,496,676
========= ======= ========= ========= =========
Percentage of Outstanding Shares 35.2% 6.9% 42.0% 46.5% 46.1%
</TABLE>
(2) The ownership of these shares of Common Stock includes multiple beneficial
ownership of the same shares. SC Fundamental Value Fund, L.P., a Delaware
limited partnership (the "Fund"), owns 946,508 shares. SC Fundamental Inc.,
a Delaware corporation ("SC Fundamental"), is the general partner of the
Fund and, therefore, beneficially owns all of the shares of 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.
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
52
<PAGE>
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 33,333/2 / *
R. Gerald Gelinas 56,667/2 / *
Walter B. Jaccard 60,000/2 / *
William P. Kovacs 70,000/2 / *
Donald R. Leopold 10,000 *
H. Sean Mathis 20,000/2 / *
Douglas K. Nelson 20,000/2 / 10.8%
William J. Shaw 866,490/2,3/ *
Harry J. White, Jr. 92,500/2 / *
All directors and executive officers as 4,759,823/2 / 55.9%
a group
(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' beneficial ownership of the Common Stock, including
Common Stock issuable upon exercise of the 1991/1992 Warrants, as of the date
hereof. Each of the Selling Security Holders has registered and, assuming
exercise of its 1991/1992 Warrants, may sell up to the number of shares of
Common Stock that such Selling Security Holder may receive as a result of such
exercise, as set forth opposite each Selling Security Holder's name below. The
Selling Security Holders may also sell additional shares of Common Stock that
may be issuable upon exercise of the 1991/1992 Warrants as a result of certain
antidilution provisions. It is not currently possible to predict the number of
shares of Common Stock, if any, which will be sold or the price, terms or
conditions of their sale. See "Plan of Distribution."
53
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
ISSUABLE UPON
EXERCISE OF
COMMON 1991/1992
STOCK WARRANTS THAT COMMON STOCK
BENEFICIALLY MAY BE BENEFICIALLY OWNED
SELLING SECURITY HOLDERS OWNED OFFERED/1/ AFTER OFFERING
- ------------------------------------------------ --------------- ------------------ ---------------------
PERCENT
NUMBER OF CLASS
------ ---------
<S> <C> <C> <C> <C>
American Investors Life Insurance Company, Inc. 0 7,121 0 0
Bankers Life & Casualty Company 0 16,540 0 0
Carl Marks Strategic Investment L.P./2/ 2,474,244 194,521 2,474,244 33.5%
Fidelity & Guaranty Life Insurance Company 0 49,622 0 0
Fulton Bank, Custodian for Stanley Steiner, 0 175 0 0
Rolleover IRA
Alan Kanis 706 189 706 *
Sheldon Kasower 0 3,308 0 0
OP Limited Partnership 0 13,232 0 0
Pacholder Associates, Inc. 0 551 0 0
Trussal & Co. 0 616 0 0
United States Fidelity & Guaranty Company 0 88,825 0 0
USF&G Pacholder Fund 0 33,081 0 0
Larry K. West 0 1,521 0 0
Robert and Suzanne Yudelson 0 140 0 0
--------- --------- ---------
TOTAL 2,479,950 409,442 2,479,950
========= ========= =========
</TABLE>
___________
* Less than 1%
** Assumes that all shares of Common Stock that may be offered by Selling
Security Holders are sold.
/1/ The Selling Security Holders may also sell additional shares of Common
Stock that may be issuable from time to time pursuant to the antidilution
provisions applicable to the 1991/1992 Warrants.
/2/ Andrew M. Boas, a director of the Company, is a general partner of Carl
Marks Management Co., L.P., which is the general partner of Carl Marks
Strategic Investments, L.P. See "Security Ownership."
PLAN OF DISTRIBUTION
The Company is offering 10,170 shares of Common Stock by reason of the
outstanding 1994 Warrants.
The Selling Security Holders may offer and sell the 409,442 shares of
Common Stock, if and when issued upon the exercise of the 1991/1992 Warrants,
from time to time acting as principals for their own accounts, through agents or
otherwise, in negotiated or market transactions. The prices, terms and
conditions of any sale will be determined at the time of sale by the seller or
as a result of negotiations between or on behalf of the buyer and the seller.
The sales of such shares may be effected during such time as the Registration
Statement is effective. The sales may occur in one or more transactions at a
fixed price 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 either Rule 144 thereunder. Although the Company
has agreed to pay all costs of the registration of these securities, any other
expenses of any sale will be borne by the parties to the sale as they may agree,
including any distributors' or brokers' commissions. Currently, no underwritten
public offering is contemplated.
54
<PAGE>
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, 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 COMMON STOCK
GENERAL
The authorized capital stock of the Company is 15,000,000 shares of
common stock, par value $.01 per share, and 1,500,000 shares of preferred stock,
par value $.01 per share. As of February 21, 1997, the Company had 7,383,276
shares of Common Stock issued and outstanding. In addition, as of such date the
Company had outstanding warrants (consisting of the 1991/1992 Warrants and the
1994 Warrants) to purchase 419,612 shares of Common Stock and options under the
Plans and the Stock Option Agreement to purchase 1,224,495 shares of Common
Stock. The warrants, options and Stock Option Agreement are each subject to
certain antidilution provisions. The Company's Certificate of Incorporation
authorizes the Board of Directors to establish the designations, powers,
preferences and rights of the preferred stock without further stockholder
approval. In the exercise of this authority, the Board of Directors could
establish preferences and rights for the preferred stock prior and superior to
the rights of the Common Stock, and it is possible that dividend preferences for
the preferred stock could substantially reduce the amount of any future surplus
available for payments on the Common Stock. In addition, if the preferred stock
were made convertible into Common Stock, dilution of the interests of holders of
the Common Stock may result.
Holders of Common Stock are entitled to one vote for each share held
of record on any matter submitted to a vote at a meeting of the stockholders.
Directors are elected by a majority of the votes cast at the election.
Generally, any matter submitted for the approval of the stockholders must
receive the affirmative vote of the holders of a majority of all the shares
represented at a meeting at which a quorum is present. Approval of any
amendment to the Company's Certificate of Incorporation or any merger or
consolidation (with certain limited exceptions) or dissolution of the Company,
or any sale, lease, or exchange of all or substantially all of the assets of the
Company, however, requires the affirmative vote of holders of shares
representing a majority of the votes entitled to be cast.
The Company's Bylaws contain a provision establishing an advance
notice procedure for stockholders to bring business before the annual meeting of
stockholders. Generally, notice of business proposed to be brought before the
meeting must be given in writing in the form provided in the Company's Bylaws to
the Secretary of the Company not less than 60 or more than 90 days prior to the
date of the annual meeting of stockholders, but if less than 60 days notice of
the date of the annual meeting is given to the stockholders, notice of proposed
business must be given not later than the tenth day following the day on which
the notice of the date of the annual meeting is mailed. At a special meeting of
stockholders, only such business as is specified in the notice of such special
meeting given by or at the direction of the person or persons calling such
meeting is permitted to come before the meeting. The limitations on procedures
to bring business before the annual meeting of stockholders do not restrict a
stockholder's right to include proposals in proxy material pursuant to rules
promulgated under the Exchange Act. The purpose of requiring advance notice is
to afford the Board of Directors an opportunity to consider the merits of the
business proposed to be brought before the meeting and, to the extent deemed
necessary or desirable by the Board of Directors, to inform stockholders about
those matters.
55
<PAGE>
The Company's Certificate of Incorporation does not contain a
provision permitting cumulative voting for the election of directors. The
holders of more than 50% of the Common Stock voting upon the election of
directors, therefore, may be able to elect all of the directors to be elected at
a meeting of the stockholders of the Company. The directors of the Company are
elected annually and serve until their successors are elected and qualified.
Holders of shares of Common Stock are entitled to receive dividends
when, as, and if the Board of Directors declares such dividends from funds
legally available for that purpose. Since inception, the Company has not paid
any dividends. Moreover, under the terms of the Indenture and the Loan
Agreement, the Company may not pay any dividends (other than stock dividends) on
the Common Stock, nor purchase, redeem or otherwise acquire or retire for value
any Common Stock, until the obligations thereunder are repaid.
Upon liquidation, the holders of Common Stock are entitled to share on
a pro rata basis in the net assets of the Company after payment of any and all
amounts due to creditors and holders of any preferred stock. The holders of
Common Stock have no preemptive, redemption or conversion rights.
The Company is not currently subject to the provisions of Section 203
of the Delaware GCL because the Common Stock is not listed on a national
securities exchange, authorized for quotation on the NASDAQ stock market or held
of record by more than 2,000 stockholders. In general, Section 203 provides
that a Delaware corporation may not, for a period of three years after a person
becomes an "interested stockholder" (defined generally as a person who, together
with affiliates and associates, owns (or within three years, did own) 15% or
more of a corporation's outstanding voting stock), engage in any of a broad
range of business combinations (which may include stock issuances) with a person
or affiliate or associate of such person who is such "interested stockholder"
unless certain board or shareholder approvals are obtained. Stockholders that
beneficially received 15% or more of the Common Stock in the Company's
reincorporation merger in November 1996, however, will not be subject to the
provisions of Section 203 should they become applicable to the Company, and as a
consequence business combinations with such stockholders will not be limited by
Section 203. Certain of such stockholders also hold a substantial amount of the
Company's outstanding PIK Notes. See "Security Ownership" and "Certain
Transactions."
TRANSFER RESTRICTIONS
The Company's Certificate of Incorporation contains restrictions on
the transfer of shares of Common Stock (the "Transfer Restrictions") that are
designed to restrict direct and indirect transfers that could result in the
imposition of limitations on the use by the Company, for federal income tax
purposes, of its NOLs and other tax attributes. Section 382 of the Internal
Revenue Code of 1986, as amended (the "Code"), limits the use of losses and
other tax benefits by a company that has undergone an "ownership change" (as
defined in the Code). Generally, an ownership change occurs if one or more
stockholders, each of whom owns 5% or more in value of a company's capital
stock, increase their aggregate percentage ownership by more than 50 percentage
points over the lowest percentage of stock owned by such stockholders over the
preceding three-year period. For this purpose, all holders who each own less
than 5% of a company's capital stock are generally treated together as one or
more 5% stockholders. In addition, certain constructive ownership rules, which
generally attribute ownership of stock to the ultimate beneficial owner thereof
without regard to ownership by nominees, trusts, corporations, partnerships or
other entities, or to related individuals, are applied in determining the level
of stock ownership of a particular stockholder. Special rules can also result
in the treatment of options (including warrants) as exercised in certain
circumstances. All percentage determinations are based on the fair market value
of a company's capital stock.
If an ownership change were to occur, the amount of taxable income in
any year (or portion of a year) subsequent to the ownership change that could be
offset by NOLs or other carryovers existing (or "built-in") prior to such
ownership change could not exceed the product obtained by multiplying (i) the
aggregate value of the outstanding Common Stock immediately prior to the
ownership change (with certain adjustments) by (ii) the federal long-term tax
exempt rate (5.6% for ownership changes occurring during January 1997). Because
the value of the outstanding Common Stock, as well as
56
<PAGE>
the federal long-term tax-exempt rate, fluctuate, it is impossible to predict
with any accuracy the annual limitation upon the amount of taxable income of the
Company that could be offset by such NOLs or other items if an ownership change
were to occur. The Company would incur a corporate-level tax (current maximum
federal rate of 35%) on any taxable income during a given year in excess of the
Company's NOL limitation. While the NOLs not used as a result of this limitation
remain available to offset taxable income for up to 15 years from the year when
the NOLs were generated, an ownership change, under certain circumstances, would
significantly defer the utilization of the NOLs, accelerate the payment of
federal income tax, cause a portion of the NOLs to expire prior to their use and
reduce stockholders' equity (or increase stockholders' deficit).
The Transfer Restrictions generally restrict until 2011 (or earlier in
certain events) any direct or indirect transfer of Common Stock that would (i)
except as provided below, increase to more than 4.75% the percentage ownership
of Common Stock of any person who at any time during the preceding three-year
period did not own more than 4.75% of the Common Stock, (ii) except as provided
below, increase the percentage of Common Stock owned by any person that during
the preceding three-year period owned more than 4.75% of the Common Stock, or by
any group of persons treated as a "5% shareholder" (as defined in the Code, but
substituting "4.75%" for "5 percent" (hereafter referred to as a "4.75%
Shareholder") or (iii) cause an ownership change of the Company within the
meaning of Section 382.
Generally, the Transfer Restrictions contain several exceptions. For
example, the restrictions will not prevent a transfer if, in the determination
of the Board of Directors, the transfer will not result in an aggregate increase
in the ownership of its capital stock by 4.75% Shareholders over a three-year
period for purposes of Section 382. As an illustration, this exception will
permit a stockholder who owns less than 4.75% of the Common Stock to transfer
shares of Common Stock to any other stockholder who (after giving effect to the
transfer) owns 4.75% or less of the Common Stock. Similarly, the Transfer
Restrictions will not apply to any transfer if, as a result of the transfer and
in the determination of the Board of Directors, the aggregate increase in the
ownership of the Company's capital stock by 4.75% Shareholders over a three-year
period does not exceed 35%. Also, the restrictions will not prevent a transfer
if the purported transferee obtains the approval of the Board of Directors,
which approval may be granted or withheld in the sole and absolute discretion of
the Board of Directors, after considering all facts and circumstances including
but not limited to future events deemed by the Board of Directors to be
relevant. Finally, transfers will be prohibited only with respect to the amount
of the Common Stock purportedly transferred in excess of the threshold
established in the Transfer Restrictions.
The Transfer Restrictions will apply differently over time. The
Company believes that the aggregate percentage increase in the ownership of its
capital stock by 5 percent shareholders (within the meaning of Section 382) over
the three-year period ending on the effective date of USTrails' reincorporation
merger into the Company on November 20, 1996 was as much as 42.5%. Therefore,
all transactions (other than the exercise of the outstanding warrants and
certain options) that would increase the aggregate percentage increase owned by
4.75% Shareholders will be restricted upon effectiveness of the reincorporation
merger. However, if from such effectiveness to December 1998, the only trading
in Common Stock occurs within or between members of public groups, then in
December 1998, the aggregate percentage increase in the ownership of the
Company's capital stock by 5 percent shareholders (within the meaning of Section
382) over the three-year period ending on such date is expected to be less than
35%, so that a transaction otherwise prohibited under the general rules of the
Transfer Restrictions would be permitted under the exception described above so
long as it did not result in an aggregate percentage increase in the ownership
of the Company's capital stock, for the period December 1995 through December
1998, of more than 35%.
The application of the Transfer Restrictions to any particular
Stockholder will depend on the stockholder's ownership of Company capital stock,
determined after applying numerous attribution rules, and will also depend on
the history of trading of the Company's capital stock. As a result,
stockholders are urged to consult their tax advisors prior to any purchase or
sale of Common Stock.
Transfers included under the Transfer Restrictions include sales to
persons who would exceed the thresholds discussed above, or to persons whose
ownership of shares would by attribution cause
57
<PAGE>
another person to exceed such thresholds. Numerous rules of attribution,
aggregation and calculation prescribed under the Code (and related regulations)
will be applied in determining whether the 4.75% threshold has been met and
whether a group of less than 4.75% Stockholders will be treated as a "public
group" that is a 4.75% Shareholder. As a result of these attribution rules, a
change in the relationship between two or more persons or entities, or a
transfer of an interest other than the Common Stock, such as an interest in an
entity that, directly or indirectly, owns the Common Stock may result in the
Common Stock owned by a stockholder being subject to the remedial provisions, as
described below. The Transfer Restrictions (or in some cases contractual
provisions incorporating the Transfer Restrictions) may also apply to proscribe
the creation or transfer of certain "options" (which are broadly defined) in
respect of the Common Stock to the extent, generally, that exercise of the
option would result in a proscribed level of ownership.
The Board of Directors has issued instructions to or made arrangements
with the transfer agent of the Company (the "Transfer Agent") to implement the
Transfer Restrictions. The Transfer Restrictions provide that the Transfer
Agent shall not record any transfer of the Common Stock purportedly transferred
in excess of the threshold established in the Transfer Restrictions. The
Transfer Agent also has the right, prior to and as a condition to registering
any transfers of the Common Stock on the stock transfer records, to request an
affidavit from the purported transferee of the Common Stock regarding such
purported transferee's actual and constructive ownership of the Common Stock.
If, after requesting such an affidavit, the Transfer Agent does not receive an
affidavit or the affidavit evidences that the transfer would violate the
Transfer Restrictions, the Transfer Agent is required to notify the Company and
not enter the transfer in the stock transfer records. These provisions may
result in the delay or refusal of certain requested transfers of the Common
Stock.
It is the intention of the Transfer Restrictions that any direct or
indirect transfer of Common Stock attempted in violation of the restrictions
would be void ab initio as to the purported transferee, and the purported
transferee would not be recognized as the owner of the shares owned in violation
of the restrictions for any purpose, including for purposes of voting and
receiving dividends or other distributions in respect of such Common Stock, or
in the case of options subject to the Transfer Restrictions, receiving Common
Stock in respect of their exercise. Common Stock purportedly acquired in
violation of the Transfer Restrictions is referred to as "Excess Common Stock."
Excess Common Stock is automatically transferred to a trustee
effective as of the close of business on the business day prior to the date of
the violative transfer. As soon as practicable following the receipt of notice
from the Company that Excess Common Stock was transferred to the trustee, the
trustee is required to sell such Excess Common Stock in an arms-length
transaction that would not constitute a violation under the Transfer
Restrictions. The net proceeds of the sale, after deduction, of all costs
incurred by the Company, the Transfer Agent, and the trustee, will be
distributed first to the purported transferee in an amount equal to the lesser
of such proceeds or the cost incurred by the stockholder to acquire such Excess
Common Stock, and the balance of the proceeds, if any, will be distributed to a
charitable beneficiary together with any other distributions with respect to
such Excess Common Stock received by the trustee. If the Excess Common Stock is
sold by the purported transferee, such person will be treated as having sold the
Excess Common Stock as an agent for the trustee, and shall be required to remit
all proceeds to the trustee (less, in certain cases, an amount equal to the
amount such person otherwise would have been entitled to retain had the trustee
sold such shares). Pending such sale, any dividends or other distributions paid
prior to discovery by the Company that the Excess Common Stock has been
transferred to the trustee are treated as held by the purported transferee as
agent for the trustee and must be paid to the trustee upon demand, and any
dividends or other distributions declared but unpaid after such time shall be
paid to the trustee. Votes cast by a purported transferee with respect to
Excess Common Stock prior to the discovery by the Company that the Excess Common
Stock was transferred to the trustee will be rescinded as void and recast in
accordance with the desire of the trustee acting for the benefit of the
charitable beneficiary. The trustee shall have all rights of ownership of the
Excess Common Stock.
Special provisions apply where the violative transfer involves a
transfer by a 4.75% Shareholder, which are designed to continue to treat such
4.75% Shareholders as owning the shares transferred. In such case, the Company
must attempt to locate the person or public group that purchased
58
<PAGE>
the Excess Common Stock, and if such person or public group can be located, the
Excess Common Stock will be required to be returned (together with any
distributions received thereon) to the transferor, and the transferor will be
required to return the purchase price, together with all other losses, damages,
costs and expenses incurred by that purchaser, to the purchaser. If the Company
is unable to locate the purchaser within 90 days, the Company is required (to
the extent permitted under its debt instruments) to purchase Common Stock in a
manner that would reduce the ownership of the person or public group whose
ownership increased as a result of the prohibited transfer and to hold such
Common Stock on behalf of the 4.75% Shareholder that transferred the Excess
Common Stock in violation of the Transfer Restrictions. In such case, the 4.75%
Shareholder will be treated as the owner of the Excess Common Stock for all
purposes, and amounts incurred by the Company to finance the purchase of such
Excess Common Stock will be treated as a loan to such stockholder, with interest
at the "applicable federal rate" under Section 1274(d) of the Code.
If the violative transaction results from indirect ownership of Common
Stock, the Transfer Restrictions provide a mechanism that is intended to
invalidate the ownership of the Common Stock actually owned by the violating
stockholder and any persons within such stockholder's control group. Only if
such provisions will not be effective to prevent a violation of the Transfer
Restrictions will ownership of Common Stock by other persons be invalidated
under the Transfer Restrictions.
Notwithstanding the Transfer Restrictions, there remains a risk that
certain transfers of Common Stock not restricted by the Transfer Restrictions
(or, although otherwise restricted, permitted by the Board of Directors) and/or
certain changes in relationships among stockholders or other events could cause
an ownership change. Changes in the relationships of holders of Common Stock
could cause changes in ownership of Common Stock through the application of the
attribution rules discussed above, and therefore could also trigger an ownership
change causing a loss of NOLs. There also can be no assurance, in the event
transfers in violation of the Transfer Restrictions are attempted, that the
Internal Revenue Service will not assert that such transfers have federal income
tax significance notwithstanding the Transfer Restrictions. In addition, the
Transfer Restrictions will not apply to the exercise of outstanding warrants and
options to purchase Existing Common Stock (including the 1991/1992 Warrants and
the 1994 Warrants) and may not apply to certain exercises of a portion of the
options under the Stock Option Agreement that occur at the end of its term.
The Board of Directors has the discretion to approve a transfer of
stock that would otherwise violate the Transfer Restrictions upon the prior
written request of a stockholder to the Board of Directors. In addition, the
Board of Directors has the power to waive any of the Transfer Restrictions in
any instance where it determines that a waiver would be in the best interests of
the Company notwithstanding the effect of such waiver on the NOLs or other tax
attributes. If the Board of Directors permits a transfer that would otherwise
violate the Transfer Restrictions, that transfer or later transfers may result
in an ownership change that would limit the use of the tax attributes of the
Company. The Board of Directors intends to consider any such attempted transfer
individually and determine at the time whether it is in the best interests of
the Company, after consideration of any factors that the Board deems relevant
(including possible future events), to permit such transfer notwithstanding that
an ownership change may occur.
The Board of Directors also has the power to accelerate or extend the
expiration date of the Transfer Restrictions, modify the definitions of any
terms set forth therein or conform certain provisions to make them consistent
with any future changes in federal tax law, in the event of a change in law or
regulation or if it otherwise believes such action is in the best interests of
the Company, provided the Board of Directors determines in writing that such
action is necessary or desirable to preserve the NOLs or other tax attributes or
that continuation of the Transfer Restrictions is no longer reasonably necessary
for the preservation of the NOLs or other tax attributes. In addition, the
Board of Directors has the power to adopt Bylaws, regulations and procedures,
not inconsistent with the Transfer Restrictions, for purposes of determining
whether any acquisition of Common Stock would jeopardize the ability of the
Company to preserve and use the NOLs or other tax attributes and for the orderly
application, administration and implementation of the Transfer Restrictions.
The Board of Directors will also have the exclusive power
59
<PAGE>
and authority to administer, interpret and make calculations under the Transfer
Restrictions, which actions shall be final and binding on all parties if made in
good faith.
As a result of the foregoing, the Transfer Restrictions serve to
reduce, but do not eliminate, the risk that Section 382 will cause the
limitations described above on the use of NOLs or other tax attributes of the
Company. The Transfer Restrictions (i) may have the effect of impeding the
attempt of a person or entity to acquire a significant or controlling interest
in the Company, (ii) may render it more difficult to effect a merger or similar
transaction even if such transaction is favored by a majority of the independent
stockholders and (iii) may serve to make a change in management more difficult.
Management does not presently intend to adopt any anti-takeover measures, and
the Company believes that the tax benefits of the Transfer Restrictions outweigh
the negative aspects of any anti-takeover effects they may have.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain anticipated federal
income tax consequences with respect to the ownership and disposition of the
Common Stock. This discussion is general in nature, and does not discuss all
aspects of federal income taxation that may be relevant to a particular investor
in light of the investor's particular circumstances, or to certain types of
investors subject to special treatment under federal income tax laws (such as
individual retirement accounts, insurance companies, tax-exempt organizations,
financial institutions, brokers, dealers, foreign entities, and taxpayers that
are neither citizens nor residents of the United States). In addition, the
discussion does not consider the effect of any foreign, state, local, or other
tax laws, or any United States tax consequences other than income tax (e.g.,
estate or gift tax) consequences, that may be applicable to particular
investors. The summary is based upon the Code and applicable Treasury
Regulations (including proposed regulations), rulings, administrative
pronouncements and decisions as of the date hereof, all of which are subject to
change or differing interpretations at any time and in some circumstances with
retroactive effect.
THE COMPANY URGES EACH PURCHASER OF COMMON STOCK TO CONSULT ITS OWN
TAX ADVISOR TO DETERMINE THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX
CONSEQUENCES TO IT OF THE OWNERSHIP AND DISPOSITION OF THE COMMON STOCK.
DIVIDENDS
Dividend distributions with respect to the shares of Common Stock
should constitute dividends for federal income tax purposes to the extent of the
Company's current and accumulated earnings and profits (as computed for federal
income tax purposes). Accordingly, distributions should qualify to that extent
for the 70% dividends received deduction for corporations as set forth in
Section 243 of the Code. Distributions in excess of current and accumulated
earnings and profits will be treated as a tax-free return of capital (reducing
the holder's tax basis in the shares of Common Stock) to the extent of the
holder's basis in such shares, and as long-term or short-term capital gain, as
the case may be (assuming such shares are held as capital assets), thereafter.
Holders receiving distributions on the shares of Common Stock also may be
affected by the taxable income limitations set forth in Section 246(b), the
holding period requirements of Section 246(c), the debt financed portfolio stock
limitations of Section 246A, and the "extraordinary dividend" rules of Section
1059 of the Code. Holders should consult their tax advisors in order to
determine the application of these provisions. The Indenture and the Loan
Agreement prohibit dividend payments on the Common Stock.
SALE OR EXCHANGE
Upon a sale or exchange of Common Stock, the holder generally
recognizes income or loss equal to the amount of cash plus the fair market value
of any property received over the holder's adjusted tax basis in the Common
Stock sold or exchanged. Assuming the holder held the Common Stock as a capital
asset, the income or loss will generally be capital gain or loss, and will be
long-term capital gain or
60
<PAGE>
loss if the holder's holding period for the Common Stock exceeds one year at the
time of sale. Any sale proceeds attributable to dividends will be taxed in
accordance with the rules discussed in the preceding paragraph.
BACKUP WITHHOLDING
Under the Code, a holder of Common Stock may be subject, under certain
circumstances, to "backup withholding" at a rate of 31% with respect to payments
in respect of dividends on the Common Stock. This withholding generally applies
only if the holder (i) fails to furnish his or its social security or other
taxpayer identification number ("TIN"), (ii) furnishes an incorrect TIN, (iii)
is notified by the Internal Revenue Service that he or it has failed to report
properly payments of interest and dividends and the Internal Revenue Service has
notified the Company that he or it is subject to backup withholding, or (iv)
fails, under certain circumstances, to provide a certified statement, signed
under penalty of perjury, that the TIN provided is his or its correct number and
that he or it is not subject to backup withholding. Any amount withheld from a
payment to a holder under the backup withholding rules does not constitute
additional tax, and is allowable as a credit against such holder's federal
income tax liability, provided that the required information is furnished to the
Internal Revenue Service. Holders of Common Stock should consult their tax
advisers as to their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption.
EXPERTS
The consolidated financial statements 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 Common Stock offered hereby has been passed upon
for the Company by Gibson, Dunn & Crutcher LLP, Dallas, Texas.
61
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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
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
------ --------- --------- ------------ ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS (unaudited) (unaudited)
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 ended
For the years ended June 30, 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
June30, 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
-------- -------- ------------
(unaudited)
<S> <C> <C> <C>
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
-------- -------- ------------
$ 18,698 $13,219 $ 9,437
======== ======== ============
</TABLE>
F-12
<PAGE>
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 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.
F-13
<PAGE>
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.
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.
F-14
<PAGE>
NOTE 5 -- CAMPGROUND AND RESORT PROPERTIES
Campground properties consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
----------------------
1995 1996 1996
--------- ---------- ------------
<S> <C> <C> <C>
(unaudited)
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):
<TABLE>
<S> <C>
Timeshare inventory $438
Receivables from timeshare associations 280
Operating assets to be transferred to a timeshare association 59
Additional HUD-related improvements 94
Deferred maintenance and other costs 242
----------
$1,113
==========
</TABLE>
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 May 2012 $4,538 $ 867 $ 481
Note payable with interest at
escalating rates ranging from 8.9% to
10.4%, semi-annual payments due
through February 2008 215 235 223
-------- -------- ------------
$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
-------- -------- ---------------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
CURRENT PORTION OF LONG TERM DEBT :
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):
<TABLE>
<CAPTION>
Pro Forma
Year ending June 30, June 30,
June 30, 1996 1996
------------------- --------- -------------
(Unaudited)
<S> <C> <C>
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
========= =============
</TABLE>
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:
<TABLE>
<CAPTION>
For the years ended June 30,
--------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
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%
======== ======== ========
</TABLE>
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):
<TABLE>
<CAPTION>
June 30,
--------------------
1995 1996
-------- --------
<S> <C> <C>
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 and Amortization 619 305
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
======== ========
</TABLE>
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):
<TABLE>
<CAPTION>
Year ending
June 30, Amount
----------- ------
<S> <C>
1997 $773
1998 307
1999 162
2000 129
2001 120
</TABLE>
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 Note 6, 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):
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Abandonment of two operating campgrounds and elimination of
related nonrecourse obligations (see Note 6) $2,518
</TABLE>
The Company did not have any non-cash investing or financing activities during
the years ended June 30, 1995 or 1994.
NOTE 11 -- SUPPLEMENTAL EARNINGS PER SHARE INFORMATION
As discussed in Note 9, 3,680,550 additional shares of Common Stock were issued
in the Restructuring on July 17, 1996. The following earnings per share data
reflects the pro forma effect of the issuance of these shares as if the
additional shares had been issued as of the beginning of each period presented
(shares in thousands):
<TABLE>
<CAPTION>
Pro Forma
Year Ended June 30,
-----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
PRIMARY AND FULLY DILUTED NET INCOME
(LOSS) PER SHARE:
Income (loss) before extraordinary item ($.91) ($1.61) $ .06
Extraordinary item .09 .19
-------- -------- --------
Net Income (Loss) ($.82) ($1.61) $ .25
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 7,383 7,383 7,383
======== ======== ========
</TABLE>
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
------ ------- ------- ------ -------- -------
FINANCIAL ASSETS: (unaudited)
<S> <C> <C> <C> <C> <C> <C>
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 June 30, 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
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30, 1995
--------------------------
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
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30, 1996
--------------------------
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 CONSOLIDATED 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 WILDERNESS TOTAL
---------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Collections of receivables $ 5,306 $ 5,106 $ 1,839 $ 267 $ 12,251
Interest received 1,577 3,446 912 6,202
Interest paid (14,174) (146) (225) (14,545)
Intercompany interest 4,621 (4,621) 5,530
Receipts from sales and operations 66 39,329 32,084 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) (1,458)
Advances to parent 12,756 (11,298)
Repayments of notes payable (262) (871) (1,458) (1,133)
---------- -------- ------- ---------- -----------
Net financing activities (7,031) (11,560) (4,958) (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 308 (63) 296 (4) 537
EQUIVALENTS
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
the at the end
Valuation and qualifying beginning of of the
accounts deducted from assets Year ended the year Additions Deductions year
- ----------------------------- --------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful 6/30/96 $13,806 $24 $7,540 a $ 6,290
accounts 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>
Additional Information............................................ (ii)
Available Information.............................................. (ii)
Prospectus Summary................................................. 1
Risk Factors....................................................... 3
The Company........................................................ 5
Use of Proceeds.................................................... 6
Determination of Offering Price.................................... 6
Market for Common Stock and
Related Stockholder Matters...................................... 7
Capitalization..................................................... 8
Selected Financial Data............................................ 9
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................................... 10
Business........................................................... 30
Legal Proceedings.................................................. 40
Management......................................................... 40
Executive Compensation............................................. 42
Certain Transactions............................................... 49
Security Ownership................................................. 50
Selling Security Holders........................................... 53
Plan of Distribution............................................... 54
Description of Common Stock........................................ 55
Certain Federal Income Tax Considerations.......................... 60
Experts............................................................ 61
Legal Matters...................................................... 61
Consolidated Financial Statements.................................. F-1
</TABLE>
THOUSAND TRAILS, INC.
495,005
SHARES OF
COMMON STOCK
PROSPECTUS
DATED MARCH 4, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses (other than registration 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.. $ 532
Blue Sky fees and expenses........................... 18,456
Printing............................................. 10,000
Accountants' fees and expenses....................... 5,000
Legal fees and expenses.............................. 20,000
Miscellaneous........................................ 1,012
Total................................................ 55,000
</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 enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement
II-1
<PAGE>
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. A registration statement on Form S-1 was
filed with the Commission on January 7, 1997, with respect to resales of PIK
Notes.
II-2
<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).
II-3
<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 (incorporated by reference to Exhibit 10.4 to
the Registrant's Registration No. 333-19357 on Form S-1, originally
filed with the SEC on January 7, 1997).
10.5 Amended and Restated Revolving Credit Note, dated as of July 1, 1996,
pursuant to which the Registrant provides a $40,000,000 revolving
credit facility to NACO (incorporated by reference to Exhibit 10.5 to
the Registrant's Registration No. 333-19357 on Form S-1, originally
filed with the SEC on January 7, 1997).
10.6 Amended and Restated Term Loan Note, dated as of July 1, 1996,
pursuant to which the Registrant provided a $10,765,000 term loan to
NACO (incorporated by reference to Exhibit 10.6 to the Registrant's
Registration No. 333-19357 on Form S-1, originally filed with the SEC
on January 7, 1997).
10.7 Guaranty, dated as of December 31, 1991, pursuant to which the
subsidiaries of NACO guaranteed certain amounts that NACO owes
USTrails (incorporated by reference to Exhibit 10.5 to USTrails'
Registration Statement No. 33-73284 on Form S-2, originally filed with
the SEC on December 22, 1993).
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).
II-5
<PAGE>
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).
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).
II-6
<PAGE>
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).
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).
II-7
<PAGE>
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).
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 (incorporated by reference to Exhibit 10.39
to the Registrant's Registration No. 333-19357 on Form S-1, originally
filed with the SEC on January 7, 1997).
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
II-8
<PAGE>
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 (incorporated by reference to Exhibit 10.43 to the
Registrant's Registration No. 333-19357 on Form S-1, originally filed
with the SEC on January 7, 1997).
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 (incorporated by reference to Exhibit 10.44 to
the Registrant's Registration No. 333-19357 on Form S-1, originally
filed with the SEC on January 7, 1997).
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).
II-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 Loan 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 Per Share Earnings.
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).
99.1 Supplement to Compliance Agreement between the Registrant and Selling
Security Holders.
99.2 Supplement to Compliance Agreement between the Registrant and Selling
Security Holders.
II-10
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this
Registration Statement (or the most recent post-
effective amendment thereof) which, individually
or in the aggregate, represent a fundamental
change in the information set forth in this
Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high
end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price
represent no more than a 20% change in the maximum
aggregate offering price set forth in the
"Calculation Registration Fee" table in the
effective Registration Statement.
(iii) To include any material information with respect
to the plan of distribution not previously
disclosed in this Registration Statement or any
material change to such information in this
Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and
the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceedings) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
[SIGNATURES ON THE NEXT PAGE]
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant, Thousand Trails, Inc., a Delaware corporation, has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on March 3, 1997.
THOUSAND TRAILS, INC.,
A DELAWARE CORPORATION
By: /s/ William J. Shaw
-------------------
Name: William J. Shaw
Title: President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below does hereby constitute and appoint William J. Shaw and Walter B.
Jaccard, and each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including,
without limitation, post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, and each of them, or his or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
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 March 3, 1997.
Signature Title
---------- -----
/s/ William J. Shaw Director, Chairman of the Board, President and
- --------------------------- Chief Executive Officer (principal executive
William J. Shaw officer)
/s/ Harry J. White, Jr. Vice President, Chief Financial Officer, Chief
- --------------------------- Accounting Officer and Treasurer (principal
Harry J. White, Jr. 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
II-12
<PAGE>
/s/ H. Sean Mathis Director
- -----------------------
H. Sean Mathis
/s/ Douglas K. Nelson Director
- -----------------------
Douglas K. Nelson
II-13
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ------- ----------- ----
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).
1
<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
(incorporated by reference to Exhibit 10.4 to
the Registrant's Registration No. 333-19357 on
Form S-1, originally filed with the SEC on
January 7, 1997).
10.5 Amended and Restated Revolving Credit Note,
dated as of July 1, 1996, pursuant to which the
Registrant provides a $40,000,000 revolving
credit facility to NACO (incorporated by
reference to Exhibit 10.5 to the Registrant's
Registration No. 333-19357 on Form S-1,
originally filed with the SEC on January 7,
1997).
10.6 Amended and Restated Term Loan Note, dated as
of July 1, 1996, pursuant to which the
Registrant provided a $10,765,000 term loan to
NACO (incorporated by reference to Exhibit 10.6
to the Registrant's Registration No. 333-19357
on Form S-1, originally filed with the SEC on
January 7, 1997).
10.7 Guaranty, dated as of December 31, 1991,
pursuant to which the subsidiaries of NACO
guaranteed certain amounts that NACO owes
USTrails (incorporated by reference to Exhibit
10.5 to USTrails' Registration Statement No. 33-
73284 on Form S-2, originally filed with the
SEC on December 22, 1993).
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).
3
<PAGE>
10.10 Security Agreement, dated as of December 31,
1991, pursuant to which NACO granted to
USTrails a security interest in substantially
all of its personal and real property including
the pledge of NACO's stock in its subsidiaries
as required by the credit agreement between
USTrails and NACO (incorporated by reference to
Exhibit 10.31 to USTrails' Annual Report on
Form 10-K for the year ended June 30. 1992).
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).
4
<PAGE>
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).
5
<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).
6
<PAGE>
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 USTrails,
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).
7
<PAGE>
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 (incorporated by
reference to Exhibit 10.39 to the Registrant's
Registration No. 333-19357 on Form S-1,
originally filed with the SEC on January 7,
1997).
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).
8
<PAGE>
10.42 Grantor Trust Agreement, dated as of September
30, 1991, between Union Bank of California,
N.A. (formerly known as The Bank of California,
N.A.) and 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
(incorporated by reference to Exhibit 10.43 to
the Registrant's Registration No. 333-19357 on
Form S-1, originally filed with the SEC on
January 7, 1997).
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 (incorporated by reference to
Exhibit 10.44 to the Registrant's Registration
No. 333-19357 on Form S-1, originally filed
with the SEC on January 7, 1997).
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).
9
<PAGE>
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).
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 Loan 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 Per Share
Earnings.
10
<PAGE>
*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).
*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.
11
<PAGE>
EXHIBIT 5.1
March 3, 1997
(214) 698-3157 C 93317-00028
Thousand Trails, Inc.
2711 LBJ Freeway
Suite 200
Dallas, TX 75234
Re: Registration Statement on Form S-1, as filed on March 4, 1997
(the "Registration Statement")
Dear Ladies and Gentlemen:
We have acted as special counsel to Thousand Trails, Inc., a Delaware
corporation (the "Company"), successor by merger to USTrails Inc., a Nevada
corporation ("USTrails"), in connection with the Company's registration of the
Company's Common Stock, par value $.01 per share, issuable upon the exercise of
the Company's Common Stock Purchase Warrants (the "Common Stock"). The Company
is registering the Common Stock on behalf of itself and the Selling Security
Holders described in the Registration Statement. We are rendering this opinion
pursuant to Item 601(b)(5) of Regulation S-K under the Securities Act of 1933,
as amended.
For the purposes of the opinion set forth below, we have examined and are
familiar with the proceedings taken by the Company in connection with the
issuance of the Common Stock, including, among other things, such corporate
records of the Company and certificates of officers of the Company and of public
officials and such other documents as we have deemed relevant and necessary as
the basis for the opinion set forth below. In such examination, we have assumed
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such copies.
Based upon the foregoing examination and in reliance thereon, and subject
to the assumptions stated and relying on statements of fact contained in the
documents that we have examined, it is our opinion that, when (i) the
Registration Statement has become effective under the Securities Act and
assuming no stop order has been issued by the Commission with respect thereto,
(ii) the Common Stock has been issued and sold as contemplated in the
Registration Statement, as applicable, (iii) the Company has received
consideration for the Common Stock in
<PAGE>
Thousand Trails, Inc.
February 28, 1997
Page 2
excess of the par value of the Common Stock, and (iv) the Common Stock has been
duly delivered, the Common Stock will be legally issued, fully paid and non-
assessable.
We render no opinion herein as to matters involving the laws of any
jurisdiction other than the laws of the United States of America and the General
Corporation Law of the State of Delaware. In rendering this opinion, we assume
no obligation to revise or supplement this opinion should current laws, or the
interpretations thereof, be changed.
We consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act or the Rules and Regulations of the Commission.
Very truly yours,
GIBSON, DUNN & CRUTCHER LLP
IFS/EJC/SRM
<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 1995
----------------------- -------------------------
<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 shares 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>
EXHIBIT 12.1
------------
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 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
<TABLE>
<CAPTION>
STATE OF
COMPANY NAME INCORPORATION
- ------------ -------------
<S> <C>
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 Company California
</TABLE>
<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 27, 1997
<PAGE>
EXHIBIT 99.1
THOUSAND TRAILS, INC.
COMPLIANCE AGREEMENT
This Compliance Agreement (this "Agreement") is between Thousand Trails,
Inc., a Delaware corporation (the "Company"), and the undersigned (the "Selling
Security Holder") who may sell shares of the Company's Common Stock, par value
$0.01 per share (the "Securities"), issuable upon the exercise of certain of the
Company's Common Stock Purchase Warrants ("Warrants").
RECITALS
A. The Company granted the Selling Security Holder or a predecessor
holder of its Warrants and others registration rights with respect to the
Securities in a Registration Rights Agreement, dated as of December 31, 1991 or
June 12, 1992 (as applicable, the "Registration Rights Agreement").
B. The Company contemplates filing a Registration Statement on Form S-1
(the "Registration Statement") with the Securities and Exchange Commission to
register an offering of the Securities.
C. The Company has offered to include the Securities issuable upon the
exercise of the Selling Security Holder's Warrants in the Registration
Statement.
D. The Company and the Selling Security Holder desire to ensure that the
Company and the Selling Security Holder comply with all applicable laws, rules
and regulations in connection with the distributions or transfers of the
Securities as contemplated by the Registration Statement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. CONSENT. The Selling Security Holder consents to the inclusion of the
-------
Securities issuable upon the exercise of its Warrants in the Registration
Statement and to its being named as a selling security holder in the
Registration Statement. If the Selling Security Holder is not the initial
holder of its Warrants, the Selling Security Holder agrees to provisions of the
Registration Rights Agreement as if it were such initial holder.
2. REPRESENTATIONS AND WARRANTIES. The Selling Security Holder
------------------------------
represents and warrants to the Company as follows:
(A) CONFIRMATION OF INFORMATION. The information as to the
---------------------------
beneficial ownership of its Warrants and the Securities and the plan of
distribution for the Securities issuable upon the exercise of its Warrants
provided by the Selling Security Holder is true and correct in all material
respects. Such information does not contain any untrue
<PAGE>
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading. Such information shall be deemed to be information furnished to
the Company for inclusion in the Registration Statement for the purposes of
the Selling Security Holder's indemnification obligations under the
Registration Rights Agreement and this Agreement.
(B) TITLE. The Selling Security Holder will have, at all times that
-----
the Selling Security Holder engages in selling efforts with respect to its
Securities, subject to the exercise of its Warrants, valid and marketable
title to the Securities to be sold by it, free and clear of any lien,
claim, security interest, restriction or other encumbrance.
(C) AUTHORITY TO SELL. The Selling Security Holder will have at all
-----------------
times that the Selling Security Holder engages in selling efforts with
respect to its Securities full power and authority (with regard to a
Selling Security Holder that is a corporation, partnership, or other
business entity) or full legal right, power, and capacity (with regard to a
Selling Security Holder who is an individual), and any approval required by
law, to sell, assign, transfer, and deliver such Securities.
3. COMPLIANCE WITH SECURITIES LAWS. The Selling Security Holder
-------------------------------
covenants to the Company as follows:
(A) RULE 10B-6. The Selling Security Holder will deliver to the
----------
Company a written notice at least 10 but not more than 20 Business Days
before engaging in any selling efforts with respect to any Securities.
Such notice shall set forth the name of the Selling Security Holder, the
Securities with respect to which the Selling Security Holder will engage in
selling efforts, and the date when the Selling Security Holder will begin
such selling efforts (the "Commencement Date"). The Selling Security
Holder may then engage in selling efforts and sell the Securities described
in the notice during the period beginning on the Commencement Date and
ending on the 20th Business Day immediately following the Commencement Date
(the "Selling Period"). After the expiration of the Selling Period, the
Selling Security Holder must deliver another notice to the Company pursuant
to this Section 3(a) before engaging in additional selling efforts. The
Selling Security Holder and any "affiliated purchaser," as defined in Rule
10b-6(c) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to the distribution or transfer of Securities
by the Selling Security Holder will not bid for or purchase any Securities
during the period beginning on the 9th Business Day immediately before the
Commencement Date and ending on the last day of the Selling Period, and
will otherwise comply with the restrictions set forth in Rule 10b-6 under
the Exchange Act. The term "Business Day" shall mean a day that is not a
Sunday, Saturday, or holiday for purposes of the federal securities laws.
(B) RULE 10B-7. The Selling Security Holder will not engage in
----------
stabilizing transactions with respect to its Securities or violate Rule
10b-7 under the Exchange Act.
(C) SECURITIES LAWS. The Selling Security Holder will not violate
---------------
any federal securities laws, or the securities laws of any state or other
jurisdiction, in connection with the distribution or transfer of its
Securities.
2
<PAGE>
4. INDEMNIFICATION. The Selling Security Holder shall indemnify and hold
---------------
harmless the Company, its directors and officers and each other person, if any,
who controls the Company within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), (collectively, "Company Indemnitees") against
any losses, claims, damages or liabilities, joint or several, and any expenses
(including reasonable attorneys' fees) to which any Company Indemnitee may
become subject under the Securities Act or any other statute or at common law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon information provided in writing to the
Company by the Selling Security Holder expressly for use in connection with the
Registration Statement and which information is contained, on the effective date
thereof, in the Registration Statement, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto.
5. MISCELLANEOUS.
-------------
(A) AMENDMENTS AND WAIVERS. No amendment or waiver of any of the
----------------------
provisions of this Agreement shall be effective unless in writing and
signed by the Company and the Selling Security Holder.
(B) NOTICES. All notices and other communications in connection with
-------
this Agreement shall be in writing and deemed to have been received on the
day of delivery if delivered by hand, overnight express or facsimile
transmission, or three days after the date of posting if mailed by
registered or certified mail, postage prepaid, addressed to each party at
its address described below (or to such other address to which such party
has notified each other party in accordance with this Section 4(b) to send
such notices or communications):
(i) If to the Selling Security Holder, at its address or
facsimile number as shown on the signature page hereto; and
(ii) If to the Company, at:
Thousand Trails, Inc.
2711 LBJ Freeway, Suite 200
Dallas, Texas 75234
Facsimile No.: (972) 488-5008
Attention: General Counsel or Secretary
(C) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND INTERPRETED
-------------
ACCORDING TO, AND GOVERNED BY, THE LAWS OF THE STATE OF TEXAS, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF, AND SUCH FEDERAL LAWS
AS MAY APPLY.
[SIGNATURES ON THE FOLLOWING PAGE]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement.
COMPANY:
Dated: _______________, 1997 THOUSAND TRAILS, INC.
By:_____________________________________
Walter B. Jaccard
Vice President
SELLING SECURITY HOLDER:
Dated: _______________, 1997 NAME: _______________________________
Address: _______________________________
_______________________________
_______________________________
Facsimile No.:__________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
4
<PAGE>
EXHIBIT 99.2
To the Holders of the 1991/1992
Stock Purchase Warrants
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 Common Stock Issuable Upon the Exercise of the Company's
Stock Purchase Warrants (the "Common Stock")
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 Common Stock, 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 Common
Stock. 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 the Common Stock may not be effected under the Company's
Registration Statement relating to the proposed offering 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
